7 Years after the Housing Bubble, Are We in Another Financial Bubble
In this very informative and timely white paper, veteran financial advisor Tim Hayes walks through the process of where new money comes from and the role it plays in fueling bubbles and wealth inequality.
In the Movie All the President’s Men, a source of reporter Bob Woodward nicknamed “Deep Throat” informs Woodward that to solve the mystery of Watergate he needs to follow the money. To understand how the stock market can almost triple in value during a period of mediocre growth (2008-2016), one must do the same.
The most important financial story since the financial crisis has been the Federal Reserve and their unconventional monetary stimulus called quantitative easing nicknamed, QE. Many in the financial press call it printing money as opposed to new money, but rarely are the mechanics and implications for the average person discussed or understood.
“Of all the many ways of organising banking, the worst is the one we have today.” Mervyn King“
“New money” is money added to the economy without money being yanked from someone else’s account. Moreover, the role commercial banks play in creating new money is either ignored or misunderstood.
However, without a clear picture of the role of the Federal Reserve and commercial banks play in creating this new money, any attempts to improve current financial conditions or rebuild the middle class will fail and the economy will continue to lurch from financial bubbles to recessions.