So, after adding two trillion dollars in quantitative easing into the economy, Chairman of the Federal Reserve Bank Ben Bernanke decided that wasn’t enough and is adding another 600 billion dollars. And for what?
To bring down interest rates? Interest rates are already at historic lows. So the answer is to decrease the value of the dollar and bring back inflation.
Why? To bring up the value of the stock market. What does that have to do with the Fed? Absolutely nothing. It’s not in their purview, at least not according to their charter. But these are unusual times.
Here is a video explaining what the Fed’s quantitative easing really is… (This video has 2000 comments on YouTube!)
Well, that explains it!
What does this mean for you and your business? It’s not good.
We had a credit bubble. Too much credit allowed people to buy too many things. Now we have too much of everything. Too many houses. Too many stores. Too many products chasing too few dollars. That leads to deflation, which the Fed is trying to fight by causing inflation to counteract it.
Who’s going to win out? Well, I’m no economist but I think it’s going to be a long time before we work out all the excess credit and the government and the Fed are not helping by trying to prop up the old prices of housing and other goods, just like Japan has been doing for the past 20 years to no avail.
Keynesian economics has proved to be a failure. The Austrian school of economics says let the market fall, find a bottom, then rebuild without government interference. The 700 billion dollar TARP plus the 900 brillion dollar “stimulus” from the government and the 2.6 trillion stimulus from the Fed are not helping, they’re prolonging the misery.
We could have gotten where we are for free….
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As a small business owner or entrepreneur is your objective to make money or to create wealth? There’s a difference.
Bernie Madoff made money. The investment bankers on Wall Street made money. A construction worker who built a road paid for with government stimulus money made money. The Federal Reserve printing 2 trillion dollars out of thin air literally made money. They didn’t create wealth.
Capitalism is starting to get a bad name. But, if you are a small business owner you are a capitalist. Whether it’s a bread slicer, an ebook or a wedding cake, you are creating a product. You are adding value.
Steve Forbes wrote a recent editorial called Capitalism: A True Love Story. He decries the theory that
capitalism is fundamentally based on greed and is immoral; that it enables the rich to get richer at the expense of the poor; that free markets are Darwinian places where the most ruthless operators unfairly crush smaller competitors and where the cost of vital products and services, such as health care and energy, are almost beyond the reach of those who need them; and that capitalism unchecked breeds corruption à la Bernie Madoff and Enron and encourages obscene bonuses, excessive pay packages and unwarranted golden parachutes. Capitalism is also being blamed with renewed vigor for a range of social ills, from air pollution to obesity.
He goes on to say that if it weren’t for capitalism there would be no personal computers, no cell phones, no Internet. People of all income levels have benefited from capitalism. Continue reading .
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I try to give solid advice to budding entrepreneurs looking to start an online business. But every so often I am going to drag out the soap box, stand on it and shout, like a bearded radical inciting the citizens in the town square.
First of all, the U.S. Government, especially now, is NOT a friend of small business. It is turning into the most anti-capitalist, anti-profit, anti-business government I’ve ever seen.
I’m not even going to how we got into the current economic crises, but the links below will give you an idea…
2000 – The Trillion-Dollar Bank Shakedown That Bodes Ill for Cities
The Clinton administration has turned the Community Reinvestment Act, a once-obscure and lightly enforced banking regulation law, into one of the most powerful mandates shaping American cities—and, as Senate Banking Committee chairman Phil Gramm memorably put it, a vast extortion scheme against the nation’s banks.
2004 – Ex-SEC Official Blames Agency for Blow-Up
[An SEC] rule change in 2004 led to the failure of Lehman Brothers, Bear Stearns, and Merrill Lynch.
The SEC allowed five firms — the three that have collapsed plus Goldman Sachs and Morgan Stanley — to more than double the leverage they were allowed to keep on their balance sheets and remove discounts that had been applied to the assets they had been required to keep to protect them from defaults.
2008 – Barney’s Rubble
Mr. [Congressman Barney] Frank was publicly arguing for an increase in the size of their [Fannie Mae & Freddy Mac's] combined $1.4 trillion portfolios right up to the day they were bailed out. Even now, after he’s been proven wrong about a taxpayer guarantee, he opposes Treasury’s planned reduction in the size of the portfolios starting in 2010…
The resulting economic crises has put the government in control of investment banks, insurance companies, auto companies and over half of the home mortgages in America.
The government strong-armed Bank of America into paying 18 billion dollars too much for Merrill Lynch, told major banks they WOULD participate in TARP whether they wanted to or not, and short-changed Chrysler bondholders in favor of the UAW, then complained the bondholders were being greedy.
Next step – health care. A lot has happened since I wrote about the health care plan last month. An estimated 1.5 trillion dollars over 10 years, perhaps now whittled down to only a trillion, to “fix” something that over 70% of Americans are satisfied with.
Continue reading .
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