classical economics
for analysis,  forecasting
and policy design

Government End Recession
By Wayne Jett
© 2009

    Deficit spending on infrastructure, banks or autos bailouts and Federal Reserve injection of new money into financial firms address only the symptoms, not the causes, of this serious recession. As in the Great Depression, such programs do not cure an economic downturn. They dig the fiscal and monetary holes deeper and, worse, they signal officials are unwilling to address the real causes.
    Those who suggest that government can do nothing to end economic recession, however, are wrong. The federal government can end this recession, and soon. But there is a rub. Real solutions necessary to end the recession require reforms of government policies.
    This recession resulted from bad U. S. economic policies. The bad policies are more sub rosa than well known, but they are practiced nonetheless. In varying degrees, both political parties, the White House, Treasury, the Federal Reserve, financial markets and regulatory agencies responsible for enforcing securities laws are to blame.
Fraud in U. S. Financial Markets
    Trading practices in U. S. financial markets are outrageously corrupt. That message was delivered by the G20 nations in November when they gathered in Washington, D.C., and they rightly demanded corrective actions. Many U. S. investors already knew this to be the case. Scandalous behavior of the Securities & Exchange Commission rose to a crescendo in 2007 and 2008 when fraudulent manipulation became openly apparent.
    For at least the past five years, the SEC has permitted prime brokers, market makers and other major financial firms to target and destroy publicly traded companies by manipulating share prices. The agency embarrassed itself internationally when on July 15 it had to issue an emergency order to protect Fannie Mae and Freddie Mac from naked short selling.
    Think of that. A special order was required to protect Fannie and Freddie from blatant fraud against the markets. This SEC action admitted to objective eyes worldwide that all other companies and shareholders were left to the tender mercies of the same predatory naked short sellers.  
Oil Price Manipulation
    Politicians and regulators still allow unmonitored trading in commodities and related derivatives. Within the past two years, U. S. trading in crude oil options and derivatives trebled the price of the world’s most important energy source, causing collapse of global economic growth in the third quarter of 2008. Influence from Wall Street stopped Congress from doing anything about it after hearings gathered evidence and drafted legislation in May and June. Oil and gasoline prices finally dropped only because global economic collapse cut demand, not because Congress or the CFTC did anything to stop manipulation of the price of crude oil.
    Rampant lawlessness of U. S. financial markets was the overriding cause of collapse of major financial firms in 2008, the continuing credit crisis and the global recession. That environment plus trebled fuel prices combined to throw the three American auto makers into desperate straits, begging for bailouts from Congress, the White House and Treasury. Armed with illicit gains from their financial firm victims, fraudulent traders attacked the securities markets much more broadly, matching the Great Crash of 1929 in the precipitous drop of the Dow Jones Industrial Average.
Financial Gangsterism
    Lawless financial markets enabled billions, even trillions, in hard-earned capital to be drained from retail investors. When that occurs, it produces a recession (or depression) every time, because people do not have enough money left to maintain their standard of living. Replenishing liquidity in banks from tax revenues or from Fed-minted currency simply provides more to be looted if the fundamental problems are not cured.
    The Federal Reserve, financial markets and their regulators are dominated by Wall Street influence – the wishes and demands of financier billionaires who refuse to take “no” for an answer, and rarely are required to do so. Congress, the White House and Treasury must break free from that domination and reform the system.
America’s Demands
    The Federal Reserve must be ordered to stop manipulating domestic interest rates and provide honest dollars by stabilizing the currency unit value relative to gold. Financial crimes in the securities and commodities markets must be vigorously detected and punished, especially when perpetrators are the biggest players on Wall Street. The revolving door between the SEC and CFTC and the private financial sector must be slammed shut, with prison terms for violation of laws by private parties or by agency employees.    
    These are minimal expectations of people across the U. S. whose anger grows daily as officials scurry to do everything except the right thing. Americans deserve and demand economic justice – not recession or depression – and they will not accept continuing diversionary tactics. Economic justice means the financial crimes must be unearthed, prosecuted and remedied. Too much money has been taken to allow this to pass. ~