Monetary Drivers of Business Cycles

Twice in the twentieth century the US government ran sustained budget surpluses. Disaster resulted in both cases. The first was in the 1920s when one-third of the national debt was paid off. This caused a legendary stock market bubble, a panic and the Great Depression. The second was in the late 1990s. It caused the dot-com bubble, which popped in 2000. A major recession was only avoided by massive deficits that far exceeded the accumulated surplus and by massive Federal Reserve money creation. The resulting low interest rates from the money creation caused a major housing bubble. That popped in 2007 and led to a recession that we are only now recovering from. The national debt doubled since 2000 and will be hard to repay, a true disaster. This book shows how the dot-com bubble, the real estate bubble and the Great Recession could all have been avoided.
This book shows that the major movements in the stock market and the economy can be mostly explained by three monetary driving forces. The most important of these is the Federal budget deficit or surplus. Since 1913, Federal Reserve actions have also become important and, after the US went off the international gold standard in 1971, net foreign investment has become important. The first two are US government actions and the third is mostly foreign governments’ buying US treasuries. The major business cycles are chronicled.
Economics is inseparable from politics. The United States has changed from a republic to a democracy. The difference is that republics have means to prevent a tyranny of the majority, democracies do not. As a result, democracies are unstable and usually end with high inflation and dictatorships, New Zealand’s experience in the 1980s being a notable exception. This book chronicles major steps of the US’s transition to democracy and makes recommendations to correct the problems.