Aside from the occasional scandals, I suppose it should be of no surprise that Congress passed
and President Bush signed into law
a bill loaded with giveaways
to bailout the housing sector.
From what I have read about the bill, I suppose the only refreshing thing about it is that only at-risk lenders and borrowers (whatever that means) will recieve assistance. None the less, no matter who recieves this money, the end result is the same: the term of the present depression (not recession) we are experiencing will be worse and take longer to recover from.
The unfortunate part about the whole credit debacle is that, in the media and in Congressional inquiries
, the one institution that remains almost entirely blameless and is the root cause of our economic misery is, you guessed it: The Federal Reserve.
As Dr. Hans Sennholz
had correctly pointed out
, citing works such as Professor Edward R. Tufte's 1978 work Political Control of the Economy
, The Fed acts like a re-election campaign committee to pump money
into the economy in support of the present White House administration, in this case President George W. Bush.
Before it started its printing presses in 2000, The Fed bought
securities from the U.S. Treasury that usually total in the hundreds of millions, if not billions, of dollars to initiate credit creation with the help of its member banks.
Since then The Fed has tried to stave off the effects of the tiny, but turbulent, recession
that resulted under the direction
of Alan Greenspan which lead to the stock market and the present housing bubble
s. Ultimately, The Fed controls the timing and depth of a recession by controlling the timing and amount of money it creates.
However, one thing The Federal Reserve cannot do is stop a recession without the pains
of economic readjustment in the form of recessions or, in this case, depressions.
This is usually due to a shrinking of the money supply which is the result of The Fed refraining from printing more money commonly associated with raising interest rates
With the economic fortunes reapted from The Fed's actions, and because of the popularity he recieved
as a result of September 11th, the Republicans rode President Bush's coattails in 2004 to regain control of Congress
. But now they will have had their electoral fortunes further dashed
due to the economic woes
people are experiencing which are associated with the President but are really the results of The Fed's policies.
Due to artificially low interest rates, credit creation encouraged by the U.S.'s central bank contributed to malinvestments, if not outright distortions, in sectors of the economy resulting in massive amounts of consumption (mainly geared towards housing) which, unfortunately, require recessions to correct.
With its continuous interventions to pump even more liquidity into markets, like The Fed's underwriting a loan
for JP Morgan Chase Bank to acquire Bear Stearns, the end result is even longer readjustment periods.
When Herbert Hoover and F.D.R.
enacted their economic policies, the period known as The Great Depression
was extended far futher thanks to constant government interventions
then like we are seeing now.
Rather than let the market go about its business of adjustment, which would have pulled us out of The Great Depression sooner, it was intervention after intervention that The Fed and politicians used to try to fix the messes they created in the first place that made the situation worse.
Now they are repeating the same mistakes of the 1930's and those that contributed to the economic stagnation that occured during the 1970's.
Leave it to politicians and bureaucrats
to hinder the risks and rewards of voluntary exchange and market processes while not taking into account the lessons of history.
Here we go again.