“Money For Nothing: Inside the Federal Reserve”
“Money For Nothing” is a documentary about economics. If that sounds a little dry, it is, though they try very hard to provide some “fun” visuals while the “suits” are speaking. It’s almost as if they don’t really expect us to understand, so they’re trying to “dumb it down,” but in the end, they seem to be much better at describing the current situation than offering any real solutions.
We begin with a brief history, how the Panic of 1907 resulted in the creation of the Federal Reserve Bank, but they blew their first crisis, when the Roaring Twenties bubble burst, and we had the Great Depression.
The outbreak of World War II, of course, meant rapid economic recovery, and afterwards, unparalleled prosperity. Toward the end of the War, in 1944, the Allied economic summit resulted in the rest of the world’s currencies being tied to the dollar, but that was supposed to be OK, because the dollar was still undergirded by the gold standard. In the postwar era, we had an ideal situation: low interest rates, a growing economy, low unemployment, and low inflation.
But something happened in the 1960’s. LBJ’s Great Society, combined with an expensive, protracted, and increasingly unpopular war in Vietnam , resulted not only in societal unrest, but also the beginning of steady inflation, and rising joblessness (especially for returning veterans, many of whom suffered from undiagnosed PTSD). It was Richard Nixon who formally broke us away from the gold standard, which then meant that our currency was guaranteed by….nothing. Nothing, that is, except everyone’s implicit faith in the system.
To someone steeped in the Christian tradition, this scenario sounds a lot like the Church: our primary currency is faith. Without it, we cannot sustain ourselves. (Interesting that the “God” analogy would later be used to describe Alan Greenspan, but that’s getting ahead of our story.)
Anyway, most of us remember the very high inflation and very high interest rates of the 1970’s. Remember the long lines for gasoline? Remember 14%, or higher, interest for standard fixed-rate home mortgages? Jimmy Carter got blamed, but the Fed policy, or lack of it, had something to do with the crisis.
Paul Volcker then took the reins, and by manipulating the Fed’s interest rate which it charged other banks, and therefore regulating the money supply itself, the economy finally righted itself, until the out-of-control dot-com 90’s, which produced another crisis. Greenspan, having taken over for Volker, got this one right, but according to this documentary, that gave him too much hubris, because when the runaway speculation fueled the stock market rise of the early 2000’s, everyone just wanted to get on board the fast train.
We all know what happened with the sub-prime lending fiasco, and how banks sold bad loans to each other, loans that were basically unsecured and without collateral, so when the bubble burst in 2007, we had many foreclosures, and the steep declines of both the housing market and the stock market.
Ben Bernanke, now the Fed Chairman, responded by asking the U.S. government to essentially bail out the big banking and lending institutions that were considered too big and important to fail, and the government complied. But this merely encouraged the risk-takers, because now they had a safety net. The Fed has responded to the threat of inflation by lowering interest rates to virtually zero, which now means they have no other tricks in their bag. So, according to these doomsayers, we are headed for another crisis.
The trouble is, they don’t tell us what we’re supposed to do about it, other than somehow produce an economy that prospers because of real production growth rather than the false upward valuation of stocks. Fine, easy to say, but everybody seems better at pointing fingers than offering any real solutions. Yes, it’s informative, but not very helpful.
Kind of like saying the Church in America is in decline, and we need to figure out something constructive to do about it. Duh. That part is obvious. But how about suggesting a specific solution instead of just pointing out the history of the problem?
Dr. Ronald P. Salfen, Minister, St. Stephen’s Presbyterian Church, Irving , Texas