Although the recession has left many hurting and out of work, the feds are implementing an unproven theory called "quantitative easing", that has the potential of not only causing a depression but hyper inflation as well. What has occurred to cause the Feds to implement this action?
Let me paraphrase, Walt Zimmerman who is the Vice President of United ICap explains that our economy is experiencing a combination of the collapsing equity markets, real estate markets and commodity markets. This combination of events is so rare that it has not occurred since the Great Depression. View
Walter Zimmerman on Glenn Beck - 3.19.2009 - Hyper-Inflationary Depression?
Per the New York Times, the "
Federal Reserve Chairman Ben S. Bernanke, initially criticized for being too academic and slow to respond to market worries, has presided over some of the most interventionist and controversial Fed actions since the central bank's founding in 1913". So why would the far left New York Times see Bernanke's actions as interventionist and controversial?
Ben Bernanke, who is an academic expert of the Great Depression, no doubt realizes the government is doing too much tax-hiking, tinkering and anti-business actions. So to shorten the recession and divert a depression, the Fed is using
so-called "quantitative easing," which is both momentous and perilous. This works on the theory that by injecting vast sums of money into the economy, our deflationary period will be halted. With interest rates at all time lows, Bernanke probably thinks this is the only real arrow left in his quiver.
In the last five months,
according to the Federal Reserve Board, the money supply in the United States has increased by 271 percent. Now Bernanke has injected
an extra $1 trillion into the financial system by purchasing Treasure bonds and mortgage securities.
As Walt Zimmerman notes, what is critical in this theory is the timing of when to stop printing and spending money. For this to work the Feds must stop spending just before deflation ends. The kicker is knowing when deflation bottoms out, which is extremely difficult. If the Feds' timing is just right the economy recovers. However, if they don't stop the spending frenzy by the time inflation begins, it's entirely possible to have a depression with run away inflation much like what Zimbabwe is suffering. Regardless of the result, the money will have to be paid back in the form of either higher taxes or inflation.
Logic would tell you that solving the problem of a maxed out credit card is to pay it down instead of extending the credit limit. The US has chosen to extend our credit limit in an attempt to help in the short term but this tactic has to bring us even greater pain in the long run. To give some perspective to all this spending, $1 trillion dollars equates to $3,300 for each man, woman and child in the US. Sounds like alot of money but there is more.
As for 2008 our nation's debt was 10 trillion dollars however our
total financial liabilities--explicit debts and unfunded obligations--exceed $65 trillion.
By comparison, the U.S. gross domestic product is $14 trillion. If we taxed everything earned in our country it would pay off our debt but it would take nearly 5 years to pay off our unfunded obligations. Another way to look at this is our country's entire net worth was
$51.5 trillion last year. Whoops, our country's entire worth is still $13.5 trillion short of paying off our total unfunded debt. Hopefully you can begin to see what a bind all this spending is creating for the future of our country.
The bottom line is if people think the fed is panicking, businesses won't hire, banks won't lend and consumers won't spend. . What is so dangerous with all these actions is the Fed is trying to abbreviate the recession. The housing, equity and commodity bubble collapsed in part to over spending instead of increasing savings and increasing real production. As hard as it sounds the best way to recover is to let the cycle run its course.
The key to a recovery is to increase production and savings
So what is the right way out of this recession? First, lets talk about recessions and why should they be allowed to proceed. A recession is a natural part of any economy, regardless of whether we are talking about socialism or capitalism. When housing, equity or commodities become over valued they sooner or later will have to return to a point of equilibrium. Essentially a recession is just the natural resetting of prices. If this process is not allowed to occur then subsequent growth either will not occur or will occur on a very restricted basis.
A healthy economy should be a balance of spending and production. Sadly, right now we are spending at a rate of 70% but only producing at a rate of 30%. Yet both parties of our government seem to want us to spend more which is in large part what got us into this mess to start with. This is like trying to cure a hangover with more vodka. It may work for a short time but that headache comes back even worse.
The key to a recovery is to increase production and savings. Only by taking raw materials and producing something that is worth more than its parts can we grow our economy in a healthy manner. Business must be seen as the solution and not the problem. Taxes need to drop on businesses and the richer population so the money can be invested in business growth. Those companies that have bad business practices should be allowed to fail. Once businesses feel success they will be rewarded, then they will feel safe to expand and the people will feel safe to start spending again. It's impossible to short circuit a process that has to run its course. Either pay me now or pay me later is a good thing to keep in mind.
Roger King is a 55-year-old computer programmer with a master’s degree from Clemson University, Born on a farm in Ohio, he now lives in the suburbs of Raleigh, N.C. King is a collector of politically incorrect facts which can be found on politicallyincorrectfacts.com.
