U.S. Government Monetary Drove Economic Crisis, Forbes Says

LAS VEGAS — A flawed Federal Reserve monetary policy starting in 2003 that led to the printing of too much money was a big factor in causing the current economic crisis, said Steve Forbes, chairman and CEO of Forbes, during the Economic Summit at FreedomFest here Thursday.

Too much credit is the equivalent of flooding the nation’s economic engine, while too little credit will “gum up” the economy, Forbes said. Much of the blame for the current economic slowdown can be assigned to the U.S. government, he added.

By 2006-2007, the consequences of the loose monetary policy became readily apparent when the housing bubble started to burst, Forbes said.
“If the government had done its job by keeping the dollar as good as gold, this situation would not have happened,” Forbes said.

Another federal intervention that contributed to the current economic crisis was the government’s move to adopt “mark to market” accounting for banks, Forbes said. The regulatory capital held by a bank should not be subject to mark to market accounting as if the assets were akin to those of “day-trading” investors, he added.

Such policies took a “bad flood” and turned it into an economic “tsunami,” Forbes said.

In early March, the federal government modified its mark to market accounting rules for banks, Forbes said. It is no coincidence that the market improved from its March lows, once that change occurred, he added.

Another failing of the government is that the SEC did not enforce short-selling rules that require investors to borrow the shares that they use in their trades, Forbes said.

To prevent mistakes going forward, the Fed should focus on keeping the dollar stable and respond to market panics, Forbes said. Big government is not necessary, he added.

The U.S. government needs to adopt a policy of keeping a strong and stable dollar, Forbes said.

The Fed has not followed through on its promises to shore up the credit markets for normal lending, Forbes said. In addition, the Fed should not be buying Treasury bonds.

Federal policymakers also need to recognize that taxes come at a price and carry a burden, Forbes said.

When the price of capital is lowered, it stimulates production, Forbes said. When the price of capital is boosted through tax hikes, production falls, he added.

Health Problems

“We don’t have free enterprise in health care,” Forbes said. The thing that is wrong with health care is that payment typically is handled by third parties, he added.

Entrepreneurialism is needed in health care to keep prices down and to allocate resources where consumers want them to be used, Forbes said.  

“Get true free enterprise into health care,” Forbes said. Allow small employers to band together to negotiate their health care rates with providers rather than restrict them from doing so, he added.

“We are in a real crisis today,” Forbes said. However, using the same freedom of choice that has served America well throughout its history can be used to find solutions to the economic and health care financing problems of today, he added.