Saturday, November 9, 2013

When the Fed is helping with the bankruptcy

Looking at the first graph only:

The red line is the one year rate, the federal reserve can control this to a large extent.  The blue line is inflation.  When the red line is lower than the blue, the fed is printing money.  In particular, when the fed does this, government in DC uses the money, but for what?

Clinton needed cheap money because the high growth he was generating with a balanced budget resulted in very high interest expenses, mainly because Clinton had to roll over the accumulated debts of the Republican Communist Party.  Then the fed normalized rates, make the red and blue line converge, in 1994.  But once the lil Bush Communist ran up the debt again, the fed kept the red line below the blue for longer.  Finally, the fed is keeping the red line permanently at zero because there is no way in hell that DC can cover the expanding interest expense when growth appears.  Obama can never get the DC budget back to growth mode.  We have lost our mojo, we are broke, in a debt spiral.  

Now check the second graph which are the bubbles. See that small crash in 1987 in the blue line? That is the correction to our first bubble.  The red line is the DC debt to toal gross national product (gdp). As that debt to GDP ratio rises, the bubbles get bigger. Notice the fed raises rates when the bubbling starts. Niow we are so far into debt the only thing we seem to do is make a permanent bubble.  The bubble rises because the debt to gdp ratio puts interest expennse strain on both Congress and the Federal reserve.  It takes longer and longer to get rates back to normal because Congress has an ever more difficult time finding room in the budget to cover interest.

Why do politicians do this? One might think the middle class would be pissed, except about 40% of the middle class live in large states and have no clue, since they have no real senators.
 

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