Friday’s Rant: Its the Government, Stupid!
In the past week or so, the Federal Reserve has lowered the interest rates 1.25%. Today they’ve announced that they’re going to lend out $60 Billion to cash-strapped banks to prevent a credit crunch and to maintain liquidity in the economy.
By lending out money below the real rate of inflation, the bank is essentially handing out free money. Basically, Ben Bernanke is giving away a truckload of money to anyone who asks for it!
My guess is he’s going to keep lowering the interest rates for the remainder of 2008 until we’re at a 1% Federal Funds rate.
Since the US consumer can no longer refinance his house to fulfill his appetitive for consumption, Bernanke’s hoping that low interest rate consumer loans will continue to fuel consumption. After all, we’re a consumption based economy (as opposed to other countries, who actually make goods). Evidence of this is provided by the Economic Stimulus package worth $150 Billion. Since our economy is $15 Trillion, I guess $150 Billion will make 1-2 months look good, long enough for President Bush to claim that the economy has turned around as he gracefully exits office.
By lowering the interest rates after the dot-com bust in order to prevent a major recession, Greenspan caused the housing bubble. And now, Bernanke in trying to prevent the recession that should’ve occurred in a few years ago, is probably going to create a credit card/personal loan bubble.
I’m sure Wall Street will come up with a novel way to bundle $100 million portfolios of unsecured personal loans and palm them off to some unsuspecting foreign country. Of course, they’ll make a quick buck without assuming any risk, but more importantly, they’ll provide a risk-adjusted yield for their clients and provide necessary liquidity for the banks. Standard & Poors will issue AAA credit ratings to products they can barely understand. As usual, Goldman Sachs will start shorting the very products its selling to its clients and make even more money!
Meanwhile, the government has dis-incentivized savings, which it doesn’t believe in anyway. Why else would we have a budget that’s only $400 Billion in deficit (excluding the cost of the Iraqi War and future debt obligations)?
The government is funding its growth (yes, the government never has a recession - its always growing) through the sale of US Treasury bills and has no intention of ever becoming debt-free. As the world’s largest debtor nation, we don’t even have a plan towards economic recovery or paying off our debts.
I think the government and Federal Reserve are leading the US down the path of bankruptcy. Of course by the time we all realize it, it’ll be too late.
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February 1st, 2008 at 12:22 pm
Great more inflation. I thought they were trying to turn the “recession” around. By inflating the money supply and trying to “encourage” spending, they’ll just make everything more expensive, which will cause people to spend less.
I’m afraid we’ll never find our way.
February 1st, 2008 at 12:47 pm
Good read. I am not sure why we are doing this. Economic stimulus sounds good. But there are a few other names that the plan could be called.
February 1st, 2008 at 2:33 pm
What a paradox. Reduce the cost of borrowing money so people can borrow more!
The only sound, long-term plan is to spend within your means, and with a consumer driven (read: non-value-added) economy, this is *not* possible.
Best to diversify even more.
February 1st, 2008 at 4:36 pm
I agree that this government is stupid. Its completely scary to keep your net worth in dollars anymore. I think the way to go is to invest money outside the country or buy assets which do have some inherent value in US.
February 1st, 2008 at 5:35 pm
It looks like Germany back in the 30’s… this is leading us to inflation…. move over fiat dollar.. make way for the Amero!! or the Olmec whats ever they want to call it… its all nwo!! infowarsdotcom talks about this condition!!
February 1st, 2008 at 5:36 pm
vote RonPaul2008 while you still can!!!
February 1st, 2008 at 10:43 pm
Stagflation here we come.
February 2nd, 2008 at 12:20 am
px, you’re quite right.
we have a fiat currency. Thats why I’ve been buying gold and recommending it for 2 years. Since then, gold is up nearly 80%.
I was also going to recommend Ron Paul in the post, but decided against it. I’ve found political beliefs are strong enough to create a bias against the rest of the content.
February 2nd, 2008 at 6:12 am
Right on LOD. I don’t feel very stimulated about the fact my money is becoming less valuable every day and Big Ben is putting bandaids on a gushing wound.
February 4th, 2008 at 8:57 am
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February 5th, 2008 at 12:48 am
All these stories/analysis are so depressing.
If even the wisdom of the ages, says that we should control debt, how on earth do the emminent economists of the US come up with policies like this?
Wonder if any of you ever read or remember Ravi Batra’s “Great Depression of 1990″.
The current events seem to have some parallels.