Asset Inflation as Economic Stimulus: The Fed Strategy


All right, not everything in today’s Farrell commentary is erudite or even proportional. Nevertheless, he does make some valuable points. It is apparent that America is setting up various disgruntled interests in the world to make war with us. The U.S. decision to monetize debts in the face of a deepening recession is problematic. Quantitative easing (as it is called) will expose our international friends, competitors and enemies to economic complications as our U.S. dollar loses its viability as an international reserve currency.

Granted, the Fed may think it sees in the lessons of the Great Depression a suggestion that domestic inflation will not be great in the context of the aggressive monetization of our debts, owing to the reduction of paper asset wealth in the 2008 stock market bust. Perhaps the Fed is betting on the idea that George Soros will be proven right in regard to his theory of reflexivity. Does the Fed hope that a PARTIAL re-inflation of the stock market will stoke the real economy sufficiently to grow tax revenues and sustain the establishment system until some other pieces of the global system can be readied? Perhaps so. If the Fed bets right, Wall Street’s preferred fraternities will become much richer, the U.S. dollar will be replaced by an international currency, and democratic plutocracy will be the nation’s only remaining option.

It is hard to justify America’s role as self-ordained world policeman when we struggle mightily to find the right way in our own affairs, especially when it comes to matters of finance. We hold our standards of democratic capitalism aloft for all nations to emulate. But in the last four weeks our markets remind us that our system gives premium rewards to those best positioned to accept and manage risk while penalizing on a comparative basis those who cannot afford to make fast lane gambles. What kind of system ethic is this?

Why is it that speculators laying down multi-million dollar bets are given tax preference status in making a 50% to 100% return in one month betting on the timing of the economy's turn, while others could not hope to make that much money in ten years of hardworking productive contribution to the public good? We want the world to bow before our F-35 fighter jets but we can no longer demonstrate the goodness of the democratic capitalism for which the fighters unleash their guided missiles.

The stock market boomed in March as we began talking about inflating our way out of our economic decline, arguing that it is the only viable way to save the U.S. economy, and thus, the world economy. (For the Great Depression era parallel, see Martin Fridson’s 1998 book, “It Was a Very Good Year,” pages 106-108). We are broadcasting a message to the world that the U.S. — like AIG — is too big to fail. So now we want the whole world to subsidize the bailout of our corruptions while we refuse to change our ways — printing money like it grows on trees.

Yes, Paul is right: This nation is setting itself up for much larger expenditures — like the costs of fighting the next World War. How many trillions will that cost? How much infrastructure will have to be replaced when it is done? How many broken lives will have to be mended, and how much productivity will be lost? Destructive trends are becoming embedded because we refuse to discipline those who are unscrupulously wealthy — people who prey upon both political parties and lobby against the common good. Granted, there have always been people who are admirably wealthy — worthy by reason of their constructive contributions. If there ever has been a time that honorable elites need to stand up and fight for cultural and economic sanity it is now.