2008 Woodie Awards
If recession hits, don't thank the Fed
Michael Roberts
Issue date: 4/1/08 Section: Opinion
Some say we're in a recession, some say it's about to come; I say we're in a critical period right now and could be heading into a depression. Anyway you put it, the words recession and depression are being flung around more than the "war on terror" phrase that usually dominates the media. Who's to blame for this collapse in the economy? The institution to blame is the Federal Reserve, along with their botched policies.
The main causes of this economic downturn are the wars in Iraq and Afghanistan, the mortgage industry crisis and irresponsible lending and borrowing that has led to the average American having seven credit cards. Americans have been spending on credit, and anyone can tell you that this can't continue far into the future. The wars in Iraq and Afghanistan have added to an already huge national debt. The mortgage industry crisis has put much skepticism into Wall Street. And yet some people argue the recession is still to come.
The Fed is supposed to guide the economy in a direction that will benefit America; they have been doing a poor job, evident with the bailing out of the banks, constant cutting of interest rates and the recent helped acquisition of Bear Stearns by JP Morgan Chase.
Bailing out the banks was a terrible idea as it encourages more trouble for the banks and average Americans. If you bail out banks that have lent out too much money to people who improperly borrow money, you're just encouraging the situation to happen again.
If the banking industry gets the impression that every time something bad happens they're going to be bailed out, that will lead to even more irresponsible lending and borrowing.
This vicious cycle can only be stopped if the Fed doesn't step in and lets the banks take their natural course.
Cutting interest rates is not what most economists consider to be smart fiscal policy for our economy right now. Sure, this may help the economy in the short run but, in the long run, this will cause massive inflation. With the already devalued dollar, inflation hurts Americans much more than it normally would.
The main causes of this economic downturn are the wars in Iraq and Afghanistan, the mortgage industry crisis and irresponsible lending and borrowing that has led to the average American having seven credit cards. Americans have been spending on credit, and anyone can tell you that this can't continue far into the future. The wars in Iraq and Afghanistan have added to an already huge national debt. The mortgage industry crisis has put much skepticism into Wall Street. And yet some people argue the recession is still to come.
The Fed is supposed to guide the economy in a direction that will benefit America; they have been doing a poor job, evident with the bailing out of the banks, constant cutting of interest rates and the recent helped acquisition of Bear Stearns by JP Morgan Chase.
Bailing out the banks was a terrible idea as it encourages more trouble for the banks and average Americans. If you bail out banks that have lent out too much money to people who improperly borrow money, you're just encouraging the situation to happen again.
If the banking industry gets the impression that every time something bad happens they're going to be bailed out, that will lead to even more irresponsible lending and borrowing.
This vicious cycle can only be stopped if the Fed doesn't step in and lets the banks take their natural course.
Cutting interest rates is not what most economists consider to be smart fiscal policy for our economy right now. Sure, this may help the economy in the short run but, in the long run, this will cause massive inflation. With the already devalued dollar, inflation hurts Americans much more than it normally would.
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