The U.S Recession is back again and it is wide spreading throughout the world. Recession is back even though President Barack Obama and Fed did everything possible according to Keynesian irrationality of breaking windows to save the United States against the previous economic meltdown of 2008. In 2008-2009, when Obama introduced huge stimulus packages to save American jobs by investing American tax-payer’s money in those public and private sector ventures which were faulty, irrational and corrupt, he thought it will help America to retain its losing glory.
The effect of his Keynesian steps were inspired and favored by the master of Keynesianism Mr. Paul Krugman who won the Nobel Prize in Economics on October 13, 2008 and Obama was also convinced about the magical skills of Ben Bernanke and while appreciating his magical skills, Obama said Bernanke’s background, temperament, courage and creativity helped to prevent another Great Depression in 2008.
However, there were people who warned Obama, Bernanke and others that depression is nothing but the much needed corrective measure or the medicine for the ill economic conditions of the United States. They suggested that the market shouldn’t be disturbed further by inflicting more fiat currency in it as that will only increase the mal-investment which has caused the ill economic conditions. They appealed President Obama to not to provide stimulus and to concentrate more on how to reduce government spending. Yet, Obama had his own plans of Obama care and ‘No Child Left Behind’, he had plans to help the environmentalists so that he may control the rate of pollution in the world.
With his theory of broken Window, Obama introduced the carbon regulation. Through his unique ‘cash for clunkers’ diatribe, he tried to enthuse life in the dying automobile sector of the United States. At that time, he had his personal idea of having the power of “Yes We Can!” In spite of all economic policies introduced by Ben Bernanke which were equally supported by Paul Krugman and other Keynesian economists amongst the opinion panel for Obama, the economic conditions of the United States took a large time to retain a sort of stability. The unemployment rate of the United States remained too high and the national debt kept escalating to higher degrees. However, President Obama maintained his faith in Keynesian economics and kept following the broken window fallacy as he increased troops in Afghanistan and ordered frequent Drone Attacks in Pakistan. It was all to divert attention of the public from the real root of problems, the mal-investment by the government in absurd manner. President Barack Obama further got chances to help his cause in 2011 when a number of Arabian countries including Egypt, Sudan, Libya and Lebanon faced civil uprising and protests. He got a chance to deploy more troops in other parts. Yet the breaking of windows weren’t helping him to manipulate economy for a better ride, it was always at the brink of a double-dip-recession and now, the recession is back.
Why is Recession Back?
Ron Paul tried his best to explain how Barack Obama can control the effects of the last recession of 2008. He said that US government should call its military back from Iraq, Afghanistan and other war fronts and every possible step should be taken to reduce government spending. But how could Obama accept that? He had to make use of every possible way through which he could make a mark in the history of America. Because of the short sightedness of Keynesians, Obama tried to suppress recession of 2008 and he succeeded to a certain degree, but now, it is the time to pay back as recession is knocking on American doors again.
Recently, the government of the United States defaulted against its budget and was forced to increase the limit of national debt to further high limit. As a result S&P reduced American debt credit ratings. This was also a Keynesian trial to avoid the upcoming recession, but the trick failed. The United States lost its AAA rating and now recession is also back.
Indicator of upcoming Recession
Peter Schiff explains that gold is the thermometer of Economy. He also indicates towards the increasing prices of Gold. He explains the reason of this trend to be the ill habit of government central banks to keep printing money irrationally. With gold prices at a high of $1851 an ounce, the economy isn’t getting any healthier. By printing more and more Fiat Currency, Central banks devalue the price of fiat money like Dollar, Euros, INR, etc. it is a scam through which government robs citizens by devaluing the money they earn. People believe that they should not buy gold when the price is high. However, Peter Schiff says, “I keep hearing people on television saying people aren’t buying gold because of inflation, Gold is a safe haven from inflation.”
The simple thing is, Gold cannot be produced by government out of thin air, so governments cannot fool citizens by increasing or decreasing it. Hence giving up fiat currency and buying gold is certainly the reasonable way as the price of gold will never be devalued.
Recession is the game of Bubbles. In Mixed economies, government control gives rise to a fake feeling of progress. As the government cannot calculate, it often keeps encouraging Mal-investment by means of subsidies and prohibitions. The mal investment in dot com bubble of late 1990’s hurt American economy to a great extent and the world economy felt the effects of recession. Yet, politicians and economists weren’t ready to accept their fault and hence they needed to stabilize the falling American economy. For doing so, they created a new housing bubble in a next few years. The government kept working on huge fiscal deficits and the central banks kept printing money to show that everything is fine. This kept devaluing the fiat currency while the national debt of the United States kept mounting higher. In 2008, the housing bubble exploded and a much stronger recession hit the world economy which was milder in late 1990’s. President Obama again employed Fed and Ben Bernanke and he showered trillions of newly created dollars in the market which were again Mal-invested. Now the burden of recession is much heavier and so will the recession. The only reason for recession is governmental interventionism in market and its power to create money out of thin air. We can say that recession is a typical phenomenon of Mixed economies.
What will be the effects?
Unemployment rate is still higher in US and it will rise again. However, the major consequence of showering newly created dollars irresponsibly appears in form of inflation. Prices will rise high and poverty will increase as the value of fiat currency will be devalued in every part of the world. Most of the countries (including India, China and the European countries) are already experiencing the effects. Central banks like Fed (RBI in India) often feels that printing new money will make things better but it causes huge inflation, price rise and poverty.
Not only the US economy but the world’s economy is still in need of corrective measures. Government should not intervene with whatever is happening in the market and let it recuperate freely by itself. Market will purge all bad investment as companies and banks will fail. While it will increase unemployment but it is the only solution to reduce the effects of governmental scam which is done by creating money out of thin air. However, it is almost impossible to expect government act honestly. At some time during this recession, stock markets will become highly volatile and government will again start feeling responsible to interfere and again stimulus packages will be thrown in market to buy the volatile stocks and to reduce their impact and the huge governmental scam will keep rolling on.