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07.31.2009 0

When Will the Monetary Manipulation Stop?

  • On: 08/07/2009 09:59:05
  • In: Monetary Policy
  • By Justin Williams

    With pundits debating when the recession will end and how strong the recovery may be, the future of American economic policy still is in need of a firm, no-nonsense look at why this slump occurred in the first place.

    As the inevitable recovery occurs, the Obama Administration will, of course, claim victory over the recession, while blaming greedy speculators (and anyone else who makes and sells a product at a profit. This, while they pump the remaining $7 trillion of unnecessarily allocated funds to continue buying up the economy.

    But Americans should not be fooled.

    The current policy by the Federal Reserve of printing money and encouraging banks to loan more will only force a repeat of the disastrous actions of the past eight years. Credit markets will loosen up, interest rates will be artificially too low, and investors will look for new markets into which to put their money.

    The investors will be tricked into thinking that they have some new way to get easy money—all thanks to loose credit policy. The same loose credit policy implemented after the 2001 recession, which spurred this disastrous housing bubble of the past decade.

    There is no doubt that Chairman Ben Bernanke will continue the policy of artificially low interest rates to try and create a economic boom, since throughout his book of essays “The Great Depression,” he continually claims that countries that got off the gold standard recovered faster during the Great Depression.

    Bernanke believes that what he saw in his various studies was real economic recovery, when what he actually saw were artificial market bubbles – each one destined to burst. He didn’t see the real problem then, and he will not see it now.

    The gold standard backed all currency with a hard commodity that was universally redeemable. What this meant is that the American dollar was redeemable in something that was intrinsically valuable as it is scarce – and, most importantly, out of the hands of a government.

    That final point is the key and is where many current “gold bugs” go wrong. It was not completely the intrinsic value of gold that made the American currency safe; it was the fact that it was mostly safe from government manipulation.

    It was this very same manipulation that the Federal Reserve did in 2001 to create this current crisis and the same manipulation that will create the next bubble.

    Not so coincidentally, this is the same manipulation that will continue to occur as long as the U.S. currency is backed by nothing.

    For years, recessions have come and gone, each time with a different bubble (S&L, Dot-Com, Housing…etc). Each time, pundits act like they do not understand why this bubble isn’t the one that was going to go on forever.

    It’s simple: the Federal Reserve has a monopoly on printing money and adjusting interest rates, both of which cause people to spend their money fast. This, of course, causes huge unsustainable bubbles.

    And the government-induced bubbles will continually lead the United States into more recessions until the American people can say “no more” by exchanging their money for something that is completely out of the hands of Big Government – making Mr. Obama’s “victory” nothing more than an open invitation to the next – even more disastrous — defeat.

    Justin Williams is the Senior Commentary Editor of ALG News Bureau.

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