It should come as no surprise, but:
AIER offers a devastating analysis of QE1 and QE2 with an eye toward unseen costs: “The Fed’s prolonged effort to maintain interest rates at [an] abnormally low level has deprived savers of hundreds of billions of dollars in interest income, ultimately costing the economy between 2.4 million and 4.6 million jobs, $256 and $587 billion in consumption, and 1.75% and 3.32% in GDP growth.”
In their crusade to create jobs, the US government has spent lots of money, particularly over the last 3 years. Their end goal, so they say, is to get consumers spending again. It makes sense, without jobs people struggle to buy things. Regardless of the goal or motivation, it must be said that the policies instituted have been a spectacular failure and have achieved the exact opposite of their stated goals.
The U.S. Federal Reserve gave out $16.1 trillion in emergency loans to U.S. and foreign financial institutions between Dec. 1, 2007 and July 21, 2010, according to figures produced by the government’s first-ever audit of the central bank. Last year, the gross domestic product of the entire U.S. economy was $14.5 trillion. Of the $16.1 trillion loaned out, $3.08 trillion went to financial institutions in the U.K., Germany, Switzerland, France and Belgium, the Government Accountability Office’s (GAO) analysis shows.
In order to get consumers spending and for jobs to be created, governments the world over simply printed up loads of money and exchanged it for bad bank assets. Toxic mortgages, worthless stocks, you name it and governments bought it. Being such shrewd investors and economic geniuses, banks were entrusted with righting the ship, so to speak. They were trusted to prudently loan money to businesses who would in turn expand and hire. Don’t worry, we were told, the same people who got us into the mess (Wall St. banks, government officials) would get us out of it. Reality has no place in the loony bin.
Unfortunately, (or fortunately, depending on your underlying ideology) banks are not lending money. Perhaps more correctly stated, businesses are not seeking loans. In this economic climate, many businesses are unsure of the future and therefore unwilling to take on any new debt. That is prudent behaviour. Politicians hate prudent bahaviour.
If they really wanted to get consumers spending, why not just give the printed money directly to citizens? Why send it to the big banks first in the hopes that they will find lenders? Most likely they sent it to the banks because these banks will send it right back to government. Consumers can;t be trusted. They would go out and buy imported goods until all the money was gone. That would help China, Japan and other goods-producing countries, but not the US government.
Enter the debt ceiling. The first question is, why have a debt ceiling at all if it is just going to be raised every time it is reached? It has been raised some 90 or more times in the past, so seriously, why have one at all? Recently, President Obama went on TV to scare old people into support of raising the debt ceiling. He said that the government wouldn’t be able to send out their social security checks anymore, which is probably a lie, a George Bushesque scare tactic. How heartless must Obama be if the very first people who feel the pain from government budget cuts are old people? The Nobel Peace Prize recipient has no problem continuing Bush’s expensive wars of choice and even starting a few of his own, but yeah old people should probably be the first to suffer.
Obama, like most politicians, has no idea how an economy works. He doesn’t understand what capital is and what its for. Perhaps he never thinks about capital at all or if he does believes capital rolls off the printing press. He may believe debt is capital. He is sadly mistaken as we are all painfully finding out. Capital is not newly printed dollars and most certainly isn’t debt. Don’t get me wrong, the Republicans are just as intellectually and morally bankrupt as the Democrats. The Republicans controlled the branches of US government for a full 6 years and only succeeded in exploding the size of government. They out-Democrated the Democrats. Not to be outdone, the Democrats today are dragging the United States further into the debt abyss. Neither party have any clue.
Ron Paul gets it, and even though he runs as a Republican, many Democrats are starting to favour his ideas. Of all the Republicans, he would most easily defeat President Obama. More and more Americans are in support of Ron Paul, but time will tell if it will be enough for him to achieve electoral success. Mr. Paul admits he doesn’t have all the answers (a rarity in politics today), but he absolutely understands how an economy works and how governments only succeed in distorting it, causing dislocation, unemployment and the potential for chaos.
The correction will come, with or without a President Ron Paul. One way or another, the printing presses will either be voluntarily turned off, or forced off for failure to pay the electric bill.