9/11 expanded the willingness of policymakers in the U.S. to print money

Marc Faber : There’s no question that today, 10 years after 9/11, the entire financial structure of the U.S. is much worse than it was in 2000 and 2001. Household credit mortgage debt, government debt, unfunded liabilities, less people employed and the population is up. The U.S. is much worse off than before 9/11. For that we have to thank expansionary monetary policies. The Fed cut interest rates in January 2001, but because of 9/11, they cut it further to 1% and left it at 1% until June 2004. The recovery in the U.S. began in November 2001. Interest rates were far too low, far too long. And even after June 2004, credit growth increased. 9/11 gave them ammunition to keep an expansionary monetary policy that led to excessive leverage, and excessive credit growth that led to the housing bubble of 2007/2008. What has also changed after 9/11 is that geopolitical considerations, while not the most important issue today in the minds of most investors, at least have become more important. The engagement of America, particularly less so in Iraq but moreso in Afghanistan and Pakistan, has led to enormous instability in that region. Plus the fact that the cost to the U.S. economy of the Iraq invasion and the Afghani expedition must run between $1 and $2 trillion. The second consequence of the war is the U.S. dollar is weak. Nobody can tell me the weak dollar is desirable. It’s a decline of the living standards of Americans relative to other countries in the world. The U.S., instead of spending on the war, could have used that money to rebuild crumbling infrastructure. Without the war effort, I suppose that there might have been less expansionary monetary policies and slower increases in commodity prices. In the second half of 2007 and first half of 2008, the global economy was slowing and in recession, but because of expansionary monetary policies commodity prices went ballistic and oil rose. It wasn’t because of demand going up; it was because of artificially low interest rates. 9/11 expanded the willingness of policymakers in the U.S. to print money. - in Marketwatch


 
Contrarian Investor Dr.Marc Faber is an international investor known for his uncanny predictions of the stock market and futures markets around the world.