The Fed won’t fix our problems

A year before the Great Recession hit in 2008, bank regulators were concerned with a “$600-billion debt overhang” in commercial real estate (CRE).  We didn’t pay much attention to it because all our loans were well collateralized and cash flowing.  

But never leave it to a federal bureaucracy to let the private economy handle our issues.  In 2008, bank regulators came down hard on every bank (capital ratios, CRE concentration, loan downgrades, stockholder dilution) and caused a recession like nothing in the past.  

The point is that not only are federal bureaucracies incapable of fixing problems in the private economy, but these same bureaucrats caused the problems in the first place.  Consider the insanity of asking the people who caused all the problems to fix them.

As Friedman put it, “all recessions are a monetary issue.”  In other words, all recessions are caused by Fed Reserve monetary policy decisions.

The inverted yield curve of today is caused by the Fed raising short rates rapidly because they didn’t see inflation when it was so obvious.  “Transitory,” chairman Powell?

Inflation today is caused by Fed action 14 years ago, when they started printing money (Q.E.) and thereby devalued the buying power of the dollar.  This is not a new concept: the 1913 Fed Reserve was started to prevent what the 2008 Fed did.

As to the Fed’s Prime Directive, to hold the value of the dollar, the people running the place have blown that one terribly.  The U.S. dollar has declined over 95% in value since 1913.  With federal bureaucracies like this, who needs an enemy?  Our own government employees are doing a fine job crushing the private sector. 

The point is that our own government, specifically its employees, are not capable of running our businesses or protecting our economy, or health, or much else.  I’ll make two exceptions to recognize contributions outside our borders — namely, the military and the State Department, which is their mission as described in our Constitution.

The sooner we realize just who the problem is, the sooner we can go about fixing it.  And it can be fixed.

The path is reversible: it started with excessive money supply, which led to excessive government spending, which led to devaluation of the dollar, which led to inflation.  

The path back to prosperity is simple.  Stop federal spending, stop regulatory intervention in the private economy (we have laws to protect us), stop putting us into debt, and stop printing dollars.

The Constitution is the law of the land.  Its laws apply primarily to our government.  Its intention is to keep federal power under control.  It’s time we reminded those whom we, the citizens, employ in our government of their role to serve us and our nation, and not to attempt to control our lives and businesses.  

Jay Davidson founded and operates a commercial bank.  He is a student of the Austrian School of Economics and a rabid capitalist.  He believes there is a direct connection from individual right and responsibility to our Constitution, capitalism, and the intent of our Creator.