The economic retractions (and subsequent stimulus spending) of 2008 were not the first, in a long line of, faulty and unwarranted economic policies put in place by the Fed. In fact, one could argue that said "economic retractions" were the direct result of protocol gone awry.
In 2003 to 2004, the Fed dropped interest rates to 1%, encouraging consumer borrowing / spending. This lead to the perceived delusion that the economy was performing better than in actuality. 2004 brought about a federal spending spree, spreading its venom as far as the housing market, later encouraging "subprime" mortgage allowances and booming the already zealously over-inflated housing bubble. These (in combination with mark-to-market accounting regulations) lead to the credit crisis of 2008 that spiraled the market into a frenzy of (what seemed to be) perpetual decline.
It is important to remember that a system of capitalism is marked by a balance of healthy economic expansions and contractions. Capitalism cannot function properly, as such, when Keynesian monetary strategists encourage fiscal intervention, especially when they employ said methods inappropriately.
Think about the implications of these previously mentioned policies enacted by the Fed in 2003-2004:
- Lowering the interest rates to 1%. Under normal conditions, this would indicate a period of economic prosperity. However, the economy was already beginning to retract in late 2003; therefore, dropping the interest rates to delude borrowers was a deliberate attempt to offset further contractions.
- Printing cash. Remember the summer of 2004? Remember how high gas prices became?? And how the media (and select politicians) portrayed "greedy" oil companies the culprit? Well, oil is a commodity bought and sold in US dollars. While not immediately evident, the Federal Reserve Bank was busy pumping out hundreds of millions of dollars, again, for the supposed purpose of stimulating growth (or at least maintaining the delusion that the economy was strong). Such a bold increase in the money supply decreased the purchasing power of each dollar, driving oil costs up, and artificially inflating an already artificially-inflated bubble.
Printing dollars and lowering the interest rates kept the populace in the delusion of prosperity. The Fed attempted to offset what they knew was to become a retraction in the economy by artificially encouraging spending, rather than saving. But these risky policies only exacerbated the imminent economic bust, unforeseen by Americans because of the deceptiveness of the Fed.
Another string of economic blows came about in early 2008, including the sudden demise of the stock market, with broad-reaching implications into the housing market and banking institutions. The US Treasury designed relief programs to basically buy up troubled assets for the purpose of keeping said institutions afloat (mind you - institutions that had taken advantage of their shareholders and made poor, risky decisions that ultimately destroyed their corporations).
AIG, Bank of America, Goldman Sachs, Morgan Stanley, and a string of other groups received money from the government all for the purpose of eliminating the doom to come from their insolvency. And although the Fed, under the authority of Ben Bernanke, was not necessarily implicated in the enactment of TARP, they made it perfectly clear to Congress that its enactment was the only means to saving the economy.
Bernanke appeared before Congress on September 24th, 2008 to offer his professional support in favor of enacting legislation for the purpose of stabilizing the economy. He concluded that "stabilization of our financial system is an essential precondition for economic recovery," and he "urge[d] the Congress to act quickly to address the grave threats to financial stability that we currently face." He was, of course, referencing the pending authorization of the Troubled Asset Relief Program. And after having spent the entire period discussing the "dire" condition of the economy and the exponential effects sure to follow had Congress pursued inaction, his voice was strongly heard and ultimately embraced.
At the time, buying up said "troubled assets" seemed the only plausible course of action. Surely, the failure of corporate behemoths like AIG, GM, and Bank of America would have wrought devastation unparalleled since the Great Depression. But this type of thinking was so short-sighted and apocalyptic that the general public actually bought into it. No one was asking where the government was getting this money from, or what was to happen two years down the road, when the immediate effects of the federal "loans" started to wear off.
And now Bernanke stands before Congress warning against excessive governmental spending, claiming that if the federal government continues on this course of consumption, the future of American economics is "insecure." How is it that he is allowed to cover his own reputation by encouraging policies blinded by the short-term and intended solely to reflect positively on his tenure?
It is without reservation that I condemn the actions of Ben Bernanke, and as such, the Federal Reserve itself. After encouraging expansionary fiscal policy on part of Congress while simultaneously denouncing its unchecked federal spending, on top of artificially inflating the economy to ward off the impending crash that we saw in 2008 and passing the blame to "selfish" corporate giants, it is evident that if anyone is to bear regulatory oversight, it is not the companies pitted at the core of the economic meltdown, it is the Federal Reserve itself.
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