- “The death of the American Dream is now official”…
- The Fed gets a free pass…
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Dear reader,
Today I relay disheartening news from The Hill:
“The death of the American Dream is now official.”
Here the article’s author — a certain John Mac Ghlionn — presents the case by citing a recent survey:
- According to a recent national survey, a little over $6,000 in additional debt is all it takes to push a family over the edge. Six thousand dollars. The cost of a half-decent secondhand car. A modest kitchen renovation. In the country that put a man on the moon, mapped the human genome, won two world wars, and produces more billionaires per capita than anywhere on earth, that’s the cliff edge.
I confess that I am unfamiliar with the author and his writings. I do not know whether this fellow lists politically to starboard… or lists politically to port.
The paragraph’s concluding sentence suggests a port-leaning bias. Yet I let it pass. He continues:
- The old vocabulary no longer fits. The conservative catechism of thrift, discipline, and delayed gratification has aged poorly…
Why?
Yet why has the conservative catechism of thrift, discipline, and delayed gratification aged poorly?
He answers that:
- American households have always lived under financial pressure. The difference now is the direction — or rather, the directions. It is coming from everywhere at once, which is what makes it almost impossible to outrun.
- The longer story begins decades ago. Factories closed, towns traded paychecks for addiction and obituaries. The political class, meanwhile, offered transition as consolation. Some regions absorbed the shock. Many, however, did not. The geography of opportunity broke along those lines and remained broken.
Just so. Yet why did the factories close? The author hazards no answer. They simply closed… as if by historical inevitability… or by heavenly edict.
The Fed Has Made U.S. Manufacturing Uncompetitive
Yet here former Washington official David Stockman argues that neither history or divinity is responsible. He instead levels his darts at the Federal Reserve and its inflationary zeal.
That is because they have rendered United States manufacturing non-competitive against foreign producers:
- There is no mystery as to why manufacturing output abruptly went flatter than a board… To wit, the mad money-printers in the Eccles Building simply inflated the bejesus out of the US economy at a time when what was urgently needed was a stern deflation of an already inflation-bloated industrial sector…
- The USA has priced itself out of the global manufacturing market, which is exactly why America has been running chronic and massive trade deficits…
- The vast gap between US manufacturing wages and those of our major trading partners has been building relentlessly since the early 1990s, when Greenspan put the Fed in the monetary central planning business.
The Fed’s Gift to China
China was the principle beneficiary of the Federal Reserve’s monetary mischief:
- In short, what America really needed from the early 1990s onward, as the China export machine and its worldwide supply chain came to life, was zero inflation at worst and ideally a spell of price, wage, and cost deflation to offset the vast ballooning of US production costs…
- Is there any wonder, then, that the US has priced itself out of the global manufacturing market?
I hazard there is no wonder whatsoever — or very little wonder at least.
Mr. Stockman, in withering and damning conclusion:
- Industrial production is the heart of the modern economy and the main source of sustainable gains in real output and living standards…
- Alas, the Keynesian fools who took over the nation’s central bank under Greenspan’s leadership… conferred upon themselves the Keynesian mission of keeping “aggregate demand” full to the brim via low interest rates and massive injections of fiat credits into the nation’s financial markets.
Yet the Federal Reserve skirts all blame for American industrial decline, aside from Mr. Stockman’s.
I do not argue that the Federal Reserve alone is to blame for American industrial decline. Yet I do argue that it was, in legal terminology, an accomplice.
A Failed Autopsy of the American Dream
Meantime, Mr. Mac Ghlionn continues his autopsy of the American Dream.
He cites, for example, the housing crisis of the early 2000s and its enduring effects.
Yet he ignores the Federal Reserve’s role in its creation and aftermath.
That is, he observes the corpse stretched upon the autopsist table, murdered. Yet he botches the forensics.
Thus he fails to identify the cause of death:
- The early 2000s brought about a feeling of abundance through borrowing. Houses grew larger, lifestyles expanded, and risk accumulated somewhere just out of sight. When the financial crisis arrived, markets bounced back faster than many assumed.
- Wages took considerably longer. A peculiar imbalance followed. Prosperity looked strong on paper. Portfolios recovered, headlines declared victory, and an entire generation discovered that homeownership had become a spectator sport…
- The gap between prosperity as described and prosperity as experienced widened until the gap was the whole story.
Nowhere Is the Fed Mentioned
Why did markets “bounce back faster than many assumed?” Why did portfolios recover?
And why did the gap between prosperity as described and prosperity as experienced widen until the gap was the whole story?
Again, the Federal Reserve warrants no mention in the coroner’s inquest.
He makes no mention of quantitative easing, zero interest rate policy and the other gimmicks the Federal Reserve pulled from its trick bag.
The gimmicks, that is, that fattened asset owners at the expense of asset non-owners… who were left to scratch along on the leavings.
A Pursuit of the Wind
Concludes Mr. Mac Ghlionn:
- Some will call it hyperbolic to suggest the American Dream is dead. Perhaps. But a dream balanced on a six-thousand-dollar ledge, in a stiff wind, is not exactly thriving…
- Reviving the American Dream would require structural change on a scale that runs against short-term political incentives.
He is correct. The American Dream is not thriving. And reviving the American Dream would require structural change that runs against short-term political incentives.
Yet he fails to finger the culprit most responsible — or at least heavily responsible. That of course is the Federal Reserve.
He refers instead, vaguely, to “institutions” that have “failed” us.
Would his “structural change” include structural change to the nation’s central bank?
If it does not… the American Dream’s revival he envisions is a pursuit of the wind.
It will forever prove elusive.
Brian Maher
for Freedom Financial News
