In his column “Spinning straw into trouble”, Associate Editor Gil Smart writes:
“Yet here’s the problem: The Federal Reserve wants everybody in the pool. By virtue of the policies it is pursuing — alchemy, basically — patient savers and prudent investors are being punished and will continue to be punished. The Fed has already announced that it is prepared to keep interest rates low through 2013. Last week came news that the Fed would once again seek to invigorate a faltering economy with “Operation Twist,” shifting much of its portfolio out of short-term securities into longer-term holdings. The goal, reported The Associated Press, is to “reduce rates on mortgages and other consumer and business loans.”…
“The Fed wants to push you into riskier assets. For it doesn’t matter that you’ve diligently saved all your life, socking money away in good times and bad, that is actually counterproductive; all that matters is that you get that money into the great churn machine.
“I resent this. I resent the notion that America’s economy rests on my willingness to risk every penny that I don’t spend, spend, spend. I resent the grotesque fallacy that debt equals prosperity. I resent the notion that the nation can only find sound fiscal footing if citizens renounce their own.”
WATCHDOG: What Smart is overlooking is that the Fed is forced to use such circuitous methods because of the failure of Congress to enact a large stimulus bill. Thus it has become its lot to try to fend off a double dip recession, or worse, through awkward monetary policy. The fault lies with those who have thwarted the president and the Democrats in Congress, not with the Federal Reserve.
So…areyou suggesting that the best way for this country to find sound fiscal footing is for the government to spend, spend, spend???
I’m reminded of the closing line in the classic movie ‘Bridge over the River Kwai’…………………”Madness”!!!!!!
EDITOR: In a word, yes. During times of propserity, we must tax and cut governmenet spending to balance the budget and reduce debt. This occurred during the Clinton Administration due to bi-partisan actions. But during recessions and depressions, it is essential to run deficits to get people back to work. This is known as Keynesian economics.
Our problem this time was the, but it was turned down by Congress. The first stopped the fall; the second would have brought about recovery and prosperity.
Think of it this way: When we reduce governmental spending, the result is massive lay offs for industry and various levels of government and education, thus reducing tax revenue and increasing government subsidies to the unemployed and the otherwise needy. We prematurely tried reducing the dericit in 1936 as the country was beginning recovery and the result was a double dip depression starting in 1937.
It took the massive governmental spending in 1940 as we re-armed our future allies and ourselves to extract ourselves from the Great Depression.
When we get people back to work, they in turn are able to purchase items to others, thus continuing a virtuous cycle. This is known as the multiplier effect, resulting usually with about $2.5 to $3 of additional Gross National Product for every dollar spent.
A healthy economy can readily handle our level of debt. It will shrink as a percentage of Gross National Product and can actually be paid down.
What we are saying here are simply basic principles of economics.
Austrian School economists generally advocate a laissez faire approach to the economy and are most frequently associated with libertarianism. (http://en.wikipedia.org/wiki/Austrian_school). Keynesian economics vs Austrian approaches to revamping our economy are at loggerheads.
If another Stimulus Bill is brought to the table I hope Congress decides to hand the checks directly to the people; kind of like a dividend check. That way, the fats cats only get richer if the people buy their wares.
Giving the money to big business to produce more jobs is a fallacy.
No more bailouts. Period.