However, even in the midst of the Great Depression, pouring money into the economy produced major gains in real growth and jobs.  This is what happened from 1933 to 1937.  In the midst of the Great Depression spending and growth averaged increases of roughly 10% a year.  The unemployment rate went from 25% in 1933 to 14% in 1937.  The turnaround occurred when Fed policy turned from highly restrictive to highly expansive.

Hence, Fed policy can create what appears to be a recovery in spite of serious negative forces.  This past year the Fed increased bank reserves by more than 20%.  This compares to an average annual increase of only 6% the prior two years.  So far problems in the banking system have muted the impact this policy has had on the pace of spending.

Read Dr. Genetski’s Full Report Here

Gingrich’s 21^st Century Contract with American represents a detailed framework of plans for transforming the US economy.  If adopted, there would be a greater shift in US economic policies in the direction of classical principles than at any time in modern history.

For starters, the Contract proposes to eliminate the tax on capital gains, reduce the individual tax rate to an optional maximum of 15%, lower the corporate tax rate to 12.5% and eliminate the death tax.

Read Dr. Genetski’s Full Report Here

On specific occasions, Bernanke noted the Fed was increasing its purchases of securities by tens or even hundreds of billions of dollars.  During those periods, bank reserves often declined. 

The mismatch between what the Fed says and what it does means it’s important to focus on what the Fed does, not what it says.  During the period following the financial collapse, monetary policy was not as expansive as many have suggested.  This is one reason current dollar spending has remained subdued.

Read Dr. Genetski’s Full Report Here

There is a much to approve of in today’s statement issued by the Euro leaders.  From a positive perspective, the leaders succumbed to market pressures by accepting a more realistic value for Greece’s debt.  One of the major problems to this point had been a failure to recognize the loss of value on Greek bonds and the implications for bondholders, including French banks.  Just this past summer, European bank stress tests had assumed face value for all sovereign debt.

The failure of US money market funds to renew deposits with European banks created the potential for a liquidity crisis.  Fortunately, quick action by the European Central Bank, in cooperation with the Federal Reserve, restored the shortfall in dollar deposits and avoided a liquidity squeeze.  Three years ago, perverse action by US regulators promoted such a squeeze leading to the meltdown in the US financial system. 

Read the rest of Dr. Genetski’s comments regarding Europe here

Unfortunately, US politicians show little inclination to address the magnitude of nation’s spending and regulatory problems.  Until they do, the US malaise is likely to continue.

Read Dr. Genetski’s Full Report Here

Both the President and his advisors subscribe to Keynesian economic theory.  This is the theory used by FDR in the 1930s.  After massive increases in government spending, the unemployment rate in 1939 stayed above 17%.

Keynesian theory assumes government can increase demand by increasing government spending, lowering interest rates and boosting public confidence.  Look for the President will pull all these misguided levers without hitting the jackpot.

The approach fails because government has to pay for either more spending and tax cuts by borrowing from a limited supply of credit.  This means some who need that credit for vital economic purposes will find the credit isn’t available.  In order for either government spending or tax cuts to help the economy they have to provide sufficient benefits to offset the damage government does from reducing available credit. 

Read Dr. Genetski’s Full Report Here

Modest changes in the federal government’s fiscal path can be helpful if both the economy and government are in decent shape.  Modest changes are almost worthless given the extent of current problems.

The problem facing the US isn’t a debt ceiling.  The problem is a combination of government spending, EPA mandates, the fallout from Dodd-Frank burdens, and high costs and confusion stemming from health care legislation.  The budget compromise does nothing to address any of these problems.  It is a political, rather than an economic solution.

Read Dr. Genetski’s Full Report Here

Once the Fed creates the raw ingredients for new money, the funds enter the banking system.  This system provides the transmission mechanism between the creation of new money and an increase in current dollar spending.

If the financial system is relatively stable, new money tends to boost the pace of spending within 6-9 months.  This would produce a pickup in spending by the July or September.

An unstable financial system can alter timing and the magnitude of the relationship between the increase in new money and the increase in spending can change.

Read Dr. Genetski’s Full Report Here

In an effort to beat the crowd, I expect some economist to announce that he or she is revising their forecast to predict another recession.  It’s a shame that 99% of economists give the rest a bad name.

There is little doubt that the pace of business activity slowed dramatically over the past two months.  Several months ago I noted that the sharp increase in oil prices would slow business activity this spring and summer as spending patterns shifted to less energy intensive uses.

Since that time, a serious nuclear accident in Japan and severe weather in the South and Midwest has further disrupted economic activity.

Read Dr. Genetski’s Full Report Here

Monetary policy has become more expansive than during 2001-05.  That was the period when even the Fed belatedly admitted it had created too much liquidity.

While there is always the possibility that some of the recent excess liquidity could be removed, Bernanke’s statements provide little indication that the Fed would deliberately do so.

The latest moves by the Fed have important implications for the economy, inflation and interest rates.  They suggest that the spending pace later this year will be strong, even with the disruptive impact of higher oil prices.

Read Dr. Genetski’s Full Report Here