As we exited 2014, Americans were (and still are) optimistic. According to Gallup, they’re more optimistic than at any other time since the Great Recession of 2008, which brought Obama to office.
Consider this the calm before the storm, however, because the U.S. economy isn’t nearly as strong as the propaganda emanating from Washington would have you believe.
And I predict that 2015 is going to be rough on Americans.
Now, before you tune out and call me another Cassandra preaching doom and gloom, give me a moment to explain…
A Reoccurring Issue
America is immensely wealthy, and our current problems could be easily fixed with good leadership, and I’m optimistic about our long-term future. But we have a very dangerous economic team currently pursuing polices that exaggerate the risks.
Fundamentally, the economic elites who own our banking system have held power since Ronald Reagan left office. During Bill Clinton’s term, the Glass-Steagall Act of 1933 was essentially dumped with the passage of the Gramm-Leach-Bliley Act.
Glass-Steagall had prohibited financial firms from being either investment or securities firms, while at the same time being a commercial bank with FDIC-insured deposits. Once this rule was broken down, you had a situation in which the government was essentially backstopping all of the gambling in the Wall Street casino.
Dodd-Frank – passed during the wake of the bust following the latest round of out-of-control gambling (a.k.a. the 2008 recession) – was supposed to fix the problem. But it hasn’t.
The major banks that should’ve gone out of business in 2008 were rescued by TARP and the Federal Reserve. The proper solution would have been reorganizing the banks in bankruptcy court.
Even until this day, many of the bad bets made before 2008 are still on the books as “derivatives†that have just been rolled over and extended.
A Modern-Day Atrocity
Austrian economists have a concept called “malinvestment.†This is the result of artificially low interest rates. The low rates cause otherwise “wise businessmen†to make bad decisions. A prime example would be a firm buying back overvalued shares using money borrowed at unnaturally low rates.
