What is Next for US?
as Fed raises interest rates
What with the Fed raising interest rates at the fastest speed in history — up 0.5 percent today from 3.75 - 4.00 to 4.25 - 4.50 — and everyone wondering if recession is just around the corner, I am looking at some statistics about the economy since the bottom of the 2008 recession in the Spring of 2009.
And here is what I found.
So, wow, if you were a greedy capitalist or a baby-boom retiree with an IRA or an ESG billionaire or The Big Guy, the last 23 years have been pretty good to you.
If you were a homeowner, not too shabby.
If you were an ordinary worker your income was up 80 percent but half of it was taken away by inflation for a measly 40 percent real gain.
But why were stock prices up so sharply, and home prices not so much, and ordinary wages not so much either?
I suspect that a lot of the reason is the Fed’s zero interest rate policy and quantitative easing in the wake of the 2008 recession. I suspect that the policy inadvertently put all the newly printed money into the stock market and real estate. Just guessing, mind you.
And I wonder what happens now, with the Fed in full “fighting inflation” mode. For the first time since 2005.
Will stocks give back a lot of the staggering increase of the last 13 years? Will real estate crash and take the credit system with it? Will the Fed take us through the storm without any serious smashup in the economy? Will wage earners still be in the back of the bus?
Honestly I don’t know and I don’t think anyone else knows either. Least of all President Biden, next least of all congress-critters. Or regime-supporting journalists, or wokey twits that used to stand at the helm of the world’s ship of Trust & Safety.
Or even the august Fed Chairman Jerome Powell.
Only I would just say this to Chairman Powell. Put a sign like Harry Truman’s “The Buck Stops Here” sign on your desk. Yes, but what sign? Perfectly simple, as Walter Bagehot wrote in Lombard Street back in the 1870s.
“LENDER OF LAST RESORT”
That’s not too hard, is it?
But, oh dear, when Little Ben Bernanke was chairman of the Fed in September 2008 he whiffed, and whined that he didn’t have the authority to bail out bankrupt Lehman Brothers. You can see why. Some mean lefty might say that Little Ben was in the pocket of the greedy bankers. And now Little Ben has been awarded a Nobel Prize for being such a good little boy.
You wouldn’t do that, would you, Jerome Powell? You are made of sterner stuff than Little Ben Bernanke. Right? You’ll bail out the greedy bankers despite a hail of invective from everyone from Sen. Bernie Sanders to Sen. Liz Warren to Cong-critter AOC and every lefty activist group in the country.
Because the central bank is the lender of last resort. Period, full stop.
Thank goodness. A grateful nation thanks you.