WASHINGTON, April 11, 2013 ― The United States economy has continually put up poor job numbers and shown sluggish growth since the crash of 2008 and the recession that followed. The numbers have gotten a little better; how long can this kind of malaise really last?
President Obama’s 2014 budget features more tax increases and cuts the growth of Social Security. Both of these sound like movement, however painful, in the direction of balancing the federal budget at some point down the line, but is it enough? The Federal Reserve’s loose money policy will make the small steps proposed in the budget for naught, and the exit strategy proposed by the Fed, which ends the purchas of mortgage securities but continues their purchases of Treasuries, is no solution.
America finds itself stuck between a rock and a hard place, and there is no happy ending in sight for the Great Recession. Congress, the White House and the Fed are bereft of ideas and continue to rehash what we’ve already done, hoping that this time it will work.
The Federal Reserve, through quantitative easing and Operation Twist, has bought tens of billions of dollars of bad mortgage based securities. It has lowered interest rates to virtually zero in order to stimulate the economy. Macroeconomics texts say low interest rates and huge cash injections should stimulate the economy, but with interest rates at zero, Fed policy seems completely impotent. Artificially low interest rates helped inflate housing prices and create the bubble that got us into this mess in the first place. How much lower did the Fed think they could go?
Fed policy has only encouraged people to incur more debt by taking out more loans, caused a massive inflation of the money supply, and the bad debt that otherwise would have been liquidated has instead been largely bought by the federal reserve. This bad policy feeds back into other parts of the economy.
The massive creation of money has caused a significant amount of inflation within the economy already. Food and fuel prices, not included in CPI calculations, have soared. Gold has gone from $695 per troy ounce in 2007 to almost $1600 today, while the Dow, at 14,565, is just above where it was then.
The United States may end up facing a currency and debt crisis simultaneously. The political circus that surrounds the debt ceiling increases the odds. Obama has said that “Congress must pay its dinner bill”, but he knew they couldn’t afford the foie gras and caviar before he urged them to order it. We’ll raise the debt ceiling, cut make a few adjustments to our spending, then keep on ordering that caviar.
Our economy has been propped up by cheap money, an addiction that acts like a sugar rush. We’re seeing the side effects in declining real wages, stagnant growth, and soaring debt. Getting out of this is going to hurt; it has to hurt, and the sooner our political leaders admit it and start inflicting pain, the better. But brace yourselves, because if the last six years are any indication, the road to recovery is going to be a bumpy ride.
This article is the copyrighted property of the writer and Communities @ WashingtonTimes.com. Written permission must be obtained before reprint in online or print media. REPRINTING TWTC CONTENT WITHOUT PERMISSION AND/OR PAYMENT IS THEFT AND PUNISHABLE BY LAW.