This Time IS Different!

Guest Post by Dennis Miller at Miller On The Money

The Economist published an abstract of the book, “This Time Is Different, Eight Centuries of Financial Folly,” by Carmen M. Reinhart & Kenneth S. Rogoff.

They explain:

“Every so often, experts sucker people into bidding up the prices of stocks or real estate because they announce that the economy has fundamentally changed.

When You Hear ‘This Time Is Different,’ Don’t Walk, Run!

Every few decades, the economy’s major players develop bulletproof confidence in the efficiency of markets and the health of the economy. Known as ‘this-time-is-different syndrome,’ this unrealistic optimism afflicts bankers, investors and policy makers…. – a dangerous mix of hubris, euphoria and amnesia – (where) decision makers adopted beliefs that defied economic history.”

Carmen Reinhart concludes, “More money has been lost because of (these) four words than at the point of a gun.”

Since the repeal of the Glass-Steagall Act in 1999 we’ve experienced a major banking crisis, bailouts, historic low interest rates and out-of-control inflation.

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A current snapshot!

Let’s start with the published functions of the Federal Reserve:

“The Federal Reserve…performs five general functions to promote the effective operation of the U.S. economy and, more generally, the public interest. The Federal Reserve:

conducts the nation’s monetary policy to promote maximum employment, stable prices, and moderate long-term interest rates in the U.S. economy;

promotes the stability of the financial system and seeks to minimize and contain systemic risks through active monitoring and engagement in the U.S. and abroad;

promotes the safety and soundness of individual financial institutions and monitors their impact on the financial system as a whole;

fosters payment and settlement system safety and efficiency through services to the banking industry and the U.S. government…and

promotes consumer protection and community development….”

Soon after the repeal of the Glass-Steagall Act, the “too big to fail,” high-risk casino banks were bailed out, avoiding a banking collapse. The Fed poured money into the financial system, not worrying about the potential consequences.

To keep interest rates artificially low, the Fed created money out of thin air, monetizing US government debt, not allowing free market rates to prevail. Government debt skyrocketed, from around $6 trillion to over $34 trillion. The Fed’s balance sheet jumped nine-fold, topping $9 trillion.

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