No debt ceiling for the Federal Reserve and too big to fail banks – The double standard of American banking and opaque Federal Reserve policy.
While the American public is staring at a government that is more like an improv act in Chicago, the banking system continues to hide toxic assets from the view of the public. An odd economic dance is taking place. While the public is being beaten over the head about spending within its limits we have a shadow banking system that seems to have no debt limits at all. While many Americans are losing their homes to foreclosure, are filing bankruptcy because of credit card debt, or face having to deal with massive amounts of student loans you have the Federal Reserve expanding its balance sheet all with complete media silence. Why is there no spectacle here? Where is the scrutiny for the banks? The problem of course is that the Fed is mainly concerned with protecting the wealth of the small financial elites. After all, we have the grand J.P. Morgan as one of the masterminds behind this hub of banking power. As we continue down this circus, the even bigger absurdity of the Federal Reserve practices continues unquestioned in popular media.
How to spend $9 trillion in 10 years. How in the financial world did we end up with over $14 trillion in Federal government debt?
If we do a slow rewind back to 2001 U.S. debt stood at $5.8 trillion. This today would seem like a bargain. So how in the world did we end up with the current $14.3 trillion figure in a matter of ten years? People like to ignore history but if you don’t know where your money is going then you are going to have massive holes in your budget. The fact of the matter is both political parties have setup a system where money is filtered up to the top one percent while the middle class wilts on a vine. This is the new economic system where wealth is distributed by political will while the working and middle class is forced into debt serfdom if they want to have any attempt at being middle class. Want a college education? It is virtually impossible to go to school without taking out onerous loans. Want to buy a home? Forget saving money when you can put it on tab and take on ludicrous amounts of debt that will set you closer to foreclosure down the road. Over the last decade the government has spent over $9 trillion and has put it on the national books. Let us examine what the biggest expenses were over this last decade.
Does inflation even matter? The growing secrecy of the CPI and how average Americans face budget squeezes through financial maneuvering and the chained CPI.
Things seem to be progressively getting worse for the middle class as most of the debt ceiling talks revolve on sticking it to working Americans as if they were financially able to handle any more austerity moving forward. While the too big to fail banks swim around in pools of bailout money like Scrooge McDuck both sides seek to squeeze more pennies out of working class Americans. One way that the middle class has been hammered over the past few decades comes from the way we measure inflation. The CPI measure through the Bureau of Labor and Statistics does not even examine actual home ownership carrying costs and uses a very open method of calculating home costs by using an owner’s equivalent of rent. This is why during the most obvious housing bubble in history home prices seemed to be increasing at a moderate pace according to the CPI while the more accurate Case Shiller Index was registering annual increases of 15 percent or more. This is important because so much rides on accurately measuring inflation in our country and more is trying to be done to stifle information that reflects the real changes to our overall economy.
The four horsemen of the middle class apocalypse – what does it say that we as a nation bailed out the financially wealthy too big to fail banks yet failed to bail out the middle class?
What made the U.S. the envy of the world was the belief that if you worked hard enough and had the right kind of grit and intelligence that you would be able to enjoy the fruits of your labor. This is what built the solid middle class after World War II. The majority of people finally had the chance to purchase a home without going into dramatic debt, to send a child to a quality public schools, and for the most part enjoy in the rising quality of life for most Americans. The last category has been lost in the last few decades. While incomes for the bottom 80 percent of Americans have gone stagnant income growth for those in the top 1 percent has skyrocketed. The tools and amount of capital needed to prosper are largely out of the reach of the middle class and only the modern day oligarchy can afford to send their kids to $50,000 a year private schools without sweating it. Does the public have at the top of their priority list a desire to keep the middle class solvent? We bailed out the too big to fail banks under the premise that they were instrumental for our economy but the same has not been offered to the middle class. Why is that?
The rise of the dollar store – catering to a disappearing middle class with shrinking incomes has made dollar stores prosper in the last decade. In last decade Family Dollar grew by 62 percent in store count while U.S. population only went up by 8 percent.
Dollar stores for most Americans carry an odd sort of stigma. In the past, these locations were seen as shopping hubs for the poor only. Yet as we all know many in the once strong American middle class were thrown off the prosperity treadmill and into lower income brackets. While companies struggle with growing dollar stores have found a niche in this climate. A shrinking middle class means more customers. All we really need to do is examine the growth in employees and in store numbers for a couple of large dollar stores in Family Dollar and the 99 Cents Only Store. These businesses have done well in this economy for a variety of reasons but the number one reason is a shrinking pocketbook has taken away the stigma of shopping for less. Austerity is back in fashion.
Manias, implosions, and financial disasters – the unsustainable nature of our current debt based financial system.
Trying to induce inflation to reduce accumulated debt is not a modern invention. Dr. Carmen Reinhart and Dr. Kenneth Rogoff trace this kind of financial crisis and others back to the Dionysius of Syracuse during the 4th century. The debasement of currency also occurred in the Roman empire and Byzantine empire and as usual printing money or devaluing your own currency does not usually lead to beneficial outcomes if we are to use history as any guide. We need to be upfront about what is going on here and that is the globe is reaching a peak debt situation. Think of the recent problems we have seen in Iceland, Ireland, and Greece. Yet these are simply tips of the visible iceberg of financial mania in our current system. Europe has many issues to contend with especially when looking at Spain, Italy, and Portugal. Here in the U.S. the Federal Reserve and U.S. Treasury are doing everything they can to ignore the reality of our current situation. Politicians are unable to make the hard choices and bankers simply want to extract productivity from the working classes. Our current predicament is not unusual in the books of history but the size and global interconnectedness is.
A brave new banking system – while public is told banking system is healthy FDIC quietly grows troubled bank list by 180 and adds over 1,600 employees in the last two years to deal with bank failures.
The banking system in the United States rests on a very thin layer of faith and that faith has been shaken by the current financial crisis. The retail banking system is largely a facade that now latches on to taxpayer bailouts to fund speculative investments through their investment banking divisions. The repeal of Glass-Steagall has been an absolute failure for allowing this commingling of financial functions. I find it interesting that while we get a public stance that all is well on the banking front, we find that the FDIC keeps adding employees to handle bank failures and the number of problem institutions continues to grow. Of course this is the kind of information that is buried deep in websites and financial statements while most of the press focuses on distractions.