Can We Admit That Economic Policy Has Failed Yet?

Government Economic Policy Has Been As Bad As Its Policy Towards ISIS or Ebola

What’s causing the market to tank?

Lets turn back the clock a couple of days, when the head of the International Monetary Fund said that there was too much financial gambling (based on overly-low interest rates):

“A sudden shift in sentiment could easily cascade across the entire globe,” IMF Managing Director  Christine Lagarde told the fund’s governing board. “There is too little economic risk-taking, and too much financial risk-taking.”

And let’s travel back 2 weeks:

The recent edition of the Geneva report – “an annual assessment informed by a top drawer conference of leading decision makers and economic thinkers” – finds that the “poisonous combination” of spiraling debts and low growth could trigger another crisis. The report also notes:

Contrary to widely held beliefs, the world has not yet begun to de-lever and the global debt to GDP ratio is still growing, breaking new highs.

And as the Telegraph puts it:

On a global level, growth is being steadily drowned under a rising tide of debt, threatening renewed financial crisis, a continued squeeze to living standards, and eventual mass default.

(A number of billionaires also believe a crash is imminent.)

This is not surprising …

The Bank for International Settlements has been warning for years that the U.S. and other Western countries have been using all of the wrong approaches to fix the economy.


Instead of helping to reduce unemployment, bad government policy has made it much worse. And see here and here.

Excessive leverage was one of the main causes of the 2007-2008 crisis … and yet governments responded by encouraging more leverage.

And bad government policy has driven the entire world into debt.

Indeed – instead of fixing any of the real problems which led to the 2007 crisis – governments on both sides of the Atlantic have simply tried to paper over them.   It’s pretty clear how this movie is going to end …

Let’s jump back a year, when we pointed out that quantitative easing hurts the economy, that failing to break up the big banks is killing us, and that:

Bad government policy has created a years-long unemployment problem. But instead of fixing the problem, the government is trying to paper over it.

***

The U.S. and British governments encouraged interest rate manipulation. And central banks have been directly manipulating interest rates for hundreds of years.

Government agencies have helped banks manipulate commodities prices for decades.

The government twisted statistics and intentionally lied when it pretended that the banks it was bailing out were solvent

The government has long ignored energy and food prices when reporting on inflation.

Fraud is Wall Street’s business model, which is – unfortunately – being supported by the government.

The government helped cover up the crimes of the big banks, used claims of national security to keep everything in the dark, and changed basic rules and definitions to allow the game to continue. See this, this, this and this.

It is not only a matter of covering up fraud that has already happened. The government also created an environment which greatly encouraged fraud. Here are just a few of many potential examples:

  • Business Week wrote on May 23, 2006:

“President George W. Bush has bestowed on his intelligence czar, John Negroponte, broad authority, in the name of national security, to excuse publicly traded companies from their usual accounting and securities-disclosure obligations.”

  • Tim Geithner was complicit in Lehman’s accounting fraud, (and see this), and pushed to pay AIG’s CDS counterparties at full value, and then to keep the deal secret. And as Robert Reich notes, Geithner was “very much in the center of the action” regarding the secret bail out of Bear Stearns without Congressional approval. William Black points out: “Mr. Geithner, as President of the Federal Reserve Bank of New York since October 2003, was one of those senior regulators who failed to take any effective regulatory action to prevent the crisis, but instead covered up its depth”
  • The former chief accountant for the SEC says that Bernanke and Paulson broke the law and should be prosecuted
  • The government knew about mortgage fraud a long time ago. For example, the FBI warned of an “epidemic” of mortgage fraud in 2004. However, the FBI, DOJ and other government agencies then stood down and did nothing. See this and this. For example, the Federal Reserve turned its cheek and allowed massive fraud, and the SEC has repeatedly ignored accounting fraud. Indeed, Alan Greenspan took the position that fraud could never happen
  • Bernanke might have broken the law by letting unemployment rise in order to keep inflation low
  • Paulson and Bernanke falsely stated that the big banks receiving Tarp money were healthy, when they were not
  • Of course, deregulation by Larry Summers, Robert Rubin, Phil Gramm and many other high-level politicians and regulators also helped to grease the skids for fraud

Economist James K. Galbraith wrote in the introduction to his father, John Kenneth Galbraith’s, definitive study of the Great Depression, The Great Crash, 1929:

The main relevance of The Great Crash, 1929 to the great crisis of 2008 is surely here. In both cases, the government knew what it should do. Both times, it declined to do it. In the summer of 1929 a few stern words from on high, a rise in the discount rate, a tough investigation into the pyramid schemes of the day, and the house of cards on Wall Street would have tumbled before its fall destroyed the whole economy. In 2004, the FBI warned publicly of “an epidemic of mortgage fraud.” But the government did nothing, and less than nothing, delivering instead low interest rates, deregulation and clear signals that laws would not be enforced. The signals were not subtle: on one occasion the director of the Office of Thrift Supervision came to a conference with copies of the Federal Register and a chainsaw. There followed every manner of scheme to fleece the unsuspecting ….

This was fraud, perpetrated in the first instance by the government on the population, and by the rich on the poor.

***

The government that permits this to happen is complicit in a vast crime.

Let’s rewind 2 years, when we showed that never-ending war destroys our economy.

Let’s step back 3 years, when we noted that the economy would crash again unless we fix the following core problems:

    • Focusing on policy objectives other than reducing unemployment (which has the net effect of actually increasing unemployment)

And let’s flash back 6 years, when we showed the the root of the economic crisis was dishonesty.

Indeed, this market crash was foreseeablethousands of years ago.

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  • hvaiallverden

    They will never admitt this, never, and WE the people have ONE solution, or two, the first, and foremoust, is to hang them all, and lett them hang there to dry.
    Giljotines and Pitchforks, helps every time.

    And the second, to have any prosper of future gains for all, since paper money is basicly toilett papper, dipped in fancy collors, with marks on it, the sole difference between that and shittpaper, is to simply eraze all debth, trhuout it all, there will never,ever be a recovery if not this crime is setled and the feilds leveled, never ever.

    Then when the to bigg to fail, is erazed from the face of this earth, humanity will prosper, all humanity will prosper.
    Anything else, is a continuation of the massive scam of the millenium.
    And, even Jesus would agree, he gott pissed just ones, and that when he encountered Usury, and snapped, hehe, even He.

    peace

  • MOLON LABE

    FYI: October 2014 Release Date North America Time for a New Focus Chairs: David H. Petraeus, KKR Global Institute, and Robert B. Zoellick, Goldman Sachs & Co. Director: Shannon K. O’Neil, Senior Fellow for Latin America Studies Download Now Publisher Council on Foreign Relations Press Release Date October 2014138 pages ISBN 978-0-87609-599-7 Task Force Report

    Overview: A new CFR-sponsored Independent Task Force report, North America: Time for a New Focus, asserts that elevating and prioritizing the U.S.-Canada-Mexico relationship offers the best opportunity for strengthening the United States and its place in the world. “It is time to put North America at the forefront of U.S. policy,” the report says. “The development and implementation of a strategy for U.S. economic, energy, security, environmental, and societal cooperation with its two neighbors can strengthen the United States at home and enhance its influence abroad.”

    http://www.cfr.org/north-america/north-america/p33536

  • jadan

    The problem is not economic policy. The problem is not debt-to-GDP ratios. The problem is not dishonesty, or greed, or breaking the law. If these are the problems, then implementing the right policies, reducing debt, and enforcing laws would fix the economy. It won’t.

    The truth of the matter is that the bad economic policies issuing from the Fed, from the mouths of pompous fools like Allen Greenspan, over-leveraging, financial speculation in the development of the derivative economy, mortgage fraud, and so on, these are a response to a failing economic system. When the economy began to financialize, and our idiot visionaries declared that we weren’t going to get our hands dirty any longer, this was an admission that we weren’t producing as we once did and our industrial base was collapsing. To oversimplify: investors had little to invest in that would create a return like blowing financial bubbles. Tech bubble, housing bubble. Financial profits. False profits that create economic anemia because they devalue the currency as well as starve the producing economy of credit to invest and develop.

    The problem is the SYSTEM, called the Fed. It has failed and there’s no fixing it. It is so simple and so obvious: if your money is debt you have nowhere to go except deeper into debt. Our money supply is created by private banks that make loans at interest. Our government is funded by debt loaned from the private sector at interest. If you borrow money at 5%, you have to earn at least 5% in order to break even. The “public” debt is 40+% interest. Alexander Hamilton designed the monetary system this way and it has not changed since 1791. Our money is created by going into debt. We borrow it and if the economy does not grow fast enough, we cannot pay it back and our deficit just gets bigger.

    It’s time to change the system, to get rid of the Fed and money-as-debt. The US Treasury has the sovereign right ( an obligation!) to create the nation’s money. If the government can fund itself without borrowing, good-bye national debt. If the government can fund infrastructure development, education, healthcare, with debt-free money, there goes unemployment. Gone! Get rid of usury and usurers and you get rid of the problem that is killing our economy. We can quickly and easily create a monetary system built on debt-free money.

    We need a monetary revolution. There’s no fixing the old bitch, the Fed. Congress could solve the problem overnight by passing legislation such as HR 2990, a bill proposed by Dennis Kucinich in the last Congress. We need a new vision of money and a revolution in our traditional attitudes. We need to take control of our government and create a democracy. We don’t have one and we have never actually had one.

  • tate matson

    The austrian(jews) school of economics is lowering the price of oil so that they can call in the loans of the fracking companies–aka bankrupt them–then shut them down in 2 years–then 160 a barrel of oil. The Saudi’s are evil–they basically want control of all oil production. And Obama the Jewish Puppet does whatever they say. And no the Saudi Royal Family is not Muslim. They are originally Jewish goat herders who got lucky many years ago when they lied to the British and got the hell hole that is Saudi Jew Arabia–it still is a hell hole–but with tacky Gold buildings and Gold Plated Cars, the Beverly hillbillies had more class then the house of Saud…..