5/20/2023
A radically transformed economy
Verna Benham May 18, 2023
America is a sad spectacle to the world these days with the two parties fighting over raising the debt ceiling to pay our bills. Republicans are using this to try to secure a commitment from Democrats to reduce spending. Both parties spend too much, but the Biden Administration’s unprecedented trillions greatly added to our debt and provoked the inflation plaguing us all.
The U.S. Federal Reserve Bank is in charge of the stability of the U.S. dollar, currency of our huge economy and the reserve currency for the world. The law of supply and demand is — like gravity — a law which, when ignored in any economy, can bring disaster. Economics 101: Excessive demand for not enough goods will cause prices to go up; if more goods than people want, prices will go down. By careful monitoring of economic ups and downs and the amount of money in circulation, the Fed’s job is to encourage stability, adding money if the economy needs stimulus or raising interest rates to slow things down.
MMT, Modern — or Magical Monetary Theory — claims that government does not have the spending restraints that private households and businesses have. The Fed can use quantitative easing, creating money issued through banks with the hope these funds will be lent to struggling businesses. But it’s optional; banks sometimes choose something safer, protecting the bank’s interest.
By comparison, a friend’s book, “Banking on Cattle: Texas Settlers Growing with the West,” tells of hard times in the early cattle industry. Author Sue Presnall Dyke’s grandfather did everything possible to keep his rancher friends afloat, despite disaster to the cattle bank he had launched and his own well-being.
Banks chose safer options in a “Frontline” piece, “Easy Money,” which tracked what we’ve been through. Month after month, a Fed spokesman, very expressive with face and hands, attempted to explain why things didn’t quite go as expected — apparently inflation wasn’t exactly temporary, etc. He was amusing; it felt like watching a comic series, while the worsening situation was anything but funny. Summing up, “Frontline” and other commentators questioned why the Fed’s actions seemed opposite of usual tactics to stabilize.
Emerging from the pandemic, people were eager to spend and do things again. The economy roared back; it was not a time to stimulate, but the Fed added $2 trillion. Banks and individuals took more risks than usual, seizing the opportunity for sizable gains as things went up and up.
Finally, with serious inflation undeniably apparent, the Fed hit the brakes with several hikes in interest rates — a calamity for overextended people and mid-sized nonbanks with too little reserves. Fearing bank runs, the government stepped in, even though these were uninsured banks. This may encourage more risky behavior: “Not to worry. You’ll get bailed out.”
****
The citizens of the U.S. do a better job of budgeting than the Democrats – who take no responsible for their spending – the sky is even not the limit. They don’t realize what position they are putting our children into and don’t care.
Just take a look at what Biden/Democrats are doing to our children. Speaker McCarthy is trying to get Biden to cut back in their next budget and is getting a lot of flack from the left/Biden.
Remember to vote out these big spenders.
kommonsentsjane
kommonsentsjane 