Last Tuesday Federal Reserve Chairman Ben Bernanke said the economic recovery was “frustratingly slow.” By Wednesday the yield on the 10-Year Treasury Note had dropped below 3 percent. At the same time, stocks, oil, and gold were shellacked in unison.
Obviously, people are getting a little down on the economy. For several years now the recovery has been trudging along like a camel in quicksand and, after all this time, jobs are still scarcer than ice cubes in the Sahara desert. What’s more, there’s nothing to show for the record stimulus, bailouts, and government gimmicks except for a national debt that has expanded well beyond what the economy can support.
All debt involves risk. When used with caution and care, debt can help build wealth and prosperity. Debt applied to a venture that will likely generate profitable revenue for years into the future is a risk worth taking. Debt that’s applied to fancy dinners and exotic vacations will lead to bankruptcy.
When the financial market’s frosted over in late 2008, the Fed rained down a 100-year flood of money without reservation. Would the money restore prosperity? Would the spending be directed into profitable ventures? Would it create jobs to replace the one’s being vaporized by the economic crash?
Spending Other People’s Money Like Reckless Idiots
The Fed never bothered to consider any of it. With all their liquidity trap models and Keynesian theory telling them what to do they forgot to do one very important thing – they forgot to think. Instead they spent other people’s money like reckless idiots.
Inane programs like TARP, CPFF, MMIFF, TAF were employed to bailout the big banks, rinse toxic asset backed securities from their balance sheets, and reliquefy the credit market with phony money. Bernanke doubled the size of the Federal Reserve’s balance sheet in a year and a half…accomplishing what it took numerous other Fed Chairman and 95 years to achieve.
The Federal Reserve tried quantitative easing policies to artificially suppress mortgage rates and place a false bottom under the housing market. And when that didn’t work, they martingaled down with QE2 like they were playing a game of roulette.
Yet for all their efforts, the Fed was unable to create jobs, grow the economy, or facilitate commerce. What instruction can be learned from this?
For starters, isn’t it about time for the government to get out of the economic management business? With a track record like they have you’d think so. Still, many voters believe the government can and should abolish poverty, redistribute wealth, and find a job for everyone.
The voters demand the government does for them what they should be able to do for themselves. And the government is happy to indulge in the nonsense…as long as it keeps them in office. Nonetheless, it appears, some in Congress are willing to admit that stimulus was a remarkable failure…
On Savages and Perpetual Infancy
“I believe that stimulus basically doesn’t work for the most part. We’ve tried that,” said Senator Richard Shelby on ‘This Week.’ “The market grows the economy. We’ve grown the government, but we haven’t grown the economy.”
While we appreciate Shelby’s candidness others in government have come to this same conclusion and have expressed it before. For example, back in May 1939 after staggering through a 10-year depression, FDR’s Treasury Secretary, Henry Morganthau, addressed Congressional Democrats on the futility of stimulus…
“We have tried spending money. We are spending more than we have ever spent before and it does not work … I say after eight years of this Administration we have just as much unemployment as when we started … And an enormous debt to boot!”
Yet here we are, some 72 years later, repeating the same errors that failed before. What gives?
“Progress, far from consisting in change, depends on retentiveness,” explained 20th Century Philosopher, George Santayana in The Life of Reason. “When change is absolute there remains no being to improve and no direction is set for possible improvement: and when experience is not retained, as among savages, infancy is perpetual. Those who cannot remember the past are condemned to repeat it.”
Where government hacks are concerned, they will always be condemned to savagery and perpetual infancy…
“Summers: More stimulus needed,” reads a headline from yesterday’s CNNMoney website.
for Economic Prism