Who should be blamed for the policies that are destroying the middle class? For sure, there is plenty of condemnation to go around. However, three individual leaders have failed us more than any others by leading us in the wrong direction.
The policies of Bush, Obama, and Bernanke (BOB) are leading our country toward bankruptcy or a decimated dollar. Either result will damage the middle class for decades to come.
The argument of whose policies are to blame, Bush’s or Obama’s, is like arguing whether it’s better to drive off a cliff at 50 mph or 100 mph. Obamas policies of reckless spending, huge deficits, regulation, and money printing (Bernanke was appointed by Bush and then again by Obama), are just Bush’s policies on steroids.
On September 13th, 2012 the Federal Reserve, led by Ben Bernanke, announced an unprecedented, experimental, and dangerous policy. The Fed is going to purchase 40 billion in bonds per month to try and spur the economy and attempt to keep rates low through 2015.
The Stock Market
The stock market has been rallying for weeks in anticipation of getting its “fix”. Free money is the drug that has kept the markets rising even though the economy is stalled and unemployment is high.
The magnitude of what is commonly called QE-3 should be scary to investors. It is telling us Bernanke knows that the current fiscal policies are a total failure and the Fed believes it must take action to prevent deflation.
I find it disturbing that, after creating the bubble in housing and credit, the fed is repeating the same mistakes. This policy causes gross distortions in interest rates and robs savers of their earnings. This particularly hurts seniors who live off the income of their retirement savings.
In simplified terms; the fed is going to print money. This causes prices of commodities and agricultural prices to rise. We have zero evidence that it puts money in the pockets of the middle class, creates jobs, or stimulates real GDP in anyway. It’s not real growth, it’s artificial or fake (like monopoly money)!
One of the problems for the Fed is that the money created is not being circulated. It get stuck in the banking system. Because of government regulations (i.e. Dodd-Frank) the banks are being much more conservative and refusing to lend to anyone who is not a top notch credit risk. Business is not expanding because of uncertainty, poor tax policies, and the unknown (and rising) cost of Obamacare.
As investors there are two types of philosophies to deal with these policies. We can play the game and gamble that the markets will continue to rise and we will be able to get out before reality sets in. Or we can stick to sound investment principles and only invest in assets that provide a margin of safety and put the odds of winning heavily in our favor.
I choose the value investing strategy!
When leaders fail they need to be replaced! The middle class needs to vote those out of office who only look out for themselves and the rich. Big government means crony capitalism at best, and socialism and tyranny at worst.
A smaller and less intrusive government can provide certainty and unleash the forces of free enterprise and capitalism that built our country. We need sound fiscal and monetary policies, instead of short term fixes, before the middle class is destroyed.