E The False Economy; R-Star Estimates Bleak

Well, the savings glut, as Ashton has pointed out, was caused by the Fed flooding the bank with excess reserves that just sit there. 2.4 trillion dollars of reserves or so are just sitting collecting interest for the banks.

This Fed president blaming a glut of savings for the slow economy is like those who blame guns when people misuse them. It is simply a warped view of things and defers the real blame off of where it belongs.

To reformulate the saying, "guns don't kill people, people do", we could say:

A glut of savings doesn't weaken growth in the economy, the Fed placing this glut with TBTF banks weakens growth in the economy. 

So, the idea Trump puts forward is sound, but getting the glut to flow into the real economy is a function of the Fed, not of fiscal spending. All fiscal government deficits will do is to increase the UST's available to Wall Street, without helping the economy in a sustained way. Only the Fed can help the economy in a sustained way.

That isn't to say spending on roads is a bad idea. It isn't. It is a good idea. But big deficits are not needed, since the economy is not doing so well and the deficits may increase anyway, without any additional spending. Taxing the wealthy, many of whom readily want to be taxed, would help our pitiful and needy roads.

But if the Fed, Williams in particular, has to resort to blaming a savings glut for the woes of the real economy in America, we have not budged off square one. We are getting nowhere.

In May, Donald Trump said he was for continuing low-interest rates in order for the dollar not to strengthen, hurting trade. It is not unusual for him to take both sides of a political or economic position. He is also for higher and lower wages. So, for now, he is as confused as most real economists are, and as the Fed economists are, who have frozen up like Ice Age the movie. 

We need a Jedi to blow up the R-Star, but Trump has only started the conversation. He isn't the guy who will blow it up. In order the blow it up, something will have to take the place of treasury bonds in the derivatives markets.

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Disclosure: I am not an investment counselor nor am I an attorney so my views are not to be considered investment advice.

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