Friday, September 14, 2012
Central bankers and economists are missing the obvious: They and the monetary system itself are the problem.
Three things are holding back the economy: fractional reserve lending; no enforcement mechanism on governmental spending (i.e. no gold standard); and central bank and governmental meddling.
Four major tailwinds made it appear Fed policy was working: US productive capacity; baby boomer demographics; women entering the workforce en masse; and the Internet revolution.
But there are TEN major headwinds: Retiring boomers with insufficient savings; student debt adversely affecting home buying; less ability and willingness on the part of individuals and businesses to take on more debt; bank bailouts left banks intact but did nothing for deeply indebted households; tax policies encourage flight of jobs and capital; technology now destroys more jobs than it creates; untenable pension problems at the city, state and federal levels; public unions and collective bargaining are structural problems at the heart of the pension mess; artificially low interest rates weaken those on fixed income; and the commercial real estate bust on top of the housing bust limits further job expansion.
Predictably, central planners and government bureaucrats are blind to the root problems; they don’t want to accept any blame. However, one might expect central bankers to at least understand headwinds and tailwinds.
The truth of the matter is that the "lowering interest rates to spur growth" model was never viable. Rather, four major tailwinds coupled with consumer attitudes (willingness to take on more debt) only made it appear so.
Shedlock would have loved to present his views at the recent Jackson Hole Economic Symposium, but the participants would not have liked his message: Central bankers and planners are a huge part of the problem, and no part of the solution
Posted by Unknown at 1:53 PM