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The Federal Reserve Warns About The Dangers Of The... Federal Reserve
A not very long time ago, in a galaxy known as the Milky Way, the member of an occult group of sinister individuals warned that should this group ever get to a point where it believed it could fix fiscal problems through printing money, this would present "a paramount risk to the long-term welfare of the U.S. economy." The group is better known as the Federal Reserve and the individual was Dallas Fed president Richard Fisher. The same Richard Fisher, who recently wrote about the FinReg unaddressed concept of how Too Big To Fail will lead to another massive systemic crash, went as far as saying that "even the perception that the Fed is pursuing a cheap-money strategy to accommodate fiscal burdens" would be disastrous, and that "the Federal Reserve will never let this happen. It is not an option. Ever. Period." Boy, was he wrong. Nonetheless, Fisher's speech from May 28, 2008 before the Commonwealth Club of California, should be read by all Keynesian fanatics as it is without doubt one of the most lucid presentations of rational thought from the ranks of the Fed. With observations such as that "we know from centuries of evidence in countless economies, from ancient Rome to today’s Zimbabwe, that running the printing press to pay off today’s bills leads to much worse problems later on", one may only hope that all those who advocate even more rampant spending and irresponsible money printing to "fix" the economy, will finally see the light. Alas, mired in their own stupidity, they won't. And Fisher's words, so prescient in 2008, yet so ignored, will suffer the same fate today, and the Fed will continue on its way to singlehandedly destroying this once great country.
Key excerpts from Federal Reserve member Richard Fisher's speech (please forward to your representatives):
The even more disturbing dark and dirty secret about deficits—especially when they careen out of control—is that they create political pressure on central bankers to adopt looser monetary policy down the road. I will return to that shortly. First, let me give you the unvarnished facts of our nation’s fiscal predicament...
...It is only natural to cast about for a solution—any solution—to avoid the fiscal pain we know is necessary because we succumbed to complacency and put off dealing with this looming fiscal disaster. Throughout history, many nations, when confronted by sizable debts they were unable or unwilling to repay, have seized upon an apparently painless solution to this dilemma: monetization. Just have the monetary authority run cash off the printing presses until the debt is repaid, the story goes, then promise to be responsible from that point on and hope your sins will be forgiven by God and Milton Friedman and everyone else.
We know from centuries of evidence in countless economies, from ancient Rome to today’s Zimbabwe, that running the printing press to pay off today’s bills leads to much worse problems later on. The inflation that results from the flood of money into the economy turns out to be far worse than the fiscal pain those countries hoped to avoid.
Earlier I mentioned the Fed’s dual mandate to manage growth and inflation. In the long run, growth cannot be sustained if markets are undermined by inflation. Stable prices go hand in hand with achieving sustainable economic growth. I have said many, many times that inflation is a sinister beast that, if uncaged, devours savings, erodes consumers’ purchasing power, decimates returns on capital, undermines the reliability of financial accounting, distracts the attention of corporate management, undercuts employment growth and real wages, and debases the currency.Purging rampant inflation and a debased currency requires administering a harsh medicine. We have been there, and we know the cure that was wrought by the FOMC under Paul Volcker. Even the perception that the Fed is pursuing a cheap-money strategy to accommodate fiscal burdens, should it take root, is a paramount risk to the long-term welfare of the U.S. economy. The Federal Reserve will never let this happen. It is not an option. Ever. Period.
Of late, we have heard many complaints about the weakness of the dollar against the euro and other currencies. It was recently argued in the op-ed pages of the Financial Times [3] that one reason for the demise of the British pound was the need to liquidate England’s international reserves to pay off the costs of the Great Wars. In the end, the pound, it was essentially argued, was sunk by the kaiser’s army and Hitler’s bombs. Right now, we—you and I—are launching fiscal bombs against ourselves. You have it in your power as the electors of our fiscal authorities to prevent this destruction. Please do so.
h/t Justin
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1 horsepower vehicles will be all the rage
+1
I'm starting a new buggywhip manufacturing business. Hoping to IPO in 2012.
I'm with you. We'll be riding horses into town w/in a decade. No doubt in my mind.
I do.
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Well, the good thing is that Bernanke said he would never monetize the U.S. debt.
What... he did WHAT???
Oh, nevermind. Carry on with life as the new normal.
Gold bitches!!!
Greenspan's "Goldilocks Economy" of the 1990s has been morphed and reworked by the Fed to suit the times. Welcome to "The Goldilocks Depression".
They know deflationary forces are overpowering. They're going to try to maintain deflation on a slow glidepath down, modeled after Japan 1990-present. Their primary tools, again modeled on Japan, are ZIRP and QE as needed backed by monetized debt. They'll sprinkle "liquidity" around to keep imminent collapses and pickups in deflation at bay. One of their chief conduits will be the prop desks of their favorite banks with the goal of propping up the stock market. This is core dogma. They'll also need to prop up economies around the world (flattering themselves that they're latter day Marshalls) with sprinklings via dollar swap agreements, and through the conduit of the IMF and their favorite foreign bank prop desks.
But the dark side can't help but sneak in to this pretty Goldilocks cartoon. It's not just stocks that rise when liquidity is sprinkled on Wall Street. Energy prices, raw materials and food costs will remain stubbornly high given the level of economic activity. This will be a drag brake on growth and will increase the relative cost of living and doing business. The Double Whammy Economy will be alive and well, robbing the middle class.
If Japan is the model then other outcomes are clear: households and businesses will save cash and shun credit. Deflationary economics will prevail. Capex and private investment will languish for decades. Only government bonds will find favor with households.
The worst aspect is that without the grand reset of real deflation we're condemning at least 1 generation to no growth. Worse, future generations have to take on debt to buy education at rates that prevailed before they were born. Healthcare will become increasingly unaffordable. The economy as a whole will drift toward tighter government control into a "Conservative Nanny State", with all the bad and none of the good features of Euro socialism.
No growth is not a condemnation, it is the solution.
Came across a quote by Dr.Milton Gilbert, former economics adviser of the Bank for International settlements , " Some people seem to have the vision that as the central banks become used to the new reserve assets... they will begin to prefer them to gold, and that gold will gradually disappear as a monetary instrument--- or at least become unimportant. This seems to me to be plain fantasy and about as close to reality as the original idea of Karl Marx that under communism the state would gradually wither away."
Some have suggested that "borrowing money into existence" is worse than simply printing it because the nation is forever in debt and dependent on the faith of investors. I recognize the general concern about excessive government spending and inflation, but I do wonder whether the U.S. would be better or worse off if the U.S. Treasury simply printed (or electronically created) the money it needed with inflation replacing taxes. Surely someone in this blog could write a dissertation to show why this is a nutty idea. Have at it.
Are these not substantially the same thing in our FedReserve system?
How about we just go back to a Constitutional bi-metallic system of money? It seemed to work fine for a century and a half.
I am Chumbawamba.
See ya Fannie and Freddie
So how "doctored" do you think tomorrows job report will be?
Tyler - Please write a book - soon, while I can still read it on my kindle :-)
Your wits and wisdoms are without peer
"It appears as though Sen. Blanche Lincoln is aiming to water down her proposal while still claiming a massive, populist victory. That may be the easiest path to success. The watered down proposal includes a two-year delay before requiring any change to swaps units, allowing banking regulators discretion, and interestingly enough "permitting special derivatives entities to operate inside of federally supported bank holding companies.""
CE:
You can bet that Dodd, Frank and company are directing maximum persuasive political fire at Senator Lincoln right now. Themes will be the massive, irreparable, catastrophic damage that will be done to the United States economy if this bill is allowed to pass as us during this time of extreme national duress. "No one knows what the outcome will be; maybe like another oil well in the Gulf". "Delaying the impact for a couple of years is the most responsible thing to do."
IMO Lincoln is trying to get it passed. Dodd probably wants to finish his term and get paid off. She may have made a deal to get necessary votes.
Please write your congress.
Could there be possibly another option?
Suppose the State would reimbourse part or all of the debt held by private citizens and banks inside the state with a kind of "Portable State Credit Note" usable as mean of exchange, not convertible to (or limitedly convertible up to a certain amount/month per capita) to USD or Euro for that matter. This note could NOT be used in the financiary market, since it cash, or it would be at the bank risk to convert it on its own to USD (or EUR) to invest in the casino. Otherwise it could only be exchanged like cash, therefore, if any, it would something inflate the market of "real" goods, which is anhemic anyway, and could be a mean of financing companies producing "tangible assets" (suppose you could hold current accounts in these notes and the fractional reserve requirement would be very "thight"). Eventually these notes would go back to Treasury, after having being exchanged on the market, via taxation, because one could pay taxes with it, and would simply be destroied. With all due cautions and callilng back all the military abroad to help enforce the circulation of this new de facto fiat-money, could this somewhat work? At the end this fiat would not be endlessy expandable because is limited itself by the quantity of debt coming due each period and the quantity of currency circulating would be again limited by the draining via taxation and on the medium run you would have a sort of "debt deflation", provided you are wise enough... Is it something worth thinking or should I start to finally put some tobacco in what I smoke?
I posted a rather lengthy article yesterday under the above story. My argument which I supported with case law contended the Federal Reserve is not only unconstitutional but is VOID by law. It was my first post and I don't want to repost w/o ZH permission. just go to next and it is still available to read. Regards Milestones
No such things as bad news to pump to market up.
Utter nonsense...
The problem is beyond Keynesian.
Remember, this is an administration that thinks the Constitution is out of date...
This isn't politics this is religion.
carbon,
"Remember, this is an administration that thinks the Constitution is out of date..."
and is now being printed (by Wilder) with a friggin DISCLAIMER!.
Such a complex situation we have gotten ourselves into; yes we are all accountable, some more than others. We are brothers and sisters afterall; this will be forever. Hardships will continue, as life is suffering; this even in the best of situations. Sit under the tree of knowledge as long as you can, you will become hungry and tired. What matters most is how well you walk through the fire.
Great post but it's not only the Fed's part. The Fed is a cog in the larger f'ed up system . . .
All the Keynsian Worshippers in 2013 will celebrate the Centenary Anniversary of the Federal Reserve marking a 100 years of public enslavement.Hey,wait on a second there, first comes 2012.......What?.....no party?
Scotia Capital thinks the US is the weakest and largest risk...more so than the PIIGS. Wonder when the bond vigilanties will begin their move...
http://www.businessinsider.com/scotia-capital-sovereign-debt-2010-6
AUDIT THE FED. How about a bumper sticker?
They're all over the place including the ones call for impeachment of our "community organizer".
Audit????
More like....Nuke the Fed.
And the site link of the day:
http://geopubs.wr.usgs.gov/open-file/of02-110/of02-110.pdf
Please note the date (2002) although the study was performed much earlier.
So, we've known about that mineral mountain in Afghanistan for quite a few years.
Go figure.....
Ron Paul's strong move to audit the Fed, killed.
Why is that not a surprise?.
How about...
Great job once again Ty!... keep sounding the alarm bells.
Or (Like your mother used to say....)
"If you don't have anything good to say about the Federal reserve?"
"Say it often!"
(Line borrowed from 'Ed the Sock'... who himself was ripped off to create Conan's "Triumph the Insult Dog")
How about the Obama expose on the Daily show last night? Jon Stewart Rocks!!!
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