The reason we had the Crash in 2008 was because the Fed kept rates too low for too long. In response to the tech implosion and then the 9-11 attacks Allan Greenspan and the FOMC panicked and ended up inflating a worldwide housing boom which morphed into the disaster (to put it mildly) which is the Great Recession. There’s more to it than that but that’s basically what happened.
Consider now that Ben Bernanke (and Janet Yellen) have kept interest rates much lower for even longer than Greenspan did.
The principal author of our current economic ills doesn’t seem to know history any better than monetary policy.
When the Obama administration announced that it was planning to replace Alexander Hamilton on the ten dollar bill with an unspecified woman, former Fed Chairman Ben Bernanke leapt into the fray. He said he was “appalled” by the decision since Hamilton “was without doubt the best and most foresighted economic policy maker in US history.” He proposed that Andrew Jackson be removed from the twenty dollar bill instead.
A New York Sun editorial on June 23 dryly noted that Hamilton was the author of the Coinage Act of 1792, which represents the very sound money that Bernanke has done everything in his power to destroy. The Sun, however, tempered its criticism with the following comment: “We understand that there are serious persons who reckon Hamilton, who was notoriously partial to federal power, would not have opposed the idea of fiat paper money. This point has been marked for us by no less a scholar than the journalist and historian Myron Magnet…. Let us stipulate Mr. Magnet’s point.”
Let us not stipulate Magnet’s point, because it is incorrect. Hamilton condemned paper money not backed by gold or silver as an evil. Here is what Hamilton actually said: “The emitting of paper money by the authority of Government is wisely prohibited….Though paper emissions, under a general authority, might have some advantage…, yet they are of a nature so liable to abuse—and it may even be affirmed, so certain of being abused—that the wisdom of the Government will be shown in never trusting itself with the use of so seducing and dangerous an expedient…. The stamping of paper is an operation so much easier than the laying of taxes, that a government, in the practice of paper emissions, would rarely fail…to indulge itself too far in the employment of that resource…even to [ the point of creating]…an absolute bubble.” [ Report to the House of Representatives, Dec 13, 1790]
Yeah, the reckoning has been coming for a very long while. The Fed is out of control and lost. The stock market as it is is not sustainable. Many other markets are in the same boat.
Any market which reflects the wants and desires of the rich (aka those closest to newly “printed” money) is pretty much in a bubble. Art, wine, etc. Even residential real estate in places like London and New York are bubblicious.
It isn’t going to keep going. When this bubble bursts there will be serious dislocation economically and politically.
Below Marc Faber opines on Carl Icahn’s comments.
As governor of Wisconsin Scott Walker has seen more than his share of challenges for the period he’s held the office. Through elections, recalls, an army of state workers invading the state capital and demanding his head, he’s stayed pretty cool. He also won. It appears that he knows how to make decisions and how to see things through. But he has no national economic experience.
What does he believe? What would he do? We have a few clues.
One of them is which economic thinkers Walker has been talking with.
Rumor has it John B. Taylor, prominent economist at Stamford and the Hoover Institution and the governor have been sharing ideas.
What then do we know about Taylor?
Culture is probably a factor here. But this map does not indicate good things. When was the initial crash? 2008? 7 years ago now?
Consider also that in Spain unemployment for those under 30 is running at over 50%.
Oh Mr. Stockman, you don’t mince words. And that’s why we like you so.
Indeed the central planners are at the helm pushing the world economic ship into deeper and blacker waters. Looking for something, anything, a way out of this 0% interest rate bizarro world.
If one wants to be an economics superstar there seem to be 4 routes. 1. Win a Nobel Prize. 2. Write a book which is widely read by politicians and the intelligentsia. 3. Just produce excellent work, toil in obscurity, and then have your ideas championed by someone or group with the means to champion someone. 4. Become a presidential advisor.
I am sure that there are other routes too. Becoming a TV personality comes to mind but I can’t think of any economists who have or have had shows of note.
One thing is for sure, presidential candidates, and presidents need economists. Who a candidate partners with is a hugely important decision. To a greater or lesser degree the chosen economic advisor(s) sets the tone for the bread and butter part of any campaign.
Ron Paul calls out the Plunge Protection Team on CNBC. I don’t think I’ve ever heard it mentioned on financial television. Seriously anyway.
And boy is he right. There is an assumption that the Fed will never let stocks (and other assets) revert to real levels.
The thing is the Fed for all its power is still subject to the laws of thermodynamics, just like the rest of us. That is, even the mighty central bank will feel the sting of its hubris.
Of course so will the rest of the planet. Which let me tell you is a real bummer.
We covered the emergence of the anti-cash chorus earlier this year HERE. But we failed to ask one very important question in that piece.
How are all those rappers going to “make it rain” when they’re out on the town in a cashless society? Dollar dollar bill y’all!
In 1937 after years of a meager “recovery” the economy slumped again as artificial economic props were taken away. The Great Depression was born anew. 4 years later we were in a global war.
Let’s see, depression, then mediocre growth underpinned by artificial economic stimulants, sounds pretty familiar.
This is what happens when interest rates are set by a politburo instead of by the market.
We are not creating new businesses in the USA at the rate we used to. A mixture of factors has contributed to this (as is pointed out in the attached article) but crony capitalism and overegulation (the two are tied) are the chief culprits in my estimation.
It’s always been hard to start a business. It’s always been hard to take an idea, make it grow, and then make it grow profitably. But in an increasingly crony and regulated economy it’s even harder. It’s one thing to have a short stack at a poker table. It’s something different to have the short stack while the big stack established firms get to change the rules of the game and take some of your stack with each hand.
Absurdity, Bizzaro World, whatever. The financial realm has become a distorted fantasy. What is up is down. What made sense now does not. Market mechanism? Don’t harsh my buzz dude. Here, have a few mushrooms more.
Ron Paul has long been ahead of the curve. He anticipated the 2008 financial crisis. His “Ron Paul Revolution” was the seed which grew into the robust and mainstream libertarian tendency within the GOP we see today. And he was right on Iraq—it was a mistake of colossal proportions.
But while Ron Paul was predicting a Fed created economic catastrophe and outlining why it was that invading Iraq was wrong and indeed anathema to what America was supposed to stand for, the GOP was fully engaged in disavowing the spirit of Ronald Reagan (spirit) and embracing a big government philosophy.
The Bush years were years of big government “conservatism.” The neocon coup.
Iraq in many ways is what broke the modern—William F. Buckley, Jack Kemp, Ronald Reagan—conservative movement. Bush blew it up just like so many bridges across the Tigris.
Interesting because a whole lot of people disagree with the very very statist and crony Lula da Silva. In fact hundreds of thousands turned out in the street to protest this ongoing system (and the current president) just a few of weeks ago.
Menos Marx. Mais Mises.