The Dark Side Six

The Dark Side Six
The Federal Reserve, Interest Rates and Stimulus Part 3

As was first proposed in the Dark Side 2: “Consumer Power: America’s Secret Weapon” (www.fritz-thecat.net) , US consumption patterns are currently being used as a weapon of war, targeting primarily illiberal democracies such as Russia, Iran, and China, who have an under developed consumer class at home and\or are overly dependent on resource extraction, primarily oil, (Russia and the Middle East), or manufacturing for export (China).

The seeds of this war were planted in WW2, when all manufacturing plants in the world were bombed to smithereens, except for those in the US. This allowed US corporations a temporary monopoly on the sale of manufactured goods worldwide. They could sell at any price and find people willing to buy, largely with money borrowed from the US. This allowed a rate of profit which permitted these corporations to pay very high taxes (60% of profits), pay high wages, and still have money left for dividends, capital improvement, etc.

America became the world’s “consumer of last resort”, and the world began a manufacturing binge, confident that if no one else bought their products, the US would. Fossil fuels largely powered this boom, and “revolutionaries” targeted resource rich countries around the world. Resource extraction allowed them to run a welfare state without investing heavily in the development of human capital, i.e. educating their workforce. As has been proven time and again, from the Garden of Eden forward, a little knowledge is a dangerous thing.

The key to this consumption trap is the ability to turn consumption off, drying up the demand for manufactured goods and the raw material they are made of, and the oil that powers the machinery. The collapse in the price of oil that weighs so heavily on the world’s “oiligarchies” is the key to understanding what is going on in the world’s economy, and the meeting of the Central Bankers in Jackson Hole. If the west can starve the “petro thug” nations into submission, or provoke its hungry citizens to install a more liberal democracy, World War 3 can be avoided, or mitigated. The elite and their paid spokesperson pretend that the collapse of the price of oil is a supply problem, when in reality it is a demand problem.

Turning off consumption, the American Dream, is not as easy as turning it on, obviously. It must be done under the cover of impersonal economic forces, or blamed on the mistakes of your predecessors, and certainly not as part of a war plan. People living in government housing after losing a suburban home would not take kindly to such manipulation.

It was the housing bubble bursting in 2008 that initiated the current Great Recession, soon to become Great Depression, and that bubble was inflated consciously by the government’s push to make owning your own home an attractive proposition, even for people who couldn’t come up with any down payment. The bankers who bet so heavily (and profited so handsomely) on that bubble (coerced by government regulations), were bailed out (once again, see the Dark Side 2 for details), and new regulations (Dodd\Frank, and others) were put into place which were to prevent another collapse.

In reality, those rules did much to insure that no recovery would take place, and that the Great Recession could remain in place for as long as possible before the Great Depression inevitably took its place. It did this by tightening up the rules that made people credit worthy, diverting the government stimulus upward to people who would do very little consumption of the manufactured goods that pay wages to workers who also buy manufactured goods that provide jobs, and so on. Instead the stimulus money is used to buy bonds from corporations that would otherwise have to pay higher interest rates from private banks.

So the TARP took failed businesses off the private economy and put them on the government’s books. (Privatizing success, socializing failure.) And QE provided shaky corporations with cheap loans to keep their doors open, and people employed. True, these programs have prevented a collapse of the system, but the American economy is limping along just above stall speed, while problems in the rest of the world multiply and get worse faster and faster. When (not if) anyone of these dominos fall, it will surely push the rest down.

The Central Banks of the west have been pushing down the rate of interest for eight years now, ostensibly to make it more likely that people will borrow and spend, and thus stimulate the economy. But, as everyone knows, you can’t borrow your way out of poverty.