I get what you’re saying and it’s easy in hindsight to call it differently. Perspective is hard to come by, especially in the midst of a crisis. My concern is that the meltdown didn’t occur in a vacuum. The economy didn’t just start in 2007/08, but was/is the result of bad fiscal and monetary decisions made by the selfsame leaders who are there today. They keep getting a second bite at the apple and getting it wrong. There’s an unresolved structural problem in the marketplace.
The FED chairs sound like financial advisors booking both sides of the trade: “it will blow up or it will just be going higher”. I’m not as impressed with our leaders as you seem to be. Neither Paulson nor Bernanke nor Yellin were taking steps to curtail the building risk to the financial markets. The status quo rules and the regulators are there to see that nobody important gets hurt.
Let’s accept that TARP had to happen, the markets had to be reassured. Few people realize just how big and critical the credit markets really are or how much nonbank credit gets created every day. That said we’ve seen over and over again, not just in this crisis, but every single one, that the wealthy insiders get covered while main street is left to swing in the wind.
As for QE one of the major reasons people are hoarding cash is the truth/rumor of QE. I don’t think it’s expanding liquidity, it’s simply holding the line as the bonds/MBS are traded for cash. Psychologically we expect a bloodbath and then a recovery as prudent, thrifty money reenters the market and captures value. That hasn’t happened. From bankers to average Joes Americans are still waiting for the other shoe to drop. That, coupled with Obama’s war on wealth, is what’s holding back the economy. 5-6% real growth sustained over time wouldn’t surprise me (turned loose the US economy would blow the doors off the rest of the world), but the unnaturalness of the government intervention is keeping people out of commerce.
It’s very hard for me to see which is causing the most damage, the giant financial bolder the FED is balancing or the destructive policies of the Obama Administration. Imagine if that TARP and other fiscal stimulus really went to rebuild infrastructure and not to line the pockets of Green tinged thieves and connected investors.
The arguments in favor of eventual interest rate increases coupled with the very real argument that inflation or taxes or both are going up is logical and scary. Wage stagnation is mainly driven by massive increases in health care charges offsetting wage gains. I’d like to see a deflationary cycle driven by increasing productivity gains. Debt and the assets securing it must come down. Housing remains a real anchor to job mobility. Might we not have been better off if the government had simply admitted that in certain markets the pricing isn’t ever coming back?
It’s a mixed up picture, but I agree with your assessment. We are in a typical recovery out of a credit collapse. It takes a long time to work that through the system. In the meantime our dynamic productive economy is producing jobs for which government school educated people aren’t properly trained. It’s at the margins with the marginal that we’re seeing the growth in stagnation. Welfare pays and that’s the wrong incentive.
Overall, I’m very optimistic and will not bet against the US economy. Not just because I am an American, but looking out across the world I don’t see a more dynamic economy or a people more ready to make the switch over to a fully 21st century economy. I believe like Julian Simon, that human beings are the ultimate resource. We’re already seeing the solutions to our major problems being brought to market.
In health, education and welfare the solutions exist. Get the right Congress and hold it for a generation and all this will seem like just a bad dream. I enjoy your thoughtfulness and erudite comments. Take care.
I am not hopeful. Why?
Answer: Because nearly all the teachers in this nation were trained by godless Marxists in Marxist run colleges and universities. This is true, not only for the government K-12 indoctrination camps, but for private schools, too.
Answer: Because nearly all of the nation’s children attend godless schools. While in these schools they **will** learn to think and reason godlessly. They must just to cooperate in the godless classroom.
The Marxists are laughing at us. They have the nation’s kids and young adults. These are the future citizens who will vote.
I think you and I agree on the root causes of the financial crisis: government intervention into the mortgage sector requiring the banks to make risky loans. That’s the underlying disease. The risky lending (then coupled with the synthetic credit market and the raging fever which was CDS’s - absolute best book on this was Michael Lewis’s “The Big Short”) was a later symptom of the underlying disease. And to this day the Obama administration is saying the banks need to provide loans to low income people. They don’t get it at all.
IMHO the QE is mostly offsetting the massive fiscal errors and policy of the government (not just Obama but the brain dead GOP as well).
I certainly agree that the bank heads should not have skated. Their banks needed to be saved to save the economy. But they did not need to be saved.
The main reason why QE in’t as effective is that banks are hoarding the cash and building up reserves. Reserve balances have gone up commensurate with QE. Supply side monetary theory states that the excess liquidity will be leant to the market increasing economic activity. the banks are merely shoring up their wounded balance sheets.
Agree with the rest. Great discussion. Thanks.