A Review of the Economic Crisis
I’d like to present a few facts as to how we got here, so that we may find our way back.
Looking back to 2008, the Federal Reserve had initiated a shift in its monetary policy that caused severely negative reverberations in this country and around the world. The ramifications weren’t intended. I watched the news in the spring/summer of 2008 when then Federal Reserve Chairman Bernanke lowered the Fed Funds Rate 1/4%, slightly inverting the yield curve for the first time.
The year was marked by repeated and aggressive decreases in the Fed Funds Rate. Foreign money at the start of 2008 and prior, attracted to US banks for their stability, credit worthiness and returns, found falling Interest rates, followed by a mortgage crises, credit freeze and collapse of mortgage backed securities as good reasons to move elsewhere, further exacerbating the problem.
During the election of 2008, then Senator Obama and other Democratic candidates led this country introducing a construct of “Austerity”, that would limit consumer purchasing to exclude excessive debt. Their platform also included a shift in the GDP target range from the historic 3% - 4% to 2% - 3%, a “walk” from the Money Multiplier, the anomaly that had created cash in circulation without printing or borrowing of capital from the utilization of Fed Funds by banks that had been a part of this nation’s monetary structure since the 1930’s. Their policy fostered the close of the Fed Funds as a short term borrowing instrument.
In the spring of 2008 GDP was calculated at 2.3%, with the US National Debt at approximately $10 trillion and printed capital at $850 billion. That summer the price of oil topping $140 per barrel, adding to fears and concerns as to the future of the American auto industry.
With the Fed Funds Rate reaching unattractive levels, banks reduced the submission of their own excess reserves to fund it. The result, those banks in need of overnight lending no longer had Fed Funds as a viable safeguard.
Credit froze. While buyers for autos and homes sought to finance their purchasing, banks were not able to finalize loans. As a result, sales of new and existing homes, and autos fell. The Money Multiplier, an anomaly that generates money through borrowing without an increase in printed or borrowed capital, also fell precipitously, furthering the impact of a lack of funding for loans.
Then Senator Obama, Senator Clinton and others cited the Money Multiplier and the “failed” policies of the Bush Administration as the reason for the collapse. However, since that time, this nation’s shift in monetary policy to exclude the effect of the Money Multiplier is now cited as the impetus that exacerbated a troubled banking system to a level of national economic crisis.
It was a time of crisis. The Federal Government injected sums of capital in the form of TARP, Cash for Clunkers and a New Home Purchase tax credit. Initial fiscal stimulus initiatives cost over $1 trillion. I was not able to find an estimate of losses to consumers and net tax receipts.
In response to money fleeing the country, an extensive erosion of capital in the markets, and a falling money multiplier effect, the Federal Government printed capital and issued bonds. Further monetary action included additional decreases in the Fed Funds rate and an increase in the Bank Reserve Requirement from 5% to 14%, further constricting credit and banks ability to lend.
The $700 billion TARP program was concluded in 2013 with a profit to the US Treasury of $1.1 billion as well as profits from mortgage backed security holdings close to $15 billion.
In conjunction with emergency funding and increases in printed capital and debt at unprecedented levels, the Obama Administration completed, in 2010, reductions in Medicaid coverage and HUD availability to new applicants in the categories of families and individuals, as cost saving measures.
The elimination of Medicaid coverage of physical therapy, chiropractic care furthered the trajectory of the opioid crisis while HUD disbursements wained
Expensive with costs exceeding $2 trillion and costly in many ways that cannot be measured, the crisis of 2008 is over. Now it's time to finish cleaning up the mess.
Interested in the
US National Debt?
US National Debt as of December 30, 2019 now tops $23.1 trillion with additional borrowed funds from state and local entities across the country bringing the grand total above
In 2019 the US Treasury paid out $574.587 billion in debt interest.
Another important number to consider-- the current US National debt is 106.1% of this country's total Gross Domestic Product.
Let's Pay Off Some Debt
Total: $6.7 Trillion
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Horne for Congress
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St. Johnsbury Center, VT 05863