Economy on a Scaffold

We’re making this way too complicated. It’s simple really.

The Fed has only one tool at its disposal; to create more money. Typically, the way the Fed adds to the money supply is by lowering interest rates. When the Fed lowers rates below the rate of inflation; they’re basically selling dollars for less than a buck. That’s a good deal, so, naturally, speculators jump on it and trigger a credit expansion. What follows is a frenzy of market activity that ends in a housing, credit, tech or equity bubble. Eventually, the bubble bursts and the economy goes into a tailspin. Then, after a period of digging-out, the process resumes again. Wash, rinse, repeat. It’s always the same.

The moral is: Cheap money creates bubbles; and bubbles move wealth from workers to rich motherporkers. It’s as simple as that. That’s why the wealth gap is wider now than anytime since the Gilded Age. The rich own everything. . . .

by Mike Whitney

http://www.counterpunch.com/whitney08072009.html

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