Free Republic
Browse · Search
Topics · Post Article

Skip to comments.

Central Problem: the Central Bank
Barron's ^ | 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 ...

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
1 posted on 12/26/2009 12:49:45 PM PST by reaganaut1
[ Post Reply | Private Reply | View Replies]

To: reaganaut1

A lot of truth in this article

2 posted on 12/26/2009 12:54:04 PM PST by FromLori (FromLori)
[ Post Reply | Private Reply | To 1 | View Replies]

To: FromLori

save for later

3 posted on 12/26/2009 1:01:53 PM PST by 230FMJ (...from my cold, dead, fingers.)
[ Post Reply | Private Reply | To 2 | View Replies]

To: reaganaut1
And of course Porklus has helped to delay much needed government cuts at the local, state and federal levels.
4 posted on 12/26/2009 1:03:19 PM PST by Red Dog #1
[ Post Reply | Private Reply | To 1 | View Replies]

To: reaganaut1

We can’t help but realize as to who has some influence on the Fed (fellow bankers, real estate interests and other associated interests).

5 posted on 12/26/2009 2:26:09 PM PST by familyop (cbt. engr. (cbt), NG, '89-' 96, Duncan Hunter or no-vote)
[ Post Reply | Private Reply | To 1 | View Replies]

To: reaganaut1
Sung to the tune of Ray Charles' "Busted"

Well, our notes are all due, D.C. ain’t got a clue,
That we’re busted.

The dollar is down, and so is the Pound,
We’re 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 we’re busted.

We went to Red China, to Ask for a loan,
‘cause we’re busted;

We now have to bow, to the king on his throne,
Cause we’re busted.

China said, “Sure, we’ll do your loan,
But if you don’t pay us, you all will be gone,”
The United States, Red China will own,
Cause you’re busted.

Well, we all love peace, And our Freedom to keep,
But we’re busted.

We’re totally enslaved by the handouts we take,
'Cause We’re Busted.

We’ll 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 we’re busted.

6 posted on 12/26/2009 6:36:06 PM PST by FrankR (It's NOT a "conspiracy theory", unless you just refuse to see and listen to the facts!)
[ Post Reply | Private Reply | To 1 | View Replies]

Disclaimer: Opinions posted on Free Republic are those of the individual posters and do not necessarily represent the opinion of Free Republic or its management. All materials posted herein are protected by copyright law and the exemption for fair use of copyrighted works.

Free Republic
Browse · Search
Topics · Post Article

FreeRepublic, LLC, PO BOX 9771, FRESNO, CA 93794 is powered by software copyright 2000-2008 John Robinson