The View From 1776

Ignore Wall Street

The financial press and Wall Street stock market gurus confidently declare that the Republicans will be “brought to their senses” if the stock market continues to retrench in the face of uncertainty wrought by the government slim-down. 

Members of Congress not committed to worship of the Democrat-Socialist Party’s collectivist control should ignore stock market speculators’ distress and look to the long-term welfare of the real America.  Having gone thus far, Republicans should stick to their guns.

Unhappily, recent history gives stock market speculators reason to believe that Federal policy, particularly action by the Federal Reserve, will kowtow to the stock market, as if that were the real economic heart of the nation.  Supposedly a prolonged market selloff would damage the economy.  The truth, to the contrary, is that the stock market bubble of the past couple of years is to a major extent a creation of the Fed’s easy-money policies.

Beginning in the aftermath of the huge market selloff in October 1987, the Fed under Alan Greenspan, instituted what became known as the Greenspan put: stock market speculators became confident that the Fed would flood the market with low-interest-rate, fiat money to counter any weakness in the stock market.

Since then, and egregiously since the 2007-2008 meltdown of financial, housing, and subprime mortgage markets, the Fed’s only focal point has been levitating the stock and bond markets at whatever cost to the devaluation of the dollar.

Both Greenspan and his successor, Ben Bernanke, have consistently ignored the real deterioration of the economy, as measured by the inflation-induced decline in production of real goods and services and the fostering of low-cost, job-killing imports from China and Southeast Asia.  Bernanke opined that higher stock market prices would somehow create new jobs.  But it hasn’t worked, certainly not as predicted by Bernanke’s Keynesian economic theories.

Meanwhile only the denizens of Wall Street are again becoming fabulously wealthy, feasting on the Fed’s near zero-cost financing.  The rest of the country struggles with high unemployment and family income that is steadily declining in purchasing power as a result of Fed-created inflation to bolster the stock market.

Posted by .(JavaScript must be enabled to view this email address) on 10/03 at 09:26 PM
  1. The Fed has been using its limited tools to get the economy moving in the absence of reasonable stimulative spending by congress. When the "austerity" gang in congress complains that the economy has not picked up steam, it is similar to killing your parents and then complaining that you should be pitied because you are an orphan. The idea that if the Fed did nothing and the congress cut spending to the bone, that magically the economy would blossom is sheer magical thinking - and an idea that has been thoroughly debunked by the experience in Europe where austerity has been tried.

    Our government is now spending less on national infrastructure (roads, bridges, rail) than any other industrialized nation, and we are paying the price for this negligence in a sluggish economy and collapsing services.

    One can hope that Speaker Boehner and the House Republicans will come to their senses before more damage is done to the economy, but so far, it appears that need for a poisonous vendetta enforced by blackmail against Obama exceeds their feelings of responsibility for the needs of the country.

    The remarkable and selfish intransigence of the Tea Party is perfectly captured in the now-famous remark yesterday of Representative Marlin Stutzman, R-Ind, who said,

    "We're not going to be disrespected. We have to get something out of this. And I don't know what that even is."
    Posted by .(JavaScript must be enabled to view this email address)  on  10/04  at  09:05 AM
  2. Mr. Jay, you are running headlong into the front end of an oncoming locomotive. To put it another way, your argument doesn't hold water.

    Not until 1933 was it imagined that the Fed could manipulate and control the economy without stagnation and serious damage to the economy from debasing the dollar. From 1789 until 1933, the U.S. economy performed spectacularly well with no Federal intervention.

    In the 1921 downturn, which was as severe in terms of unemployment and decreased industrial production as our 2007-2008 Great Recession, the government reduced spending and the Fed backed off from money creation. The economy bounced back within less than two years.
    Posted by .(JavaScript must be enabled to view this email address)  on  10/04  at  11:53 AM
  3. Mr. Brewton,

    You say that "from 1789 until 1933 the U.S. economy performed spectacularly well." From my high school history I seem to remember that we had a little problem in 1929 called the stock market crash, after which the country was awash with enormous unemployment, bread lines, and general misery on a monumental scale.

    You put words into my mouth when you say the Fed wants to "control the economy." In its role as the central bank of the United States The Federal Reserve System is supposed to do its best to keep the economy "on an even keel." This is not the same thing as your pejorative "control."

    The FED was founded by Congress in 1913 to provide the nation with a safer, more flexible, and more stable monetary and financial system than it had before, and to try to avoid the financial multiple crashes that had occurred previously.

    Congress has given the FED four duties:

    1) Influence the monetary and credit conditions in the economy to maximize employment, stable prices, and moderate long-term interest rates.

    2) Supervise banks to ensure the safety and soundness of the nation's financial system and protect the credit rights of consumers.

    3) Maintain the stability of the financial system and contain any systemic risk that may arise in financial markets.

    4) Provide financial services to banks, the U.S. government, and foreign governments.

    You may think this is too "intrusive," but until congress tells the FED to do otherwise, that is its role.
    Posted by .(JavaScript must be enabled to view this email address)  on  10/10  at  09:33 AM
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