Friday, March 25, 2011

America's Main Street Depression

I regret that while public corporations in the US have been experiencing a profit rebound in recent months, Main Street America remains in economic depression. The decoupling of our nation's largest "too big to fail" public corporations from Main Street has created widespead economic turmoil and hardships for small companies and familes in America. The continuing demise of Main Street began when US monetary and fiscal policy-makers unwisely posited "too big to fail" as a governing principle.

Treasury Sec Henry Paulson and Federal Reserve Chief Ben Bernanke (2008)

Keep in mind that "too big to fail" was the conceptual argument invoked back in 2008 by the US Federal Reserve lead by Dr Ben Bernanke, and the US Treasury lead by Treasury Secretary Henry Paulson. Today, gigantic "too big to fail" public corporations enjoy tacit financial guarantees from the Federal government, while small companies and businesses along Main Street are essentially left out in the cold.

America's emerging consolidated banking system is now laced with systemic risks extending from Wall Street into every facet of regional banking. In my view, the nation's banking needs would be better served by many thousands of smaller community and regional banks, instead of a few "too big to fail" financial institutions aligned with Wall Street. The economic risks associated with building and maintaining "too big to fail" corporations are not well-understood. Nevertheless, our nation's central banking system continues to grow larger while Main Street America is left to languish.

I cannot help but think that the powershift from Main Street to America's center will eventually lead to new unforeseen difficulties for America. History tells us that over centralization carries risks. Recall that the former Soviet Union was never able to marshal the human know-how and technical resources to manage and direct a massively centralized command economy. Is capitalism somehow different? I doubt that the US will be able to manage from the center indefinitely.

Years from now, a comfortably retired Dr Ben Bernanke will write in his memoirs something like this:

"...I wish we at the Federal Reserve would have paid closer attention to the impact of monetary policy on small businesses and community banking in America -- in reflection, I would have been more attentive to the plight of small businesses and regional banking across the nation -- however, we had no choice but to save the largest "too big to fail" institutions in America because we felt that saving Federalism was our mandated priority..."

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