Long Live The Recession!

8 Aug

For those who may be worried about the future of the American economy, there is no need to panic. The recession is over! After all, the media has proclaimed it, so it must be true. Apparently, the second quarter GDP numbers fell by only 1%, stuffy CEOs are getting lucrative bonuses, and economic growth is predicted to last through the summer.

Call me a cynic, but for some reason, I’m not entirely convinced. All of the numbers, statistics, and spin spewing from the airwaves can not duck an important question: have the imbalances that caused the Panic of ’08 been fixed?

The cause of this bust, as well as every major bust since 1913, lays directly in the lap of the Federal Reserve and its monetary policy. This government-run private bank artificially lowers interest rates which encourages risky malinvestment, encourages foolish mortgages that shouldn’t have been lent or purchased, and devalues the purchasing power of our money (especially the poor). The Fed simply borrows money against itself, injects this fiat monopoly money into the economy, and the bubble chaos ensues.

The imbalances have not been fixed because our Counterfeiting Regime in DC does not understand that a recession is not something to be fixed or overcome, but that it is the fix. Recessions are an attempt by market forces to repair the damage of malinvestment and misallocation of resources by liquidating toxic assets and debt. Allowing this to happen leaves our economic structures more efficient and sound, but Fed policies prolong the pain by doing just the opposite.

Before the creation of the Federal Reserve in 1913, the US experienced a number of panics that the government schools’ history books rarely mention. That’s because these recessions were fixed smoothly by market forces, a strong gold-backed currency, and the power of free people acting in a free marketplace.

What the government is doing now (and what it has been doing on a smaller scale since 1914) is creating trillions of dollars in Fed “stimulus” money, a dangerous and counterproductive approach that has, and will continue to, only make things worse. Our economy was drunk on the Bush-Greenspan Fed inflation, and we woke up with a hangover of borrowing, spending, and debt a few years ago. Instead of putting down the bottle and sobering up, the Obama-Bernanke Fed is back at the barstool.

By interfering with the unpleasant, but necessary, forces of the recession, the US is trading short-term gain for long-term disaster. By propping up inefficient and corrupt companies on the backs of taxpayers, the US deprives healthy companies with the essential capital they need to grow. By continuing to cut interest rates, Americans are encouraged to borrow and consume instead of saving. All of these government-induced factors impede economic recovery, while capitalism continues to be the dartboard.

For the perfect example of the complete ineptitude of the government’s management of the economy, we need to look no further than the awful “Cash for Clunkers” bill that started last week. It gives Americans the incentive to get rid of cars that they have already paid for so that they can go further into debt to buy new ones. Subsidizing Americans to continue on the path of consumption is a recipe for disaster and a microcosm of our Empire of Debt.

We have learned nothing from the mistakes of the past, and the infamous American amnesia allows these errors to be expanded and perpetuated.

This post originally appeared in Robert’s bi-weekly column in San Francisco’s (d)Not Gonzo blog.


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