Compromise has failed in the U.S. Congress – Money Aggregates may be pursuing a new course.
I don’t pretend to be an economist. I don’t even think I could begin to teach a remedial class. I am however attempting to take my layman’s knowledge and apply it to current policies in effect.
When the Budget Control Act of 2011 was signed into law by President Barack Obama, most Conservatives viewed this as a D.O.A. answer to the Debt Ceiling Crisis. Why? Because we knew it was kicking the can down the road, and ceding to the Democrats the Pyrrhic victory (as long as we could say “We didn’t raise taxes”). Clearly the Democrats hoped to either get Republicans to raise taxes, and break the club for growth pledge, or they get Defense spending cuts that put Republicans that are lobbied by the military industrial complex to, well, get on the defensive, and attempt to roll back the act all together. In either case austerity loses, and this is precisely what the Democrats want.
In true Keynesian fashion, they believe that if you keep the money moving, you keep growth happening, and if you keep growth happening, you keep people in jobs, as long as you keep money moving which requires massive spending, and never paying off the debt. This is regressive in logic as well as in monetary and economic policy. But as long as you never question how far down the rabbit hole goes, you’ll be able to ignore the fact that you’re regressing infinitely and just lengthening the floating point scale.
So the inevitable happened with the “Super Committee”. So what? We hope to go on to change it as of January 2013 with a glorious victory with our soon to be nominee, right? Not so simple.
Do you remember what the “Crisis” was all about? That’s right the U.S. credit rating. There are generally 3 major credit rating agencies(Moody’s, Fitch, and S&P) that really signal to the world capital markets just exactly what you can expect when it comes to risk when buying treasury notes. The global finance markets aren’t based solely on the value of money aggregates, but money aggregates do determine the global money supply. When the U.S. Faces downgrade… it ripples in the World economy… and what is just a “few basis points” has a wide swath of wealth loss, and risk increase. In addition, when your liquid assets are traded in that particular currency, your buying value evaporates with the lowered value of that currency.
It appears to me, that the Fed Reserve is tight lipped on their tight money policy right now. Even though everything they’re doing would typically signal how loose they’re trying to make the money supply. I know that seems counter-intuitive if you follow money supply basics. Putting on my tin-foil hat with the genuine Luap Nor merchandise tag on the inside of the bill… It would seem that everything that the Fed is doing is attempting to control prices in finance to fix their asset pool, ignoring their own balance sheets. And they seem to be doing it on the back of tax payers, and investors the world over. Rather than fulfilling Keynesian policy of targeting inflation by presenting money velocity to increase nominal GDP. It would seem as though the opening up of their balance sheets for QE1 and QE2 were both meant to allow the U.S. Treasury to print more money. But then in turn Bernanke announces that they’re going to keep interest rates at ‘near zero’ until mid 2013. Why? The best I can figure is banks are still holding a lot of underwater capital assets, and they’re hoping through deflation to pass the balance of liquid loss to tax payers until they can raise rates again, and attempt to restore confidence in global capital markets.
Loose Money traditionally is a considered a punishment to those that save, because it lowers the value of the currency short term. I believe that most people that have money are not investing money, because there really is a lot of risk, so much so, that every policy coming from Washington seems to be that if you take big enough risks, we’ll assist you in spreading the losses to the tax payer, and to your fellow market participants, and prevent you from failing and causing big ripples in the middle class.
This undercuts any market from healing when it goes too far which is why most conservatives espouse Austrian economic philosophy. This mentality of “Too Big To Fail” is the epitome of embracing Booms and Busts. I think everyone knows that there are few markets that are in growth, and therefore, Jobs are not growing. Typically letting loose on the money, inspires borrowing and spending for growth. However, those that are currently in a position to borrow, aren’t doing so. They’re not borrowing because they’d rather bootstrap through their growth right now, than risk being indentured to a market that stifles growth by spreading losses. The free market capitalists would like to see more austerity from the Government on the spending side, so there may be more confidence in paying credit obligations, while ensuring that the dollar is on stable ground so as to get real growth happening again.
I think Bernanke and Obama have the same goal, but for different reasons. Demand for supply is suffering due to the dangers of risk and volatility. Growth can’t happen without demand. At the same time some production is becoming so productive in the process, it’s possible that it’s filling more of the demand gap with less producers, ergo less ‘real growth’.
Obama and the Democrats think they can save the world and save the jobs through spend, spend, spend policies, which will magically make growth happen (even if it is artificial) so they can continue to spend, spend, spend (nothing has changed for the Keynesians).
Growth is the long term goal for the Fed, but the short term is to shed the banking/finance industry’s toxic assets and spread the losses of some REALLY STUPID policies that generated ridiculously false demand which allowed that very same industry to get very bloated for a hell of a run since 1987 on that good ‘ole fashioned artificial growth that Keynesians embrace. The Fed needs a spend, spend, spend government to create demand (even if it is artificial) to buy the banking/finance industry time to rid themselves of the toxic underwater assets that are not backed by the value of a real dollar. Let’s face it, these guys are more concerned with the long term effects in money aggregates than they are of a short term confidence crisis, or the lowering of the value of U.S. Treasury notes.
Obama’s government could continue to print checks and send them to “Too Big To Fail” institutions via TARP, Omnibus Stimulus, GM Bailout, Cash for Clunkers, Dodd-Frank, Obamacare, etc. While making piss poor investments in green energy, and in driving out real growth markets for the sake of getting votes and seats. Eventually the interest payments to our creditors on all this borrowing and spending coming from Obama’s government, will heal and repair the balance sheets to healthier levels utilizing the velocity of money in the relationship to the money balance and nominal GDP against demand, long-term price inflation, and the overall global business cycle. Yes, eventually indeed, but on the backs of tax payers, and U.S. currency investors and participants. But, Why risk it?
Now cometh the supposed “Great Deleveraging”. In the European market global hedge funds have been falling over each other salivating at the prospects to find a fairly decent investment to get involved in since 2008. The politics of the European Union may cause a great deal of tension over their hopes to participate in the deleveraging of European Banks and their toxic assets. There is a hope to buy low and wait for the next boom, but where will the financing come from? Through larger banks and funds that have more solid liquidity of course. That is supposing that there isn’t some “off balance sheet” derivatives games going on that will cause a GIGANTIC STOP to money velocity. This is a VERY dangerous game, and there are a lot of people at the top of all of this being very cavalier with the strength of the middle class in both Europe and more especially in the U.S.
This is the kind of thing that leads to world wars, because someone has to take the blame.
There seems to be no safe place for investment for anyone that hedges in any market. There’s certainly no safety in stuffing devalued paper into the mattress. What used to be a relatively safe place was in the currency market, but with all this borrowing, spending, and printing going on, with credit downgrades… how does that sound now? What seems to be the safest place to be is to either own all your real assets outright, or have an indispensable skill set that few others maintain, or both.
Now, let’s come back to the Super-Committee’s Super Failure… I lay the blame squarely at the feet of Republicans in the House under the leadership of John Boehner, and Republicans in the Senate, that are sanguine to allow the House Republicans take the heat. The Super Committee was designed to fail. Everything else is posturing for the 2012 election. What was gained if anything? ‘Well at least we can say we ‘tried’ to compromise’?
These folks are either entirely ignorant and presume that their pompously important title entitles them to information that allows them to make better judgements than the rest of us regarding matters of economy and policy, or their entirely ignorant of what it means to rely on income that doesn’t come from a taxpayer.
The problem remains… The line has been drawn… There can be no fence sitters on this.
You either stop the spending, forcing investors to take their own losses… allowing the markets to grow/shrink/adjust how they may… knowing nothing of what the unintended consequences will be.
You let them continue to play the very dangerous game… and hope that the ‘GIGANTIC STOP’ doesn’t ever happen.
The United States is only as good as it can be when it can make good on its debts, and remains fiscally sovereign.
By principle it should be very easy to see that somewhere someone threw principles out the window and started viewing this from a numbers perspective, and not by a people perspective. What’s next? Will the Fed start adopting Chinese monetary policy?