In Denial of Crisis: Part III

David Jensen is the Principal of Jensen Strategic a Vancouver-based strategic planning and business advisory services company. Failures That our monetary system and economy could now face its current peril is the end-result of a gradual process. Expansion of an increasing debt cycle dramatically increased by loose monetary policy and low interest rates starting in the mid-1990's exacerbated a consumption and speculation dynamic by telling consumers they were worth much more than they were in reality. During this process, consumers have not been discouraged from speculating and incurring debt - in fact, in 2004 Chairman Greenspan coyly noted that consumers could have saved substantially had they been using variable rate mortgage credit. No money down, interest only and also variable rate mortgages have been at the core of the current real estate speculative bubble. Speculation in financial instruments has also undervalued commodities during the period of monetary expansion. North American cities have been structured on the premise of cheap energy with the number of car miles in the U.S. more than doubling since 1992 due to urban sprawl and in 2004, the D.O.T. noted that the average weight of an American vehicle had exceeded 4,000 lb. Our cities are now exactly incorrectly structured for the future high energy costs. Central bankers have been desperate during this period to stimulate any economic activity possible to avert the post bubble decline. However, their policies and enticements have been retrograde in increasing unsustainable debt load and economic distortion with diminishing economic returns while compounding instead of mitigating the consequences. Greater and greater growth rates of debt are now needed just to sustain the economy. A coherent strategy is wholly missing and Fed policy appears to be more of a form of delay of consequences and denial of the sum of their cardinal errors during the past decades rather than prudent and rational forward guidance. When confronted with questions about its policy, the Fed has obfuscated and insisted on the rightness of its policy decisions. Governments and central bank officials have passed on opportunities to address the negative consequences that have resulted from monetary and fiscal policy error always seeming to insist that desperate times call for further desperate measures like lowering interest rates to 1%. And there has never been a public accounting, public policy analysis or changing of the guard at the Fed even after dot.com stock market bubble broke in 2000 and Fed's policy error became clear to all (presumably because the Fed's loose monetary policies were encouraged by Government and the financial communities). The blow-off of this monetary cycle will leave many questions to be answered as well as opportunities for improvement in society. At the core of our current predicament is the failure of central bank fiat monetary systems and, at best, imprudent risk taking with the economy of the U.S. Because of the consequences and dependency of Canada and, for that matter, the world's economy on US consumption, the stakes are very high. Morgan Stanley's Stephen Roach56 notes that from 1995 to 2002 the U.S. accounted for 98% of the World's net GDP growth. Beyond the odd article voicing the concerns of Paul Volcker, Warren Buffett and John Templeton, the mainstream media has been virtually absent from any critical, substantive analysis of monetary and economic policy acting more as...

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