The upheaval on Wall Street this week has been blamed, by Democrats, on Donald Trump, the GOP tax bill, and deregulation.
None of these are the cause, of course, because this is a panic that has been brewing for almost a decade. As the economy has finally hit a growth spurt, thanks to those tax cuts and deregulation, the loose money policy practiced by the Fed for the entirety of the Obama Administration must come to an end.
If anyone or anything is to blame for this week’s wild market gyrations, it is the Federal Reserve and its policies since 2009.
While the government grossly overspent at a time that the economy was sputtering along from 2009-2016, the credit card bill was picked-up by the Fed. The central bank printed the necessary money to finance purchases of federal debt. This practice kept interest rates artificially low, which forced investors looking for a return into the stock market.
The flood of cash into the market helped prop-up prices even during the economically lean Obama years. Thus, the strong stock market of the Obama era was inversely related to the weak underlying economy.
Under President Trump, the economy is now growing at recent records, and has reached a growth rate not seen since the Bush Administration. This economic growth has begun to put inflation pressure on the economy, since the Fed flooded money markets during the lean years. This means that interest rates must now begin to rise to keep inflation from wiping-out our economic recovery and the value of people’s money. These rising rates, however, will have the effect of correcting an overvalued stock market from the era of Barack Obama, and then-Fed Chairman Ben Bernanke.
This market correction does not predict economic weakening or impending recession. In fact, it is the result of the economy growing more quickly. Because of misguided monetary policy, the market is going to remain inversely related to the economy; it will now perform less well than the overall economy as opposed to outperforming it as it has for nearly ten years.
If the American economy and stock market are ever to get back into sync again, the Fed’s power must be curtailed. These boom and bust cycles are almost always brought-on by monetary manipulation at the Federal Reserve. In order to end this crazy cycle, Congress must work to restrain the power of the Fed by ending its ability to manipulate interest rates in a vain attempt to maintain employment levels and price stability. It should only have one purpose: maintain stable currency values. The free market can better determine stock prices and interest rates than the central planners on the Federal Reserve Board of Governors.
This week’s mess was caused by the bad monetary policy of Ben Bernanke and his successors. If we want to avoid a repeat of his mistakes, the Fed must be reformed and it must be audited at least annually. By ending the Fed’s economic overreach, we can smooth-out these boom and bust stock markets and stabilize our overall economy.