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Op-Ed: Goodbye easy money, is it back to
the real world?
By William Haupt III | The Center Square contributor
"So bye-bye, Miss American Pie, Drove my Chevy to the
levee, but the levee was dry. Them good old boys were drinkin' whiskey
'n rye, singin, "This is the day the music will die." – Don McLean |
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 The Great Recession resulted in a global economic
decline in 2007. At the time, the International Monetary Fund labeled it the
most severe economic meltdown since the Great Depression. In the U.S., it was
triggered with the housing bubble burst in 2007. And like the Great Depression,
nations around the world over-reacted. Many did more damage than good, which
prolonged their recovery.
When Bill Clinton declared homeownership a right, not a privilege, it ushered in
an era of sub-prime mortgages. Granting mortgages to high-risk borrowers
increased home prices and brought turmoil to financial markets. When these
debtors defaulted on loans, banks went belly up and this caused the Great
Recession. And we are burdened with an economy run by "government help" to this
day.
The recession renewed interest in Keynesian economics; governments can control
free markets better than they can themselves. Instead of allowing for a natural
market correction, the Central Bank invented funny money to put the economy on
life support with low interest rates too long.
"No economy can remain healthy with government over regulation and
interference." – Ben Bernanke
When the sub-prime crisis caused financial markets to go into self-protect mode
in 2008, the Fed over-primed the pump of the banking system. The Fed
over-stepped its financial perimeter when it began paying interest on reserves.
This fiscal chicanery converted the pool of bank reserves into interest-bearing
security accounts. Instead of increasing lending, "banks decreased their
lending."
Throughout the Great Recession, and after it, government grew more dependent on
the Federal Reserve and less on the free markets to stimulate the economy.
Barack Obama solidified this by appointing liberal ally, economist Janet Yellen,
president of the Federal Reserve in 2014. The U.S. Senate confirmed Yellen by
56-26, the lowest number of yes votes a Fed chair has ever received.
During the Obama recovery, Yellen kept rates artificially low to help the ailing
economy and to reflect better unemployment numbers and a dubiously improved
stock market. This was a politically correct move for the left but it hindered
across the board true market corrections.
"It is the duty of the Federal Reserve to take measures to manage every segment
of this economy." – Janet Yellen
The Fed kept interest rates at an all time low, down 50% during Obama's reign.
Like magic, that changed with the election of President Donald Trump and his
two-year economic revival. The Fed raised rates four times in 2018 under
Chairmen Jerome Powell, until the COVID-19 crisis hit. This proved that the
Federal Reserve has more ability to control interest rates than any time in its
105-year history.
The Fed did not lower rates until the pandemic. And two years after the global
economy went into a deep, but very short recession, the consequences of the
central bank's over-reaction resulted in record breaking inflation and labor
shortages. Joe Biden's totally unnecessary stimulus spending has completely
destroyed the economic recovery and has turned back the financial clock to 1970.
When Joe Biden took office the global economy was in recovery and all he had to
do was sit back and do nothing. But that was easier said than done since he had
campaigned to undo everything that President Trump had done and reinvent America
into a progressive wonderland. And he hired former chairwoman of the Fed, Janet
Yellen as Secretary of the Treasury to make all this happen.
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"I predict that within a year America will be back to full employment with my
policies." – Joe Biden
Biden's approval rating is falling faster than Superman can dodge a speeding
bullet. According to a recent Quinnipiac Poll, voters' number one problem with
Biden is his economy. This comes as inflation has soared to a 39-year high and
we have the largest labor shortage in U.S. history. His federal subsidies and
spending have broken our supply chain and raised our energy prices 55%!
Manuel Balmaseda, president of the National Association for Business Economics (NABE)
said if the central bank does not raise rates ASAP, inflation will be worse than
it was in 1970. The yearly rate of inflation. which was almost zero at year end
2020, has climbed almost 10% a month since then.
Reacting to pressure from global economists, last week the Fed raised the
interest rate .25% for the first time in three years. The Bank of England just
delivered back-to-back hikes and The Bank of Canada is set to move next month.
The European Central Bank will take action next month also.
"As we watch prices go up, the Fed believes they can inflate us out of it
somehow?" – Ron Paul
Economists at JP Morgan Chase & Co. estimate that, by April, rates will have
gone up in countries that together produce about half of the world’s gross
domestic product. They expect a new global average interest rate of about 2% at
the end of this year. That is roughly the pre-pandemic level.
World economists believe the global inflation triggered by zero interest rates
poses a bigger threat than the pandemic ever did. Economists point to the Great
Depression and the Great Recession as examples of how "too much" government
interference in the economy hinders a natural correction.
This week, the U.S. is expected to report a 9.3% inflation rate for February,
the highest since 1970. Economists claim it took the Fed far too long to start
raising rates. While the left defends Biden's economic plan, it has stalled the
recovery with high prices, a labor shortage and supply problems.
Media, economists and Americans were blinded to economic reality during the 2020
election. They fell for Biden's rhetoric to unite America and promote economic
growth by spending. And this has been disastrous. Media and the left spent 2021
arguing inflation is “transitory” and red flags about inflation was political
posturing. Now that it might surpass the Carter years, the Fed is running
scared.
Jimmy Carter told America, "You just have to have faith things will improve."
After four long years, America faced 10% inflation and 10% unemployment. Our
foreign policy was a disaster, he allowed the growth of Islamic terrorism,
federalized education, and left the American economy in a disaster.
The Fed was formed to independently shepherd our money supply. Yet since the
Recession of 2008, they have worked with government to advance federalism by
making people dependent on government hand outs. When the Federal Reserve
allowed inflation to run wild to satisfy political concerns about the economy,
it reneged on its founding promise to safeguard our money supply.
"No major institution in the United States has so poor a record of performance
over such a long period of time as the Federal Reserve. Yet it has so high a
public reputation." – Milton Friedman
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