I’m sympathetic to President Donald Trump’s call for a resumption of more easy money policies. He’s fighting a political system with one arm tied behind his back, because regardless of the party in power, there’s always going to be a Mitt Romney or John McCain or Nancy Pelosi to obstruct him.
What’s really needed, however, is not an interest rate cut, but a structural reform of banking itself, not an interest rate cut.
President Barack Obama got a lot of bells and whistles to ring and blow while he was president: The DOE’s green energy loan program, one trillion in stimulus spending, the bailout of the automakers union and quantitative easing.
While they all proved useless, they provided a lot of hope for a president as his changes worked their way through the system.
Trump, on the other hand, hasn’t had a lot to work with from Congress.
Congress did nothing about repealing Obamacare. Consequently, no one really knows what healthcare will look like in the future. Uncertainty is never good for our economy. Uncertainty operates the same as a future tax hike does as it hovers over the economy.
Too, Congress didn’t tackle Dodd-Frank. Dodd-Frank has turned the financial services industry into a gender-neutral fee machine. Banks care little about lending money now as long as the transaction fees from ATM’s, monthly maintenance charges and overdrafts, keep coming.
According to CNBC “for some large regional banks, [transaction fees] are already close to 40 percent of their income.”
I remember when banks used to have lend money to make money.
Easy money is one direct consequence of Dodd-Frank. Banks don’t have as much incentive to loan money, so extra liquidity is expected to come from the government.
And then there is that other banking “reform” legislation, Sarbanes Oxley (SOX). Passed in 2002, SOX was supposed to make sure that a market crash never, ever, super, never happened again.
What it did was effectively kill our capital markets by creating draconian disincentives to creating public companies. That means that money is not available to smaller, high-growth companies.
That means that smaller, high growth companies have trouble creating higher growth and the jobs that come with growth.
Writes Garland S. Tucker at RealClearMarkets:
The number of U.S. private companies worth over $1 billion has more than trebled over the past four years. Individual investors are now forced to invest in a dwindling pool of companies. As Duke University Professor Elizabeth de Fontenay explained, the public markets have become “a holding pen for massive, sleepy corporations.”
In 1999 and in 2000 the U.S. market offered 486 and 406 initial public offerings. In 2017 and 2018 the US offered 160 and 190, down over 60 percent. In the 17 years since the passage of SOX, US markets have offered 200+ IPOs in a year only five times. Prior to the passage of Sarbanes Oxley, US markets routinely offered 400+ IPOs each year.
In 2017 European markets offered 250 IPOs. In 2016 they offered 193 IPOs versus the U.S.’ 112.
China, including Hong Kong, offered 582 and 347 IPOs in 2017 and 2016.
More importantly, more money is going to smaller companies in China than in the U.S.
What does it tell you when communists offer better access to capital markets than the U.S. does?
It tells you Liberals have been in charge.
Over a period of time that capitalism came to dominate international markets, the US is doing capitalism more poorly than at any time in our history.
We are fighting history with one arm — sometime both arms — tied behind our back.
Over the past 20 years we have replaced our free market banking system with a system that is very much like Obamacare under the guise of these two legislative monsters—Dodd-Frank and Sarbanes-Oxley. Interest rate cuts, and quantitative easing are simply similar to the government calling for more government subsidies for insurance premiums as premiums go higher and ever higher for Obamacare.
The Trump administration is currently reviewing Dodd-Frank and Sarbanes-Oxley. We need to fast track that review.
We should not raise interest rates. We should normalize interest rates.
We can help do that by normalizing banking in repealing Dodd-Frank and Sarbanes-Oxley.
That’s the structural, long-term stimulus our country really needs.
Untie our arms: Let banks be capitalist again, in the best sense of the word.
John Ransom is politics and economics writer/editor with offices in Washington DC, Singapore. You can find him on Facebook @ here and here.
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