In the November 6th opinion piece in the Wall Street Journal, Kimberley A.
Strassel suggests that U.
S.
politics have reached a tipping point: voter dissatisfaction with administration policies is now undermining Democrat party support to the point where members of congress are increasingly unwilling to vote the party line.
A similar situation is developing in the economic arena.
As the current recession started in 2007, government policy under President Bush focused on rescuing the failing financial sector.
The Obama administration picked up and amplified that policy.
Several trillions in taxpayer money have now been spent by the Treasury and the Federal Reserve to bail out banks and other financial entities.
The sums spent to prop up U.
S.
finance dwarfed those dedicated to the real economy.
The main priority has been, and still is, to keep the globalized financial system from crashing and to set it back on its feet.
This policy ignored or fudged the fact that global finance had collapsed through its own imbalances and excesses.
Thus restoring the status quo ante provides no guarantee of stability.
On the contrary, it reinforces and extends the risk of a relapse into crisis.
The globalization of finance has been a major tenet of U.
S.
economic policy for three decades.
Safeguards erected against a coordinated global crash, such as the Glass-Steagall Act, have gradually been removed.
Controls over capital movements and exchange rates are gone as well, eliminating all restraints on world monetary flows.
At the same time, U.
S.
fiscal and trade deficits have vastly increased the amount of money in circulation.
This floating, unanchored and anonymous mass of money moves freely around the globe, seeking the highest returns.
In the process it generates massive financial bubbles, as no asset class is large enough to absorb it.
Globalized finance has generated the Asian crisis, the dot.
com bust, the U.
S.
mortgage disaster, and the 2008 spike in commodity prices, including oil at $148 a barrel.
The latest ongoing episode is the current stock market bubble, fed and amplified by massive government cash injections and ultra-low interest rates.
The economic impact of this situation is, first, a shift from productive to speculative investment, with a bloated financial sector and a shrinking real economy; second, a series of economic dislocations caused by the boom and bust cycle, with the burden falling on the majority of the working population.
With the U.
S.
unemployment rate now at 10.
2 percent, with another 8 percent or so under-employed, the justifications for propping up the financial sector ring increasingly hollow.
The trillions of dollars disbursed by the Federal Reserve and Treasury were meant to support bank lending capacity and restore the credit available to the real economy.
Instead lending has been curtailed everywhere and the economy is flat on its back while Wall Street is looking at a banner year.
The stock market has shrugged off the rising U.
S.
unemployment numbers, and for good reason.
With a global sandbox to play in, U.
S.
taxpayer money, provided at zero interest, can be much more profitably invested in Hong-Kong real estate, Brazilian stocks, or oil and copper futures than in struggling American businesses.
In other words, as long as Uncle Sam keeps shoveling money at the banks, the financial sector does not need the rest of America.
The government so far appears to agree.
From the political viewpoint, as Ms.
Strassel points out, the administration policy has been a disappointment.
From the economic angle, it depends from who profits.
For the financial industry, it is a godsend.
But for the general population it is a resounding failure.
It remains now to be seen how long the stock market bubble can keep inflating when there is no economy supporting it, the government is broke, the central bank is printing money and the currency is losing value.
Once it pops, and stocks go back to a justifiable valuation, there will be little left to protect the Washington-Wall Street alliance from a very angry Main Street.
Strassel suggests that U.
S.
politics have reached a tipping point: voter dissatisfaction with administration policies is now undermining Democrat party support to the point where members of congress are increasingly unwilling to vote the party line.
A similar situation is developing in the economic arena.
As the current recession started in 2007, government policy under President Bush focused on rescuing the failing financial sector.
The Obama administration picked up and amplified that policy.
Several trillions in taxpayer money have now been spent by the Treasury and the Federal Reserve to bail out banks and other financial entities.
The sums spent to prop up U.
S.
finance dwarfed those dedicated to the real economy.
The main priority has been, and still is, to keep the globalized financial system from crashing and to set it back on its feet.
This policy ignored or fudged the fact that global finance had collapsed through its own imbalances and excesses.
Thus restoring the status quo ante provides no guarantee of stability.
On the contrary, it reinforces and extends the risk of a relapse into crisis.
The globalization of finance has been a major tenet of U.
S.
economic policy for three decades.
Safeguards erected against a coordinated global crash, such as the Glass-Steagall Act, have gradually been removed.
Controls over capital movements and exchange rates are gone as well, eliminating all restraints on world monetary flows.
At the same time, U.
S.
fiscal and trade deficits have vastly increased the amount of money in circulation.
This floating, unanchored and anonymous mass of money moves freely around the globe, seeking the highest returns.
In the process it generates massive financial bubbles, as no asset class is large enough to absorb it.
Globalized finance has generated the Asian crisis, the dot.
com bust, the U.
S.
mortgage disaster, and the 2008 spike in commodity prices, including oil at $148 a barrel.
The latest ongoing episode is the current stock market bubble, fed and amplified by massive government cash injections and ultra-low interest rates.
The economic impact of this situation is, first, a shift from productive to speculative investment, with a bloated financial sector and a shrinking real economy; second, a series of economic dislocations caused by the boom and bust cycle, with the burden falling on the majority of the working population.
With the U.
S.
unemployment rate now at 10.
2 percent, with another 8 percent or so under-employed, the justifications for propping up the financial sector ring increasingly hollow.
The trillions of dollars disbursed by the Federal Reserve and Treasury were meant to support bank lending capacity and restore the credit available to the real economy.
Instead lending has been curtailed everywhere and the economy is flat on its back while Wall Street is looking at a banner year.
The stock market has shrugged off the rising U.
S.
unemployment numbers, and for good reason.
With a global sandbox to play in, U.
S.
taxpayer money, provided at zero interest, can be much more profitably invested in Hong-Kong real estate, Brazilian stocks, or oil and copper futures than in struggling American businesses.
In other words, as long as Uncle Sam keeps shoveling money at the banks, the financial sector does not need the rest of America.
The government so far appears to agree.
From the political viewpoint, as Ms.
Strassel points out, the administration policy has been a disappointment.
From the economic angle, it depends from who profits.
For the financial industry, it is a godsend.
But for the general population it is a resounding failure.
It remains now to be seen how long the stock market bubble can keep inflating when there is no economy supporting it, the government is broke, the central bank is printing money and the currency is losing value.
Once it pops, and stocks go back to a justifiable valuation, there will be little left to protect the Washington-Wall Street alliance from a very angry Main Street.
Source...