The Great Money Printing Cover UP

-By Dan Scott

This morning to my dismay I see the headlines in the Wall Street Journal (WSJ), Fed Signals More Action as Slump Drags On, with the summary line of “Recession Began a Year Ago, Making It Longest Since Early ’80s, Panel Says; Bernanke Considers Rate Cuts, Bond Purchases” The part which caught my eye was “Bond Purchases.” As I read the article I was stunned at the rationalizations being offered why the Federal Reserve should take actions that ordinarily would be considered extremely foolish in the light of history.

Earlier this week The National Bureau of Economic Research (NBER) had pronounced the country was in recession since December 2007. A rather odd pronouncement since we only had one confirmed quarter of negative Gross Domestic Product (GDP) and we are assuming this current quarter is also in negative territory, thus giving us the recession which the MSM and Democrats have so longed for in the past five years. NBER gave a rather interesting definition of a recession: A recession begins when the economy reaches a peak of activity and ends when the economy reaches its trough. Between trough and peak, the economy is in an expansion. So in essence if the economy is not climbing to a peak, it must be in recession, an interesting mental summersault since what they are saying is if two months in a row showed no increase or decrease, then according to their definition, the economy is in recession. Then comes the next interesting comment, The committee believes that the two most reliable comprehensive estimates of aggregate domestic production are normally the quarterly estimate of real Gross Domestic Product and the quarterly estimate of real Gross Domestic Income, both produced by the Bureau of Economic Analysis. In concept, the two should be the same, because sales of products generate income for producers and workers equal to the value of the sales. However, because the measurement on the product and income sides proceeds somewhat independently, the two actual measures differ by a statistical discrepancy. (emphasis mine) So now according to this committee the volatile Gross Domestic Income (GDI) is an equal measure to the GDP? What the NBER committee did not tell us is that GDI is affected by productivity. A spike in productivity will drive down the GDI and those who gauge the economy based on the GDI will erroneously assume an ailing industry when in fact automation and better production methods reduced employment payroll but profits either remained the same or increased. An example of this would be the Auto Industry when gas prices were down before 2005, manufacturers shed 30% of their labor force over 10 years but made the same number of cars and trucks. Notice their definition excludes profits, how socialist of them. Using the GDI would essentially mean the old Soviet Union was going swimmingly until they collapsed for some mysterious economic reason.

So all this talk of how terrible the economy is and when things got bad is a rationalization, since we had recessions in 1991 and 2001, both of which had worse GDP performance. What is different about this recession than the previous ones that justifies such extreme actions now? Politics, plain and simple and more irresponsibly, a cover up of government incompetence which led to the current economic circumstances. Now government bureaucrats are prepared to enact the unthinkable, printing money.

What is amazing is how quickly bureaucrats have decided that printing money was their seemingly only option. It started from their fatal conceit as Friedrich A. Hayek, Nobel laureate in economics called it. Fatal conceit is the idea that government bureaucrats can make better financial decisions than the businessmen and consumers who are the basis of the economy. After having the failure of the Community Reinvestment Act and the domestic drilling ban, they then moved to bailouts to mitigate their failures and now the printing of money. Why would they print money unless they understand they simply can not raise enough money via borrowing or increasing taxes? The WSJ article speaks of the Federal Reserve holding down interest rates, which basically means they have artificially contrived to keep rates down and not let the market dictate those rates, why? Because they want to keep borrowing costs down, costs that evaporate profits which lead to more layoffs and also keep down the price tag for the bailouts. If the money is not going to come from cutting of government spending, increased borrowing or raising taxes, then it must come from somewhere else. Which now brings us to an ugly little secret that we must infer, the sales of government bonds didn’t garner the billions they were going to throw at the banks, and the rest of the bailout recipients. So far only $350 billion has been spent of the $700 billion authorized. Why not? Could that be due to the Fed’s unwillingness to offer more than the rock bottom interest rates? Could it have to do with the $800 billion annual budget deficit which bonds will need to be bought? Or could it have to do with all the other world’s governments scrambling to borrow money to prop up their economies? You know, where the other 75% of the world’s GDP is created. So we are forced to ask, is there enough money floating around in the world at this time to finance all these bailouts? NO.

Let me direct your attention back to the WSJ article. It could bring down long-term rates now by purchasing Treasury bonds itself. A central bank has the capacity to effectively print money by injecting reserves into the banking system and could use the funds to buy securities like bonds. In normal times, this would be highly inflationary. But Mr. Bernanke noted that the recession is putting downward pressure on inflation now, which gives him flexibility to keep pressing with new measures to battle the recession. He also said the Fed would unwind its programs when the economy stabilizes, to help guard against inflation.The Fed has already taken a big step toward targeting long-term interest rates. Last week, it said it would buy up to $600 billion in debt issued or guaranteed by Fannie Mae, Freddie Mac, Ginnie Mae and Federal Home Loan Banks, all mortgage businesses with close tied to the government.

 Watch the Moody Baa Bond rates as this reflects the real interest rates needed to draw investment capital for private enterprise. The spike in the Baa rates indicates the severe competition for capital between government and private industry. If only $350 billion of the $700 has been spent so far by the government, imagine what will happen when they go for the $500+ billion stimulus package! Now you can see why government bailouts are self defeating, they take investment capital from enterprises with sound business plans which would create jobs and wealth and give it to politically correct players who have a track record of making bad business decisions based on unsound government rules seeking to advance a PC agenda. What we are witnessing here is how a recession that would normally unwind itself in less than a year turns itself into a multi-year depression.

The exact same mistakes FDR made are being repeated. What’s next, have people on the government payroll dig holes just to fill them up again? Oh that’s right, we are more sophisticated these days, we’ll have a road building program to repave the highways and replace or repair bridges. Why? Because allowing the evil oil companies to drill domestically does not conform to the PC agenda of Green. Repealing of the CRA would not be viewed as humane, we are striving for a society without economic disparity, where everyone is uniformly disadvantaged. The point of privilege is for the disadvantaged to feel good about the Socialist elites running their lives, no matter the reason for their disadvantage. A society based on individual choice and reward is totally counter to the Socialist ideology as it accepts disparity as a consequence of those choices by individuals. Disparity is not evil, it is a motivator to improve your lot in life. Everything done by liberal politicians and bureaucrats is done to justify their existence, that existence is defined by how popular they are making them the whores that they are, therefore they must do something, but I ask you, why must they do the WRONG thing?

At some point, a majority of the public will realize populist sounding slogans are nothing more than sales pitches of salesmen selling a product to get their commission. A politician is supposed to be a representative of their constituency having been voted into their position as a proxy, if you will, of the people they represent, not slick talking salesmen just telling you what you want to hear to get the sale. The Democrats and their allies in the bureaucracy are only representing their own elitist agenda whose real constituents are their campaign contributors. Barack Obama and the Democrats garnered over $600 million in campaign contributions, most of which came from special interests who either will financially or ideologically benefit from the bailouts and new government programs like the green energy agenda. We have been sold a bill of goods, it’s time to get a refund, we want our money back!

———-Dan Scott calls himself a “Member of the Global Capitalist Cabal preaching Capitalism and personal responsibility as the economic solution to world poverty.” He is also a member of the 14th Amendment Society — victimhood is a liberal code word for denying the civil rights of others. He is also a proud member of the Global Warming Denier Cabal, insisting that facts not agendas determine the truth.Dan can be seen on the web at http://www.geocities.com/fightbigotry2002/ as well as http://www.geocities.com/dscott8186/saidwebpage.htm, And can be reached for comments at dscott8186@yahoo.com.

Fair Use: This site may contain copyrighted material the use of which has not always been specifically authorized by the copyright owner. I am making such material available in my efforts to advance understanding of political, human rights, economic, democracy, and social justice issues, etc. I believe this constitutes a ‘fair use’ of any such copyrighted material as provided for in section 107 of the US Copyright Law. In accordance with Title 17 U.S.C. Section 107, the material on this site is distributed without profit to those who have expressed a prior interest in receiving the included information for research, educational, or satirical purposes. If you wish to use copyrighted material from this site/blog for purposes of your own that go beyond ‘fair use’, you must obtain permission from the copyright owner.