Posted on 12/17/2015 5:30:29 AM PST by xzins
Nothing is more bungled in Washington than the role of money in our economy- and that's saying a lot. Almost no one understands how our dollar policy works, and those that say they do are the ones who screwed things all up.
The Fed has today bid farewell to seven years of its zero interest rate policy. Hooray. Wall Street is petrified because investors have become hyper-dependent on this zero rate scheme and the floods of dollars injected into the economy just as an addict craves crack cocaine.
But the high from easy money, just as with any hallucinogenic drug, has been temporary at best and likely damaging in the longer run.
Liberals tend to believe that money creation is a stimulant to the economy and stock market. That's only true, if at all, in the very short run. Over time, prices and output economy-wide adjust to the larger volume of money.
The printing press, alas, is not a job creator. If it were, Mexico and Argentina would be the richest countries in the world, and people would be lining up at the U.S. southwest border to get out rather than to get in.
Thanks to Ben Bernanke, the former Fed chairman and Janet Yellen, the current chief, we have just completed an experiment of epic proportions. Federal short-term interest rates have been set at zero and the Fed has injected dollars into the economy with a more than $3 trillion program of bond purchases through what has become known as QE1, QE2, and QE3, etc.
When the Fed purchases bonds, it releases money into the economy to get them. Bernanke and Yellen contend that this program saved the world economy from a second Great Depression.
They point to the surge in the stock market since 2009 as more evidence that the strategy worked swimmingly.
But what Americans want is growth. What has all this money creation bought us in terms of helping juice the economy, creating jobs, or giving the American worker a pay raise? Nada.
We've been saddled with a limping recovery that to tens of millions of Americans below the median income feels like no recovery at all. Wages have remained almost entirely flat. And growth of 2 percent for this recovery is running well below the normal growth trajectory of 3-4 percent out of recession.
Add to this the $7 trillion in added debt and we've been served up a soup of Keynesian stimulus lunch that has only put Americans in a very sour mood about our financial condition now and in the future.
About $1.5 trillion is missing from the American economy compared to an average recovery (Almost $3 trillion is missing compared to the Reagan expansion) and voters are feeling the ill-effect in their wallets.
Worse, all this borrowing and money creation isn't free. We've tried this before - twice - and both times the story ended badly with a pop of the bubble. The first ordeal was the dot-com crash in 1999-2000 and the follow up was the real estate avalanche in 2008-09.
Both were facilitated, if not triggered, by easy money.
Has Wall Street conveniently forgotten about these multitrillion dollar losses?
Thanks to these bubbles, the average family today has seen no gain in its real net worth since the late 1990s, so it's hard to see how the Fed's policy benefited the middle class.
Why hasn't easy money pumped up the economy? The answer is that Fed money creation can't reverse the effects of bad tax and regulatory policy. We now operate under a policy regime in Washington that punishes investment, risk taking and profits through high tax rates and strangulating regulations -- especially aimed at our energy producers, our investor class, our banks, our drug companies, and our health care providers. Profits at Walmart or McDonalds are now denounced not as a sign of success but of greed.
We haven't come close to the normal rate of investment that we would see by businesses in a recovery - as even Hillary Clinton has acknowledged.
Why? Obama raised the investment taxes on dividends and capital gains by almost 60 percent.
We've seen more part-time workers and lower overall employment. Obamacare rewards companies to cap hiring at 49 workers and to pay those they do hire for less than 30 hours a week.
Dozens of major American companies are leaving for Ireland, Canada, and Europe. Corporate tax rates are much lower there than in the United States.
Companies are parking their earnings abroad to keep their profits out of reach of an IRS that wants to penalize them if they bring money and jobs home.
Our coal mines and coal companies are shutting down thanks to EPA regulations that are killing low-income areas like Appalachia.
Pharmaceutical companies face absurd regulations that can lead to delays in getting experimental life-saving treatments to market while costing firms hundreds of millions of dollars.
Small banks are getting swallowed up by too-big-to-fail big banks thanks to Dodd Frank rules, which Hillary Clinton now pledges to expand on and to veto any sensible reforms.
The Left's latest crusade is to establish criminal penalties and jail sentences for CEOs who unwittingly violate Uncle Sam's byzantine securities or environmental laws.
The "you didn't build that" hostility to America's small, medium, and large businesses is an economic poison pill that has placed our nation's employers in a holding pattern.
It was always a canard to believe that printing money would pull us out of this slow growth swamp we are wading through.
Micromanaging the economy through the lever of money creation at the grand fiefdom within the Fed doesn't work and that should be the enduring lesson of the last seven years' failed interventionist experiment.
*Stephen Moore is an economic consultant with Freedom Works and a CBN News Economics Contributor.
That’s one way; workfare would be another, less harsh way. People can get into private pockets of despair that aren’t even rational. Circumstances that push them outside of those pockets may be the way of getting them to the light.
No they haven't. Together with their bought and paid for politicians they make fortunes on these wild market swings especially since they can ensure some predictability courtesy of their friends on Capital Hill. This isn't a conspiracy theory. This is the corporate capitalism that has been slowly choking the country and raping the middle class for decades.
Because of relative situation. This all depends on the USA managing to keep out of an ultimate doom hole, of course.
I think there is enough remnant of Christian (and Jewish) faith within the USA, that although the outworking of these faiths is weak, God is still blessing a situation that right now seems to be trying very hard to curse itself, with multiple abominations going on.
This can’t keep on steady state. Some revolutionary event will have to be taken before the handcart gets to hell. I also think there could well be one right over the horizon. And that talk such as Donald Trump’s “Make America Great Again” senses the breezes coming from it. Again I might be wrong. But this is the common divine M.O.
Rising interest rates tend to dampen inflation.
You didn’t live through the Carter years maybe.
The moved in concert with one another.
“4 increases this year will get the funds rate up 1% and cause more inflation.... Right? Am I missing something?”
You’re missing the fact that raising interest rates combats inflation, it doesn’t cause it. That’s the reason that Paul Volcker jacked rates up so high at the beginning of the Reagan administration, to kill the inflation that had plagued us all through the ‘70s.
Yes, too true.
If people are paid to not work, all too many will accept the offer sit on their ass. It's no longer even necessary to go to the mailbox and then to a bank to deposit a check. The cyber-money simply appears in your account or is credited to your EBT card.
Excuses not to work are free and seductive.
That’s generally correct, however, in your Carter/Volcker/Reagan example, rates were already pretty darned high before Reagan became president. Carter gave us ‘stagflation’, thank you Jimmy - low economic activity coupled with very high inflation and also at that time, high interest rates.
Under Reagan, Volcker continued and intensified his inflation combating policy which eventually worked. I had some CDs in the 10-12% range in the late 70s.
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