If you want to understand America’s precariously deepening travails, you need to start at the Federal Reserve’s Eccles Structure …
After a 30- year rolling coup d’etat, its occupants have imposed a regime of destructive falsification on America’s financial, financial, political, and social life.
It has become the heart of mushrooming darkness taking prosperity, liberty, and democracy down for the count.
How do we get 50 million out of work … the stock exchange at record highs … companies trashing their balance sheets to buy back stock and do greatly expensive M&An offers … physicians and political leaders savaging the economy and the incomes of millions … and Washington going incontinent on the financial front?
The answer is simple:
the rapidly-spreading dysfunction is rooted in the huge financial scams embedded in the Federal Reserve’s $7 trillion balance sheet.
The latter is blissfully taken for approved by the political leaders and C-suites of corporate America and frantically insisted upon by the unhinged gamblers of Wall Street.
Even if you believe that a routine infusion of money is needed to catalyze the wheels of capitalist development (we do not), there is absolutely no financial reasoning that says the central bank’s balance sheet ought to grow by orders of magnitude much faster than GDP over an extended time period.
If the robustly growing GDP of 1987 needed $5 of central bank cash per $100 of GDP, there is no reason that ratio should have varied in 2008 or 2020.
However it did and does.
In June 1987, the small GDP was $4.8 trillion, and by all existing quotes, it clocked in at $194 trillion in June2020 That’s a 4.1 X expansion over 33 years.
In contrast, the Federal Reserve’s balance sheet stood at about $240 billion on the eve of Greenspan’s arrival at the Eccles Structure in August 1987 and clocked in at $7.2 trillion at the end of Q22020 That’s a 30 X gain.
Because the early 2000 s and the dotcom crash, it has only gotten far worse.
During the past 17 years, the Fed’s balance sheet (purple line) has actually increased to 983% of its starting value, even as GDP (red line) has actually increased to only 192%.
What was fostered in the huge area between the two lines above was excess liquidity, financial obligation, speculation, and malinvestment. This was accompanied by a complete breakdown of monetary discipline in all sectors of American society.
These long-lasting growth factors are not even in the exact same postal code or planet– and the enormous excess of the Federal Reserve’s balance sheet versus GDP did not occur like a tree falling calmly in an empty forest.
On the contrary, it turned the financial and economic world upside down. That’s because the effect was to systematically reduce the expense of debt and speculation and considerably pump up the worth of financial possessions. As an outcome, everybody got false price signals and changed their habits appropriately:
Wall Street investors ended up being leveraged speculators;-LRB- .
Corporate service builders end up being financial engineers;-LRB- .
Middle-class families ended up being financial obligation slaves living hand-to-mouth on borrowed money; and
Washington’s political leaders ended up being totally free lunch spendthrifts piling on public financial obligation like there was no tomorrow.
The Fed is now a rogue institution that makes up a clear and present danger to the future of prosperity and liberty in America.
The disaster is that the clueless speculators on Wall Street, and the politicians of Washington who are riding the most egregiously inflated financial bubble ever, do not even get the joke.
So what takes place next?
We ‘d say nothing really enjoyable.
The fact is, we’re on the cusp of a financial crisis that could eclipse anything we have actually seen before.
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