Tag: Federal Reserve

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free trade & free markets too much government

X Marks the Mistake

Take subject X. What if nearly everything we’re told about X — by the most famous experts and by people in government, as well as most folks in the media — is wrong?

Let X be diet. Maybe the whole “anti-fat” idea, dominant for most of my adult life, is wrong. There’s evidence for it.

Let X be AGW, the theory of anthropogenic (human-caused) global warming. We’re told that there’s a consensus in favor of it. But there’s less to that alleged consensus than meets the eye — or scientific rigor.

But to really blow your mind, consider central banking.

We’re told that the job of the central bank is to protect us from the fluctuations of boom and bust. The Federal Reserve was established by the federal government just to help us! But . . . what if that was never the actual reason that banks have been centralized?

Economist George Selgin posted, last week, a thorough debunking of Federal Reserve Chairman Ben Bernanke’s recent statements about what he’s up to. If you have never heard of free banking before, or the long tradition of central banking criticism among monetary economists, Selgin’s critique may seem outrageous . . . as outrageous as Copernicus and Galileo were back when most folks thought the Earth was the center of the universe.

If Selgin is right (and I think he is), nearly everything we’ve been told by experts and politicians about money, boom and bust, and banking, is wrong.

The central banking school is X.  X is wrong.

So if the Fed doesn’t do what it’s “supposed to,” why do we have it?

It serves big government and some big bankers.

This is Common Sense. I’m Paul Jacob.

Categories
folly free trade & free markets insider corruption national politics & policies

A $13 Billion Reward

The Federal Reserve, our central bank, hit the news big last week.

Beginning in August 2007 and continuing for the next two and a half years, the Fed lent the world’s biggest banks something like $7.77 trillion dollars at the barely perceptible interest rate of 0.01 percent. With that money, the banks bought Treasury bonds (federal debt) and made $13 billion in profit.

I reported on this multi-trillion-dollar loan figure in December 2008, a few weeks after the biggest day ever of Fed bailout fever. For some reason this information didn’t become widespread or understood until this December, when Judge Andrew Napolitano and Jon Stewart made a big deal of it on their respective TV shows, after Bloomberg reported the profits banks made off all that bailout money.

What does this figure represent? To me, it represents the outrageous amount of magic money a sick and corrupt fiat-dollar/bailout-based system of moral hazard requires when it implodes.

I think we can all justifiably roll our eyes, now, when some rah-rah boy for big government tells us how absolutely necessary it is to have a central bank. The old gold standard never fell apart this badly. The gold requirement itself placed a huge check on out-of-control banking.

But a $13 billion reward for the biggest financial mess in world history? That’s the very opposite of a check or balance on risk-taking, greed, or downright stupidity.

This is Common Sense. I’m Paul Jacob.

Categories
national politics & policies too much government

Default by a Thousand Cuts

Alan Greenspan half-smilingly argues that U.S. Treasury bonds will never be defaulted because “we can always print money.” How reassuring.

It’s one thing to pull money out of the proverbial magic cookie jar and place it in bank ledgers (“high-powered money,” or QE1, QE2) while people are substituting consumption with saving, fearful of the near-term prospects (increasing their “demand for money”). It’s quite another to do that while people expect prices only to rise. Massive increase in the supply of money (“printing money”) while people anticipate inflation (lowered “demand for money”) can lead to runaway inflation, hyperinflation.

America hasn’t experienced that since the Civil War. But Germany has (after World War I), as has Zimbabwe (just recently). It can ruin a whole way of life.

After Germany’s hyperinflation, Nazism arose.

Greenspan may have been trying to make a subtle point, but the blunt point remains: Default is likely, for inflation itself serves as a form of default. Under Greenspan’s scenario, the Federal Reserve, conspiring with Treasury, would, by “simply” printing money, pay debt with decreased-value dollars.

The ancient Chinese had a perverse form of torturous execution: Death by a thousand cuts. Inflation is like that, it’s torture for almost everyone, default by a . . . gazillion devaluations.

The only way around this is to make very different cuts — in federal spending.

That’s not torture, that’s the road to recovery.

It’s unlikely, of course, because, to politicians and insiders, cutting spending seems like torture.

This is Common Sense. I’m Paul Jacob.

Categories
free trade & free markets national politics & policies

Who Wins With Faith-based Money?

A fascinating Wall Street Journal profile of one of this age’s pre-eminent investment advisors, Jim Grant, provides more than the usual “business interest.” Mr. Grant proves to be a very thoughtful man, not given following the Yes Men crowd.

He notes, for example, how deflation fears have unhinged the minds in charge of the financial sector. “The Fed, in assaulting a phantom deflation, precipitated an actual one.”

And this “inflation/deflation” problem is only the tip of a very large and scary monetary iceberg. He calls our fiat money system a marvel — “astounding,” in his exact wording — but that’s not necessarily a good thing:

That a currency of no intrinsic value is accepted as money the world over is an achievement that no monetary economist up until not so many decades ago could have imagined. It’ll be 40 years next month that the dollar has been purely faith-based. I don’t believe for a moment it’s destined to go on much longer. I think the existing monetary arrangements are so precarious, so ill-founded and so destructive of the economic activity they are supposed to support and nurture, that they will be replaced by something better.

Let’s hope so.

But why has the system survived so long?

Mr. Grant has an answer: It serves Wall Street and “its supporting ‘interest group’” of “nimble, market-savvy, plugged-in folks.”

Exactly: Many of our biggest institutions don’t serve “the people” so much as the select few.

This is Common Sense. I’m Paul Jacob.

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ideological culture

The Ideology of Anti-Ideology

Politics is becoming politicized. Ideology ideologized. There is disagreement in the land. Rumbles! Portents! Where will it all end?

In the minds of those with infinite faith in their infinite wisdom to hammer out a better world by thwocking the rest of us into meek serfs of their edict-spewing will, it’s supposed to end with their unchallenged ascendancy over us. Why not? After all, they’re enacting not any ideology but only Scientific Truth. Anyone who opposes this Scientific Truth on the grounds of (different) political principles is being unscientifically Ideological.

It’s obvious that we can dispute the exact meaning and proper role of ideology — political ideas and programs — in human affairs. But the ideologues of interventionism are being coy and obfuscatory when they decry criticisms for being “ideological.”

The latest manifestation of the syndrome comes to us courtesy of a nominee to the Federal Reserve Board, who says his nomination is being thwarted on — yes — ideological grounds. He won a Nobel! He’s studied labor markets! Analysis of unemployment is “crucial to conducting monetary policy”! And: “Skilled analytical thinking should not be drowned out by mistaken, ideologically driven views that more is always better or less is always better”!

Hasn’t the Fed proved umpteen times already that its skilled analytical manipulation of economic life is perfect, infallible, and un-blundering? Couldn’t it benefit from the services of yet another smug, credential-wielding seer?

What? You doubt it! What are you, some kind of ideologue?

This is Common Sense. I’m Paul Jacob.

Categories
free trade & free markets national politics & policies too much government

Nothing Doing

When you don’t know what to do, the thing to do is nothing.

Well, maybe.

Economist Thomas Sowell, in a recent column, notes that we recovered from downturns in the economy more quickly before the federal government took it upon itself to fix things. The first major fix was with the Great Depression. Which dragged on and on.

Today, our leaders have spent trillions of borrowed money to fix the economy, with poor results.

Sowell’s column is great, right up until near the end, when his plea for politicians to “do nothing” ignores a lot of . . . something.

After the huge 1987 stock-market crash, he explains, President Reagan did nothing. But then “the economy rebounded, and there were 20 years of sustained economic growth with low inflation and low unemployment.”

But were those 20 years really so benign? Activity by presidents, by Congress and most of all by the Federal Reserve set up the systemic problems that led to the Crash of 2008. Consumer price inflation was low during Sowell’s Reagan-blessed period, but all the while the Fed was feeding first a dot-com bubble and then a housing bubble. And it engaged in a series of bailouts of financial institutions.

Maybe Reagan and later politicians didn’t do enough in the “do nothing” department. They should have reined in (or abolished) the Fed. They should have abandoned “too big to fail.” They should have stopped subsidizing creditors in busts and home-owners in booms.

This is Common Sense. I’m Paul Jacob.

Categories
Accountability national politics & policies U.S. Constitution

Ron Paul’s Gold Standard Version of Principle

They call him Dr. No.

But medical doctor and Congressman Ron Paul does more than vote against awful and unconstitutional legislation. He has also proposed many bills to roll back the government’s assault on our liberties — bills to get rid of the income tax, minimum wage laws, antitrust laws.

Of course, to advocate undoing decades of ever-more-brazen governmental interference in our lives is to swim against the tide. To most congressmen, the idea of limiting federal governance to constitutionally authorized functions is so old-fashioned as to be perverse. So Paul hasn’t had much luck with his initiatives.

But one of them is now back on the table: A bill authorizing the GAO to audit the Federal Reserve. Paul first advanced it in the early ’80s, and since then it’s been gathering dust. But thanks to the way the Fed has been conducting itself during the financial crisis, with all its massive yet secretive bailouts and interventions, the bill is now popular.

It has a good shot at passing.

Ron Paul himself won’t be voting for it, however. It’s going to be packaged with other legislation to impose new financial regulations, regulations he opposes. Paul says: “I won’t vote for a bill that’s a disaster because one or two or five percent of it is an improvement.”

Can’t argue with that. If only all our representatives had such scruples.

This is Common Sense. I’m Paul Jacob.

Categories
Accountability free trade & free markets national politics & policies

Stress Test for the Fed?

A bill proposed by Congressman Ron Paul would shine a light on the mysterious goings-on at the Federal Reserve.

The Fed has been sopping up many billions in toxic assets, creating money hocus-pocus, loaning vast fortunes to central banks in other countries, and in general behaving as if its actions cannot have bad consequences.

HR 1207, introduced in February, would authorize the GAO to audit the Fed’s various funding facilities, used with such abandon over the last year. Look under the hood, see what’s going on in nitty-gritty detail.

Doesn’t sound very radical. But the Fed is accustomed to being “independent,” i.e., unaccountable. Yet as Jim Grant, editor of a publication that monitors interest rates, has observed, if the Fed had to accept the auditing it requires of others, it would be regarded as insolvent.

Except, of course, for that whole create-money-out-of-thin-air thing.

President Obama, a.k.a. Mr. Transparency, has said zilch to support the bill. Still, with over 150 Republicans and over 50 Democrats cosponsoring the legislation, it now has enough votes to pass if congressional leadership allows a vote.

An audit with a negative outcome would not force the Fed to shut down.

But it would provide more ammo for those interested in slowing or stopping fiscal insanity.

And that, too, should be bipartisan. Transpartisan. Universal.

This is Common Sense. I’m Paul Jacob.

Categories
government transparency

Sanders versus Bernanke

I don’t side with Bernie Sanders very often, but Vermont’s favorite socialist son occasionally brightens our capitol with something surprising.

Early in March, the senator challenged Federal Reserve Chairman Ben Bernanke with an interesting question: “Will you tell the American people to whom you lent 2.2 trillion of their dollars?”

Bernanke then said that the Fed explains its policies online. Terms and collateral requirements, and so on.

But that didn’t answer the question, so the senator pushed on. And Bernanke, not being the Master of Obfuscation that former Fed chairman Alan Greenspan was, replied with an honest and unmistakable “No.”

He then went on to explain why he wouldn’t: It might “stigmatize” receiving banks, don’t you see.

Sanders mocked the answer. You see, he believes that the Fed should be transparent, especially regarding the current round of crisis loans.

I’m with him on this. I believe governments can only be truly republican — run by the public — when their operations are open for all to see. But there’s another reason: A transparent Fed would be a talked-about Fed. And the more people learn about the Fed, the more likely they will be to dissolve it.

America didn’t always have a national bank. And, like Tom Jefferson and Andy Jackson, I think we can do better without one at all.

We just need a good rule of law regarding money.

This is Common Sense. I’m Paul Jacob.

Categories
government transparency

The Wizard of Fraudz

Every time the economy takes a nose-dive, we roust up a few frauds and a bevy of humbugs.

This outing’s big villain is financier Bernard Madoff. For decades, Madoff made off with billions of other people’s money by pretending to invest it honestly.

Instead, he paid off early “investors” with the “investments” of later “investors.” To keep the Ponzi scheme going, Madoff had to keep widening the circle of the victims — which meant that he and his boosters had to keep whispering sweet cryptic nothings to awestruck big-pocketed individuals eager to join an exclusive club.

Some prospects declined. They now say they could get no real information about how he was investing. What? Oracular pronouncements weren’t enough for these skeptics?

Another Delphic entity that pretends to “invest” our money is the federal government. Its masterminds, too, claim to know everything about doing financial magic — but explain nothing. The Federal Reserve, for example, is refusing to comply with media requests for info on the “emergency loans” now being handed to ailing companies.

America’s government officials “know,” somehow, that they can “invest” in decrepit, floundering, washed-up firms and industries, using money siphoned from actually productive enterprise, while always paying off old government debt with new government debt, adding up to trillions . . . and somehow everything will turn out all right.

Pay no attention to those men behind the curtain!

This is Common Sense. I’m Paul Jacob.