https://pkadams.substack.com/p/of-booms-and-busts-banks-and-bubbles?sd=pf

I started writing this article before the Fed’s latest rate hike to try to stop inflation. Since then I have done more research on the current situation which leads me to believe that the Covid lockdowns and stimulus programs which led to global economic upheaval has hurt the economy in ways that might be terminal.

Who is to blame? Mostly the government. But also speculators and banks. Just read this list of booms and busts. Every time the banks/government intervened to shore up the short-term economy, they weakened the structure itself.

During Covid, the speculation did not stop. Bitcoin addicts were very busy, as were traders of all types. Tech and pharma were full steam ahead. No one was preparing for the inflation that everyone should have known was coming from the insane amount of money that was thrown at Covid and the crushing of the supply chain. People started buying more stuff and haven’t stopped, although the consumer frenzy does appear to be slowing now. And I don’t think anyone anticipated that people would refuse to go back to their jobs after Covid.

My only question is was the current economic situation deliberate or unexpected, but I don’t think we can prove it if it was. Obviously there are many theories and many boogieman. I have spent the past 3 years being red-pilled, and I know about all of them.

There are many forces in play: the UN led net-zero/renewables/climate agenda public private partnership scheme; the big pharma war on viruses and it’s goal of getting the public to pay for it; the geopolitical struggles between West and East; the philosophical/ideological battle for the minds of the youth; and good old human nature that wants to get rich quick by gambling with other people’s money. All of these things have one thing in common: the love of money.

I am just no longer sure if I believe in one grand human plan that a certain group of people are cooperatively conducting. I believe in consequences for greed. I believe in supernatural battles of good and evil. And I believe in God’s plan. When you start looking into the details of the various theories, they seem a bit like exciting fiction.

But anyway, the following is an AI compiled list of some of the booms and busts that have occurred in the past. I don’t know why I was surprised to learn that people have been speculating and gambling on various risky schemes for a very long time.

The history of the United States is filled with a number of speculative booms and busts. Here are some notable examples:

1. The Mississippi Bubble (1718-1720): The Mississippi Bubble was a financial bubble created by John Law, a Scottish economist, in which investors speculated on the potential riches of the French colony of Louisiana and the Mississippi Company. Law’s scheme involved the issuance of paper money backed by shares in the Mississippi Company, which promised to exploit the resources of Louisiana and make a profit for investors. However, when the company failed to deliver on its promises, investors panicked and the bubble burst, leading to a wave of bankruptcies and financial ruin.
2. The Panic of 1796-1797: This was a financial crisis caused by over-speculation in land and securities, as well as a downturn in the economy following the Revolutionary War. Many investors had put their money into land and securities in the hopes of making a quick profit, but when the economy turned down and prices fell, many investors were left with worthless assets and heavy debts.
3. The Panic of 1819: This was another financial crisis caused by speculation, this time in land prices, which led to a wave of bankruptcies and foreclosures. Many Americans had invested heavily in land in the hopes of profiting from the expansion of the frontier, but when land prices collapsed, many were left with worthless assets and heavy debts.
4. The Panic of 1837: Not long after the last land speculation crisis, more people lost their money when over-speculation in land, a decline in cotton prices, and the withdrawal of government funds from the Bank of the United States caused the bottom to fall out. Many Americans had invested heavily in land and cotton, but when prices fell and credit tightened, many were left with worthless assets and heavy debts.
5. The California Gold Rush (1848-1855): Gold fever, in which prospectors rushed to California to search for gold, lead to a boom in population, economy, and speculation. While some prospectors struck it rich, many more were left with little to show for their efforts, and the boom ultimately led to a bust as the supply of gold dwindled.
6. The Panic of 1873: Over-speculation in railroads and other industries led to a wave of bankruptcies and economic depression. Many investors had put their money into railroad stocks and bonds in the hopes of profiting from the expansion of transportation and industry, but when the boom turned to bust, many were left with worthless assets and heavy debts.
7. The Florida Land Boom (1920s): The Florida Land Boom was a speculative bubble in real estate prices in Florida, which led to a wave of investment and development, but ultimately ended in a crash in 1926-27. Many investors had put their money into Florida real estate in the hopes of profiting from the state’s rapid growth and development, but when the boom turned to bust, many were left with worthless assets and heavy debts.
8. The Roaring Twenties (1920s): The 20s were a period of moral decline and social change. This included greed and speculation. Investors speculated on stocks, real estate, and other assets, leading to a stock market boom and subsequent crash in 1929. Many Americans had invested heavily in the stock market and other assets in the hopes of profiting from the economic boom of the 1920s, but when the boom turned to bust, many were left with worthless assets and heavy debts.
9. The Dot-Com Bubble (late 1990s-early 2000s): Most of us remember this one. The dot-com bubble was a period of rapid growth and speculation in the technology sector of the US economy in the late 1990s and early 2000s. During this time, many investors were pouring money into internet-related companies, often based on little more than hype and promises of future profits. Stock prices for these companies soared to dizzying heights, fueled by a frenzy of investment and a belief that the internet was a game-changing technology that would transform the business world.However, many of these companies were not profitable, and their high valuations were based more on speculation than on solid fundamentals. As a result, the bubble eventually burst, and the stock prices of many dot-com companies plummeted. Thousands of companies went bankrupt, and investors lost billions of dollars. The dot-com bubble serves as a cautionary tale about the dangers of overvaluing new technologies and the importance of conducting thorough due diligence before investing in any venture.
10. The Housing Bubble (mid-2000s): The housing bubble, which occurred in the mid-2000s, was a period of rapid growth and speculation in the US real estate market. During this time, housing prices soared to unprecedented heights, fueled by a combination of easy credit, low interest rates, and lax lending standards. Many people bought homes they couldn’t afford, and lenders offered subprime mortgages to borrowers with poor credit histories, often with adjustable rates that would increase significantly over time.The bubble eventually burst in 2008, leading to a devastating financial crisis that had far-reaching consequences. As housing prices began to decline, many people found themselves underwater on their mortgages, owing more than their homes were worth. Foreclosures skyrocketed, with as many as 7.7 million homeowners losing their homes. This led to too many unsold homes on the market, driving prices even lower and causing further economic damage.Overall, the financial crisis of 2008 was one of the most significant economic events in recent history, with far-reaching consequences for the US and global economies.

The 1950s boom led to the 1970s bust.

While the 1950s were a time of strong economic growth and prosperity in the US, the 1960s and 1970s saw a number of economic challenges and fluctuations, including rising inflation, slow growth, and periodic recessions. The end of the post-World War II economic boom in the late 1960s marked a turning point for the US economy, with many of the economic and political trends that would shape the rest of the 20th century beginning to take shape.

There were several reasons for these economic struggles. The Federal Reserve’s monetary policy in the 1960s and early 1970s was expansionary, with low interest rates and a growing money supply. This helped to fuel the economic boom of the 1960s, but it also contributed to rising inflation and other economic imbalances. Additionally, the government’s spending on the unpopular Vietnam War put a significant strain on the economy, leading to increased inflation and slower growth. Then a series of oil price shocks pushed up the cost of energy which contributed to inflation. A shift away from manufacturing and towards services, as well as increased global competition, had an impact on growth and employment in certain sectors of the economy.

The combination of high inflation and slow growth, known as “stagflation,” was a particularly challenging economic phenomenon of the 1970s. It was a difficult problem for policymakers to address, as traditional policy responses to inflation (such as raising interest rates) tended to exacerbate the problem of slow growth.

As you may have noticed, we are currently experiencing high inflation, however, we do not have high unemployment. We also have high demand. Therefore what we now have is an overheated economy. This is just as difficult to remedy as stagflation. What you see happening in the news today, bank failures, layoffs, investor panic, is a result of the measures the Federal Reserve is taking to correct the problems they caused by overheating the economy with Covid stimulus money.

Economic overheating refers to a situation where an economy is growing too quickly, and demand is outpacing the economy’s ability to supply goods and services. This can lead to an increase in prices, inflation, and asset bubbles. Economic overheating often occurs when there is a prolonged period of low interest rates, excess liquidity, and strong consumer and investor confidence.

While economic overheating may seem like a positive development at first, it can eventually lead to imbalances and risks that can trigger a recession or financial crisis. Central banks and policymakers may take measures to cool down the economy, such as raising interest rates or implementing tighter fiscal policies, to prevent economic overheating and ensure sustainable growth over the long term.

And the most recent boom and bust….the 2023 Tech Bust. For at least five years the tech industry has been enjoying the excitement of new ideas and benefitting from the flow of cash from investors. This bust began in late 2022 with inflation-related layoffs at multiple technology companies that had built companies on hopes and dreams and investor cash. The most recent evidence of the bust is the failure of the Silicon Valley Bank. However, we can’t only blame tech startups and speculators for this bust. We need to look back at what the Federal Reserve did after the 2008 crisis, which was to change it’s monetary policy. The Fed kept interest rates low for an extended period of time after the 2008 financial crisis to support economic growth, combat deflation, support the housing market, and provide stability to financial markets. Then Covid happened.

The COVID-19 pandemic had a significant impact on the Federal Reserve (the Fed) and the US economy as a whole. Here are some of the ways in which the pandemic affected the Fed:

1. Emergency Rate Cuts: In response to the economic shock caused by the pandemic, the Fed made two emergency rate cuts in March 2020, bringing the federal funds rate to near zero. The Fed also indicated that it would keep interest rates low for an extended period of time to support the economic recovery.
2. Quantitative Easing: The Fed implemented a new round of quantitative easing, which involved buying large amounts of Treasury bonds and mortgage-backed securities to support the functioning of financial markets and provide additional support to the economy.
3. Lending Facilities: The Fed set up several new lending facilities to provide liquidity to the financial system and support businesses and municipalities affected by the pandemic. These included the Main Street Lending Program, which provided loans to small and medium-sized businesses, and the Municipal Liquidity Facility, which provided short-term funding to state and local governments.
4. Forward Guidance: The Fed provided forward guidance on its policy stance, indicating that it would keep interest rates low until certain economic conditions were met, such as achieving full employment and inflation averaging 2% over time.
5. Collaboration: The Fed worked closely with other central banks around the world to coordinate their responses to the pandemic and provide additional liquidity to global financial markets.

BlackRock and The Fed’s Handling of the Economy

One of the people who advises the Fed is billionaire Larry Fink. The CEO of one of the largest asset managers in the world, Larry Fink has had interactions with the Federal Reserve and other central banks for many years, dating back to the early 2000s. BlackRock was involved in the management of certain aspects of the Fed’s quantitative easing programs starting in 2009, and the company has been a significant player in the global financial markets for decades.

Fink played a role in responding to the 2008 financial crisis. In October 2008, BlackRock was hired by the US government to manage the assets of troubled financial institutions as part of the TARP program. BlackRock was responsible for managing around $130 billion of assets under the program, including mortgage-backed securities and other troubled assets. The company worked closely with the US Treasury Department and other government agencies to help stabilize the financial system and prevent a further collapse of the economy.

In addition to its role in the TARP program, BlackRock was also involved in other initiatives aimed at stabilizing the financial system and promoting economic growth. The company provided advisory services to the Federal Reserve and other central banks around the world, and Fink was a vocal advocate for policies aimed at promoting long-term economic growth and stability.

BlackRock was selected by the Fed to manage some of the lending facilities established during the pandemic.

Now the blogs on BlackRock’s website say that the Fed should stop raising rates because fighting inflation is not the most important thing in the current situation. While what they say makes sense for their investors, I don’t trust them. All they are saying is that they are worried about their own bank accounts. However, a recession will not be good for average Americans either.