By just about every measure the U.S. economy continues to be mired in a depression. Unemployment remains high. Housing prices are still falling. Retail sales are lackluster. Since Barack Obama became president in 2009 the national debt has ballooned by about $4 trillion with very little to show for it – unless you consider the rebound and hearty growth of the stock market.
Yes, while Main Street continues to struggle to make ends meet, Wall Street is prospering. After losing more than half of its value due to the financial crisis of 2008, the Dow Jones Industrial Average has bounced back brilliantly recapturing more than 75 percent of its value lost. The numbers are enough to make even a casual observer of the markets sit up and take notice. The big question is why the disconnect between a significantly rising stock market on the one hand and a depressed economy on the other?
When the Dow was making its precipitous decline in November 2008 Ben Bernanke and his Federal Open Market Committee (FOMC) announced Quantitative Easing 1 (QE1). From November 25, 2008 to March 31, 2010 the Federal Reserve Bank pumped about $1.5 trillion into the economy by purchasing treasury bonds from its primary dealers (banks such as Goldman Sachs and J.P. Morgan). After bottoming out at 6626 in March 2009, the Dow went up a remarkable 65 percent to 10927 by the end of March 2010.
After QE1 ended, the markets began to drop once again. In August 2010 Bernanke formally announced that QE2 would start in November. On August 27, 2010 the Dow closed at 10150. When QE2 concluded at the end of June 2011 after close to $700 billion more was pumped into the economy through treasury purchases the Dow closed at 12582 - a 24 percent increase.
When QE2 ended the Dow experienced a 15 percent drop in value. But In the last two weeks with no fan fair, the Fed has purchased $39.9 billion of treasuries from banks in the same fashion it did during QE1 and QE2. Needless to say, stocks made an about face and have rebounded higher by about 9 percent.
So what does all this tell us? It tells us that the boom and bust theory of the Austrian School of Economics is vindicated. That is to say that monetary policy conducted by the Federal Reserve (low interest rates, monetizing federal debt, and asset purchases) causes artificial booms (bubbles) in the economy. There is no economic reason for the stock market to be up in the current economy except for the aforementioned correlation between Fed asset purchases and rising stock prices. It is clear over the long haul that the current stock market cannot maintain its price level without the Fed propping it up. Similar to the dot.com and housing bubbles before it, when the Fed pulls support from the current stock market bubble it begins to burst. It is only a matter of time before a permanent bursting of the bubble happens.
There is only one way to prevent the Fed from inflating the dollar to benefit its member banks and therefore wreak havoc on the rest of us. There is only one way to prevent the Fed from inflating the dollar thereby causing financial bubbles which have contributed greatly to the widening gap between rich and poor. A gold backed dollar would restrict the Fed’s ability to manipulate the currency. It would protect savings and purchasing power. And in the above case it would have prevented the current stock market bubble which when it bursts will devastate millions of Americans who will then realize how phony their financial health actually was.
Yes, while Main Street continues to struggle to make ends meet, Wall Street is prospering. After losing more than half of its value due to the financial crisis of 2008, the Dow Jones Industrial Average has bounced back brilliantly recapturing more than 75 percent of its value lost. The numbers are enough to make even a casual observer of the markets sit up and take notice. The big question is why the disconnect between a significantly rising stock market on the one hand and a depressed economy on the other?
When the Dow was making its precipitous decline in November 2008 Ben Bernanke and his Federal Open Market Committee (FOMC) announced Quantitative Easing 1 (QE1). From November 25, 2008 to March 31, 2010 the Federal Reserve Bank pumped about $1.5 trillion into the economy by purchasing treasury bonds from its primary dealers (banks such as Goldman Sachs and J.P. Morgan). After bottoming out at 6626 in March 2009, the Dow went up a remarkable 65 percent to 10927 by the end of March 2010.
After QE1 ended, the markets began to drop once again. In August 2010 Bernanke formally announced that QE2 would start in November. On August 27, 2010 the Dow closed at 10150. When QE2 concluded at the end of June 2011 after close to $700 billion more was pumped into the economy through treasury purchases the Dow closed at 12582 - a 24 percent increase.
When QE2 ended the Dow experienced a 15 percent drop in value. But In the last two weeks with no fan fair, the Fed has purchased $39.9 billion of treasuries from banks in the same fashion it did during QE1 and QE2. Needless to say, stocks made an about face and have rebounded higher by about 9 percent.
So what does all this tell us? It tells us that the boom and bust theory of the Austrian School of Economics is vindicated. That is to say that monetary policy conducted by the Federal Reserve (low interest rates, monetizing federal debt, and asset purchases) causes artificial booms (bubbles) in the economy. There is no economic reason for the stock market to be up in the current economy except for the aforementioned correlation between Fed asset purchases and rising stock prices. It is clear over the long haul that the current stock market cannot maintain its price level without the Fed propping it up. Similar to the dot.com and housing bubbles before it, when the Fed pulls support from the current stock market bubble it begins to burst. It is only a matter of time before a permanent bursting of the bubble happens.
There is only one way to prevent the Fed from inflating the dollar to benefit its member banks and therefore wreak havoc on the rest of us. There is only one way to prevent the Fed from inflating the dollar thereby causing financial bubbles which have contributed greatly to the widening gap between rich and poor. A gold backed dollar would restrict the Fed’s ability to manipulate the currency. It would protect savings and purchasing power. And in the above case it would have prevented the current stock market bubble which when it bursts will devastate millions of Americans who will then realize how phony their financial health actually was.
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Michael Andrews
Frank Apisa
Johnny Fever
GerryGreene
TriviaCompanion
Larry3000
Salon.com
Comments
Sure, the Fed, following neolibertarian (closer to what it is), laissez faire, self-policing rational market dogma, did surrender to both corporatism and damaging excess. The only thing worse than that disease would be yet another libertarian cure.
If you think gold is a fail safe cure, yet also believe in laissez faire, you will live a lifetime of seeing boom-bust cycles, as cause and cure are one.
Now blame it on the monetarists who stood in the way of libertopian success. A good religious service needs an exit line.
You oversimplify the issue. As Dr. Skousen points out we were not operating on the classical gold standard leading up to and during the GD. Read his article at http://www.thefreemanonline.org/featured/did-the-gold-standard-cause-the-great-depression/
When fear struck Americans began cashing dollars for gold, fearing inflation due to deficits, was that some other era of history? As much as many have described the GD as a liquidity problem, it seems inflexibility can also bring trouble. I get that not all money was redeemable in gold then, but that doesn't seem to be the main problem.
There's an entire cottage industry revolving around proving the unprovable against what we know to be true. You could line up 100 economists who will say one or the other is true, then argue among those who agree about what makes it true.
I'm not against the idea of having a fixed standard, but few things can actually fix the value of money without having money fix the value of the commodity. The way I read it, gold supply expands at 2% a year, while growth moves at around 4. As much cash as there is, already in excess of value, I wonder what the price of gold would be if it had to represent the nominal value of money. And...what other countries would do the same if we did?
Gold didn't prevent price exceeding value in many examples in history, as bubbles blew and broke long before the GD. What we do know is that the minute you gut banking regulations, you get credit bubbles. From the final nail in Glass Stegall's coffin, it only took 4 years of death rattle, and 3 years of extreme fraud to make it explode.
If everyone paid cash for everything, I can see where a rigid standard might work. But it takes credit to move an economy, and credit extends value ahead of payment, so it's hard to see how a fixed value can respond to represent future value.
I'm sure Don has an answer, but to me it seems difficult to keep it all aligned.
As I have proven in a past post, Glass-Steagle had nothing to do with the current problems. Those banks that came under Glass-Steagles's jurisdiction weren't the ones that caused the problem-Fannie and Freddie. Bill Clinton agrees with me.
If you think Fannie and Freddie caused the problem, you're so soaked with propaganda your opinion is absolutely worthless.
Instead of seeking out Official Libertarian Propaganda, do some real research. Freddie and Fannie...hilarious. FanFred lost 2/3rds of market share while the deregulated, formerly under Glass Steagall investment banks ravaged the economy with toxic trash. The top 25 subprime lenders were all owned by investment banks or sold them the trash they wanted. None of them sold so much as one mortgage to FanFred.
You haven't proven anything, Kenn. And Bill Clinton doesn't agree with you. Just another reason libertarianism is a joke.
http://www.businessweek.com/investing/insights/blog/archives/2008/09/fannie_mae_and.html
Here are the Top 25 subprime lenders. Click each company to bring up facts, click again to see who underwrote their toxic trash loans. All either had agreements with investment banks or were subsidiaries of investment banks. You won't find any loans sold to FanFred, as by regulation, they could not make trash loans.
http://www.publicintegrity.org/investigations/economic_meltdown/articles/entry/1343/
FanFred did lower standards somewhat, into high credit score Alt A, for example, but couldn't and didn't do toxics. After their market share plummeted due to private intrusion into the market, they bought toxic MBS/CDOs from the investment banks. They got burned when everyone else did. FanFred have problems and are a problem, but they're not the ones who crashed the economy. The "self-policing" market did.
So much for conservative/libertarian doctrine. You might as well switch over to making excuses for Soviet communism, as there's not much difference in results. Except neoliberalism caused a much more impressive economic destruction.
Of course, what is reality next to paid ideologues pitching convenient lies?
MARIA BARTIROMO
"Mr. President, in 1999 you signed a bill essentially rolling back Glass-Steagall and deregulating banking. In light of what has gone on, do you regret that decision?"
FORMER PRESIDENT BILL CLINTON
"No, because it wasn't a complete deregulation at all. We still have heavy regulations and insurance on bank deposits, requirements on banks for capital and for disclosure."
So I guess Clinton is a libertarian too?
Abolishing both the engine of inflation, the Federal Reserve, and government deposit insurance -- two moral hazards that allow banks to engage in more risk and speculation than what normally would happen in a free market -- would be the final touches in restoring a moral, sound, market based banking system.
In other words, a separation of bank and state is what is needed.
Somewhere between 5 to 10 million starved to death in the Holodomor, the (almost forgotten) Ukrainian famine of the 1930s. Poverty, famines, shortages, widespread deterioration and disrepair, mass discoordination in the structure of production—I think Soviet Russia takes the award, PJO, in "impressive economic destruction." Google "socialist calculation problem" to understand why.
PJO, while you're at it, Google "Fannie-Freddie and Countrywide Financial"
Clinton has no more reason to admit the fatal flaw of deregulation than any ideologue does. Glass Steagall was finally done in, investment banks performed as community banks and the whole damn thing blew apart soon after. But no...it was de gubbermint that forced banks to lend to poor people. Few absurdities rise to such wide belief.
Larry,
FanFred is not innocent, but they didn't cause the collapse. It's that simple. While FanFred might have shown the private pirates a way, they took over the market and trashed it in short order. FanFred could not underwrite trash and didn't.
Ideologues always degenerate to the point where contradictory reality cannot be admitted. This is why libertarianism is a joke...well, besides the fact it's a childish theory of anti-liberty that ignores the full scope of world history in favor of a fantasy shared by a handful of True Believers. Y'all might as well be Jehovah's Witnesses or Moonies. Or plutocratic lick-spittles, which is what libertarianism encourages.
25 Top Subprime lenders -- zero loans underwritten by Fan Fred. Yup, it was Fan Fred...it has to be...to admit otherwise would prove libertarian ideology wrong. The market self-polices...competition man always shows up to correct fraud...the Easter Bunny hides eggs and the Tooth Fairy leaves T-Bills under your pillow.
PS, Larry...you're the guy who thinks that negationist hack, Woods, is some sort of messiah...so much for your critical thinking skills.