Due to the COVID-19 crisis, the federal government in conjunction with the nation’s privately-owned central bank – the Federal Reserve System – has flooded our economy with trillions of dollars in new liquidity to cushion the American people from the fallout from the completely unnecessary economic lockdown. The question we face is whether the roughly $7 trillion in bailout and stimulus funds in the CARES Act and in the Fed’s unprecedented money-printing will actually spur a rebirth of commercial activity or lead to another decade of slow or non-existent growth.
The last time we tried a massive stimulus effort launched by Washington we got the $700 billion TARP bailout of the big Wall Street banks by the outgoing Bush Administration in 2008. That wholly unjustified “food stamps for the rich” scheme was loudly opposed by constitutional conservatives such as Congressman Ron Paul and helped launch the Tea Party movement. Why should the very banks that were responsible for the irresponsible lending policies that caused the subprime mortgage collapse get their irresponsibility rewarded by the U.S. taxpayer? The incoming Obama Administration followed with an $800 billion “shovel-ready” stimulus plan that wound up sending money to congressional districts that did not exist and to bankrupt companies like the infamous Solyndra.
In addition, the Federal Reserve under Ben Bernake began a process of money-printing called Quantitative Easing which meant buying up mortgage-backed securities, Treasury notes and other paper “assets.” Between 2009 and 2014, the Fed pumped $3.7 trillion into the banking system and slashed interest rates to almost zero. The result of this $5 trillion so-called “investment” directed by government planners? The slowest economic growth in decades and the worst recovery from a recession in the post-World War II era while the National Debt doubled between 2007 and 2015.
The Bush-Obama money-printing rampage was reminiscent of Franklin D. Roosevelt’s clumsy efforts to end the Great Depression in the 1930s. Following and greatly expanding on the course laid down by his predecessor Herbert Hoover, FDR tried to cure the Depression by raising taxes, massively increasing spending on phony, dead-end public works projects, paying farmers to destroy their crops amidst widespread hunger, regulating private industry in a Mussolini-like fashion, and empowering labor unions to cripple the nation with strikes. The result was no end to the Depression but another mini-Depression in 1937-38. Unemployment was almost as high as when he took office five years before. In fact, the United States had the slowest and most drawn-out recovery from the Depression than any other industrialized nation.
The Federal Reserve didn’t help either, by continuing to contract the money supply during this period of unparalleled economic despair. Most free-market economists agree that had Hoover and Roosevelt maintained a sound gold-based dollar, reduced spending and cut taxes instead of increasing them, the Depression would have been more like the 1920-21 downturn, sharp but short with a highly prosperous decade following it.
With COVID-19, we see that the politicians and central bankers in Washington, D.C. have learned nothing from history. They have no solution to any problem other than to spend and print money and increase debt. With the cost of the so-called CARES Act clocking in at $1.8 trillion, it is twice as expensive as the Obama plan and represents over half of all federal revenues in 2019.
In addition, the Federal Reserve again slashed interest rates to zero, eliminated bank reserve requirements and embarked on another QE of up to $125 billion daily. Yes, boys and girls, you heard that right, daily. We also face the ever-present danger of runaway inflation as all that new unbacked paper money injected into the economy will likely cause rising prices at some point or another. Will we wind up like Venezuela? Probably not, but it won’t be pleasant either.
Wealth is not created by a federal program or a federal handout. Government has never created wealth anywhere at any time. Nor does wealth roll off a printing press or a computer entry in the banking system. Wealth is created by investment and work, by millions of producers and consumers utilizing the kind of stable money and honest pricing system only the free market can ensure.
It’s time that the course of nearly a century of wealth redistribution and funny money creation by our power elites be brought to an end before the American Dream is permanently lost to our children and grandchildren.