In 2008, America
suffered a massive economic heart attack. Its doctors, thought to
be the world’s best, believed the US to be in good health,
having recovered from a similar though smaller crisis in 2000.
hadn’t recovered. In fact, the Fed’s palliative for the
2000 crisis, i.e. lower interest rates, soon created an even larger
crisis, i.e. the 2002–2006 US housing bubble whose collapse
caused global credit markets to contract and investment banks to
fall, necessitating government intervention on such a massive scale
it led to today’s sovereign debt crisis as private losses were
absorbed onto public balance sheets; and, now, in 2010, the crisis
continues to fester and spread.
Ben Bernanke’s solution for our current problems is but a more
extreme version of the Fed’s near fatal prescription in 2001,
i.e. lower interest rates, but this time combined with a new iteration
of voodoo economics, a witch’s brew called QE II, a monetary
gesture as futile and impotent as a Hail Mary pass thrown by an
atheist as time runs out.
OF EXPANSION WATCH STOCKS
IN TIMES OF CONTRACTION WATCH BONDS
BUT ALWAYS, ALWAYS, ALWAYS, WATCH THE FED
banks became the primary driver of economic prosperity, the free
market supply and demand of goods and services became subsumed by
the supply of credit from central banks.
This is because
the supply and demand dynamic is distorted by the availability of
banker’s credit – the more credit, the greater the distortion,
the greater the distortion, the greater the consequent recession
In case you
didn’t get it the first time, here it is again:
The free market’s
fundamental supply and demand dynamic is distorted by the banker’s
credit – the more credit, the greater the distortion, and
the greater the distortion, the greater the consequent recession
This is how
economic cycles of expansion and contraction became commonplace,
boom and bust cycles are but lagging indicators of credit growth;
and recessions and depressions are the lagging indicators of credit
contractions, the inevitable consequence of economies dependent
on central bank credit.
historic credit boom began in the 1980s when a combination of US
government borrowing and easy credit from the Fed ignited what was
thought to be the greatest economic expansion in the history of
But the expansion,
however, was only an asset bubble in disguise, a stock market bubble
that took the Dow from 777 in 1982 to 11,722 in 2000 before collapsing
then reflating to 14,100 and falling and rising again to 11,440.
historic 25 year credit boom is ending and the massive debts accumulated
on the way up are starting to default; and the US Fed, the primary
source of global credit, is directly responsible for what is now
the Fed denies any responsibility at all, instead blaming others
for the crisis it caused. In 2005, then Fed Governor Ben Bernanke
identified the problem as a “savings glut”, i.e. Asia
being the primary culprit/saver; and in a distorted self-serving
way, Bernanke was right.
the past decade a combination of diverse forces has created a significant
increase in the global supply of saving – a global saving glut – which
helps to explain both the increase in the U.S. current account deficit
and the relatively low level of long-term real interest rates in
the world today. Read
convoluted logic stems from Asia’s traditional emphasis on
frugality and savings, a tradition that unexpectedly slowed the
flow of leveraged credit between the east and west, creating a so-called
“savings glut”; akin, if Bernanke is to believed, to a
monetary embolism affecting the on-going flow of credit and debt
necessary in debt-based economies
Bernanke’s self-serving observation, Asia has the absolute
right to save all it has earned – just as the US has the right
to spend all it can possible borrow and spend it on Asian goods;
whether or not it is prudent to do so is another question.
AND THE FED
Republican Party must be ruing the day it first courted disaffected
Dixiecrats, i.e. southern Democrats, then looking for a haven from
an increasingly socially liberal Democratic party. This alliance
beginning in the 1970s fueled 40 years of Republican dominance but
the price for doing so is now being extracted.
is causing William Buckley to roll over in his grave.
the bastion of Wall Street money and power, the Republican Party’s
price to pay for 40 years of political power may be the continued
existence of the Federal Reserve. Since the 1970s, the Republican
Party gave increasing voice to disaffected Dixiecrats in return
for their support and only now are realizing the cost.
the sworn enemies of northern power and money, i.e. Yankee bankers,
southern Dixiecrats swallowed their pride for an increasing role
in Republican affairs, trading their opposition to Wall Street bankers
in return for an increasingly conservative social agenda.
of the US economy, however, is putting pressure on this politically
motivated alliance. As the Republican Party hierarchy retreats to
its traditional base, i.e. banking, corporate and wealthy special
interests, much to their chagrin, its indebted and increasingly
unemployed socially conservative newly acquired base is blaming
not only women, hippies, gays, abortionists and Mexicans for their
myriad problems, they’re now blaming the Federal Reserve as
populist movement known as the Tea Party may be the critical driver
in ending the economic dominance of the Federal Reserve Bank in
America; and, ironically, the Democratic Party, the traditional
opponent of corporate and banking interests in America, now finds
itself the unexpected ally of the Fed.
pact between banking and the Democrats was forged in the 1990s when
the Democrats, desperate for an answer to the new Republican coalition
welcomed Wall Street bankers, Goldman Sachs, into their ranks much
as Republicans welcomed the Dixiecrats.
would be a great success for both Wall Street and the Democrats.
The loser would be America. No longer having any significant opposition
in Washington DC, Wall Street immediately began assembling a banker’s
wish list which was approved during Clinton’s two terms with
now bipartisan support.
dismantling any significant oversight of markets, the bankers proceeded
to protect the extraordinarily dangerous but lucrative derivatives
markets from government regulation and ended the decade by successfully
repealing the Glass-Steagall Act.
Wall Street to bet the savings of America as they did prior to the
Great Depression, which they again proceeded to lose; and, by 2000,
the stage would be set for what would soon follow, the collapse
of the American economy in concert with record riches for the bankers
on Wall Street.
The only hope
of America now lies in the electorate’s collective disgust
with both the Republican and Democratic parties – and the Federal
Reserve itself. On December 9th Bloomberg News reported: A majority
of Americans are dissatisfied with the nation’s independent
central bank, saying the U.S. Federal Reserve should either be brought
under tighter political control or abolished outright, a poll shows.