Daily Caller – What Will Happen After The Latest Keynesian Bubble Bursts?

6 Jan

Two conflicting narratives are dueling for the people’s favor trying to influence the direction in which our democracy swings next.

The prevailing narrative — promoted by incumbent politicians, government bureaucrats, finance industry insiders, and the mainstream media — can be summed up by its time-tested theme song: Happy days are here again! Bold action by our leaders, so the story goes, rescued the global financial system from the ravages of the 2007-2008 financial crisis, a meltdown caused by capitalist greed and foolhardy deregulation. The corporate bailouts were absolutely necessary to save bank depositors, defrauded homeowners, and unionized auto workers — and have been repaid to boot, demonstrating their soundness.

Further evidence that the Keynesian medicine of monetary expansion and fiscal stimulus worked is that the stock market is at an all time high, economic growth topped 5 percent last quarter, and unemployment is back down under 6 percent. Banks are sounder than ever thanks to the Dodd-Frank financial reform law, which spawned thousands of pages of new regulations designed to make sure what happened before never happens again. And inflation is so tame that central bankers must drive it higher in order to save us from the deflationary monster. All good citizens need to do is place their trust with the experts who run our economy, then go out and spend, spend, spend to boost aggregate demand.

The opposing narrative, consigned to the realm of conspiracy theorists and libertarian cranks, is that the Keynesian money-printing orgy has merely papered over the latest in a long string of financial industry debacles. Rather than brining lasting prosperity, this has planted the seeds for a subsequent crisis that will be worse than the last, which itself was worse than the one before that, namely the Savings and Loan meltdown of the late 1980s and early 90s. The soaring stock market is not based on growing economic strength but is, rather, a reflection of an unsustainable asset bubble.

This true state of affairs is obscured because government unemployment and GDP statistics have become politically-driven fabrications. And our too-big-to-fail banks remain vulnerable to a collapse in liquidity when the hyper-hypothecation chains supporting the $600 trillion derivatives pyramid snap under the next black swan event.

To read the rest of the column click here.


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