Those are the words of David Roche of Independent Strategies, who is "well known for his outspoken but prescient views" according to his website. Roche is referring to the U.S. government in general and the Federal Reserve in particular. He believes our beloved Central Bank should be raising rates now, not waiting for an "extended period." He's right, of course, but the U.S. economy still requires emergency life-support. Without that intervention, we would have the Depression we so richly deserve after a 25-year credit bubble.
First the CNBC video (ht Tim Iacono) and some selected quotes followed by some commentary.
Roche: What they’re trying to do is start off more bubbles. If you look at consumer spending, it is picking up. Of course it’s picking up. U.S. households now get more money from the government than they pay in taxes … So, what the authorities are trying to do is actually to add state leverage, government bond leverage to private sector leverage so that the bubbles go on and the consumption goes on. At the same time, of course, because money is free to the banks, the banks don’t want to lend that much, so they will actually buy government bonds — which enables the government to give out some more money...
The real problem in America is that the consumer needs to save and not borrow to buy the American Dream. He needs to earn it, not borrow... Until that lesson is learned ... [will it be learned?] Yes it will be learned. It will be learned when the next credit bubble, which will be a sovereign credit bubble, goes [belly-up]. There will be no more policy tools left to bail the world out of its own profligacy. That's when it will be learned.
Roche is contemptuous of U.S. government policy. And why wouldn't he be? America does not have a real economy. America has a phony stimulus-driven "free money" economy. Public debt has replaced private debt in a futile attempt to keep the credit-based consumption party going.
I don't know where Roche got the idea that our government is giving away more money to households than they pay in taxes. Yes, we had/have cash-for-clunkers, the 1st-time home buyers credit, a few ineffective attempts to keep people in their houses, etc. And then there's all the unemployment payouts and food stamps. Despite all of this spending, most of the "free money" is going to the insolvent financial system, not to households.
Other than that nitpick, I agree with everything Roche says. We truly do have a money merry-go-round as he describes. In fact, I don't think Roche goes far enough. Things are worse than Roche believes. So many Americans can not save any money. They're living paycheck-to-paycheck or couldn't raise $2000 dollars in a pinch if their lives depended on it—which they might. People in the middle or at the bottom can't boost their savings and the people at the top don't have to. News comes today of a study published last February that shows who is unemployed by income level.
Unemployment Rates in the U.S. for Workers in Selected Deciles of the Household Income Distribution, 4th Quarter 2009 (in %). You can see who takes it in the shorts when the house of cards falls down.
That's clear enough, isn't it? We have well-entrenched class system in the United States based on money. Much of this inequity is the result of an insane policy in which Americans effectively traded good-paying jobs for cheap foreign goods during the Era of Globalization. I described how this worked in When In Doubt, Blame China.
Suppose you have a phony economy like this one. If you're a policy-maker in the White House, the Treasury or the Fed, you either know the economy is phony or you don't. If you don't know it, you are clueless, and David Roche's criticisms apply. If you do know it, and you're partly responsible for it, you will certainly want to cover-up that reality for as long as possible, at least until 1) you're out of power or 2) dead.
So, have "they" learned anything? Well, no, and they're not going to. It makes no difference whether you were sold down the river knowingly or unknowingly—you're still between a rock and a hard place. It makes no difference whether Ben Bernanke just recently figured out what a bubble is. Over the longer haul, it makes no difference if the Fed raises rates now or later after an "extended period." The damage is already done. That's why the Empire is in Decline.
I can trot out the numbers, and you will believe me or you won't believe me. In one forum I ran across, DOTE was described as a "doomerish" website. Let me correct that superficial perception. DOTE is a reality-based website. You could just as well label David Roche a doomer, or all of the other smart people I've quoted on this blog who are warning that we're up shit creek without a paddle.
I'm sorry—that's just the way it is.