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A nation borrowing its way toward financial insolvency is not staging an economic recovery even when GDP picks up and the stock market rises. Some people talk about the “recovery of growth” like it is the ultimate goal of American life. What is this recovery that we supposedly need? It is nothing but debt facilitated GDP growth and asset inflation to create a built-in reward for leveraged mega-investors. That’s how Wall Street banks “create” the money to pay big bonuses.
In 2009 the leading issue of moral hazard was “too big to fail.” Not surprisingly, the more things change, the more they stay the same. As the congressional bank hearings of 2010 unfold, the new touchstone of moral hazard is “too big to discipline.” The heads of Morgan Stanley, J.P Morgan and Bank of America argue that they cannot be reproved in practice or disciplined by being broken up because their gargantuan size is necessary for the health of American banking in a global environment. ‘Make us pay, and you’ll pay,’ is their mantra!
Darrell Delamaide argues that President Obama must stimulate the U.S. economy sufficiently to boost employment figures in the near-term, otherwise Democrats will court a political disaster next year. However, the idea of America is far more consequential than today’s interest group driven party goals. In reality, Delamaide is not arguing for stimulus as much as he is arguing against the GOP. A better argument is to replace both reckless, feckless political parties and get the nation’s budgetary affairs in order.
Is irrational exuberance making a comeback at the Fed’s invitation? Irwin Kellner thinks so, arguing that the “humongous volume” of Fed injected liquidity invites a speculative fever. The Fed’s bogus money has not produced consumer price inflation because the wealthy beneficiaries of the liquidity are keeping it engaged in speculative pursuits, with little trickling down to consumers.
Has America lost its soul? Is America too immoral and shortsighted to allow prudent capitalism to work properly? (Yes.) Is the Canadian hedge fund manager, Erick Sprott correct that the U.S. government is now a “dead man walking,” with central bank intervention the main dynamic that allows the U.S. Treasury to roll over government debt at low interest rates? (Marketwatch, Oct. 20, 2009).
It pays to look at where we’ve been if we’re to understand where we’re going. The U.S. stock market bottomed in the first week of March 2009, beginning a vigorous bounce in the month’s second week. By late March a breeching of the midterm downtrend line suggested significant changes in store. Nevertheless, most members of the general public thought the March rally was nothing more than a dead cat bounce.
National expenditures on health care as a percentage of GDP and as an outright expense will rise with the reforms President Obama signs into law. Choices will decline and coercion will climb as bureaucrats struggle to contain soaring costs. As pending health care reforms swell our medical expenditures bubble, the nation’s slide will accelerate.
Purportedly, President Obama may attempt to shift the focus of the G20 summit from banking improprieties to a rebalancing of trade. While a restructuring of trade is important, Obama is out-of-step with the American public if he diverts attention from the need to cap bank bonuses, heighten scrutiny of hedge funds, and corral the shadow banking system. Recent reports of a power regrowth in the investment banking sector lend support to this concern.
Did Wall Street quake when President Obama recently addressed its elites on the one year anniversary of the Lehman Brothers collapse? Hardly. If anything, some on Wall Street were heartened by discrete assurances that reforms would not go deeply into the evolved architecture of capitalism.
In September, 1901, Vice-President Teddy Roosevelt uttered his memorable adage, “speak softly but carry a big stick.” Shortly thereafter, President McKinley was assassinated by an anarchist, making TR at age 42 America’s 26th president. As president he failed to speak softly at times but did carry an executive bludgeon. His legacy still shines because he swatted at the insolence of his own party as well as Democratic interests. Our current president would do well to consider Teddy Roosevelt’s example in matters of economic justice.