The Government Is Helpless, Bankrupt and Immoral.

Finally, some people are coming out and questioning the actions of the Federal Reserve. Here is a comment from David Einhorn (my emboldening):

Sometimes you have to look at what is the base assumption. because sometimes you have a groupthink around the base assumption and everybody agrees to the same thing and acts reflexively and doesn’t really challenge what is going on. I think we have reached that point with the monetary policy. The assumption is that if you want the economy to improve, if you want more jobs, if you want more consumption, what we need is ever-easing monetary policy. My point is that if one jelly donut is a fine thing to have, 35 jelly donuts is not a fine thing to have, and it gets to a point where it’s not a question of diminishing returns but it actually turns out to be a drag. I think we have passed the point where incremental easing of Federal policy actually acts as a headwind to the economy and is actually slowing down our recovery, and I am alarmed by the reflexive groupthink of the leaders which is if we want a stronger economy, we need lower rates, we need more QE and other such measures.

This blog has been saying this for over three years now and in stronger terms. It would have been better had Mr. Einhorn gone further in his observations, but for one still in the system that can be very dangerous. If markets were free and government was limited, many would speak out without fear of retribution.

Secretly, Fed officials likely agrees with Mr. Einhorn. Yet they cannot say what they think for two very simple reasons:

  • Stopping QE is both an admission of failure and a recognition that government cannot manage an economy. Attempting to do so is what caused the current mess. Government has finally become so big and intrusive that the economy has ceased to work. It will not rebound until government size is cut, both in terms of spending and regulations.
  • Stopping QE exposes government as bankrupt. It is spending more than it can cover in taxes or capital market borrowing. Without the Fed printing money, the government would be unable to pay its bills.

Hence, the Fed will continue its massive counterfeiting in an effort to support government. It is a false but necessary myth that government can manage anything no less an entire economy. This myth is what has enabled government to grow and expand its power. The myth must be preserved at all costs.

The Fed will continue to print to hide the fact that government is hopelessly bankrupt. It is literally an emperor without clothes and without skin. It is unable to support itself. It is and has been a Ponzi scheme for the better part of a century. Its time is nearing and end and the Fed is its only source of survival. That is why the Fed will continue to do the same thing even when it knows it will do no good for the economy and may do much harm.

The immorality of the political class will destroy the country before they relinquish their power. This ending cannot be prevented much longer.

6 Comments

  1. Although I completely agree with the specifics cited in the comment by Bonus Gift and the thesis of the original article, I must add that discussions of interest rates and balanced budgets will do absolutely nothing to restore the Republic without a population which values Liberty more than a free “obamaphone” and individually attempts to live by a moral code based on that which was the foundation for our legal system, Declaration of Independence and Constitution. So long as we reject that moral code everyone will do, “what is right in his own eyes”. And the tyranny of the majority (Founders called it factions) will be complete.

    “Only a virtuous people are capable of freedom.” B.Franklin

    1. Ken:
      Yes, on one level you are correct. Although I suspect many people have been indoctrinated to assume all people and peoples are equal and thus if they just are exposed to the right thoughts anyone can be a free person and support the Constitution. I don’t think that at all, because it is tautological to observe that “demography is destiny.” To the extent the country looks more and more third world and less like the country as it was founded, it will look more and more third world and behave more and more like a third world hellhole (e.g., laws being ignored, corruption, etc, etcetera). For example, there is a reason California is now solidly socialist and wasn’t during Reagan’s days (and it’s not just a lack of understanding the Constitution). In the final analysis, it’s not “the economy stupid”, but it’s the people that cause the economy and related systems and processes to either suck wind or flourish (e.g., Does anyone believe that the demeanor, and especially makeup, of the country in say 1960 would have even allowed a Barry Soetoro to even get as far as state representative?). There is a reason why no city that is run by blacks improves and most, including blacks, want the hell out of it. Yes, “Obama phones” indeed. The first step in solving a problem is confronting and admitting to it. Currently, anyone that mentions demographics as a problem is shouted down and the issue is repressed. I did mention that immigration is a driver of many maladies affecting the country, and that it is.

  2. I whole heatedly agree with Monty. The basic insanity of trying to solve a problem with more of the thing that caused it; also, I believe poker players call it going “all in”. The moral issue here is that they have gone “all in” with our chips and not theirs.

    Furthermore, I challenge anyone to come up with an example of a major government or monetary policy that makes basic sense. In short it is not just that the cultural Marxist (and cultural Marxist lite – aka RINOs) have been doing the wrong thing, they have been doing exactly the opposite thing that we should have been doing. I keep saying and writing it but monetary policy, fiscal policy, immigration policy, national defense, etc. have all been effectively the opposite of what we should have done. For example, 9/11 happens and what did we do? We opened the borders and Bush had a special policy to import Saudi students (I think it was in the thousands or tens of thousands). Since 9/11 our borders have never been as porous or the importation of muslims higher. What should we have done? Only an idiot and/or evil person wouldn’t have: (1) locked down the border, and (2) forbid muslim immigration in any form. How about monetary policy? We have the highest levels of debt in the country’s history (absolute and most importantly relative). What did we do? The Fed pushed interest rates to their lowest levels in the history of the country, thus encouraging even higher levels of debt. What should we have done? Discouraged debt issuance, which is the exact opposite of what we did and are doing; and by the way we should have not bailed out the banks (which we are still doing). Fiscal policy, what should we have done? On an absolute basis we have the largest budget deficits in the history of the country, and nearly the same on a relative basis (also on a relative basis outside of existential war). What did we do and what are we doing? Currently, neither contending political party is even proposing to balance the budget; and anyone who mentions balancing the budget is roundly ridiculed as a crazy Ron Paul supporter, racist, etc. What about immigration? Adjusting for significant changes in unemployment calculation methodology we have almost as high employment and underemployment levels as seen in the Great Depression (which, incidentally, was not recognized as a depression until after WWII). So what do we do, how about an executive amnesty and we increase the HB-1 visas, increase the pace of off-shoring, encourage more immigration, etc. What should we do? Stop all forms of immigration and encourage fifth columnists like our muslim friends and Mexicans to self deport by reserving any subsidies for honest to God American citizens. I could go on, but I don’t know of one major area where we are not just screwing up, but doing the exact opposite, or damn near close to the opposite, of what we should be doing; and what’s worse is that Romney seems to me is only planning to slow it down but not end it (although, I admit, of the two contenders he is the only one who might have an epiphany and change his stance, but that is low probably at this point). So what am I saying? Economically, the collapse is happening, it is just being covered up until right after the election. Socially, the US could quickly devolve. Just for instance, what if the US’s credit card was cut tomorrow? What would happen? We all know what would happen if someone was in the White House that actually cared about Americans that didn’t have black skin and the credit card was cut. All large cities with any large concentration of blacks would be destroyed. Say it, just say it, riots and not by people who frequent this website. The hour is late indeed, and to be honest, I’m a bit surprised the commies could keep the economic Potemkin village going until the election. I am afraid that at least economic reality is about to bite and we won’t have long to wait (say by the end of the first quarter of 2013 it should be clear to just about anyone that can fog a mirror). For example, imagine if California actually had to balance its budget and the Federal Government stopped borrowing to pay for things like extended unemployment benefits for the state (which by the way are not reported as part of the federal budget deficit). I could go on.

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