Imagine if you rolled your 401k into an IRA, and the advisor you hired to manage your money, invested it into the exact opposite investments that he said he would when he was lobbying for the job. And his bad decisions caused you to lose all of your money and drove you into insurmountable debt. And then that same advisor argues that because your finances are in such bad condition, that he should be the one to take complete control over every financial decision in your life. Well, that is what the Federal government has done and now wants to do as they continue to push for ‘Central Bank Digital Currency’ or CBDC. Last year, Joe Biden signed an executive order to develop CBDC, which is designed not so much to make your financial transactions easier (they are already very easy), but for the government to control how you spend your money. Senator Ted Cruz introduced a bill this week to stop the creation of a CBDC, calling it “simply a bad idea”.
The entity that caused the hyper-inflation that we have lived through for the last 2 years and created the banking crisis that we are facing right now, wants even more control over our monetary and financial systems. On Tuesday, Moody's Analytics Chief Economist Mark Zandi stated that the problems in the banking industry are the inevitable result of rate hikes by the Federal Reserve where "things are going to start to wobble and break and it's going to feel uncomfortable." In response to that, Federal Reserve Chair Jerome Powell said on Wednesday that the Fed would use "all of our tools" to keep the banking system safe, and subsequently, he increased interest rates by quarter of percent. So, he did what politicians do all the time, double down on the policies that caused the problems in the first place.
In response, Senator Elizabeth Warren called for Jerome Powell be removed as head of the Federal Reserve because he is "trying to drive" the U.S. economy into a recession. She said, Powell is “dangerous man to have in this job.” Which may be true, but you know who is also dangerous to have in their jobs, people like Elizabeth Warren who voted to pass three unnecessary massive wasteful spending bills in 2021-22 – $1.9 trillion American Rescue Plan Act of 2021, $1.2 trillion Infrastructure Investment and Jobs Act of 2021, and the $739 billion Inflation Reduction Act of 2022 – in order to pay back their wealthy political donors who got them elected. This massive government spending led to runaway inflation which caused the Fed to dramatically drive-up interest rates which created an inverted yield curve which means short term bonds and treasuries are outperforming long term bonds and treasuries which is killing many of the banks that have large allocations in long term bonds and treasuries that the government encouraged for years.
They are blaming the banks when the primary driver of the banking crisis has been government. You can fault the individual banks for not anticipating this when deficit spending was out of control, but the Fed changed the rules of the game midway through the season. It would be like the NBA declaring that dunks and lay-ups are now worth 3 points and all shots beyond the arc are only worth 1 point, and they are going to recalculate every game already played this season with this new scoring method, and declare new winners and losers. And then we fault the 3-point shooting teams like the Golden State Warriors for having used a foolish 3-point shooting strategy, but that strategy made sense when 3-point shots were worth 3 points, not 1. A long-term bond strategy made sense when long-term bonds were out-performing short-term bonds (which they should always do), but when the government artificially inverts the yield curve, it becomes disastrous.
You can’t dramatically increase interest rates as fast as the Fed has done and expect no major fallout. You cannot engage in out-of-control deficit spending the way Joe Biden, Elizabeth Warren and the Democrats have done and expect no major fallout. Nothing occurs in a vacuum. You cannot only look at the positive effects of a decision and not also factor in the negative effects. Joe Biden and the Democrats only look at the positive effects. They never consider the negative consequences of deficit spending, raising taxes, sending $120 billion to Ukraine, open borders, shutting down Keystone XL Pipeline, outlawing drilling on Federal land, defunding the police, and so on.
The Democrats will use this crisis to try to claim that free market capitalism is a dangerous system and needs to be replaced by a government-controlled system run by the Central Bank Digital Currency and themselves. But we do not have a free-market capitalist system in the United States. The best we have is crony capitalism which is not a true capitalist system at all. It is a corrupt system. The cronyism, the corruption is causing the problems, not the free markets, not capitalism. And the politicians are doing what they always do, doubling down on the policies that created the problem. At the height of the inflation crisis in 2022 which was caused by massive government over-spending, Biden and the Democrats passed a $739 billion “Inflation Reduction Act” which was an attempt to use more deficit spending to solve the problems created by deficit spending. They think that more cronyism will dig us out of the mess that was caused by cronyism. Whereas the real long-term solution is to get back to true capitalism and true free markets which they will never do, because they want to maintain the power to pick winners and losers.
It is not the governments job to pick winners and losers. But that’s what they always do, and it always ends up bad. It is difficult enough for the government to micro-manage an economy when their intentions are pure - solely about producing an economy that works for the people; it becomes impossible when they have to factor in the cronyism - paying back political donors. And now with the rise of ESG, politicians are no longer picking winners and losers based solely on who contributed most to their campaigns, they are also picking winners and losers by which companies have the politics they like and don’t like. And we wonder why our banking system is collapsing. Whenever a non-politic entity or institution becomes politicized, it is ruined. Sports, movies, entertainment, religion, academia, and most of all businesses and financial institutions are ruined when they become politicized.
Government's role in the free-market system is not to control the markets, but to help ensure that the markets remain free. Many Democrats in Washington are pushing for new banking rules and regulations to take more control over our financial system. Here’s a new rule and regulation which will solve many of our country’s financial problems - no new deficit spending by the government. It’s that easy. An entity that is unable to identify that their deficit spending and printing of new money is the root cause of all of these problems, should not be allowed to offer a solution to our financial woes. They should be disqualified. We need to get back to fiscal responsibility and free markets, and allow the true capitalist system which made the United States the wealthiest nation the world has ever seen to be the solution to our problems.
Judd Garrett is a graduate from Princeton University, and a former NFL player, coach, and executive. He has been a contributor to the website Real Clear Politics. He has recently published his first novel, No Wind.