In the aftermath of the Great Depression, U.S. monetary policy returned to its earlier growth trajectory, even though it took a long time to regain earlier levels of prosperity. But that resumption of the previous growth trajectory has not happened since the Great Recession. Instead, aggregate spending capacity remains sacrificed to static forms of wealth generation which serve special interests, instead of citizens. In the process, money representation in the public's mind has become a political football, which continues to be pulled first one way and then the other in terms of banking rules and regulations.
Presently, U.S. government seeks further wealth capture from traditional housing, thereby distorting monetary policy even further in the process. Even as government blames whoever it can on the overextended consumer, policy makers remain inexplicably committed to making certain that consumers stay that way, through housing formations which no one in power is willing to allow reinterpretation or innovation.
This forces citizens to further support their governments through rigid roles of consumer leverage, rather than the productive capacity their skills sets could engender for sustainable wealth creation. Lars backs Scott Sumner's above linked post as well, and I completely agree with Lar's sentiment, for "It is time to get government out of U.S. housing finance".
Money has taken on increasingly governmental overtones and definition, through government and finance collusion. Even as some would prefer forms of banking which don't cater to finance, states need central banks as a backstop for mistakes and overreach. This ensures that finance gets to keep its outsized role in the near future, until the public realizes what is happening. What's more, interest on reserves serves as backstop to these asset formations as well, and Kevin Erdmann notes how contractionary the effects of IOR have been.
Even though the role of IOR to maintain value is reasonable - in and of itself - the effect it has i.e. limiting the rest of the market in monetary terms, is not. As a result, governments prefer what boom times they can get, through funneling money toward further asset creation to provide taxation, instead of more innovative forms of productivity and skills use potential.
One of the worst aspects of today's financial emphasis: hard won lessons as to monetary policy from the Great Depression are in danger of being forgotten, yet again. We saw this first with Bernanke when he discarded the value of maintaining a nominal spending level, and other policy makers have continue to follow his lead. That makes more problems for all of us. When money is viewed through the lens of finance, it loses its capacity to represent human potential. .
When we rely on governmental monetary roles to do our coordination for us, we have to settle over and over again, for getting more done with less. While that sounds good on paper, it translates into wasted human potential. Too few people are actually tapped to generate needed services, when governments are asked to negotiate market conditions. When government wants to do the majority of our wealth creation for us, we are working twice as hard to maintain that vision than should have ever been necessary.
I must admit that what government is doing now in terms of housing, is what I was afraid they would do, all along. Granted, the U.S. was by no means the first to implement IOR as a backstop for rigid housing regulations and policies. But as Lars Christensen indicated, this country has stuck by what is the most socialistic policy of all: thus the wealth creation process flows in reverse - from the hapless individual who sacrifices work hours to generate home value, to the government.
Just as we have gained the opportunity of vast skills sets potential, governments remain tempted to depend on consumer citizens, instead. But by so doing, the wealth which nations need to prosper, may never have a chance to materialize. What's more, governments are too willing to distort the true purposes of money, and remain confident that the public will not notice what is happening. Since beginning this blog, I have promoted more flexible forms of building construction as local wealth, in the hopes that citizens could move past these roadblocks and create services strategies. However, this public discussion has yet to emerge. I continue to hope that it will.