It can be hard to understand the economics of our day with the endless charts, this report, that report, the gyrations of the stock market. Well actually if you are a politician, a famous dolt who has a New York Times column dedicated to his lack of understanding of economics **cough, cough** Paul Krugman, work at the Federal Reserve or any member of academia the theory of how an economy works and the role of government in fixing an ailing economy is quite simple really.
We have been mired in almost 35 years of hands on tinkering by the wizards of smart at the Federal Reserve Bank and the dutiful dolts in Washington spending money here and there, on this or that, all the while promising the recovery is just around the corner.
These people look at our economy as a giant bathtub that is constantly springing leaks and they see it as their jobs to keep adding water (money) to the bathtub (economy) in order to keep it full. You see the dot.com bust of the 1990’s, the savings and loan collapse of 1980’s, the crash after 9/11, and the 2008 financial meltdown are simply great big leaks of demand out of our bathtub. So the people of the Federal Reserve thought and they thought, in the end they came up with wonderful programs such as ZIRP (Zero Interest Rate Program) QE 1-infinite, etc… gave them zippy names such as Operation Twist all in order to fix the leaks in the tub.
Yet in the end it was all nothing more than adding several hoses to the bathtub because the exciting faucet wasn’t doing the job to keep the tub full due to all the leaks. They never bother to attempt to figure out what keeps causing the damn thing to leak in the first place. No, no that would make way to much sense, the answers is always more water aka money, to stimulate demand i.e. fill the bathtub back up. Below is how these programs actually work and why Wall Street could care less if you are John Boehner or Harry Reid either will do in keeping the bathtub full. Doesn’t work so well for the average guy now does it??
Pay particular attention from 2000 to today, this is when they really went to town fixing the leaking bathtub. This trend will only continue as the faucet now can’t be turned off, the leaks are just to big.