Economics: The Fed and The Moron

It's so hard to watch when mistakes are happening right in front of your face

I feel like this is the blind leading the blind George

Clinton was a piker. His sexual antics in the Oval Office as repugnant as they were, were nothing compared to the ROYAL SC***ING Bush has been giving this nation for the last 7 years.

When will we say ENOUGH and impeach that sucker along with his buddy the VP?

If Greenspan is the "moron" you're talking about, I'd be in agreement. Clinton was the beneficiary of the PC age, and an emerging industry. Bush weathered the "shaking out" of that new industry, as well as 9/11, and more recently the energy and debt market problems.

There's another way of looking at this, if one wants to link the economy to government policy: The surplus started after the GOP took control of Congress in '94, and the economy started this latest, uncontrollable tailspin, since the Dems took control of congress back in '06. I don't buy that theory, but think it's as valid as saying that Clinton helped, or Bush hurt our national economy.

The activity that resulted in the tailspin started a long time before the Democrats regained control of the Congress. It is true that much of the economic strength under Clinton was the result of the dot com boom. The only pillars of the economy under Bush have been the war and the housing boom. What really happened here is that the economic policies both under Clinton and Bush have severely whacked the American worker and the Middle Class. It has often been said that the Americans are a spending society when compared to the Japanese. That is in part true, but not completely true. The average American did at one time have a savings account, that savings and investment account was the equity in their homes. However, as Americans started falling out of the middle-class economic strata, they started to dip into their savings in order to maintain their standard of living and to educate their children. This could not go on forever. In some Red States such as Indiana, real estate values had remained relatively flat due to the fact that the environmental and planning controls were so lax that any farmer could take land out of production and throw-up a new subdivision -- so there was no upward pressure on the value of land except with unique properties such as those having shorelines on lakes. The result was that the crunch hit these states first, for several years Indiana led the country in the number of bankruptcies and foreclosures. In other words, when the East and West coast refinanced their credit cards with second mortgages on the first wave of refinancing after 9/11, many red states citizens couldn't. The crunch hit, however, after the second mortgage (home improvement loans) were refinanced to include the primary mortgage on subprime loans which were subprime because the people did not have the income to service the mortgages. As a result, when the people in the Blue States borrowed their way into the same position as the people in Indiana had been in several years earlier, then all crap broke loose -- and now the only thing propping up the economy is defense spending. The basic problem here is that we have allowed the middle-class to be destroyed, and that is a bipartisan failure. The Feds have to start looking at the condition of main street and labor, and less at Wall Street and "the investing class"

"It is true that much of the economic strength under Clinton was the result of the dot com boom. The only pillars of the economy under Bush have been the war and the housing boom."

So-called "booms" (more accurately referred to as "bubbles") a la the dotcom boom and more recent housing bubble, are never signs of economic strength, nor are they ever real economic pillars. Business cycle booms are the direct result of interest rate manipulation, and the resulting subsequent artificial bank credit expansion and inflation. Any "growth" that results from inflationary central bank policies is purely illusory, which is why every inflationary "boom" must, by necessity, eventually be followed by a subsequent "bust." This is why business cycle "booms" are commonly called "bubbles," because they are inherently doomed to bust.

The flooding of the economy with inflationary fiat money and artificial bank credit expansion does not create more capital. The only thing that creates more capital is production. But one of the most harmful effects of inflationary credit expansion (usually combined with government deficit spending) is the malinvestment that results from it. The increase of and allocation of new fiat money and credit distorts vital signals sent out from the financial markets, and causes investors to direct capital to areas where it is not really wanted by the mass of consumers. Thus, capital is flooded into certain areas such as IT software or new housing, jacking prices and nominal valuations, when there is not sufficient consumer demand to justify these allocations. Eventually, reality will set in, and the market will begin to correct itself; the malinvestment will become evident, and prices and nominal valuations will begin to settle down to reality.

Also, government spending -- and especially "defense" spending -- can never, under any circumstance, truly be a "pillar" of the economy. The government does not have its own money, it cannot create capital from out of thin air; all it spends it must first expropriate from the public. Thus, every dollar government spends means one less dollar people have to spend on the goods and services they need and desire. Government spending can never increase capital or consumer demand; it cannot add to general prosperity in any way. It can only redirect, or reallocate, what purchasing power already exists. The people who receive government contracts will, of course, have more money to spend on goods and services from the general public. But this comes only at the expense of the general public. And the fact that capital is allocated to creating weapons of destruction -- which cannot benefit the consuming public in any way -- means that wealth and purchasing power is being wasted.