As the Federal Reserve Bank (FRB) on Wednesday the 31st of July, 2019 lowered the discount rate to 2% to 2.25%, 1/4 point lower from 2.25% to 2.50% I couldn’t help but think of the real underlying cause. The lowering of this rate even a 1/4 point indicates the greatest economy in U.S. history as President Trump and no one else is claiming, because it’s simply far from the truth. This has been one of the worst financial recoveries in U.S. history and we are really really far from being out of the proverbial hot water.
First, if the economy was booming as Trump triumphantly decries, the FRB would still be trying to normalize rates by continuing to raise them. Nor would they have recently stopped selling the over $4 trillion in Treasuries and MBS’s on their balance sheet as they were doing. This is the actions of an FRB trying to preempt a recession, also understanding major components within the Treasury Yield Curve remains inverted, another reliable indicator of a coming recession.
The concept and legislative enactments of allowing Government to both print and borrow money is a “really” horrible idea, that will eventually bankrupt our society. The fact that no society in history has been able to curtain their government from bankrupting their society is surely evidence of how horrible an idea this has been.
If it were a unique situation, it would be one thing, but the fact it is one of the more common occurrences prompting both long term depressions and total social failures should give us a clue to their devastating effects. Almost every major industrialized government in the world today has experienced this. In 1989, the United Soviet Socialists Republic became the largest government to have done this to their people, so big and mighty does not equate to Prosperity. You may not know it but the Roman Empire even bankrupted its government and society.
With government printing and or borrowing the fact that a generation or two may escape the catastrophic results does not limit the pain for many, as the resultant periods of inflation ravish especial the young and old with low and fixed incomes. Thinking that a group of people are any more responsible than an individual is obviously foolish and one could argue just the opposite.
Understand that government is supposed to be a projection of our own humanity as a community. An individual surely cannot print their own money nor borrow without limits, yet we have allowed our politicos to do both on our behalf.
Because of the long-term catastrophic results, there is no justifiable reason, not even to fund a war or increased military defense. Matter of fact, a bankrupted society becomes an easier target than does an underdefended society especially from being overthrown from within. The fact that there are now many underdefended countries that have survived over long periods also negates this rationale.
From my own study, especially in the more modern times it appears to me governments are now taking positions with groups of other countries working together to overthrow heads or State and destabilize various countries who they have economic or social conflicts with, so mankind is really not doing the mass evasion strategy that requires massive expenditures any more. WWII was supposed to be the war to end all wars as also told to us about WWI. Then you have the ill effects of the guns or butter principle as the U.S. and other big defense spenders are experiencing today. Will we ever learn?
I could only think of one potential cause to allow a government to expand the money supply via borrowing or printing. If someone were to invent a low-cost energy source requiring an initial high capital investment that just could not be funded by the private sector, that would be a reasonable use of the funds because it would be a one-time investment and it would lower the costs of energy making the payback of the investment plausible. Most economists today understand both U.S. and world debt today will never be paid back and as such, and thus more printing and borrowing is only differing eventual default.
So, if you wonder why the U.S. is now the largest debtor nation in world history with approximately 1/3 of our society living at or near the poverty line, simply ask a member of Congress and wait for the proverbial baloney and nonsense to come spewing out of their mouths. They have always been very good at coming up with a rationale for both printing and borrowing money and their pensions and personal growth in wealth are the real proof of why they do it. The numbers do not lie though that prove printing and borrowing money by the government are bad for the majority.
This article gives some of the economic facts on the U.S. as it relates to borrowing and or printing money. https://www.faithandfreedom.com/the-path-to-prosperity-or-bankruptcy-staggering-facts-on-americas-rising-debt/