Alternative Visions – The Great Contradiction – 07.14.17

Dr. Rasmus explains how the advanced capitalist economies—US, UK, Europe, Japan—have made monetary policy and their central banks the ‘only game in town’ since 2008, and provided more than $20 trillion in virtually free money to their capitalist banking systems, in effect creating a permanent subsidization of the banks since 2008. Now the Fed and other central banks are attempting to reduce the free money a little by raising interest rates and selling off their $15 trillion plus balance sheets of accumulated prior bank bailouts. Rasmus argues that having continued too long with too low rates (8 years), central banks now face a ‘grand contradiction’: they cannot raise rates or sell off very much without precipitating another crisis. He predicts a 2% federal funds rate and 3% 10 year Treasury bond rate are likely the limits. That means central banks’ solution to the last crisis, and the permanent subsidization of the banks since 2008, has created the conditions for the next crisis. Rasmus explains how and why this permanent subsidization of the banks regime has come about, including the takeover of the central banks, and their governments’ economic institutions, by the big banks themselves. Goldman Sachs now runs US economic policy from the Treasury to the Fed (and Cohn will soon replace Yellen). Rasmus challenges Yellen’s view that falling US prices are ‘transitory’ and will soon rise, and the US economy is strong, despite collapsing bank lending, government tax revenues, and stagnant prices and real wages.