…fire the Fed.
Yesterday we learned the American economy added more jobs than expected. While it was not enough to budge the 9.6% unemployment figure, it was a surprise to everyone…including the Federal Reserve who had just announced a $600 billion dollar initiative to create economic “stimulus” via buying back government debt. This essentially pushes more cash into the economy by printing more dollars, the theory being cheaper money will jump start lending and hiring.
But!
Interest rates are already at historic lows, banks aren’t lending, real estate continues to fall in value, companies aren’t significantly increasing hiring and consumers remain skittish.
And!
There is already more than a trillion dollars of liquidity in the system, on the sidelines – not being lent or spent – and yet the Fed ostensibly believes that what the economy needs now is more liquidity. The federal government has found many and several ineffective ways to mortgage our future in a futile attempt to create jobs and this is the one that we might regret the most dearly.
The Keynesians finally got their wish. The Federal Reserve plans to inject $600 billion of the most caustic debt imaginable into the economy. This is the Agent Orange of monetary policies that has the potential to wreak financial havoc.
In the hope of generating inflation, the central bank is going to enable deficit spending by buying treasury bonds. You read that correctly: the primary goal is to erode the value of the dollar, and we get to watch our currency and wealth literally dissolve before our eyes.
Only a desperate government would consider debasing its own currency. The resulting inflation will be an insidious tax on every American who will suffer as wages lag behind increasing prices. It is doubtful that countries like China will react favorably to the precipitous drop in the value of the debt owed to them.
One has to wonder, had the Fed waited one more day until the employment numbers came out, if they would have paused their relentless attempts to “thwart deflation” and “create jobs” by further rendering the dollar worthless.
Once again, repeat after me: “The government can’t create jobs.”
That’s not to say they can’t hire citizens to park their flabby arses behind desks and vote for Democrats, but the government can’t create jobs in a pure sense – jobs that actually create net-net wealth and prosperity and in turn revenue for the government.
Consumers aren’t buying and employers aren’t hiring because conditions are uncertain. (yes, I bolded, italicized and underlined “uncertain”)
Conditions in turn are uncertain in no small part due to the fact that those that have the cash, banks, employers and consumers don’t know what the government’s next bumbling intervention will be as it relates most substantially to taxes and health care.
So they wait.
No amount of Fed Quantitative Queasing will change that. In fact most consumers and employers could give a rip what the Fed is doing.
Based on election results this week, one might conclude they would just as soon the government get the hell out of the business of manipulating the system.
So why does the Fed insist on more of the same?
1) Because they can’t not. It’s the nature of government the last few decades. They must justify their existence.
2) Furthermore, they must justify past actions; if flooding the economic landscape with liquidity didn’t work before, that must mean we just didn’t do enough.
3) It’s the only lever they have, given the bent of the current administration, who until this past Tuesday were opposed to any economic prescription other than increasing spending.
4) Irrational fears of deflation; the theory is that once prices fall, the consumer becomes even more fickle: Why buy now when the price will be lower tomorrow? So prices go lower still. The problem with this theory is that history shows otherwise and…consumers just aren’t savvy enough to wait until tomorrow.
Despite the misinformation propagated by these big-spending liberals, deflation has existed during extraordinary periods of economic growth and did not adversely affect consumers or wage earners. In fact, deflation is not only a common occurrence in a free economy, but it is also indicative of a vibrant and healthy economic expansion where the innovations and efficiency that competition engenders lower the costs of production. These lower costs translate into lower product prices benefiting the consumer.
Consumers were not harmed by the significant deflation of personal computers prices over the last two decades, and despite these falling prices, there has been explosive growth and profits. No credible economist could argue that consumers, manufacturers, or the economy would have been better-served if the government intervened and forced computer prices higher. Yet Keynesians propose that our economic woes can be ended by forcing the price of all products higher.
Employers and consumers will not budge until the economy naturally, and in this case excruciatingly slowly, takes up the slack created by the collapse of the real estate bubble, which of course was created by another flavor of government meddling.
The employment numbers show this is starting to happen and that the chances of a double dip are diminishing. The numbers behind the numbers show that average hours worked by those that are employed are increasing as well, further demonstrating capitalism’s ability to overcome even the worst liberal economic molestations.
There is no amount of Federal intervention that can or will change the fact that it is the small business owner, the employer, the risk taker; the capitalist, that can take up the slack. It is the newly-minted GOP’s job to make sure this can continue unabated while at the same time recalibrate America’s fundamental expectations of the Fed’s ability to effectively manage the trajectory of the overall economy.
For if the Fed continues to dabble in economic alchemy, it only increases the likelihood of inviting the as yet unrealized but certainly dire consequences of a nuclear currency war in an ever more global economy.
