We note that the Lincoln – led Republicans freed the slaves, while the southern slaveowners were, along with the Ku Kluc Klan, staunch Democrats. History has a way of shifting around with the passage of time …
We note as well the (temporarily) famous remark of Federal Reserve Chairman Willian McChesney Martin (1951 – 1970) that the primary task of the Fed was to take away the punchbowl just as the party was getting started. The punch in those days, was cheap money dumped by the Fed into the economy to juice it up. A little, the theory said, went a long way.
Fast forward to Chairman Alan Greenspan, (1987 – 2006) who presided over a cheap money regime that the politicians claimed would enhance the economy. It surely enhanced government spending, whether that enriched the economy seems questionable.
He was followed by “Helicopter Ben” Bernanke, (2005 – 2914) who famously remarked that, if Fed money manufacturing wasn’t enough to jazz the economy, more money could be dumped from helicopters. And in 2014 Janet Yellie, Fed Vice Chairman, replaced him. She too has advocated keeping money cheap to please the politicians. Sorry, we meant to say, to assist the economy. But there are a growing number who expect her Fed to begin the reversal of these policies because the ongoing dilution of the money supply steadily reduces the purchasing power of dollars. The wealth a dollar can buy, somehow fails to increase to match the growing number of dollars available to buy it, so each of them buy less.Simple, but for some reason, invisible to politicians.
Helicopter Benjy indulged in “Quantitive Easing” which was easier to sell than “diluting the currency.” Some Benjy manufactured-from-the-air magic money went each month to the Treasury to pay government bills and the rest went to Fannie Mae/Freddi Mac to buy up mortgages from the banks, juicing up the moribund post 2007 real estate market and recapitalizing the banks.
Few seem to mention that all these collective billions morphing into trillions are now owed -with interest – to the Fed, by the hapless U.S. taxpayer. Benjy’s exemplar helicopters could not have dumped near as much funny money as his actual performance. The promised economic boom has never resulted; fewer people are in todays’s workforce than was the case in 2007, proportionate to population. The “jazzing up” was not real, but the resulting debt surely is. The Fed must be repaid and the interest with it.
Chairman Yellen has halted the magic money, but continues holding normal market interest on borrowed money at about zero. Borrowers therefore are encouraged to borrow more, raising the risk of repayment. Moody’s and other credit rating agencies are raising red flags all over the place, including even big cities and counties.
Congress leaned on the banks in the Clinton presidency to lend more to “subprime” borrowers; that meant, help folks with poor credit to buy homes. The resulting financial collapse in 2007 started our “Great Recession.” Nobody mentions that the process is still proceeding unchecked, using a lot of the Benjy manic money. But if you regularly receive phone calls trying to lend you money or refinance your mortgage, that is the reason for it.
The problem such policies create is a simple one: When magic money pours in, a lot of it flows to politically desired programs like say, green power and green cars, that have little real economic market otherwise. At some point in time, their true economic value shows up on the market, creating huge losses for investors, banks and others holding securities. The economy goes upside down for a while until the imbalance works itself out and most of the money goes back into actually productive assets.
At the moment, the magic money has piled into the stock market and real estate; neither have a real market value anywhere near their current listings. So the fake part of their value, representing the magic money flooding the market, will evaporate overnight. Remember 1929, anyone? (Google: “Black Tuesday.”)
It’s not complicated, just obfuscated. You suspected it all along …
The call it “economics” hoping to swindle you. It’s just common sense. “Spending yourself rich” was used in derision when Lord Keynes advocated government spending to “prime” a stagnant economy … if one considers it, it’s just another version of something for nothing.