[Al_U_Card]

From someone I know.....

Rather than the Fed being abolished, as Ron Paul suggests, or limited, the Bush admin says the Fed is being given more independent responsibility for oversight over banks, and more independent control over the creation of credit, but it's the fox guarding the henhouse (as I'm sure we all know). The problem is, that though the Fed is ostensibly an independent agency, and though it is lawfully independent of Congress, or mostly so, it's members can not really be considered independent of the banking system they monitor. They ARE the bankers, and their regulations and lack thereof and their policies is what permits the private bankers to make themselves a killing at everyone's expense.

This is not the same as most of the Fed conspiracy theories. My god, it's not the friggin interest the Fed is paid on Treasury Bills, which it returns after expenses (according to what I've seen anyhow). It's the policies that permit the private investment banks and commercial banks to become high stakes gamblers with the American economy and with the global economy, with our bank accounts. They are gambling with "OPM", other people's money. Furthermore, they play it so heads they win, tails WE lose, because they scoop up the pot, but in the event of loss, the taxpayers pick up the tab. We not only pick up the tab on "regulated" commercial banks, via the FDIC and the Federal Government, now we also have a precedent of picking up the tab for the private banks that are NOT part of the Fed system.

And this is important to explain to those die-hard Republicans who insist that the Republican party is the party of low taxes and small govt: They somehow don't get it that while the banks are not being bailed out through direct tax increases, they are being bailed out through the Fed's pumping money into the system, creating more credit for all banks not just Bear, and this rapidly dilutes the dollar, causing energy prices and the prices of everything else to skyrocket. Bailing out the banks = massive inflation. WE get it, MANY still don't.

That and hedge fund speculation on oil futures. The radio host was blaming the Arabs for not producing more oil -- apparently that's a recent Bush line, he asked the Saudis to up production but they refused --- but 5 minutes before that, his own newscast said "production is not a problem". His own newscast said that speculators are bidding up the price. This leads more speculators to jump in and buy futures and bid up the price, and all along the way these people get paid, and who pays them? Consumers of the oil commodity. (And that is what's keeping "the economy" --- i.e. the credit bubble --- going, the consumers.) So they siphon the credit off the top and put it in their offshore accounts, while we try to siphon gas (petrol).

I believe Schoenman said that members or ex-members of Goldman-Sachs and other major non-Fed banks are appointed to head the Fed, and to head other so-called regulatory agencies that oversee the banks.

Furthermore, Paulsen said that since the what you might call the representative parts of the Federal Govt are not equipped to make bank and credit decisions, the Govt will take a hands-off approach to regulating banking, and further extend their powers to regulate themselves, and not interfere, not UNTIL THE NEXT CRISIS DEVELOPS, then the Federal Govt can jump in and hand over even more money to bail them out.

The upside down pyramid of debt/credit is planned to grow bigger.


By the way, the Keynesian argument about Fiat money is this. If the value of the dollar has dropped by so much since 1913, who cares?!!! Does anyone have any dollars they saved since 1913? Not hardly. Conversely, mild inflation is a continuous drip which primes the pump for commerce, as prices tend to rise slowly, covering some credit and expenses. Most of the anti-fiat libertarians won't tell you that while there was mild dollar deflation since 1913, the bulk of it started after the Vietnam War, and really took off after the Reagan election.

On the other hand, deflation is usually a hardship especially for small business and workers, because "prices are sticky", and the "gold coin" people don't see that either. If something is produced at X price, and along the production and distribution and retail process the prices drop, the item has to be sold for a loss. Either that, or the future loss/drop has to be anticipated, and each phase along the line has to undercut the price based on expected future drops, which are pretty impossible to predict. Also, the very act of price cuts for future drops would tend to fuel the problem of deflation. It's a positive feedback loop. ALL engineering knows that positive feedback loops lead to destruction, ***** blows up, while negative feedback loops are an important part of sensible engineering. Negative feedback loops are dampers, whether mechanical or electrical or even biological.

Capitalists (not even socialist) who have an ounce of SANITY, recognize that Keynesian economics is about negative feedback loops, deflation countered by credit, inflation countered by withdrawal of credit. I think that "stagflation" was mostly the result of ABUSE of Keynesian economics towards war production and waste, and the social choice to not make the public too wealthy and too free. (I could be incorrect about the details on this.)

So mild inflation is like putting the car in drive (automatic), and taking your foot off the gas and off the brake, and letting the engine idle, to either remain stationary on an uphill incline, or to roll forward at a very slow speed, but not roll downhill.

Apparently in macro-economic terms, that's perfectly sensible, or at least it's a decent argument.

Fiat money permits credit fluidity. Some big ticket salespeople live on huge bumps that come irregularly, and companies undergoing expansion have to wait for future returns. For them, credit is the sauce that makes that possible. It means that waiting for that commission or waiting for the expansion to translate into profits, does not mean starvation. The futures markets are the same thing, when not abused, short-term financing.

Abuse of credit fluidity is a whole nuther issue. Credit fluidity is for growth and expansion, not for creating huge balloons of speculative debt that drives up prices. Credit fluidity is for common sense investments, not for buying crack. You might lend your friend money to finance his business, but not to buy a few rocks, because you know that crack addiction is bottomless, and your money is not coming back. Well, Wall Street is on a crack binge, and they are not willing to stop. They are just looking for more and sneaky ways to raid OUR piggy bank to finance their addiction to big profits, without any useful production or jobs. And it's not even that sneaky, they are just relying on mass financial ignorance to continue doing this.

[blackshoe]

You seem to have started from the assumption that Keynes got it right - an assumption with which Von Mises, among others, would disagree.

[Winstonm]

IMO, whether it is the Fed, the CIA, or any other government or quasi--government entity, it has been the politicization of those entities that has created the problems.

The last Fed chair who ignored the poltical influences and did what had to be done was Paul Volcker, and he lost his job.

[mike777]

I think terms such as politics or political influence are so broad in definition that I would assume it is 100% impossible for anyone to ever ignore them or never be influenced by them. I would expect any top manager who even tried to ignore all political influence in a government or quasi government job to be fired in under 60 seconds.

To use an analogy it would be as if one spouse was never, never influenced or always ignored the other.

I have meet Paul, it is a bit too much to say he was never influenced by politics or ignored politics in his job. He never ignored it and in fact knew full well that the Fed job includes the art of politics as much if not more than economics

The CIA is certainly a politcal job and involves politics and is influenced by politics.

I agree with your point that politics causes problems but I firmly believe a lack of politics in human governance is impossible and we would be in some sterile/inhuman much worse world without politics.

[Winstonm]

mike777, on Apr 27 2008, 03:37 PM, said:

I think terms such as politics or political influence are so broad in definition that I would assume it is 100% impossible for anyone to ever ignore them or never be influenced by them. I would expect any top manager who even tried to ignore all political influence in a government or quasi government job to be fired in under 60 seconds.

To use an analogy it would be as if one spouse was never, never influenced or always ignored the other.

I have meet Paul, it is a bit too much to say he was never influenced by politics or ignored politics in his job. He never ignored it and in fact knew full well that the Fed job includes the art of politics as much if not more than economics

The CIA is certainly a politcal job and involves politics and is influenced by politics.

I agree with your point that politics causes problems but I firmly believe a lack of politics in human governance is impossible and we would be in some sterile/inhuman much worse world without politics.

I do not disagree with you, Mike. Perhaps it is better stated as an untoward influence of politics, or a placing of politics/agenda ahead of the duties of the job.

[kenberg]

You, or your friend, says "They ARE the bankers, and their regulations and lack thereof and their policies is what permits the private bankers to make themselves a killing at everyone's expense."

I regard it as highly, very highly, unlikely that this is their (their =Bernanke, Paulsen, etc) intention. Call me naive, but I don't think that they have taken the job for the pleasure of screwing the public. Now whether their actions have these consequences, that's another matter. Presumably when selecting a guy for the fed you want a highly educated and experienced person. Such a person comes with talents, and he also comes with some not easily changed ideas about what works. These guys see things like investment bankers.

Are they right?

I dunno, but during my lifetime we (we =US, Europe and Japan) have had quite a long run, more than sixty years, of unprecedented economic growth uninterrupted by major financial catastrophe (catastrophe = Great Depression, not the burst of the housing bubble). So I suppose that they and their predecessors are not complete idiots.

So my conclusion: Bernanke, Paulsen, et al are neither con men nor idiots. They are following along a path (and making new untried paths, I know) that have worked rather well and that I would not easily support abandoning.


In mathematics of course these things are simpler. Wiles really did prove Fermat's Last Theorem. People who contest this define themselves as confused. In economics, by contrast, people can have opinions contrary to establishment views without necessarily being crazy. But without necessarily being right also.

It seems right for us to look for guidance to those who have been successful in the past. I don't follow economic events with sufficient attention to say who all that might be, but I gather both Bernanke and Paulsen had very successful careers before coming to the government.

[Winstonm]

Quote

Abuse of credit fluidity is a whole nuther issue. Credit fluidity is for growth and expansion, not for creating huge balloons of speculative debt that drives up prices.

This, in essence, is the crux of the entire matter - it is not the Fed, per se, but the system in which the Fed operates that creates the misallocations of resources.

Another term well worth investigating is Military Keynesianism, in which perpertual war and preparation for war drains capital from investment and consumption into a black hole of economic wastage.

Without the debt-backed currency system, Military Keynesianism is impossible to maintain, for it is the abuse of government credit that finances the continued economic waste - we borrow trillions to war and prepare for war with no economic benefit in exchange.

[jtfanclub]

kenberg, on Apr 27 2008, 05:37 PM, said:

I dunno, but during my lifetime we (we =US, Europe and Japan) have had quite a long run, more than sixty years, of unprecedented economic growth uninterrupted by major financial catastrophe (catastrophe = Great Depression, not the burst of the housing bubble). So I suppose that they and their predecessors are not complete idiots.

Doesn't that open the question of which is better, gradual falling or rising strongly with the occassional drop.

Are we actually better off than we were 50 years ago? Back when one person could feed and clothe a household? When layoffs were an enormous black mark for a business, not a way to get a temporary stock boost? When people could actually retire very young by our current standards?

I guess this begs the question of, economic growth compared to what? It's not at all clear, for example, that the average American is better off in any way than they were in 2000, and yet we had 'economic growth' for most of those years. So what, exactly, actually grew?

[mike777]

I agree with Winston's point the USA has been in almost perputual war mode since 1776. I cannot think of one single year in over 200 years when we were not in some war or war mode. This includes the years just after WW1 and the Civil War.

I agree with Winston when you have government agencies involved with how to allocate resources you have a misallocation of resources but this debate is moot. The only future debate is how much more our Central government will allocate resources, not how they will stop doing it. Look how furious people get in this forum when you try and discuss increased or decreased government intervention in health care.

Jfan asks a great question, are we better off than we were in 2000. I think of how badly things were managed in Iraq and for no other reason people say no. I guess we need some sort of methodolgy to better judge this issue. If you believe we are at war, and my family feels like it is at war, it is tough to compare the period of 2001 -2008 to the period of 2000. It feels worse looking at only that point of view.

[Al_U_Card]

It seems to me that when the police are responsible for policing the police.....you need an independent review to keep them from being unduly influenced by their cohorts.

The legislative branch might perform that function, but they have shown themselves to be inadequate or unwilling. Why bail out Bear? Shouldn't their shareholders show the way? Shouldn't they pay the price? Wouldn't that be the "control" over the other "institutions" to reign in their more speculative ventures?

The sense of the thing is wrong. That sense comes from the ease with which these types of actions can be arranged and glossed over by political influence and techno-babble.

Your rights, powers and privileges are being eroded without response because you have "other" concerns that pre-occupy you. I would put it to you that those concerns are being exploited on purpose.

[kenberg]

jtfanclub, on Apr 28 2008, 09:37 AM, said:

kenberg, on Apr 27 2008, 05:37 PM, said:

I dunno, but during my lifetime we (we =US, Europe and Japan)  have had quite a long run, more than sixty years, of unprecedented economic growth uninterrupted by major financial catastrophe (catastrophe = Great Depression, not the burst of the housing bubble).  So I suppose that they and their predecessors are not complete idiots.

Doesn't that open the question of which is better, gradual falling or rising strongly with the occassional drop.

Are we actually better off than we were 50 years ago? Back when one person could feed and clothe a household? When layoffs were an enormous black mark for a business, not a way to get a temporary stock boost? When people could actually retire very young by our current standards?

I guess this begs the question of, economic growth compared to what? It's not at all clear, for example, that the average American is better off in any way than they were in 2000, and yet we had 'economic growth' for most of those years. So what, exactly, actually grew?

Comparing life in the middle of the last century with life now is more than I bargained for. My point was that the guys making the major governmental decisions should probably be given some due for keeping us out of the sort if economic collapse that occurred in the thirties. Similarly, though maybe off the current topic, I think managing the nukes so that since Nagasaki no one has dropped one on someone else is an accomplishment of considerable note. We of course may be coming to the end of this good fortune.

I was in high school and college during the fifties and yes, in many ways it was a happier time than today. No ipods, but I bought my own car, with my own money, when I was 15. I had my own 12 gauge for hunting. No pressure to take AP calculus. But I don't blame Bernanke for this change. Or even George Bush.