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June 8, 2011 / 74

“We Don’t Know Yet What Happened”

…said Mr Obama, in reference to the horrible jobs data last week.

The REAL question here is do you WANT to know? Because I and a host of others can probably TELL you what happened, or at least make a good guess at it.

While Obama et al are looking for immediate and proximate causes of the poor jobs situation, they’re looking out in the driveway for the quarter they dropped in the grass because it’s easier to see in the driveway.

Going on the assumption that you MIGHT REALLY want to know what happened, and what is happening… here’s a summary of my take on it.

1.The congress and Clintoon took the leashes off of the banking industry, and via killing off the last vestiges of Glass-Steagal set up the creation of the TBTF mega-banks and gave them the freedom to create their own monopoly money – aka Mortgage Backed securities,  aka “derivatives”. (Money is non-specific debt – and via the mechanics of the derivative creation, they ended up being separated from what was supposed to be their underlying value – the mortgages – and became non-specific debt – with absolutely NO reserve or underlying value to give them value. They HAD to fail because they were really currency that was worthless to begin with.)

2. Bush reappointed Alan “the twerp” Greenspaz to the FED, who continued his “easy money” policies – the policies that gave Clintoon his surpluses via inflation and the creation of economic bubbles at the expense of the destruction of the US Dollar and the US economic system.

3. Bush appointed Bungling Ben Bernanke (BBB) to be chairman of the FED – a guy who specialized in studying the Great Depression, and is thus a worshiper at the altar of JM Keynes. (Keynesianism didn’t work then, it doesn’t work now.) A guy who did the right thing (hiking interest rates to take some of the hot air out of the bubbles Greenspaz created) then apparently got scared when the needed deflation started to happen, he returned to Greenspaz’s easy money policies.

4. The error in #3 was compounded by Obama when he RE-appointed the failure BBB, which piled hyper-inflation on top of the collapsing bubbles, and touched off a genuine Financial Recession*, which added high unemployment to hyper-inflation and to a stagnant economy – which is the definition of STAGFLATION.

5. BBB, being a Keynesian, cannot allow the possibility of stagflation because it’s not in his bible as written by JMKeynes. So he continues to try to reduce unemployment via printing and circulating trillions of US dollars under the mistaken belief that the government can “jump start spending” and get the economy going again. And thereby throwing fuel on the hyper-inflated dollar. As Paul Volcker – the last stagflation tamer, said, “you can’t have a recovery without a stable currency.” So BBB is doing EXACTLY the WRONG thing. He’s keeping interest rates LOW when he should be hiking the snot out of them – to perhaps as high as 20 to 30% for a couple of years. And BBB will never do that – so we end up in a Great Depression II scenario.

6. And if you think that the Banks aren’t lending because they’d rather hoard all the cash they got from the FED when it bought their Toxic Assets – then you don’t understand the nature of that transaction. The banks aren’t lending because although they are “TECHNICALLY” solvent, they’re not actually. Actually they are as bad off now as they were before – if not worse.

Of course – all of the above is simply my opinion of what happened, how it happened and all that, based on the bits and pieces I gathered from the news media – so it could be all hogwash… or not. You get to decide if I am right or wrong – hopefully by doing your own research and proving or disproving the above.

So most of the “what happened” that they are looking for happened some time ago – and we’re still suffering the effects of it – and since the government and the FED REFUSE to admit that they screwed up by the numbers, they will make no attempt to fix what they broke – and so those effects will continue to happen until they do.

If the government ever admits their screwing up from Bush41 through Obama, maybe then someone will understand what happened, and will take the required steps to fix it?

* A Financial Recession is my term for a recession caused by inadequate or inappropriate regulation of the financial system. Financial Recessions are systemic.

This is as opposed to what I call a “Business Cycle” recession, which is caused by the ordinary operation of the ebb and flow of business cycles, and are usually confined to one or just a few sectors of the economy with some overlapping of negative effects in related sectors.

Business recessions fix themselves – ie no government intervention is required – and they are generally of fairly short duration.

Financial Recessions, being caused by flaws in the financial system’s regulatory environment, require imposition or adjustment of the regulatory environment that the financial system operates in. If these adjustments or regulations are not done, or if the changes are inappropriate, then the recession continues until they are done right, and probably well beyond that.

Again – Financial Recessions will not end until appropriate regulatory changes are made.

I believe that there are also differences in the indicators that can help to identify which kind of recession you’re dealing with. Such as whether unemployment increases and decreases lead or lag the beginning and ending of the recession.

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