Fed, Banking Regulations, Capital Flow, Crisis, Part 18
The recession of early 2000s was actually a series of scattered economic downturns, and does not fit the strict definition of recession, as there were no two consecutive quarters of negative GDP. Many economists had been predicting the burst of Dot Com Bubble for a while. In addition to this, there was a mini crash in Asian markets, during 1997. Between June 1999 and May 2000, Federal Reserve raised the interest rates, to a total of six times. Stock market bubble did burst in March 2000 when NASDAQ collapsed. Officially, in accordance with NBER reports, the recession started in March 2001 and ended in November 2001. September 2001 attacks on United States are also recognized as a cause of recession, although recession started months before, in March.
9/11 attacks mainly effected DJIA which suffered the worst one day drop and worst week, in its history, right after the attacks. 1.735 million jobs were lost in 2001 and 508,000 in 2002. Peak unemployment rate was 6.3% in June 2003. Once again, Fed’s attempts to “tame down the economy” and “prevent the possible inflation”, ended the longest economic expansionary period in U.S. history. The expansionary period lasted for almost ten years. Other reason was that the big banks and other major financial institution were on a reckless money making spree of Tech IPOs.
The major problem here is that the government regulations help big banks and financial institutions to grow too big and kill the smaller competition. With little competition from smaller banks and government’s “too big to fail” guarantee, banks keep creating huge bubbles. After the mess, their touts and financed crooks in politics and media, declare them too big to fail, and reward them with tax payers’ money in return for favors granted to politicians in their election campaigns. As long as there is no open competition in financial markets, fractional lending is still allowed, fiat money exists, and we the tax payers keep buying ‘too big to fail’ notion, there is no end to this nuisance.
Under the current regulations of fractional lending, with an investment of few million dollars, banks can generate and lend over a billion dollars in fiat money. This is not money and they did not earn it. It is created out of thin air. In addition to this they have ‘too big to fail’ guarantee from government. So, they can just go on and do immense amounts of reckless investments. If they are successful, it is their money and their profits, re-distributed to executives in the form of bonuses. If they fail, who cares? They have financed the campaigns of president and members of Congress by ‘donating’ millions of dollars.
They are also spending millions in of dollars in advertising campaigns on big media. So, if this reckless spending fails, media and politicians will be really quick to suggest, “If the banks are not bailed, the sky will fall on us”. Under the influence of big media and their ‘favorite’ politicians, the poor tax payers buy this notion, each time. Although each time they are promised that the ‘too big to fail’ will be ended, this time, forever.
This has not happened, so far. We can easily see that the big banks have, once again, attained the size of ‘too big to fail’. So, when the next bubble bursts, guess who is going to rescue them, one more time? Of course, tax payers. Ironically, the next very obvious bubble burst is a non-banks, purely government venture. It is going to be the student loans. Since, the government will be only culprit, the sole responsibility will lie on tax payers. The defaults on student loans are already alarmingly high while the cost of college education keeps rising. This means that the amounts borrowed per student loan are on rise. With such a high rates of unemployment and under employment, a very large proportion of these loans is bound to default.
The student loans crisis is going to be another multi-trillion dollars financial crisis, demanding trillions in rescue from tax payers. In addition to this, the easy availability of high profile student loans, is the single largest factor responsible for staggering rise in cost of college education. The cost of college education and burden of student loans on college graduates cannot keep pace with wages.
The amount of student loans, on college graduates, is becoming totally impractical and there is no way that many of them would be able to pay back those loans with stagnant wages of today. They are bound to default. But, the virtually guaranteed bailouts on behalf of tax payers keep encouraging recklessness in government and ‘too big to fail’ financial institutions. The repeated bubbles in financial markets and government lending and spending are the major product of bailout guarantees from tax payers. You guys keep messing up, and we will keep bailing you out. In spite of repeated shocks, crises, and broken promises and assurances, we will keep falling into this great hoax created by big media and politicians.
What a sad story? Unfortunately, just like wars which serve another major group of campaign financiers, the defense contractors, all these bailouts are allegedly always done in ‘our own good” and ‘national safety, security and integrity’. What a shame? It is like, someone breaks into your house and tells you that he is stealing from your home, for your own good, and your own safety and security. Will you buy that? Of course, not. I do not know than why do we buy the same story, in case of bailouts?
If you are sick and tired of keep bailing out richest banks and corporations from your hard earned money than you must read the writing on wall. These are not going to end until we all decide in the favor of practically and strongly supporting the following:
1. Do not vote for the major political party, corporate crooks, regardless of their deceptive promises and big media glamorizing.
2. Do your own research on Internet and start voting for credible third party candidates. Increased competition in politics is the only answer to incredible corruption in Washington.
3. Demand open competition in all markets.
4. Ask for an end to all regulations and laws that restrict competition.
5. Never ever, again, fall for media and politicians sponsored scam for bailouts.