Just about the time I figure that they’ve breached all possible levels of malevolence, the greedy bastards prove me wrong… again! You’d think I’d learn!
First, Wall Street, embodied by the multi-billionaire club that makes it move and shake, reassured us that the real estate market was sound. All the while, of course, they were rapidly shifting their own financial resources between toxic Collateralized Debt Obligations and whatever other ponzi scheme they could find (or create) at the moment. Result: Lies, which brought millions of Americans to the point of losing their homes.
Next, as concern grew about how sound the banks were, Wall Street, backed by Bernanke and Paulson, told us that the banks were solid, with healthy capital ratios. Result: Lies, which cost American investors (little guys, like you and me) billions, along with their dreams of retirement.
Soon thereafter, we were assured that the Market was still a sound investment vehicle, and that we could trust them to care for our money as though it was their own. Result: Lies, as our money soon, in fact, became theirs.
Now, they tell us that we are in recovery, and that our economy will soon be stronger than ever. This, in spite of the fact that nearly every reputable economist in the world is saying either that we haven’t yet hit bottom, or that we can’t possibly predict, because we are dealing with an entirely new sort of economy (more on that, in a bit). The Fed (talk about a misnomer!) has its printing presses running full-tilt, and has more than doubled the amount of American currency in circulation since September, 2008! In very simplistic terms, that means that they have effectively halved the purchasing power of the dollar by that action.
They may be greedy… they may even be evil… but they are NOT stupid! They KNOW what the results of their actions will be! They are simply capitalizing on their knowledge of events to come, and making as much money on it, as possible.
They justify their actions by showing that they are practicing sound economic manipulation, by following Keynesian theory. That theory has long been the most proven, trusted method of foreseeing economic events, and forestalling them. Basically, it says that “government spending should offset the fall in private spending during an economic downturn; otherwise the fall in private spending may perpetuate itself and productive resources, such as the labor hours of the unemployed, will be wasted.” What they DON’T tell us is that Keynes was quite clear on the fact that the money spent by the government in such an endeavor must be borrowed from the private sector, in order to add money to it. Buying power cannot be simply created by a snap of the fingers… or a run of the printing presses. I.O.U.s are not worthless, because they are backed by a promise. Payment in gold, goods or services bring value back to the holder. But the dollar, taken off the gold standard by Nixon, is backed by nothing. It’s a piece of paper, and not even really large enough to make it worth taking to the toilet with you.
The other aspect that makes the Keynesian theory obsolete is that it was developed around existing encapsulated economies. Short of a few small island nations, however, no such economies still really exist. We are all now part of a GLOBAL economy. When it fails to rain sufficiently in Indonesia, the cost of coal may climb in the US. And between those two points, there will also be increases and decreases in the costs of a number of totally unrelated products and services around the world. The adage, “No man is an island” was never more true.
Most prominent economists have recogized that Keynes’ theory doesn’t really apply in such an environment, and many are fervently trying to develop a replacement strategy. As yet, none have ventured to say they’ve got a clue. It’s a whole new ballgame, and it’s made infinitely more complex by the disparity in GDPs, purchasing power, consumer density, geography, cultural differences, etc. It’s not even a sure bet that there IS a reliable theory to replace that which used to serve so well.
To make things just a little more interesting, our government has increased our national debt by so much that most Americans can’t even grasp the significance of it. Most of us weren’t taught in school to deal with that many zeros in our numbers. Billions or trillions… they’re both just REALLY BIG numbers to us. And those numbers are tossed about by the media and the government so casually, that they’ve even lost some of their shock value. And all while the Fed was making our dollar worth less than the paper it’s printed on. Coincidence?
One thing that most economists agree on, is that there is a very real risk of serious inflation… possibly even hyperinflation… as a result of all this mad printing of fiat currency. I can just see $60/Lb coffee around the corner!
So, will we ship a freighter full of greenbacks off to China, to pay off our debt to them? I’m sure they’ll be thrilled to receive one cent on the dollar (or less) in payment for having financed our war efforts. Should spark some interesting conversations on that red phone in the Oval Office.