Tag: Federal Reserve

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national politics & policies

It’s So Simple, If You Forget

“We cannot be complacent,” Federal Reserve Bank President Charles Evans said yesterday. He was most distressed by any lingering notion that the economy would remain undamaged were “no action” taken.

He wants more money flushed into the system. “If we continue to take only modest, cautious, safe policy actions,” he argued, “we risk suffering a lost decade similar to that which Japan experienced in the 1990s.”

Ah, and I was going to use the long Japanese recession as an example of what can happen when too much monetary and bailout hanky-​panky is allowed.

Evans apparently thinks that mid-September’s unleashing of quantitative easing — or QE, the currently fashionable banker’s version of crony capitalism — with the Fed promising monthly $40 billion purchases of mortgage-​backed securities, is tantamount to “no action” and “doing nothing.”

Or else he’s worried that Bernanke’s critics might have some sway.

Relying on the old (by-​the-​textbook but long-​discredited) Phillips Curve story of inflationary money leading inexorably to increased employment, cheap money maven Evans told reporters that “the economy” would “need 200,000 to 250,000 job gains per month” before the Fed could dare rethink its current policy.

He’s apparently forgotten that stagflation is possible. I don’t know why: He’s just a few years older than me, and I remember when the Phillips Curve’s simple trade-​off between inflationary monetary policy and unemployment rates hit the trash bin of history, as both inflation and unemployment soared in the 1970s.

When our leaders forget history, are we doomed to repeat it?

Stagflation may be the best we can hope for from current QE.

This is Common Sense. I’m Paul Jacob.

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free trade & free markets national politics & policies

The Bernanke Stretch

Last week, the Federal Reserve announced it was going ahead with “quantitative easing.” Chairman Ben Bernanke said that he’d be buying $40 billion dollars of mortgage-​backed securities every month, no end in sight.

Now, the traditional way that the Federal Reserve influenced the money supply, economist Randall Holcombe explains, was via “open market operations by buying and selling government securities.” But this changed in 2008 with the $85 billion AIG bailout: “Since then it has engaged in continual bailouts of financial firms and purchases of non-​government securities.…

The Fed has moved from engaging in monetary policy in a way that was neutral toward various businesses and industries in the economy to one in which monetary policy is targeted toward specific firms and industries. This current foray, specifically targeted at the housing market, is crony capitalism.

It’s actually worse. It’s crank policy, as the redoubtable Mr. Peter Schiff summarizes: “Ben Bernanke’s plan to revive the U.S. economy and create jobs is to inflate another housing bubble. That’s it. That’s what the Fed’s got. That’s what it came up with. As if the last housing bubble worked out so well for the economy that the Fed wants an encore.”

Our leaders are obviously desperate.

And out of control. George Will states that the Fed has gone far beyond “mission creep” — it’s “mission gallop on part of the Fed, which is on its way to becoming the fourth branch of government — accountable to no one and restrained by nothing, as far as I can tell, in exercising both monetary and fiscal policy.”

This is what forsaking limited government and the Constitution gets you: a sort of frantic idiocy in aid of politically connected speculators and financiers.

This is Common Sense. I’m Paul Jacob.

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free trade & free markets ideological culture

Competition in Currency

Monopoly control of money is at the root of all kinds of evil.

As the Euro faces collapse, and the dollar’s value becomes increasingly unsteady, central bankers the world over worry about what to do next.

But it doesn’t have to be this way.

Last Thursday I mentioned monetary experimentation, including Ron Paul’s support for F.A. Hayek’s idea of competing currencies. In my Townhall column this weekend, I noted that Rep. Paul has done more than promote the idea “that government policy should allow all currencies to float, favoring none.… Last year he introduced the Free Competition in Currency Act, as Hayekian a piece of legislation as you could imagine.”Monopoly Money

Paul’s proposal is not merely a sign of the times, it is a sign of intellectual seriousness — in a politician, no less. In the early 1980s he had introduced a measure to return the United States to the gold standard. But now he is willing to let “the market decide” which monies should circulate.

We may know a lot more about money than we used to, but one of the things we’ve learned is that no one knows for sure how to manage an entire monetary system, the whole kit and kaboodle.

So, just as we don’t need a grocery czar or an “industrial policy” to micromanage either technological production or R&D, centrally managed money is just too hard for any one set of persons … to manage.

Competition in money and banking (sans today’s progressivist doctrine of “too big to fail”) would not only work, it would keep politicians from the extremity of irresponsibility.

For yes, today’s politicians rely upon the Federal Reserve. They need to keep the “printing presses” running to supply that special, hidden tax that funds their deficits: inflation.

This is Common Sense. I’m Paul Jacob.

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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.