‘What Would You Do If You Were The Fed Chair’?
Several readers suggested the Fed chairmans predicament as a topic. Highlights: “I hear a lot about how Ben Bernanke is doing it all wrong. IMO: he has the third hardest job in America right now. It’s easy to criticize. How about this: What would YOU do if you were the Fed Chair?”
“Do you go slow and steady with the 0.25% raises? Do you hit the market with a 0.5% raise to show them you mean business? Do you do a little pause, and assess the results of the previous 16 rate hikes. Or do you do something different, like Bitch Slap David Lereah and chief of NAR research Suzanne? It’s easy to criticize. Time to put up.”
A reply,”How did we get to the point were we are playing word and guessing games with unelected leaders. Do we run our own housholds like this? ‘Gee Honey, I INTEND to put enough money in the checking account to cover our bills, but I MIGHT pause if my paycheck bounces?’”
One says take your medicine.”I’d do what ever it takes to send this country, and world, into the healing recession that it needs, and should have gone thru after 2001. We would have been well on the way to recovery had not Mr Greenspan decided to flood the world with liquidity and drop the rates to zero. All he gave us was a short reprieve and created a monster of a bubble.”
Another said, “I agree;…Recessions always have significant casualties but my fear is that if we don’t support the dollar (Higher rates) we could see a complete meltdown of our economy/country? Depression?”
Another has a quote. “I like the quote in Milton Friedman’s book ‘The Fed has given its heart not to controlling the quantity of money, which it can do, but to controlling interest rates, something it does not have the power to do. The result has been failure on both fronts: wide swings in both money and interest rates. These swings, too, have had an inflationary bias…the Fed has been much quicker to correct a swing toward a low rate of monetary growth than to correct a swing toward a high rate of monetary growth.’”
“‘The financial public, too, believes that the Fed can control interest rates, and that belief has spread to the Treasury and Congress.’”
“The Fed needs to put the brakes on the money supply, which I guess it is actually doing; there was a link posted a couple of time a month or so ago to a story about how the Fed is beginning to put pressure on Banks to slow lending.”
One notes Greenspans role, “Bernanke is in an impossible position, not of his creation. Greenspan’s liquidity pumping over the years has created a series of ever-larger asset bubbles. I doubt that they can be deflated without serious pain, especially in the US. But activist central banking has been the problem and is not the solution. Bernanke should return to targeted money supply growth (target growth of M1) rather than targeted rates, let rates fall where they may, and fortify his building.”
Another sees a bigger picture, “I’d even argue it’s not Greenspan’s creation either. The freakishly high and accelerating productivity we’re seeing is deflationary. Greenspan was right in his description of a ‘new economy’ he was just early.”
“The Fed is losing its grip because they’re running out of options to combat these enormous deflationary pressures. Rates were at all time lows for a reason. I’d argue they’re already too high.”
“Most people are using old broken linear models which, when you plug in our current numbers, scream inflation. They’re hiding the M3 because most people will mistakenly panic if they see how high it is. So they have to create enough liquidity to combat deflation while preventing a dollar crash from mistaken investors who aren’t wondering about the productivity connundrum.”
“The problem with housing is that even with rates at zero there is no way to make people buy. Prices will drop until they’re re-attached to fundamentals. The problem for the economy is that even with an exploding M3 the money isn’t raising median wages. Businesses are raking in huge profits but consumers have to rack up debt to buy products. That may be the ‘pushing a string’ problem from a different perspective.”
And one is more laissez faire. “As for what I should do were I wearing his dress? Well, I would correct the crime of un-backing our dollars with actual gold by linking the fed fund rate to the price of gold. Then I would go surfing and let the market regulate itself.”
The excellent responses to this topic were more than I could possibly post. If anyone has contributions on the topics thread that you want to bring over to this post, feel free.
Were I the Fed Chair I’d jawbone Congress to control their spending and I’d berate them for lacking both a long term national energy policy and long term jobs quality (immigration and corporate tax) policy.
I agree. Especially regarding national energy policy. The lack of a coherent policy (other than a costly and haphazard war in the Middle East) is infuriating. There are some bright spots across the nation (including planned solar arrays in SoCal, windfarms, biodiesel) give me hope, but there is a general ignorance that only high energy costs will dissipate. Thank you $5 gas . . . see you soon.
Comment by LaLawyer
2006-05-13 10:04:33
There are some bright spots across the nation (including planned solar arrays in SoCal, windfarms, biodiesel) give me hope, but there is a general ignorance that only high energy costs will dissipate. Thank you $5 gas . . . see you soon.
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Amen…. I’ve been calling out $5/gal fuel since 2004. It’s not a matter of if, only when. And the sooner we get there, the better off we will be.
No windfarms off Nantucket which would spoil the islanders views.
Ted Kennedy said so!!!!!!!!!!!!!!!!!!
It was a combination of limousine liberals and big money conservatives in the area that don’t give a crap about energy costs for themselves that obstructed. If big money doesn’t want something, it isn’t happening. Period.
Comment by Robert Cote
2006-05-13 09:37:43
I’d berate them for lacking both a long term national energy policy.
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I vividly recall when the republikkkons berated anyone associated with the opposition party for “not having an energy policy” yet fuel was 95 cents a gallon then. Top management from the Detroit 3 were invited to the WhiteHouse hortly after the appointment of GW. Within 2 years, the market was flooded with enormous behemoth vehicles.
I think I revert to the days when there was no “energy policy”.
Lingus, I get it. A Republican gave you that bad acid floating around Woodstock. Bummer.
I detect lurking cowards.
Those that took it, ended up with a lifetime of paranoia and delusional tendencies. It can be controlled with the proper therapy and medication.
Speaking of lurking cowards….
Jawboning wont help. Congress is like a crack addict with all the crack they want. Only way to slow down is by cranking up the interest rates which Bernake should do due to massive liquidity but he isn’t probably because he doesn’t want the housing market to tank. Notice no more M3 being reported…everyone else knows the dollar is out in abundance and is tanking against the Euro. Last I checked over $1.29 to buy one EURO. We’re gonna reap the wirlwind I’m afraid.
Oh it will work. Crowbar across the jawbone does wonders!
I don’t think there is anything much the central bank can do to prevent the coming housing deflation/recession. Neither do I think they could have done much to prevent it either. In short, I don’t think central banks have nearly the power we think they do over the economy.
If you look at Fed interest rate moves over the last 60 years, you will find that they FOLLOW the bond market rather than lead them. The explosion of credit bubbles are far more dependent on the bullish animal spirits in scoiety at a given time rather than anything to do with government policy.
In fact, government policy is more of a symptom of society’s bullish or bearish proclivities, than it is a leader of them. So the government is just a follower of the broader societal trends.
In short, I don’t think Ben Bernanke is doing anything wrong, he is merely playing his part in a drama that has already been foreordained.
“The Fed is losing its grip because they’re running out of options to combat these enormous deflationary pressures. Rates were at all time lows for a reason. I’d argue they’re already too high.”
The USG has a tremendous amount of debt, debt service and the ongoing budget deficit to contend with, driving a sinking dollar. The global central banks are all raising. The US needs to defend its position as holding the benchmark currency.
This is a huge trap. He can’t stop raising or everything will begin to unwind and he knows this. What he needs to understand is how much unwinding is tolerable. He may need to use the Powell Doctrine, only applied to finance - OVERWHELMING FORCE!
If he defends the dollar by raising rates housing will implode leading to a possible deflationary spiral and global re/depression. I think he’s more worried about housing but won’t admit it for fear of causing panic.
Remember Paul Volker in the early 80’s… Interest rates were increased and short term T Bills went to 21%. OUCH. It did the job and the asset bubble OIL went down considerably. We need to do this again to lower spending and slow down the economy in China who make all of that STUFF we purchase we do not need.
First, I would suggest congress only allow new spending by first finding money to support it (pay as you go or pay go). Secondly, I would also put the programs that are off budget (hidden) like social security back on budget to see the magitude of our budget problems. But, politicians are unlikely to do this as it would be end of their career. Lastly, I would slow the growth of money and take our medicine. This would probably lead to a recession and people who took on too much debt would suffer. Accountabilty is tough.
Grizzly Grist
http://tinyurl.com/g8w4u
txchic57– thanks, good read. Lays out a bit of why I’ve got that itchy feeling. As someone once said, ‘Equilibrium is NOT the natural state. Oscillation/chaos is ” . Ya know somptin’s up when the Canadian dollar is working toward parity with the USD. — No offense to the Canucks.
Great topic, Ben. It’s making me want to dig up my old Econ textbooks.
I agree that global productivity is off the scale now, and that the resultant geometric deflationary pressures on prices are difficult to contain, without corresponding geometric growth in sales, which is akin to building a ladder to the sun.
Yesterday, I bought a “modest” digital camera for $140 dollars. Compared with my previous digital camera, which I bought 2 years ago for $260, the new camera has four times the resolution, uses half as many batteries, has a bigger viewfinder with an semi-intelligent computer, has a better lens, is half as large etc., etc.
Of course, we’re used to such geometric rates of advances with PCs and the like, but I have to pause and consider: $140 for this camera? Shoot, 2 days of skiing with a beer or two costs way more than that. If “Tech” is the way of the future for wages, we’re in trouble.
When you combine the deflationary pressures of productivity with a global real estate bubble and an overvalued stock market … whoa! It’s going to be a heck of a fireworks show!
the camera may be going down in price, but the beer has most certainly beein going up.
Here in San Diego, the land of freshly unemployed realtors, the bars are suddenly going crazy with incentives ($2 you call its) to keep sales up. Another local bar just dropped their dress code.
The effects of the pop are starting to show up everywhere.
cheaper surfboards are out there now too. Probably other stuff too, but who cares? We have cheaper surfboards!
You forgot to add international labor arbitrage to productivity as causes of deflationary pressure.
“Great topic, Ben. It’s making me want to dig up my old Econ textbooks.”
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Don’t bother checking your textbooks, cow cat. They didn’t quite tell you the truth about the Federal Reserve.
Here are the facts that we need to keep in mind when discussing the Fed:
1. The Fed is not a governmental entity at all. It is a private bank operated for profit with a monopoly on creating dollars. Simply put, the Federal Reserve is not Federal at all.
2. The Fed creates dollars from “thin air.” Imagine a private company able to reel in hundreds of billions of dollars with almost no costs in creating their product. Sure it costs a few cents to print $100 bills but that is all. On electronic transfers there is no printing costs even.
3. The power to create dollars resides in the Congress and there is no provision in the Constitution for Congress to delegate its powers to a private bank. So this unbelievably profitable business is unconstitutional as well.
4. The Fed pays a portion of its profits to the U.S. government but it has NEVER been audited by an independant auditor. Strange, because every company that has stock traded on NASDAQ or the NYSE MUST have an audit by an independant auditing firm every year(Fannie Mae seems to be getting special treatment but the rule is there).
5. People who buck the Fed sometimes die suspiciously. For example, Congressman Louis McFadden who spoke out in 1934, believed he was poisoned before he died at an early age.
On May 23, 1933, Congressman Louis T. McFadden, brought formal charges against the Board of Governors of the Federal Reserve Bank system, The Comptroller of the Currency and the Secretary of United States Treasury for numerous criminal acts…
In his speech on the floor of the House, he said, “Mr. Chairman, we have in this Country one of the most corrupt institutions the world has ever known. I refer to the Federal Reserve Board and the Federal Reserve Banks, herinafter called the Fed. The Fed has cheated the Government of these United States and the people of the United States out of enough money to pay the Nation’s debt. The depredations and iniquities of the Fed has cost this Country enough money to pay the National debt several times over. ”
Jack Kennedy bucked the Fed by quietly printing U.S. notes backed by silver (”silver certificates”) shortly before he was assassinated. Since they were issued directly by the government, there was no need to borrow from the Federal Reserve as had been the practice and is today the practice. After his death the silver certificates were withdrawn and the government’s supply of silver was sold. We went back to the Federal Reserve Notes that we have today.
None of this was taught in the schools I attended including a graduate business school. Wonder why?
Dawnal, I agree with you completely. I wish more people were aware of the crimes that these bankers have perpetrated over the years.
There is a new movie just coming out that speaks to this very issue. I wish everyone would at least view the trailer. http://www.freedomtofascism.com/
I hope this link works for you. Please load and view the trailer and go see the movie when it comes out!
Dawnal — Silver certificates were in print/circulation LONG before JFK’s time - there is a series dating back to 1928. Pls. check your statement — it clearly implies that JFK initiated silver certificates and that is completely untrue. Prior to (and during, I think) the era of silver certificates, there were gold certificates — you can buy both today, easily, from collector shops.
If you go to
http://www.usmintquarters.com/silvercertificates.htm
you can buy 1957 Silver Certificates — produced well before JFK was in office. In fact, it was during JFK’s tenure that the government started recalling (”buying back”) silver certificates, the silver backing of which was discontinued as legal tender in 1968.
Check your sources. There’s a lot of doomsday stuff out there to scare you out of your money for books and newsletters.
I bought a “modest” digital camera for $140 dollars.
This culure’s gizmo’ed to death.
None of this tech development is contributing to a better quality of life.
I’m stilled jammed in traffic and plagued with sullen, moronic counter help at Dunkin Donuts.
Where’s the car that gets 80mpg?????
Sorry, I’m going on a vacation, so I need a camera … I swear!
I agree though … where are the masses energy-efficient cars? Houses? Why don’t we see a productivity miracles in Health Care costs? Education costs?
It seems like the general market is dominated by bloated luxury crap (think SUVs), media and entertainment crap, and financial crap.
Day-trade from your wireless Blackberry so you can spend more time crushing nature in your Hummer!
My nominally free cellphone has a better digital camera than I paid $200 for 4 years ago.
I often find it odd that we have the market set prices for things like 10year notes, stocks or things like a pair of jeans or a quart of milk. However, we need to have 20 people sit around a table every six weeks and set the price of overnight money. This concept was created in the 1930’s when “central planning” was very popular. If I were the chairman of the FED, I would abolish the FOMC and allow the market to determine the price of overnight money. Then there would be no question as what the “neutral” or correct rate of o/n funds should be. Because it would be determined by supply and demand. If this were the case I think you would find that poorly run businesses would be more likely to fail and well run concerns would prosper. In the end we would all be better off.
This concept [the fed] was created in the 1930’s when “central planning” was very popular.
Hmmmmm, there was a reason why central planning for banking got popular in the 30’s. I wonder what led to that?
If you want to know about how the Fed came to be read
THE CREATURE FROM JEKYLL ISLAND
http://www.amazon.com/gp/product/0912986409/qid=1147549039/sr=1-1/ref=sr_1_1/102-0845942-6261724?s=books&v=glance&n=283155
There is a rhetorical point to be made about that. Did central planning become “popular” then, or did it just, by circumstance, become possible, for those who desired it?
That’s likely the best thing the Fed can do, as free market is always the cure for all the inefficiency. But it’s political suicide to the people in charge, so no politicians will ever do that. Prices of fuels and everything else will at least double over night.
We once had a market that didn’t have anyone making sure that banks had enough reserves and didn’t control overnight rates to slow the growth of loans when the economy was overheated. We got banking failures and a deflationary cycle called the great depression. I surely hope we don’t go down that road again.
Too many laissez faire proponents forget that without regulation and control we get people taking on risks that threaten the stability of the system itself. If we had better mortgage regulation we wouldn’t have our current housing bubble and wouldn’t be eyeball to eyeball with the type of systematic risk that could send us into another depression. More than 60% of all bank reserves are currently in home mortgages, the most in history. The US dollar has depreciated 7% against the Ruble YTD. Yes the F-ing ruble is a better store of value than the greenback!
We needed a little bit of deflation back in 2001, instead both fiscal and monetary policy spigots went wide open and flooded the markets creating the housing bubble and reinflating much of the stock market. The fed is at a crossroads between a dollar crisis or a deflationary spiral. In either case dollar denominated assets will take a hit.
Thank you, NoVa. The free market is not always the cure. If someone had prohibited the use of these loan “products” like interest-only,
I find this pretty amusing, the whole problem was created by a non Free Market institution (The Fed) now people are calling for more intervention.
If your kids get cavities because Grandma feeds your them candy do you blame the Willy Wonka? Or do you tell the grandma to stop spoiling the kids? We’re all apparently too scared to question our overbearing mother. The weirdo in the purple hat (Free Markets) is a much easier target.
Let me try that again…
If your kids get cavities because Grandma feeds them candy do you blame Willy Wonka? Or do you tell the grandma to stop spoiling the kids? We’re all apparently too scared to question our overbearing mother. The weirdo in the purple hat (Free Markets) is a much easier target.
I see, so we setup a system to ensure the quality of bank reserves and make sure overnight rates were reasonable.
What we ultimately got was a massive orgy of no-doc option-ARM loans made against questionably appraised assets and overnight rates at 1% while this was going on.
The government acts only in hindsight, and ineffictively at that. And this doesn’t mean I think the free market is God’s gift to mankind. This is basically inevitable. The government enters the market and then becomes the market. The market is comprised of people and people are economically insane. I don’t believe there is a cure.
Oh well, at least I know how to protect my assets.
NVA
The Fed was created in 1913. The Depression was in 1929. You connect the dots.
Who owns it???
We once had a market that didn’t have anyone making sure that banks had enough reserves
You have to define “enough”. To me, enough is 100%. I make a demand deposit, which means I put the money in the bank, and I can go out and get it at any time. However, the bank has loaned most of it out, making it insolvent from the get go. Fractional reserve banking is institutionalized fraud, yet it is accepted as the way things not only are, but must be.
didn’t control overnight rates to slow the growth of loans when the economy was overheated
If there is a pool of savings to be loaned, the market will determine interest rates. However, the fed creates money to loan not out of savings, but out of nothing.
We got banking failures and a deflationary cycle called the great depression.
In a savings based economy, there is no deflation. The credit cycle goes away.
We got banking failures and a deflationary cycle called the great depression.
Every action has a reaction. If the fed were not there, we would not have had a depression, because the leading half of the cycle would not have happened.
without regulation and control we get people taking on risks that threaten the stability of the system itself
If money was not created out of nothing to make loans, this would not be the case. I would borrow money from someone else’s savings, who offered it to me voluntarily, and then pay it back over time. I would not be able to borrow money that didn’t already exist. Prices for assets would accordingly be lower, yet the overall prosperity would feel just as high if not higher.
There are a number of problems with a 100% reserve system. Without the ability to increase the money supply prices would constantly be falling with population and economic growth. Wages and prices would fall year after year and this type of deflation would heavily discourage borrowing and inhibit economic growth.
With the value of all assets and goods decreasing as the economy grows, individuals would horde currency and spending would be discouraged. Also there is nothing about a 100% reserve system that would eliminate risk taking from lending or borrowing. If asset prices declined more than expected on a house loan individuals and banks could still default on their obligations.
Eventually, capital markets would be nonexistant as currency became increasingly more scarce people would eventually turn to bartering.
Northern VA. With all due respect you should crack open a book about money.
If there is one you suggest I would appreciate the recommendation. I guess my scenario is discussing a 100% reserve system without a central bank to constantly increase the money supply. It is theoretically possible to have a 100% reserve system as long as you have a central bank constantly creating money, as private banks will not be able to create money through credit.
Economic growth in purchasing power terms or nominal? Which one counts?
Wait, now the economy is growing? What happened to the growth inhibition from the previous paragraph?
Ben, err, VA, when you have digital currency the size doesn’t matter. Except this time it really doesn’t matter.
Deflation is only bad because we’re so massively indebted. So the correction will be painful. If you’re hungry you WILL spend money, even during deflation. The economy will collapse and deflation will be unstopable but we’ll learn to live with it.
In the old days people paid for things with money they actually had. That was compatible with deflation. At some point holding currency, even currency rising in value, will have a sufficiently great opportunity cost to cause us to spend. Guess what? Free markets will determine that point.
Deflation is the new paradigm. It happened during the industrial revolution but that’ll pale in comparison with internet enabled globalization and open source software.
Nova — “The US dollar has depreciated 7% against the Ruble YTD. Yes the F-ing ruble is a better store of value than the greenback!”
Sorry, but a 7% depreciation says nothing about one currency becoming a better store of value over another. How many credible people do you know who are betting on the ruble as a contender for the world’s reserve currency? Zip, nada, zero.
How much does something need to depreciate for it to lose it’s appeal as a store of value?
Does 95% work? Because that is what has happened to the US dollar in the last century.
Unfortunately for US current account balance, US consumer and the US government have taken this to heart and run with it. If it’s not worthwhile to save them, it must be even better to borrow and spend them.
Isn’t 95% decline against gold, rather than other world currencies? If yes, it doesn’t directly address the ruble argument, which we can bet fared no better versus gold during the same period.
This concept was created in the 1930’s when “central planning” was very popular.
I’m thinkin’ that before you start spewing opinions about the fed you at least ought to find out in which decade it was created.
Ditto.
If I had to do anything I would focus on ensuring the quality of loans being originated and ensuring that actual risks and values are transparent for existing loans.
“Do we run our own housholds like this? ‘Gee Honey, I INTEND to put enough money in the checking account to cover our bills, but I MIGHT pause if my paycheck bounces?’”
Yes, that is pretty close to the way they are run, as made apparent by how many homeowners have borrowed like crazy to spend their home equity gains like drunken sailors, and by how many recent home buyers used the I/O option ARM to buy a home which they cannot actually afford.
I’d raise the reserve requirements substantially (perhaps 25%, or 1 dollar in equity for each $4 in loan) and continue .25% fed funds increases, but make it clear I have no intention of stopping until debt is at a reasonable level (perhaps 75% of GDP).
I’d make it essentially impossible for people and businesses to get new loans until the old ones are paid off or removed by bankruptcy. If the banks and speculators and MBS investors go broke, well, it’s there own fault for not hedging their bets and going 100% long the real estate and bond markets.
Yes, it’ll throw the country into a depression, but given the imbalances in the financial system, that’s pretty much a given. It’s just a matter of when and who will bear the brunt of the pain. I’d rather have a deflationary spiral than an inflationary spiral. At least we’ll still be able to procure oil and other essentials on the world market, savers will be rewarded, and the banks, speculators, and gold bugs will be bankrupt or hurt. (no offense to people who like gold, but as the fed chairman, my job is to protect the value of the currency, which means ensuring that a small amount of dollars buys a lot of gold).
No worries. I think a good distinction to make is between the goldbugs who are raving it will go to $3000.00 and screaming hyper-inflation is inevitable now now now!, and those of us who simply think it is good to own some and/or will probably go a good bit higher in the next year. For years the only people who ever mentioned gold were the goldbugs, so now anyone who mentions it is considered a bug.
I like gold, but I have around double in cash at any given time than gold. When I think about buying gold I think of myself as SELLING cash. I’ve got way to many dollars for my liking.
Gold is a hedge, and a good one. But it doesn’t have value like a piece of factory equipment… it can’t be used to create other things (ti is used IN other things but that is different than MAKING them.) Unfortunately it just appears to me that stocks (ie: performing assets like factory equipment) are still way overvalued. But I still own a select few stocks anyway.
Factory equipment depreciates to 0. Gold, like diamonds, is forever.
I guess I’m just feeling arguementative today, but diamonds are most likely not a good investment. (unless you must purchase one to secure a good wife)
Diamonds will be easily grown as that technology is improving. Prices will fall as happened when cultured pearls were introduced. Same thing happened with other “synthetic” stones. Gold will never be created as it is an element so that is safe there as long as no big loads are found. Diamonds will theoretically turn back into plain old carbon after 30k years at the earths surface, but that is pretty much forever.
On this, I agree with NoVa and Feepness. Jewelry-grade diamonds will be produced in quantity once the assassin-grade cartel that protects in-ground stones is reasonably constrained (try to find much information about the Kimberly Protocol on the Net and you’ll see how tough this cartel is). Industrial diamonds are another matter — I don’t know enough about their value to opine, but my guess is that their size and characteristics would make them unprofitable to try to grow, at least in the near term.
My own belief is that gold, held in modest quantity, is decent insurance against all bets going wrong. As with insurance premiums, though, the cost of the protection is non-refundable and accrues no interest.
Yes, but during the lifetime of the factory equipment it can be used to manufacture things which are (hopefully) greater than it’s depreciation. So you have your cake and get to nibble a little bit at it from time to time.
With gold you have your cake.
I’m not saying one’s BETTER. I’m just saying they are DIFFERENT and therefore have different places in a portfolio.
The signing of the Federal Reserve Act in 1913 assured the U.S. that it would experience the whipsaw of inflation/deflation at irregular intervals for as long as the system remains in place (as happened in 1929).
It is the SYSTEM that is flawed so there is no way to fix it other than to do away with the FED and install a system that will not allow our politicians or a banking cabal to print money at will, for one, AND does not pay some banking cabal (central banks, fed, BIS, etc) INTEREST for the privilege of printing money out of thin air.
The system we call the Federal Reserve is nothing more than a scam to enrich a few at the expense of many (sometimes called fractional reserve banking).
Please review the trailer at wwwfreedomtofascism.com for a quick tutorial. This movie is going to Cannes later this month (may 22nd) and should be available in movie theaters by end of July. Be sure to go see it!
The relevant quote for the Real Estate blog comes from none other than Thomas Jefferson ;
“Should americans ever allow private banks to issue their currency, first by inflation then deflation, the banks and corporations that grow up around them will deprive the people of their property until one day their children wake up homeless on the continent their fathers conquered.” Thomas Jefferson, 1819 during debate over the recharter of the 2nd U.S. bank.
Kind of eery when you think about what is about to happen to our current batch of overmortgaged homeowners very soon!
Yes the Fed needs to be anesthetized.
But you want to “install a new system”?
No way. Let the free market determine a “system”. More government is never the answer.
I think Jefferson meant that the currency was completely “their own”. A currency based on gold would not “belong” to the bank, it would always be redeemable for gold and I would be happy to see the government enforce that.
Oh, boy. Where to start on this… the first thing we need to realize is that a healthy economy needs consumers AND producers. Remember the big trend back in 2001 and 2002 was outsourcing. Well, guess what ? We outsourced all our jobs to China and India and became RE investors. All this is now going to come back to haunt us.
Bernanke et al need to do something to get people working in non RE sectors again. That has to be job number 1.
Comment by tweedle-dee (not dumb…)
2006-05-13 10:14:32
Remember the big trend back in 2001 and 2002 was outsourcing. Well, guess what ? We outsourced all our jobs to China and India and became RE investors. All this is now going to come back to haunt us.
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I remember a charlatan from the Bush administration making a public statement saying that outsourcing “is good for the economy”. And it was in the last 2 years.
And tax cuts create jobs. Yeah, in China.
Comment by snake_eyes
2006-05-13 11:00:46
And tax cuts create jobs. Yeah, in China.
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And oddly enough, there are still altar worshippers out there that still try to float that stupidity. It really is unimaginable that loyalists to the failed “trickle down” economic theory try.
“Trickle down” is the same as tax cuts?
Your complete lack of understanding of this topic is mind boggling.
Lingus, you can’t even stop your two-minute hate long enough to think. If anyone is a brainwashed sheep, it is you. It took both parties to enact NAFTA and provide China with most-favored-nation status. Democrats are not sackcloth-wearing penitents.
“Your complete lack of understanding of this topic is mind boggling.”
Your ability to determine what somebody understands or does not understand from a single line is mind-boggling.
The trickle-down theory is an economic theory that advocates promoting business through favorable tax policies and deregulation in the belief that their profits will ultimately trickle down to lower-income workers and the rest of the economy in the form of higher wages, greater prosperity, etc.
Since we now live in a globalized economy, this effect would not be confined to our borders. Hence the connection between tax cuts and employment in China.
SnakeEyes, why bother explaining it to simpletons and balloon floaters? Let the go down with the sinking ship they so desperately cling to.
http://www.freedomtofascism.com/
Sorry, the link didn’t go through.
The FED is enormously influential in the finance, insurance and RE markets. Enough so that they can heavily influence public sentiment towards elected officials. What needs to be accomplished is a method to force the borrow and spend republicans out of office so we can get ahold of the economy and go on with life.
we can get ahold of the economy
That’s Fed and central banking bullsh*t. The economy is not something that anyone can “get a hold of”. You only have control over your own actions, unless you have a big gun, in which case you may be able force someone else’s actions. Unfortunately, the freeloaders in government have most of the guns.
Respectfully disagree. If we concentrate our efforts against each other with regard to republicans vs. democrats, we will never fix the system. The two parties are just different sides of the same coin.
The free market is the answer but we must have our constitution back with a sound money system first. Neither party wants this as it takes away the power of the purse and their ability to buy votes. Of course the real power brokers (banking cartel) certainly doesn’t want their power taken away and is happy to see all of us bickering amongst ourselves (republican vs democrat type debates) instead of focusing our wrath where it belongs, on the cartel and the unconstitutional system these a-holes forced down our throats in 1913.
Hmmm, are you suggesting that the Tax-Like-HELL-&-GIVE-AWAY-EVERYTHING-FOR-NOTHING-TO-USELESS-Programs form of budgetary constraint is a better model. One that seems to endear layers of litigation to achieve more efficiency?
I think it’s time to erase the board & draw up a political party that better represents the best interests of the overall constituency. We need to start from scratch. Too many big egos and pet programs. We need a much smaller government that is prepared to operate with much less money. First thing to do is make good and damn sure the religious freaks don’t show up to the drawing board.
Agreed! How about another constitutional convention to reaffirm the constitution, create another party and shit-can the junk (16th amendment for instance) added to our laws over the years by special interests?
Well, I think the constitution’s amendments mostly have merit. The only way to re-write it would be to have another civil war (not out of the question if a depression hits hard enough).
Although… I don’t think that a lively debate about elements of it need to be off the table either. That might be possible if we clear all the halls of congress with suitable replacements from neither existing party…
There is a huge misconception that Republican’s at the federal level actually cut taxes. Bush has raised taxes more than any president in history. In the long run taxes can only be reduced by increasing the efficiency of government services or reducing those services.
The current administration has shifted the tax burden from the current generation to future generations. And to a lesser degree has shifted the tax burden from corporations and return on wealth to labor.
Spending has increased the most under the current administration than any other and every dollar of increased spending is a new dollar tax increase.
Many say that the Clinton administration increased taxes, horribly punishing successful Americans. In fact government expenditures grew slower than the economy as a whole. This is a tax cut as the percentage of GDP going towards taxes is decreasing each year.
The divide in America today is much different than in the past. Before people agreed on the facts and had different opinions as to how to solve the problems the facts represented. Today America can’t even agree on the facts.
Yes, I really liked the bit in that hour long UCLA presentation that’s been flowing around where he said Bush didn’t cut taxes. He raised deferred taxes.
Please note I don’t think the dems would be any better in the same situation. Regardless of what I think of Bush or Clinton, I dislike both parties equally.
“First thing to do is make good and damn sure the religious freaks don’t show up to the drawing board.”
Amen!
Welcome to the current problem.
They (both sides) play divide and conquer in order to retain power.
You just lost.
Sadly, to me at least, this appears just as inevitable as economic manias.
Also I hope your choice of the word “Amen!” was intended in jest.
Otherwise your religiously anti-religious convictions just become doubly ironic.
And FYI I’m agnostic, pro-choice, anti-marriage exclusivity, don’t want prayer in schools. I’m even for taking “In God We Trust” off the currency because I sure don’t. But I respect the right of those who do to be involved in their government.
Lingus have you considered, to paraphrase Nietzsche, that if the Republicans did not exist, it would be necessary for the Democrats to create them?
I see it as very similar to 1984. War is the constant state that must be maintained in order to keep the populace afraid and in line. The three legs of the tripod are not Eurasia, Eastasia, and Oceania, but Republicans, Democrats, and “the media”.
Lingus. When you went to school was it on a big bus or a little bus?
Republican vs. Democrat? C’mon. You can’t possibly experience the world and still believe that it is divided so neatly can you?
I think it was T. Robbins that said “There are two kinds of people in the world. Those that believe there are two kinds of people in the world, and those that know better.”
Lingus is the type of brainwashed sheep he so despises. Good droogie, is Lingus.
Why are you guys bringing up democrats all the time? They haven’t been in power in years. It’s the republikkkans who embrace the failed economic ideology known as trickle down (trickle on) economics.
Met Laffer once. Likeable guy. Egalitarian = No. Feed horses to feed the birds.
Comment by AZ_BubblePopper
2006-05-13 10:47:46
Hmmm, are you suggesting that the Tax-Like-HELL-&-GIVE-AWAY-EVERYTHING-FOR-NOTHING-TO-USELESS-Programs form of budgetary constraint is a better model. One that seems to endear layers of litigation to achieve more efficiency?
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You mean those guys that governed during the best of economic times back in the 90’s? Whatcha say about those who’ve created the disasterous economic mess since 2001?
I would argue that was a combination of forces, largely made of economic coincidence and both houses of congress controlled by Republicans. Not saying that Bill wasn’t a skilled poiltician and a reasonably good President. Just that timing in economic cycles worked in his favor along with a fierce bubble build in the NASD and low energy costs, that he benefitted from, which drove up employment and tax revenues. Dubya stumbled into the consequences of the end of the unsustainable NASD bubble, and combined with his own incompetence, yielded the mess we have now.
Don’t kid yourseld into thinking Bill had much to do with engineering the period of economic good times that he enjoyed. He just managed not to screw them up, Carter style.
He just managed not to screw them up
Yes! This is about all we can ask of government these days. Government interference always makes things worse.
I think you guys might enjoy this…
http://www0.gsb.columbia.edu/students/organizations/follies/media/EveryBreath.wmv
I would make sure I converted all of my paychecks into gold and silver.
I believe BB has so many interests telling him what to do he will opt to do as little as possible. He is already learning not to telegraph his punches. He will probably continue raising in fairly useless quarter-point increments, hoping that things will suddenly get better and/or Jesus will give him a sign. Don’t expect the Fed to fix the mess they created. This has to work itself out, and BB can only make things messier.
Bernanke is obviously trying for a slow unwind by raising rates 1/4 pt. every quarter. I think it is the best strategy at this time. He is trying to give everyone time to clean up their own messed up financials. The question is whether outside forces are going to give him enough time to keep to this strategy. That’s a BIG “if”. If he quits raising rates the dollar continues to slide, the bubbles continue to grow, inflation accelerates, the trade deficit continues to balloon, but the economy grows. If he raises rates faster the bubble pops, the trade deficit shrinks, the dollar strengthens, but the economy goes into deep recession.
In my humble opinion he will continue as he has been doing and get away with it. Europe is stagnant at best glance but in reality is in steep decline. Germany is raising their VAT and tipping themselves into recession. France is so sick they are on life support. China has a trillion dollars in non-performing loans in its banking system…they need every dollar in foreign reserves they have to bail themselves out of their own mess. Japan has a tremendous problem of an aging population and a national debt per capita that makes ours look tame.
There are a Hell of a lot of financial problems everywhere right now. We cannot continue to run a massive trade deficit like we have been without the dollar collapsing. The rest of the world can no longer keep themselves afloat by selective trade barriers to protect their own and in turn currency manipulation to protect exports to the U.S.
Here is my prediction: the ultimate
winnersurvivor(s) will be those countries who manipulate and distort their own economies/currencies/tax policies the least. They have the shortest distance to fall.If the Fed (or Comptroller of Currency or whomever) is trying to slow bank lending, I PERSONALLY don’t see it. I have NEVER received as many credit offers as I have recently. Several a week. One, a major bank, offered me (45% of my gross) loan. A month later, 60%. A month later, 90% of my gross income, 5-year, unsecured at 7.99%. It is crazy the offers I’ve been getting, IMO.
As a computer programmer, I know first hand the devastating effect off shoring has had on our industry. I am one of the lucky ones who has been banging on a keyboard since the early 90’s, and have stayed consistently employed the past 5 years. That said at the same dollar rate I was getting back in 1999.
My wife and I have noticed, especially recently the dramatic rise in prices everything at the grocery stores, our gas and electric bills are sky high, medical insurance has doubled, deductibles for medication etc are up by three times etc…
That said, consumer electronics and Wal-Mart type items are cheaper than ever.
For the time I work, my hour of work, buys me non essential products that must represent 20 or so hours, so there may well if you put them together at one time and at one place be three or so third world persons manufacturing all my stuff full time. - So clearly, I would not be able to have all the cool toys.
But do I need cool toys? No, I DO however need the essentials which HAVE been subjected to massive inflation and therein lays the rub of off shoring.
One thing is clear. Here in America, there is really no reason any of us should work. We are far too expensive and frankly against a labor pool of cheap Chinese labor, are irrelevant. Why not then simply give everyone money and forget the “work ethic” economy we got used to last century…
Comment by GH
2006-05-13 13:09:32
My wife and I have noticed, especially recently the dramatic rise in prices everything at the grocery stores, our gas and electric bills are sky high, medical insurance has doubled, deductibles for medication etc are up by three times etc…
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But Fox News and Lying Larry Kudlow tell us “the economy is doing wonderful” so you must be on drugs or imagining things.
Just quit buying food and energy! They are volatile (not included in the CPI) and therefore will be going down soon. You can just buy them then.
I’ve been a software engineer for 6.5 years now. My income didn’t move up until over the last 12 months which got me a 25% increase during three separate raise events. I felt the same frustration before.
From Barron’s (May 15) pM5 “Bernanke Raises - And Market Calls Him,” by Jennifer Ablan (Current Yield column): “[Wells Fargo's James Kochan] believes the fed funds rate will peak around 5 1/2 to 6%.” I don’t have a link, just looking at newstand copy I buy…
I’ve thought this many times before, and prob said it too: what if after 2000 (Nasdaq crash), the Fed DID NOT lower fed funds rate to 1%, AND, the tax cuts didn’t pass? What would have happened, worse case scenario? When I ponder this, it makes me freak out…
I just someone to explain to me why, if short term rates are 5.0%, ten year treasuries are just 5.2%. That’s a 0.2% added return for tying up your money for a decade, with all the attendent inflation and default (the way things are going in DC) risk.
Is it too much to ask for an extra 1.0% premium for a ten year (a 6.0% yield), and a price/earnings ratio of 15 times past earnings (a 6.7% return) on the S&P? All assets are overpriced.
Because the Chinese and other Asians have been buying huge amounts of US debt. They are not interested in ROI but are trying to prop up the US$, to keep their exports flowing to the US and keep their people working.
If the Asians quit buying US bonds I bet you’d see a return to early 1980’s interest rates.
It all keeps going until someone flinches (stops buying or starts SELLING) and then it all falls apart. But until it does it’s better to accumulate dollars.
It’s an international fiscal game of chicken.
And the prize goes to:
Flatteningyieldcurve> If I were the chairman of the FED, I would abolish the FOMC
Hear, hear!
I totally agree with others like dawnal and auger-inn on one thing: the general public is blissfully unaware of what has been done to our monetary system in the last century, in the name of stability, avoiding depressions etc. Unbacked fiat money is basically a way to rob the common man and enrich bankers. Gee, I wonder why this is not taught in the public schools?
feepness> Oh well, at least I know how to protect my assets.
We all try.. I sure hope you’ve thought through the Government confiscation scenario. That sometimes worries me, because it wouldn’t be unprecedented. In a full-blown currency crisis, is the general public even going to care if a few gold bugs with foresight lose their holdings to the government? Have you stashed some metal abroad?
I have though through the government confiscation scenario, taxes were due last month.
Seriously, I’m counting on being able to “see it coming”. That isn’t a very good solution, but I don’t think running out and stashing silver in a Mexican bank is either. I don’t really have a good one so I’m hoping that I’ll be able to stay ahead of the crowd. I can live very cheaply if the need arises.
If I were the Fed chairmain, I’d continue to do what I am already doing until we hit a point where the yield curve inverts.
We need a recession, but we don’t need the Fed to catalyze a deep recession. Meanwhile we’ll just have to accept higher prices.
In other words, STAGFLATION is the only viable option.
Current Fed policy gets an A from me.
Looks to me like there was a lot of Troll-feeding going on in this thread. And an unusual amount of inaccuracy.
That’s what weekends are for!
I would urge the Congress to freeze all government spending at current levels for the next four years. Place an immediate $1 gas tax on each gallon. The tax would last 4 years, no longer, and must expire at that time. Funds to be used to shore up medicare, social security, alternative fuel development and debt reduction. Also increase taxes for the very wealthiest Americans. Increase their rates from 33% to 36%. Again, these rates would be mandated to end in 4 years and revert to 33%. Frankly, we are in crises mode folks. All of us have been bamboozled by both parties for many years. Both parties are only interested in themselves. By the way, lets make our politicians pay into social security and recieve the same crap we are forced to eat. The only exception to an increase in government spending would be state of emergencies, such as Katrina.
Every time we give the govt more tax, and we have over and over, it just gets squandered anyway, and frankly, expect a LOT more Katrinas and Andrews in th enext decade, since we are in a period of increased hurricane activity. Iraq is not going away any time soon and frankly in case anyone noticed, we already spent all the money which was supposed to be deposited in the Social Security fund. I believe we will hyperinflate our way out of this mess, and yup this will not be without pain.
That is why the tax must have a start and end point. It must also be used for specific items mentioned in my comment. The BS must stop.
Wow, I guess the mantra “This time it really is different.” applies to taxation schemes as well.
The income tax was a temporary emergency response to a World War. It was never going to exceed 10%.
We have taxes for rail transportation expansion.
We have taxes for alcohol prohibition enforcement (you didn’t think those went away when alchohol was re-legalized, did you?)
How about the AMT? A special measure designed to catch those millionaires who were not paying their fair share. Now aimed directly at the middle class.