The Great Recession is over, claim politicians and pundits. Recovery has started, and while minimal growth is expected for 2014, things are on the mend. Allegedly. Much like the eye of a storm, things seem deceptively calm, and when looking under the hood of the economy, there are troubling signs.
Once upon a time, paper money was a backed currency. One could go to any bank in the country, slap down some bills and get a hunk of gold in return. Paper money represented actual concrete resources, and because of this, countries were limited in how much money could be in circulation at any one time. Slowly, as time went on, more paper money existed in relation to how much gold was on hand. Especially during wars, governments relaxed the rules to finance such costly endeavors.
However, this all changed in 1971, when President Nixon ended the practice of backing the dollar with gold, and dollars were money in their own sake, with value coming not from the resources represented, but value coming from government decree. With this development, other countries began backing their currencies not with resources, but with US dollars.
All other economic consequences of this aside, one very important aspect changed, that being there really was no reason dollars can’t be printed as fast as the presses can. The consequences of such an action are obvious to those with no economic knowledge – rampant inflation.
The money printing, thankfully, was kept in check by cooler heads, until late 2008, when massive amounts of dollars started to be created. Not only are these dollars created out of nothing, but were used by the government to buy up all the toxic mortgages held by banks from the housing bubble. Instead of the banks suffering for their actions in going along with the bubble, they are being relieved of their burden and given more loanable funds.
More hidden inflation occurs in the way the banks are regulated. Only needing a small amount of reserve currency on hand, banks are allowed to loan out far more dollars than actually exist. A ten-dollar deposit may mean hundreds of dollars that can be loaned out.
Mainstream economics treats the national economy as a sort of car engine. Give it enough gas, give it a push to get it started, and it’ll sustain itself for the foreseeable future. It just needs enough of a push to get it going. The problem with the housing bubble, according to economists in charge, is that it wasn’t big enough. If it was big enough, it wouldn’t have burst and the economy would have shifted into high gear. This was the thought behind the stimulus package as well. Giving free money to people didn’t work, why is giving free money to banks expected to end well?
To this end, 65 billion dollars are being created each month to stimulate the country into prosperity. Television news doesn’t talk about it, CNN barely carries a whisper. And yet, since 2008, the total amount of dollars in circulation has gone from 185 billion in early 1984 to 876 billion in late 2008, to the current level of 4 trillion dollars.
Economics is called the “dismal science”, the most boring of subjects. Even “Ferris Bueller’s Day Off” uses an economics class as the number one example of a snoozefest class where students cannot remain awake even if they want to.
The 99 percent always complains about the one percent. Yet, they give the one percent absolute power to run the economy any way the one percent sees fit.
Differing schools of economics are not widely taught, with one generally considered to be indisputably correct. As the global economy stagnates for what seems like the hundredth time, it’s time to consider fundamental assertions held by those in charge. Challenging ideas results in growth and breakthroughs which are sorely needed.
When the line between politics and business blurs and citizens are models of apathy, it should be no wonder the economy hasn’t improved as the rich get richer and the poor stand around staring blankly wondering how on earth things turned out this way. It is the responsibility of the citizen to stand up, educate themselves, and not allow the country to be run by those who profit from the corruption of the economy.