I wonder if analysts of the future will look to our era and find one of the most telling dynamics to be that the investment markets don’t seem to be reacting positively or negatively to good or bad economic news in the way one would expect. Instead of making decisions based on the likelihood that the economy will expand, investors seem most intent on watching the Federal Reserve and federal government for signs that the forced inflation of their assets will come to an end.
Even those who aren’t directly tapped into the government-corporate money flow take comfort in the idea that smart people with access to data and power can ensure that the economy hums along… sometimes slowing, sometimes bucking, but going forward as smoothly as reality will allow. As comforting as it may be, that’s a fool’s belief. Ultimately, the economy depends on your actions and mine and those of your neighbors and those of people around the world whom you will never even know exist. People who could accurately predict the course of all of those decisions wouldn’t be government functionaries or even central bankers. They’d be quadrillionaires.
Take a moment to ponder this Washington Post article, as it appeared in the Providence Journal:
Two years ago, top officials at the Federal Reserve mapped out a strategy for withdrawing the central bank’s unprecedented support for the American economy.
The official communiqué was titled “Policy Normalization Principles and Plans,” and it was supposed to serve as a rough outline for the tenure of newly installed Fed Chair Janet L. Yellen. Essentially, it consisted of two basic parts: Raise interest rates and shrink the central bank’s massive balance sheet.
But now, both of those steps are being called into question as Fed officials grapple with an economy that appears to be stuck in first gear. Instead of executing its exit strategy, the Fed is confronting the possibility that the dramatic measures it took to safeguard the recovery will remain in place indefinitely.
When your plan consists entirely of backstopping and saturating the fortunes of financially powerful interests, you shouldn’t be surprised when those interests use their leverage to make it extremely difficult to turn off the spigot. Once such a policy has been implemented, in the absence of a courageous will that central planners inevitably lack, it cannot be stopped, and it will not be stopped until the whole scheme collapses.
That collapse will take a huge amount of the wealth from these powerful interests, but it will most hurt everybody else, living much closer to the margin of survival. Then, those in government and central banks will have another opportunity to decide whether to allow us to work out the economy’s problems through our individual decisions or to protect their wealthy friends again, as after the last crash.
I know which way I’ll continue to bet until America decides to decrease the power of the federal government and cut the strings that are pulling us toward central plans.