The Biggest Threat to Your Prosperity and What You Can Do
The comments below are an edited and abridged synopsis of an article by David Stockman
To understand America’s current struggles, you have to start with the Fed. It has been taking prosperity, liberty and democracy down for the count.
There are 50 million unemployed, the stock market is at record highs, companies are trashing their balance sheets to buy back stock and do M&A deals, doctors and politicians are savaging the economy and the livelihoods of millions, and Washington is wrecking the fiscal front, all thanks to the financial fraud of the Fed’s $7-trillion balance sheet.
If the robustly growing GDP of 1987 needed $5 of central bank money per $100 of GDP, there is no reason why that ratio should have differed in 2008 or 2020. But it did, and it does.
In June 1987, the nominal GDP was $4.8 trillion, and by all current estimates, it clocked in at $19.4 trillion in June 2020. That’s a 4.1X expansion over 33 years.
In contrast, the Fed’s balance sheet stood at about $240 billion on Greenspan’s arrival in August 1987, and clocked in at $7.2 trillion at the end of Q2 2020. That’s a 30X gain. Since the dotcom crash, it has only gotten worse.
During the past 17 years, the Fed’s balance sheet has risen to 983% of its starting value, even as GDP has risen to only 192%.
What was fostered in the meantime was excess liquidity, debt, speculation and malinvestment. This was accompanied by a complete breakdown of financial discipline in all sectors of US society.
The cost of debt and speculation has been suppressed, and the value of financial assets has been inflated. As a result, everyone changed their behaviour: Wall Street investors became leveraged speculators; corporate business builders become financial engineers; middle-class households became debt slaves living hand-to-mouth on borrowed money; and Washington’s politicians became free-lunch spendthrifts piling on public debt.
The Fed is now a rogue institution that comprises a danger to the future of prosperity and liberty in the US.