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Central Problem: the Central Bank
| December 26, 2009
| Robert Klein and George Reisman
Posted on 12/26/2009 12:49:45 PM PST by reaganaut1
[T]his is neither a housing crisis nor a Wall Street banking crisis. This is a monetary crisis, rooted in the lending of money created out of thin air. This is what leads to economic booms and busts.
The current crisis goes back to the Asian Contagion of 1997 and the meltdown of the Long Term Capital Management hedge fund in 1998. In response to each of these situations, the Federal Reserve cut interest rates and rapidly expanded the money supply. This excess liquidity helped push stocks, especially tech issues, to unsustainably high levels. The excess money created by the Fed and the banking system spilled into the rest of the economy, pushing up consumer prices.
To combat the rise in prices that it had caused, the Fed tightened monetary policy, which precipitated a massive plunge in stocks. Then, to bail out investors and stimulate the slowing economy once again, the central bank expanded the money supply rapidly to force rates lower. It ultimately jammed down the overnight fed-funds rate to 1%.
Unhappy with the correspondingly low returns on money-market funds, recently burned by the stock market, and spurred on by Wahington policies intended to encourage homeownership, investors turned to real estate, largely housing, seeking higher returns. In time, in the hands of frenzied investors, the new money created by the Fed and banking system boosted home prices sharply.
In our present crisis, excess money created by the Fed also pushed up consumer prices. Once again, concerned about this, the Fed raised interest rates, thus raising mortgage rates. Subprime borrowers were the first casualties of these higher rates. Unable to afford their interest payments, they kept refinancing their loans by taking out new ones.
(Excerpt) Read more at online.barrons.com ...
TOPICS: Business/Economy; Editorial; Government
KEYWORDS: bailouts; bankers; federalreserve; free; trade
Besides the easy money policies of the Fed that affect all sectors, we have also thrown money at particular sectors and groups to delay needed adjustments:
(1) homebuyer tax credits and mortgage guarantees by Fannie, Freddie and the FHA to stimulate housing
(2) cash for clunkers to subsidize the automakers
(3) transfers to state governments to plug their budget holes
(4) extended unemployment benefits to mitigate the pain of the Democrats' jobs-killing policies, such as raising the minimum wage and mandating health insurance by employers
posted on 12/26/2009 12:54:04 PM PST
posted on 12/26/2009 1:01:53 PM PST
(...from my cold, dead, fingers.)
And of course Porklus has helped to delay much needed government cuts at the local, state and federal levels.
We can’t help but realize as to who has some influence on the Fed (fellow bankers, real estate interests and other associated interests).
posted on 12/26/2009 2:26:09 PM PST
(cbt. engr. (cbt), NG, '89-' 96, Duncan Hunter or no-vote)
Sung to the tune of Ray Charles' "Busted"
Well, our notes are all due, D.C. aint got a clue,
That were busted.
The dollar is down, and so is the Pound,
Were all busted.
Politicians all lie, They get worse everyday,
And they never fail to raise their own pay;
The Feds are gonna haul, our asses away,
Cause were busted.
We went to Red China, to Ask for a loan,
cause were busted;
We now have to bow, to the king on his throne,
Cause were busted.
China said, Sure, well do your loan,
But if you dont pay us, you all will be gone,
The United States, Red China will own,
Cause youre busted.
Well, we all love peace, And our Freedom to keep,
But were busted.
Were totally enslaved by the handouts we take,
'Cause Were Busted.
Well lose everything, unless we awake,
We must start now, we just cannot wait,
Or the U.S. of A. will soon meet her fate,
Cause were busted.
posted on 12/26/2009 6:36:06 PM PST
(It's NOT a "conspiracy theory", unless you just refuse to see and listen to the facts!)
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