We progress, marching forward leaving behind us a trail of yesterdays, filled with events large and small, assembling memories, but some of the more momentous occurrences rise to a superior level which we include in our collective “history.” In that wake of our advance some of those momentous waves swell further, rising to become events that only hindsight can identify as pivotal moments in that shared recollection.
Such hindsight is not always 20/20. We may be aware of the events as they unfold, but their significance and impact on our march forward is not always self evident and years may pass before they become so. Self-serving motivations too often imbue the retrospective lenses with prisms which deliver infinite varieties of perspectives.
For over four years we have been instructed by those supposedly most knowledgeable and most insightful, occupying positions of leadership advancing society forward beyond the now and into the great unknown, that a new and magically wondrous elixir named “QE” would be the salve to all anxieties. It matters little that QE stands for Quantitative Easing, and may as well conjure up notions of a long-reigning monarch, since its true long-term consequences appear beyond our collective comprehension. Nevertheless, its impact is not as benign as one queen’s influence on ‘her people’. With minimal scrutiny or analysis by most of our media, but with the unrestrained approval of Congress and the Administration, The Federal Reserve proceeds with its unrestrained expansionary monetary policy. It pretends that this is good medicine for a Nation yearning for a return to economic growth, unaware that a printing press, while capable of printing unlimited dollars, cannot print a single job. It also pretends that its expansionary fiscal policy is enabling the hoped-for purchase of homes and cars. It pretends that low interests rates render the escalating debt load inconsequential. The reality is very different.
QE, QE1, QE2, QE3, and QE4 ad infinitum, indulge the Federal government’s insatiable expectations of unrestrained spending. The Fed will continue to buy up billions in Treasuries and Mortgage Backed Securities from member banks well into the future (on your behalf – and remember that those major too-big-to-fail banks are still burdened with toxic debt). The Fed’s actions will also enable Tim Geithner to sustain his schemes for financing friends of the Administration such as he did the unions in the GM bailout, or the brilliantly invested hundreds of millions in Solyndra.
The QE program is to continue until unemployment falls below 6.5%, or inflation rises above 2.5%, and the interest rate of 0% will be held until at least 2015. Other than those who watch their savings shrink each month, does anyone care? Not Congress, certainly. We may have structurally experienced the boiling frog metaphor.
The mandate of The Fed is supposedly to support job creation and to keep inflation in check. It pretends to be concerned with inflation while creating truckloads of debt. How is this not going to produce run-away inflation in the long-term? It can be argued that real inflation has been running at well above the government published 2% – your own cost of all goods will provide some indication. Additionally, 0% interest has not and will not launch a rush to banks for loans. 0% interest is, however, rewarding The Fed’s friends with the cheapest money they’ve ever had access to, enabling them to make money without risk – enabling never before seen executive bonuses. This action by Ben Bernanke in fact works against new or riskier businesses looking for loans from their local B. of A. or Wells Fargo bank managers.
‘Liquidity’ is not the barrier preventing the creation of jobs by corporate America, large or small. What else do we know?
- We know that larger corporations are refraining from investing in capital goods and are only tepidly bankrolling increased productivity.
- We know that most of the bank reserve increases since 2008 are sitting idly on the sidelines, as is a vast amount of corporate cash.
- We know that current unemployment is ‘structural unemployment,’ which could mature into a long-term malignant disorder.
- We know that new dollars created without the ‘backing’ of relative increases in economic activity (gold was once used as backing), places excessive downward pressure on the value of all dollars.
- We know that one major constraint to job growth is the current lack of confidence, and that uncertainty can be diminished, even eradicated, with energized leadership.
- We know that unrestrained government spending stimulates very little confidence, and fear expands to fill that void, stifling ‘job creation’ by companies afraid to stray from the secure status quo.
- We know that The Fed’s activities have resulted in relative decreases in the dollar’s purchasing power manifested in our increased prices for staples such as gasoline and food, and for those who can afford to, the purchase of gold. As recently as late 2008 you could purchase an ounce of gold for under $1,000. Today that ounce costs between $1,650 and $1,700.
- We know that The Fed actions have aggressively replaced personal ‘interest income’ with ‘dividend income’ since 2008.
- We know that rates of inflation have been understated by the Federal Government, just as the rates of unemployment have been understated.
- We know that Congress will not cut back on expenditures and we know that the current Administration is steadfast in its advance of more spending.
- We know that the unfunded future liabilities of Social Security and Medicare present a financial challenge far greater than the current total National debt.
- We know that The Fed has independent control of the printing presses and provided the Washington Treasury with seemingly unrestrained amounts of magic cash (read ‘ability to spend’) through debt loaded onto the backs of all taxpayers, while at the same time restraining and suppressing the economy.
- We know that most of the political establishment in Washington has been unable to resist the temptations driven by self-interest and is willingly, and knowingly acceding to overindulgent debt financing.
We know, but are we in denial?
Are we pretending and rationalizing those nasty gremlins away by convincing ourselves that the all-knowing elected leaders, their appointees and their friendly neighborhood banking masterminds will solve our worse problems? Are we convinced that the Washington centers of influence will somehow coalesce supernal erudition into a pathway around the inevitable economic implosion which our love affair with debt has created? Surely there must be good reason for some experts to be promoting profligate spending. No? Are we accepting rationalizations from QE believers that unlike the personal debt borne by consumers, the Federal government can simply, though carefully, arrange to have printed evermore of the world’s favorite currency to nurse its debt affliction? With other nations also devaluing their currencies such as the Yen or the Euro, almost in lockstep with the U.S., are we clasped together with them in an only-slightly-out-of-phase race to the bottom?
We must be convinced that experts know something we don’t and that they have grasped concepts which eluded Thomas Jefferson when he wrote in 1814, “We are to be ruined now by the deluge of bank paper.” In a world where opinion has transplanted knowledge, authenticity is infused into unworthy illusions. Does a majority of Society really believe that it cannot accept reductions in deficit spending while it refuses to acknowledge the need for financial diligence over growing government and unaffordable entitlement programs? Does Washington really reflect the Nation’s wishes? What is clear, is that personal considerations, personal influence and personal wealth have vanquished the halls of power in the Capital. The political leadership has succumbed to the irresistibly seductive ‘Easy Money’ of the incomparably powerful and historically unprecedented Federal Reserve.
There is nothing subliminal about the seduction which has taken full and absolute control of Washington. There has been nothing subtle or concealed about the production of new debt, and there has been no subtlety of process in the devaluation of the dollar. Washington’s addiction is unmistakable, and particularly disturbing is that this addiction has so far had few serious consequences for those holding positions of power.
How did we get here?
Let’s recall some of the more infamous proclamations of just over four years ago. Assertions such as, “this is truly a once-in-a-lifetime economic nightmare,” and “the world’s most cataclysmic financial crisis since the Great Depression,” or how about, “world’s impending financial Armageddon.” These unnerving and sinister shrieks instilled fear into the consciousness of every resident on Capitol Hill. The perplexed and readily pliant media ensured that the apprehension blossomed into an epidemic. Admonitions of terror were used by Hank Paulson, then Treasury Secretary and formerly CEO of Goldman Sachs, and Ben Bernanke, currently Chairman of The Fed, who only months earlier in mid 2008 had proclaimed that all was well in the economy and that there was no chance that the subprime market problems would impact the broader economic health of the Nation. And their views on the taxpayer backed Fannie Mae, Freddie Mac and AIG, . . . what, me worry? And yet, here we were, listening to fear, terror, panic, foreboding and threats. And what were the titans of Wall Street demanding as shivers ran up and down the spines of Washington’s decision makers? A blank check made out to cash with no conditions. “Too big to fail” along with, “bailout,” became household terms.
The shivering spines turned into talking heads on every evening news outlet in the Nation, parroting that the once-in-a-lifetime impending armagedon had, “left us no choice.” The money was borrowed, the checks were cashed by friends of The Treasury and The Fed, and then the declarations evolved. We heard from politicians with newfound bravery, “whew that was close, but weren’t we great, we saved the Nation from doom,” and the ‘inside’ players changed chairs with Geithner replacing Paulson at Treasury. Across the country almost everyone with a keyboard and a microphone could repeat the chant, “we were on the edge of a cataclysmic crisis, but The Fed and Treasury saved the day.” The cry had a rhythm and a plurality accepted this new gospel. A new Administration moved through 2009 and 2010 with an acceleration of long-term financial commitments and borrowing, along with unrestrained check cashing particularly in favor of friendly ‘contributors’. The Nation had stepped over a threshold and into a new paradigm.
The Nation had become desensitized. Its elected officials and the banks had surely known something the rest of us did not comprehend. On the Hill, the affliction spread as a realization that astronomically huge amounts of money could be created seemingly out of thin air and thrown at, . . . well just thrown at whatever might help re-election, and there would be no consequences – at least none in the near-term, and the future would take care of itself. Epoch-forming levels of debt were created in the comforting expectation that The Fed would take care of ‘managing’ just the appropriate maximum. It might even administer the creation of an infinite amount of dollars since, apparently, there would be no cost, no downside. We were in a new era. We are in a new era.
A decision made in fear and in panic changed the consciousness of Washington. The new paradigm of increased spending and debt by trillions of dollars, would have no consequence. At least not to the current Washington. This shift, however, will see the next President step into an Oval Office presiding over an America encumbered with an estimated debt North of $20 trillion. Whatever the amount, there is no will on Capitol Hill to change the narrative, and to the long-term detriment of a misled Nation, there is a deeply entrenched addiction which refuses to be curbed. As for the value of the dollar in four years? You will know by the real cost of living to which you will have been subjected.
The constitutionally mandated separation of powers between the Administration and all of Congress with which the Framers so presciently endowed an eagerly awaiting Nation, has been trampled by effectively maneuvered, yet elected, debt junkies. IMHO, America has been bowed by, and has capitulated to, egocentric forces which do not hold its best interests to heart.