David Stockman on Aug. 14 posted a data-loaded article giving backhanded support to President Trump’s attacks on Fed policy; the article’s overall burden, though, is that the stagnation of America’s 21st Century economy is not the fault of Trump or Biden (or Obama), but of Wall Street and the policy of the Federal Reserve.
Stockman shows that U.S. industrial production (absolute, not inflation-adjusted), along with manufacturing employment, are right where they were in the fourth quarter of 2007. This 18 years of industrial stagnation (total growth of 1.4%, according to Stockman’s data from the Federal Reserve itself) represents the economic policy outcome of maintaining a sustained zero interest rate, combined with constant issuance of masses of “excess bank reserves” from the Federal Reserve to the biggest Wall Street banks, to bail those banks out and for injection by them into speculative financial sectors.
During the previous half-century 1954-2007, by contrast, industrial production (which includes manufacturing, mining, utilities generation, and energy production) grew at an average annual rate of 3.3%. And what grew, instead, during these last 18 years? Total federal debt quadrupled, from roughly $10 trillion to more than $37 trillion. The Federal Reserve’s balance sheet octupled, even taking into account the Fed’s recent, slow “qualitative tightening.” Americans’ cumulative real consumption of goods grew by 62%. The net worth of the top 1% of U.S. households roughly tripled.
One could add to Stockman’s charts, from recent testimony by banking expert Dr. Arthur Wilmarth, that the loan-to-deposits ratio of the largest six “Wall Street” banks has fallen, in that same period since the global financial crash, from 75-85%, down to just 40%, So, 60% of those biggest megabanks’ deposit base—which itself has been made much larger by the Fed’s policy—is engaged in financial speculation rather than loans, This cries out for Glass-Steagall reorganization.
