Tag Archives: Central Bank

Fed Chairman Bernanke has to Choose between Three Ugly Paths

One of the fallacies of gross domestic product (GDP) is that it doesn’t differentiate between those activities that advance a society and those that do not. Over a period of centuries, as nations have increased their GDP, they have increased the life span of their citizens, a valid argument for an investment of a people’s national effort to advance their society. Over the last three decades while America has suffered epidemics of obesity, diabetes, heart disease, Alzheimer’s, and cancer, dramatically reducing our national health, our share of GDP for healthcare has escalated, obviously a bubble by societal advancement standards. Similarly, while trillions were spent on housing stock during the past decade, the resulting bubble measured as a grand GDP, yet it actually produced excessive, obsolete housing and a mountain of debt created money that collapsed as the bubble popped.

While Japan’s tragedy will undoubtedly produce jobs for many and wealth for a few as it registers a higher GDP for Japan and her suppliers, all of the expended labor to rebuild what once was is just that. The labor expended is labor that otherwise would have advanced Japan beyond the point of which she will merely return. Similarly, the world’s finite commodities will be lessened just to bring her back to square one. After a period, Japan’s infrastructure will return as a result of expending hundreds of billions of additional debt. However, the leaking nuclear reactors will damage her real value creating GDP for decades. Brands from fish to cars to computer chips may well be negatively impacted by leaking radioactive isotopes.

Japan is a nation of savers and will ultimately recover. America is a nation that is struggling to even determine what marginal debts to expunge from its massive core debt. Unfortunately, as a result of our inaction, Bernanke has a lose-lose choice to make regarding monetary policy. His three choices for quantitative easing no longer can increase America’s real GDP but could destroy it considerably.

If he actually stops quantitative easing and contracts the money supply, as he earlier promised, our economy is going to tank, and inflation will still continue to erode our purchasing power. With a falling stock market, rising consumer prices, lower wages, lower home prices and higher unemployment, Bernanke will singlehandedly give a landslide election to the Republicans in 2012.

If he continues with QE3, he will stave off recession and buoy stock prices for a bit but he will commit America to a path of accelerating inflation. He may be able to postpone a crash until after the election, but without a disciplined monetary policy and implementation, the choice of when America crashes, as Standard and Poor’s has alluded, will be taken from him as the world financial community imposes discipline on America.

If Bernanke simply quits QE2 and begins to slowly raise interest rates to keep pace with the EU, as is his stated course, he will give Congress time to act boldly before the world reacts. But his sacrifice will be for not because Congress won’t follow his lead. He will certainly douse the already tepid economy. With no hope of recovery, and no signs of life from Congress, America’s middle will grow restless and her uberwealthy will use the calm before the storm to race offshore. America’s enemies and opponents will act boldly during our internal distraction.

We now ask Bernanke to decide our fate after a generation of our decisions placed this burden on him. WWII led to too many baby boomers who believed our parents when they told us we would have a better life because of their sacrifices. Determined to create that better world, we continued to fight a two front war against the communists and poverty while choosing to create wealth from ideas instead of factories, and implementing our vision of schools that would fail to graduate a third of our would be thinkers. If our parents created wealth in houses and the stock market, we would create more wealth by borrowing to invest in bigger houses with walk in closets, and in bulging stock markets whose mavens convinced us our borrowed funds would create more wealth in overseas factories than in American workers.

Sure, to have it all, we would have to agree that our government should borrow almost as much as we contributed through taxes to pay for lost jobs, poverty, and a military so gargantuan that no-one who picked on our parents would ever think to pick on us again. Our concepts of wealth creation worked for some, but for most… not so much.

And now that our failed middle aged ideas have threatened to end our dreams of creating a better world through an endless expansion of the money supply, we have pulled the slot machine handle with our last three quarters of Stimulus, QE1 and QE2. Peaking through our government issued rose colored glasses, we hoped to see but failed to get even a single cherry.

After watching our post war babies mature into elected officials who failed to cut even 100 billion from this year’s budget deficit of 1,500 billion, we must now solemnly ask Bernanke to make his decision… in this moment…. just after his first ever Fed press conference. Please, Dr. Bernanke, choose what’s behind door number 1, door number 2, or door numberrrr 3.

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Filed under American Governance, Federal Reservre, U.S. Monetary Policy

America Must Lead the International Regulation of Multinational Corporations

In every world empire, there has been a concentration of state wealth and a transfer of that wealth from one great empire to the next e.g. Egypt to Rome; but it wasn’t until the emergence of the industrial revolution and the invention of the Charter Company that private entities gained wealth comparable to nation states. Now with the revolution of the MNC, the power of Corporate Nations has surpassed that of most States. Neither Hayek nor Friedman adequately addressed how classic liberalism would optimize a world where states bow to corporations and MNCs increasingly become international oligarchs.

Jump forward a hundred years and what role will states have? In the beginnings of the industrial revolution, charter companies had standing mercenary armies comparable and sometimes larger than the states that authorized their charters. In the Iraq war, Blackwater seemed to silently engulf Iraq with its private mercenary activities. How will the mercenary forces of the oligarchs compare on an international scale 100 years from now with the mercenary forces of the charter companies a hundred years ago?

It is true that America’s Federal Reserve has significant culpability in its role of allowing our Congress to irresponsibly expand the debt, but much of that debt was driven by and inextricably tied to a trade deficit caused by an emerging international wave of MNCs and a lack of understanding by industrialized nations’ trade negotiators of their eventual encompassing impact on nations. Given our macroeconomic naiveté, we had the choice to continue borrowing or to accept a slow but real decline in average home purchasing power. For some reason, the Fed was happy to support the former option.

Some conspiracists point to forces external to the U.S. as having responsibility for and benefit from the Fed’s irresponsibility. These central banking forces are more tightly controlled in a state financed imperial China and must continue to be if China is to rise as perhaps one of only a handful of states possible of maintaining parity with the MNC empires of tomorrow. For its 4000 year social isolationist protection, China will eventually seek policies to repel MNC dominance. If western industrialized nations are to survive, we must also collectively seek a strategy for containing MNCs within an international boundary of regulation.

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Filed under Federal Reservre, Foreign Policy, Multinational Corporations

Is the Federal Reserve Harming Job Growth?

The Fed originated from a private agreement of the world’s richest bankers in 1910. Reacting to clamors to regulate the “money trust”, leaders of the world’s banking systems came together to create the plan for the Fed, that Congress enacted in 1913.

The plan did not completely turn over the power of the world’s banking system to Congress. It instead created a “partnership” intended to retain power while sharing oversight with Congress. The President recommends and Congress confirms 7 board members to the Fed from banks, and the banks appoint 5 other members from regional Fed banks that are in turn owned by private banks to the FOMC that makes Fed actionable decisions.

The Fed is subject to oversight by Congress. Yet oversight means that the Fed reports a summary of its actions after the fact. Congress cannot dictate to the Fed, and can only change its charter by statute, which has been politically unachievable, even though a bill to end the Fed has 55 congressional signatures. Members of congress cannot attend Fed meetings and cannot audit the Fed. Thus, the Fed has authorization by our government to manage the banking system free from political controls.

Even so, congress has little incentive to place restrictions on the Fed. For every dollar that Congress spends, Congress borrows 40 cents from the Fed, who essentially just has it printed. And Congress needs the banks to get re-elected. 94% of congress persons with the most election funds win their elections. 90% of election funds are given by wealthy individuals, large corporations and the banks.

It is claimed by some “conspiratorialists” that through complex stock ownership in five U.S. banks, the original stockholders of the Fed still maintain control of Fed actions. Whether or not this is true, the actions of the Fed have resulted in great wealth transfer to bank shareholders through Fed actions including engineering inflation. In the 300 years before the Fed, inflation was minimal except for the absorption of wars. In the 97 years since the Fed, inflation has increased 1,900 percent.

When banking investments soured in 2008, many claimed that the Fed acted in the best interests of its shareholder banks over those of the United States. With the great recession, the Fed entered into unprecedented activities. In March 2008, the New York Fed advanced funds for JPMorgan Chase Bank to buy investment bank Bear Stearns. Also, in September of 2008, the Fed gave an $85 billion loan to AIG for a nearly 80% stake in the mega-insurer. In October, 2008, the Fed acquired the ability to pay interest to its member banks on the reserves the banks maintain at the Fed. And quantitative easing has the potential to inflate the U.S. out of losing housing portfolios.

In essence The Fed’s actions have protected the wealth of international investors at the expense of small investors that are nearing retirement with life savings in fixed incomes.  By preserving this wealth, the Fed is also enabling the funding of third world multinational corporation direct foreign investment without consequence.

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Filed under Federal Reservre

Has China Usurped America’s Era of Hegemony?

  When I travelled to China in the early nineties, I saw hundreds of Chinese citizens near Beijing carrying wet cement in cloth sacks on their backs to dump in front of other workers who smoothed out the globs of cement with wooden utensils to build ten lane highways, when no Chinese owned cars nor had the income to buy them. I saw scores of men, climbing dozens of stories into the air on bamboo scaffolding, building the skyscraper city of Shenzhen when China yet had no office dwellers to fill their glass towers.

These were my witness to China’s strategy of ascending to their position as the 21st century hegemonist; a strategy that has been executed with a decade’s long horizon since the late 70s. While China fed our baby boomers that were entering their demographic spending years in the eighties, she patiently accumulated financial strength on behalf of all Chinese that had come before, and of all that would thrive in the future. While China exercised discipline on behalf of her citizens, our Wall Streeters demonstrated sophistication over that same extraordinary demographic to lead our country through one bubble after another, achieving societal instability and accruing immense personal wealth in the process.

Yes, our country’s leadership was outmaneuvered by a Wall Street banking system that has gone unchecked for 30 years. But it has also asked for and has been self-servingly supported by an enabling central banking system that feeds congress’s compulsive appetite for debt. As a result, America’s role as the world’s orchestrator of monetary policy has been undermined, our wealthy are seeking safe haven in the next world order, and our citizenry is at a loss for why our standard of living seems to be entering the community or European nations. Can we, as a pluralistic democracy, gain the discipline that the dynasty to our east has shown, or is our century of hegemony over?

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