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Subject:  We Are All Screwed or Date:  9/4/2012  10:39 AM
Author:  tjscott0 Number:  641945 of 882348

It may not matter who is elected as central bankers fail to understand what is holding the economy back?

Central bankers and economists are so wrapped up in warped mathematical formulas they fail to understand the obvious. The answer, which they refuse to accept, or even consider as a possibility, is that central bankers and the monetary system itself are the problem.

Belief that a bunch of central planners can sit in a room and divine interest rates and the proper amount of money in circulation is as ridiculous as belief that Russian central planners could properly set the price and quantity of steel or orange juice.

What's holding back the economy is three-fold.

Three Root Causes

1.Fractional Reserve Lending
2.No enforcement mechanism on governmental spending (i.e. lack of a gold standard)
3.Central bank and governmental meddling

Since the end of the great depression until the year 2000 the Fed had tailwinds at its back and that made it appear Fed policy was successful.

Four Major Tailwinds

1.US productive capacity not destroyed in WWII
2.Baby boomer demographics
3.Women entering the workforce en masse
4.Internet revolution

Those major tailwinds, in order, are what made it appear Fed policy was working. It is easy to inflate when powerful forces are at your back.


Following the 2001 recession, the Greenspan Fed held interest rates too low too long, allowing one last party. And it was the party-of-a-lifetime, culminating in the biggest housing and credit bubbles the world has ever seen.

In the wake of that party, all that is left is a big hangover and ten major headwinds.

Ten Major Headwinds

1.Boomers heading into retirement have insufficient savings
2.Student debt holds back home-buying, marriage, and family formation
3.Ability and willingness of individuals and businesses to take on more debt has shrunk dramatically. Attitudes towards lending, borrowing, and home ownership have changed.
4.Bank bailouts at taxpayer expense left banks intact but did nothing for households deep in debt
5.Tax policy encourages flight of jobs and capital
6.Technology now serves to destroy more jobs than it creates. Please see Robots to Rule the World? Taking All Jobs? Replace Women? for a discussion.
7.Untenable pension problems at the city, state, and federal level can no longer be put off.
8.Public unions and collective bargaining are structural problems at the heart of the pension mess as well as the heart of numerous city bankruptcies.
9.Artificially low interest rates weakens those on fixed income
10.Commercial real estate bust on top of housing bust limits further job expansion. How many more Walmart, Pizza Huts, McDonalds, nail salons, Kohl's stores, Office Depots, Home Depots do we need?

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