Financial Issues - Think Biblically about your finances.

Fri, 7/4/2014

Robbing Hood

Whistling our way to government dependency... 

Since Alan Greenspan took charge, average people in average neighbor'hoods have seen their standard of living continuing to decline at the hands of the Federal Reserve. The Federal Reserve's easy money policies benefit the rich at the expense of the poor and the middle class. The Reserve has retained the same interest rate policies that have been in place since the beginning of the recession. At some point, this has to change to help the poor and the middle class and turn the economy around.


Interest Rates DownIn fact, some have argued what I have just stated - that lower interest rates have been in effect since the beginning of this recession. In fact, I believe Alan Greenspan was responsible for the beginning of the cheap interest rates - reducing interest rates on CDs to force senior citizens into the markets (whether or not they want to be) to try to maintain some standard of living and level of income.


Last week in an interview, Kevin Warsh, a former member of the Federal Reserve System Board of Governors, said the same thing. He said we have a reverse "Robin Hood scenario"-we are robbing from the poor and giving to the rich. This has been going on for a lengthy time, but no one seems to care. Why? As long as the markets continue to go up and hit record highs, the people who need to take a long hard look and levy a complaint are the ones who are making millions of dollars. They give no thought to whether the economy is good or bad. They are not concerned about the middle class and the poor being able to pull themselves up and raise themselves to a higher standard of living.


In the same interview, Warsh suggested normalizing interest rates to help jumpstart business investments and speed up economic growth. I agree wholeheartedly with this sentiment, but here is the problem. When we finally normalize interest rates-because of actions the Fed has taken or because inflation has forced it-here is what will happen. The Federal Government (of which the Fed now seems to be a political arm) will be paying close to a trillion dollars in interest to service their debt. That will exacerbate our debt problem every year by over a trillion dollars more than the normal deficits we might run.


needyAt some point, I suppose the Federal Reserve will realize their cheap interest rate policies have not done anything good for the economy. In my opinion, we have had low or no growth in our economy for six years. The standard of living continues to decline as people's wages have dwindled over that time, and the labor participation rate has gone down dramatically to 30-year lows. Yet I read reports claiming we could have full employment or pre-recession unemployment rates by the end of this year, applauding the Federal Reserve and the President for the wonderful job they are doing for the economy.  


The unemployment rate has nothing to do with the economy being good. It has everything to do with the economy being bad. It has everything to do with the more than 10 million people dropping out of the labor participation rate. Even with population growth, the labor participation keeps declining. Yet most people are being lulled to sleep by the misleading claims that the unemployment rate is good.


Sorry to all of those folks who have not been able to find a job in a couple of years or who are working part time. When you consider the employment numbers reported, remember that most of those jobs being created are part-time jobs-not permanent well-paying jobs.  


Failed government policies. Failed Federal Reserve policies. False positives in the market. These things all continue to rob the middle class and poor. But I guess we will keep our heads in the clouds and whistle our way to government dependency.


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