Scandal: Albert Edwards Alleges Central Banks Were Complicit In Robbing The Middle Classes

We apologize in advance for the NY Magazine-style headline, but this is a report that has to be read by all Senators who are preparing to reconfirm Bernanke for a second term. When voting for the Chairman, be aware that all of America will now look at you as the perpetrators who are encouraging the greatest inter and intra-generational theft to continue, and as prescribed by Newton 3rd law, sooner or later, an appropriate reaction will come from the very same middle class that you are seeking to doom into a state of perpetual penury and a declining standard of living.

America spoke in Massachusetts, and will speak again very soon if you do not send the appropriate signal that you have heard its anger - Do Not Reconfirm Bernanke.

You have been warned.

We present Albert Edwards' latest in its complete form as it must be read by all unabridged and without commentary. These are not the deranged ramblings of a fringe blogger - this is a chief strategist for a major international bank.

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Theft! Were the US & UK central banks complicit in robbing the middle classes?

by Albert Edwards, Societe Generale

Mr Bernanke’s in-house Fed economists have found that the Fed wasn’t responsible for the boom which subsequently turned into the biggest bust since the 1930s. Are those the same Fed staffers whose research led Mr Bernanke to assert in Oct. 2005 that “there was no housing bubble to go bust”? The reasons for the US and the UK central banks inflating the bubble range from incompetence and negligence to just plain spinelessness. Let me propose an alternative thesis. Did the US and UK central banks collude with the politicians to ‘steal’ their nations’ income growth from the middle classes and hand it to the very rich?

Ben Bernanke?s recent speech at the American Economic Association made me feel sick. Like Alan Greenspan, he is still in denial. The pigmies that populate the political and monetary elites prefer to genuflect to the court of public opinion in a pathetic attempt to deflect blame from their own gross and unforgivable incompetence.

The US and UK have seen a huge rise in inequality over the last two decades, as growth in national income has been diverted almost exclusively to the top income earners (see chart below). The middle classes have seen median real incomes stagnate over that period and, as a consequence, corporate margins and profits have boomed.

Some recent reading has got me thinking as to whether the US and UK central banks were actively complicit in an aggressive re-distributive policy benefiting the very rich. Indeed, it has been amazing how little political backlash there has been against the stagnation of ordinary people?s earnings in the US and UK. Did central banks, in creating housing bubbles, help distract middle class attention from this re-distributive policy by allowing them to keep consuming via equity extraction? The emergence of extreme inequality might never otherwise have been tolerated by the electorate (see chart below). And now the bubbles have burst, along with central banks? credibility, what now?

After reading Ben Bernanke?s speech, once again denying culpability for the bubble, I really didn?t know whether to laugh or cry (remember that Ben Bernanke, like Tim Geithner, was a key member of the Greenspan Fed). I feel like Peter Finch in the film Network, sticking my head out of the window and shouting "I'm as mad as hell and I'm not going to take it anymore!" Although criticism of the Fed (and the Bank of England) has now become louder and more widespread, I feel my longstanding derision for their actions during the so-called ?good years? puts me in a stronger position than some to offer further comment.

Opening my 2002-2005 file of old weeklies I did not have to go any further than the first paragraph of the top copy (end of December 2005). “As far as Alan Greenspan’s tenure at the Fed is concerned, we have spared few words of derision. We have made plain our views that the supposed US prosperity that has accompanied his tenure has been based on a grotesque mountain of debt. We have likened the economy to a Ponzi scheme which will ultimately collapse. He has allowed the funding of strong economic activity by mortgaging the US’s future against one bubble (equity) and then another (housing), which is now beginning to implode”. These are almost consensus thoughts now, but not then.

The pigmies that populate the political and monetary elites prefer to genuflect to the court of public opinion. Blaming the banks is simply a pathetic attempt to deflect the public fury from their own gross and unforgivable incompetence. We have stated before that banks are not the primary cause of the bust. Just as in Japan, a decade earlier, bank problems are a symptom of the bust. It is the monetary and regulatory authorities that are responsible for this mess. And it is not just obvious in retrospect. It was perfectly obvious from the beginning.

I was shocked by a recent survey of Wall Street and business economists, published in the Wall Street Journal (see Bernanke View Doubted 14 Jan? link). Asked whether they agreed or disagreed with the proposition ‘excessively easy Fed policy in the first half of the decade helped cause a bubble in house prices’, some 42, or 74% agreed with the proposition. So unbelievably there are still 12 economists surveyed who did not agree! Even more incredible, a majority of academic economists did not agree with the proposition. Maybe they have sympathy for a fellow academic or maybe they actually believe the preposterous proposition that the western central banks were not in control of the bubbles which were primarily due to tidal waves of surplus savings washing across from Asia.

John Taylor shows this to be nonsense. There was no global savings glut (see chart below)

John Taylor is well known for his famous ?Taylor Rule? for the appropriate level of interest rates and he has been very vocal in his criticism of Fed laxity in the aftermath of the Nasdaq crash in his paper ?The Financial Crisis and Policy Responses: An Empirical Analysis of What Went Wrong’, Nov. 2008 and elsewhere - link. His thesis is simple. Lax monetary policy caused the boom in housing upon which euphoric credit excesses were built. The subsequent bust was an inevitable mirror image of the boom. This simply would not have occurred had the Fed (and the Bank of England) acted earlier to tighten policy as shown in the Taylor?s counterfactual profiles (see charts below).

More recently, the San Francisco Fed published a paper this month showing that those countries which saw the steepest run-up in house prices over the last decade also saw the largest rise in household sector leverage (see charts below and link). Of course the causality runs both ways. Loose monetary policy generates higher borrowing which pushes up house prices. Subsequently this prompts other households to borrow against the rising value of their houses to finance consumption via net equity extraction.

Generally most commentators have fallen for the populist line that the banks are to blame. Very rarely does a leading commentator pin the blame where it deserves to be ? on the central banks. Hence, I was very interested to read the Financial Times Insight column on Tuesday from the deep-thinking columnist, John Plender (interestingly his title in the print edition was “Blame the central bankers more than the private bankers” was changed to “Remove the punchbowl before the party gets rowdy” in the web edition - link).

Plender?s point is classic Minsky. An unusually long period of economic stability, also known as The Great Moderation, engineered by Central Bank laxity inevitably created the conditions for the subsequent bust. “Central banks clearly bear much responsibility for past excessive credit expansion. The Fed’s gradualist and transparent approach to raising rates in middecade also ensured that bankers were never shocked into a recognition that unprecedented shrinkage of bank equity was phenomenally dangerous. Despite the popular perception that financial innovation caused so much of the damage in the crisis, the rise in bank leverage was a far more important factor”. His point that it takes guts to remove the punch-bowl when the party is in full swing is spot on. The Fed and the Bank of England were both gutless and spineless. Their love affair with The Great Moderation meant they simply were not prepared to tolerate a little more pain now to avoid a Minsky credit bust and massive unemployment later.

But what is the relationship, if any, between this extreme central bank laxity in the US and UK and these countries being at the forefront for the extraordinary rise in inequality over the last few decades (see cover chart)? And does it matter?

I was reading some typically thought-provoking comments from Marc Faber in his Gloom, Boom and Doom report about current extremes of inequality. It reminded me that our own excellent US economists Steven Gallagher and Aneta Markowska had also written on this. To be sure, the rise in inequality has been staggering in the US in recent years (see charts below).

It is well worth visiting the website of Emmanuel Saez of the University of California who has written extensively on this subject and now has updated his charts up until the end of 2008 (data available in Excel Format ? link). The New York Times reported on the recently released Census Bureau data and showed not only that median income had declined over the last 10 years in real terms, but that this is the first full decade that real median household income has failed to rise in the US - link. What is also so interesting from Professor Saez?s cross-sectional research is how inequality has clearly risen fastest in the Anglosaxon, freemarket economies of the US and the UK (also note that France, with much higher levels of equality, saw much more subdued growth in household leverage).

Our US economists make the very interesting point (similar to Marc Faber) that peaks of income skewness ? 1929 and 2007 ? tell us there is something fundamentally unsustainable about excessively uneven income distribution. With a relatively low marginal propensity to consume among the rich, when they receive the vast bulk of income growth, as they have, then the country will face an under-consumption problem (see 9 September The Economic News ?- link. Marc Faber also cites John Hobson?s work on this same topic from the 1930s).

Hence, while governments preside over economic policies which make the very rich even richer, national consumption needs to be boosted in some way to avoid underconsumption ending in outright deflation. In addition, the middle classes also need to be thrown a sop to disguise the fact they are not benefiting at all from economic growth. This is where central banks have played their pernicious part.

I recalled seeing another article from John Plender on this topic back in April 2008. His explanation for why there had been so little backlash from the stagnation of ordinary people?s income at a time when the rich did so well was simple: ?"Rising asset prices, especially in the housing market, created a sense of increasing wealth regardless of income. Remortgaging homes over a long period of declining interest rates provided a convenient source of funds via equity withdrawal to finance increased consumption” – link.

Now you might argue central banks had no alternative in the face of under-consumption. Or you might conclude there was a deliberate, unspoken collusion among policymakers to ?rob? the middle classes of their rightful share of income growth by throwing them illusionary spending power based on asset price inflation. We will never know.

But it is clear in my mind that ordinary working people would not have tolerated these extreme redistributive policies had not the UK and US central banks played their supporting role. Going forward, in the absence of a sustained housing boom, labour will fight back to take its proper (normal) share of the national cake, squeezing profits on a secular basis. For as Bill Gross pointed out back in PIMCO?s investment outlook ?Enough is Enough’ of August 1997, "?When the fruits of society’s labor become maldistributed, when the rich get richer and the middle and lower classes struggle to keep their heads above water as is clearly the case today, then the system ultimately breaks down.”- link. In Japan, low levels of inequality and inherent social cohesion prevented a social breakdown in this post-bubble debacle. With social inequality currently so very high in the US and the UK, it doesn?t take much to conclude that extreme inequality could strain the fabric of society far closer to breaking point.

Comments

[boiow]

sarcasm, obviously, please god

[Cursive]

Barry Ritholtz is ego-maniacal paper trader and self-promoter.  He's the type of "smart guy" who takes all that America has to offer and gives nothing back.  He was invited to speak before Congress.  He declined.  There is an old Texas saying, "All hat and no cattle".  Barry is a big 10-gallon.

[THE DORK OF CORK]

Its good to know that respected commentators are stating the bleeding obvious........

We will take your views into account and then continue with a few minor modifications

Thank you Mr Edwards

[Heavy]

Hey!  Will!?  That implies that this will happen in the future.  I already look at "elected" representatives "as [some of] the perpetrators who are encouraging the greatest inter and intra-generational theft to continue."  I know I'm not the only one who has been doing so since childhood.  "Elected" representatives being complicit in a secretive attempt to re-order the world to the realpolitik of the over-society has been noticed by more people than just us.  Not to mention people being forced through to awareness by their losses which lead them into self education.  Confirming or not confirming will all be part of the show, which I do have to admit is getting more interesting, but it's all about as influential overall as an episode of 24, and at this point the plot structure is just about as bad.  These are the options of the "rich," what are our options?

[Anonymous]

Who else is there to rob ?

That's right ....nobody else....

.......................................

How about this....

1) How about a real currency....???? One that cannot be manipualated by anyone ????

2) How about a real separation of banks from the securities business....????

3) How about removing the conflicting business models between banks and their customers ????

4) How about defragmenting all of hte exchanges and making them mostly for RETAIL customers rather than the large BlackRock type firms ????

[JR]

What, you want Washington-DC to get serious and spoil its multi-trillion dollar party?

[SWRichmond]

Nice article, but it stops short of asking why the central banks did this blew the bubbles.  The answer, of course, was not just to steal wealth from the middle class, but also to fund the welfare / warfare state.  So much for the independence of the Fed.

[Anonymous]

Seeing Volcker removed from the administration's closet today reminded me of the 80s. The Fed's bubble-blowing also disguised the damage to the domestic economy from globalization.

I have long wondered when wage-earner "competitiveness" would include the fact that American wage structure would have to collapse our entire economy before it would compare favorable with the wage structure in India, China or any other globalization growth country. It was never that the American worker wasn't competitive. It was always that having a mortgage, car, pension, etc. measured in dollars made us a people in need of serious peasantization to compete. It wasn't just about welfare.

[JR]

Video:  Tighten the rules The head of Obama’s Economic Recovery Advisory Board wants tougher restrictions on Wall Street | CNNMoney video:

http://economicedge.blogspot.com/

As to the timing of the "tightening the rules" hoopla, says Nate today on Nathan’s EconomicEdge:

“Hmmm….what game is being played here?  Time to take the markets down, reel in the boys a little now that they’ve stolen all those trillions?  Let Volcker come in and play the part of the adult again?  While this sounds like an obvious thing that should have happened long ago, the timing leaves me knowing that we are simply witnessing a political ploy.  Sorry, I am not buying it and I’m not buying that anything meaningful will truly come from it, for if it did, the banks would be broken up at a minimum.  Again, I’ll be watching what they do, not what they say to placate the public on the day of an outrageous release—a crime against Americans who don’t even know that they are being robbed every time the market moves against them taking their hard earned dollars in what is now a casino but was meant to be a functioning capital market.”

[crosey]

First step in funding the welfare state is the desire and power to do it.  The second step is the initiation and proliferation of fiat currency.  Then, the game is on, and at a break-neck pace.  The masses enjoy the financial orgy that ensues, never seeing the approaching doom until it is way too late.

[Joe Sixpack]

Proclamation on the Federal Reserve System of the United States of America www.RevokeTheFed.com

March 2008

WHEREAS, Article I, Section 8 of the Constitution of the United States of America authorizes Congress "To coin Money, regulate the Value thereof, and of foreign Coin, and fix the Standard of Weights and Measures";

WHEREAS, on December 23rd, 1913 the US Congress enacted the Federal Reserve System;

WHEREAS, the Federal Reserve System is considered an independent agency within the federal government, with oversight of Congress and containing appointed public officials on its board of directors;

WHEREAS, the Federal Reserve System Controls the Federal Reserve Note, the official currency of the great nation of the United States of America;

WHEREAS, there may be controversies regarding the legality and constitutionality of the Federal Reserve System, it is recognized that the said system has operated continuously as the central banking system of the United States since the inception of the Federal Reserve Act of 1913;

WHEREAS, the Constitution of the United States of America granted Congress the authority to create the current Federal Reserve System, it also does grant Congress the authority to modify or revoke the Federal Reserve System;

WHEREAS, the actions of the Fedreral Reserve System represent the credit and currency of the United Stated of America to the citizens of this great nation and to the world;

WHEREAS, the Federal Reserve System, acting independently within the federal government allowed, supported, and even promoted parasitical and non-productive uses of the money and credit of the United States of America;

WHEREAS, the United States and likely the entire world's financial system is undergoing massive de-leveraging of the said parasitical and non-productive uses of the credit and money of the United States of America (as well as other nations' currencies);

WHEREAS, the US dollar, the "Federal Reserve Note" is declining in value due to these parasitical activites, as well as potentially other causes;

WHEREAS, it is recognized that the citizens of the United States and other nations did willingly participate at some level in the creation and propogation of said parasitical activities;

WHEREAS, it is also recognized that the United States of America, a sovereign nation, has the legal, moral, and God given authority to take actions to benefit its citizens and to protect its good name, credit and money in times of difficulty;

WHEREAS, it is recognized that the current time is such a time of great difficulty;

WHEREAS, it is recognized the parasitical financial institutions and their activities are at odds with citizens of the United States of America and the good credit and money thereof;

WHEREAS, the current indications are that the Federal Reserve System is acting to preserve the financial system currently flooded with the parasitical activities;

WHEREAS, the current indications are that the neither the Federal Reserve System, nor the Congress of the United States, nor the people of the United States have access to the books of the institutions being preserved by the Federal Reserve, and therefor the degree of inter-connectivity and risk associated with the institutions and other entities cannot be determined;

WHEREAS, the Federal Reserve System is accepting non-performing assets as collateral for credit with ultimate taxpayer responibility to entities not under its legislative mandate;

IT MUST BE CONCLUDED, that the Federal Reserve System is not acting to the benefit of the people of the United States of America, its credit, money, and good name;

WHEREAS, it is recognized that the political will and capability of the government of the United States of America may not be up to the task of prosecuting this proclamation ; It is also recognized that this may be the only hope for the continued survival of the United States of America as the great nation as it has historically existed.

NOW THEREFORE, it is PROCLAIMED by those supporting this Proclamation that the Congress of the United States of America FULLY NATIONALIZE the Federal Reserve System, and take full control of the credit and money of our great nation; The Congress must take whatever action necessary to seperate out, sequester, disown, or otherwise neutralize the effect of the parasitical financial activities which led to the current crisis; The Congress of the United States of America must reorganize, replace, or terminate the Federal Reserve System as appropriate; or otherwise devise a system for creation of the national currency.

IT IS FURTHER PROCLAIMED, that the Congress of the United States of America in cooperation with the Executive of the United States of America contact allied nations and any other nation willing to participate in the overhaul of the failing and parastical financial sytem currently in operation and create new treaties and alliances as necessary to create a sane and productive system of finance with the express goal of supporting a productive national, and by extension and through voluntary cooperation, world economy;

FURTHERMORE, it is PROCLAIMED that it should be the goal of such an international effort to maintain fair international trading practices allowing for protection in national interest of labor, resources, and productive capabilities;

WHEREAS, it is recognized that such a move on the part of the United States of America may result in the necessity of an isolationist policy IF the other developed nations do not follow our lead; If such occurs, so be it.

SO HELP US GOD!

[ToNYC]

Nice touch....just when we needed a new Declaration of Independence. This time we seek to throw off the chains of unlimited credit creation that enslaves as it masquerades as a best practices match to real goods and services. Replace King George III with FRS, the private Federal Reserve System which has proven to be an enemy of the People.

[Mr Shush]

Honestly, I do find quite staggering the degree of myth-making that otherwise highly intelligent Americans permit themselves with regards to the American Revolution. The war was about rich British merchants in America deciding that on balance they would rather the Colonies were governed by themselves than by rich British merchants and aristocrats on the other side of the Atlantic. Everything else - bitching about duties, vague and nonsensical hoo-ha about tyranny (seriously, was there at that time any freer place to live in the world?) - was just demogogic posturing aimed at bringing enough of the population on-side to make armed revolt viable. If Parliament had been willing to offer home rule for America - dominion status, with an American legislature but the King remaining head of state and represented by a Governor General or similar, as happened later in Canada and Australia - I think it is almost certain that would have been the outcome. None of this is to detract from the US Constitution and Bill of Rights, which are pretty brilliant documents overall, but the bogeyman notion of George III or constitutional monarchs in general is just silly. It's not as if Britain, Canada, Australia or New Zealand has had major problems with tyranny over the last few hundred years, unlike just about every other country on Earth besides the US.

Now the Federal Reserve as a real and serious enemy of the people, that's a notion I can find credible . . .

[Anonymous]

Nothing to see here, move on, just positioning for the Novemember elections as we can't take a chance on new people being elected that don't understand what we're doing. After November us parasites will continue devouring the host.

[Anonymous]

While it is nice to see some attention given to the Central Banks, let's not forget to save some for the politicians as Barney and company was/is more than willing to blow... bubbles that is.

[Insiderman]

My sense of things is that our representatives in Washington cannot have anyone outside the Greenspan Fed (Geithner, Bernanke, et al) be Fed Chairman.  A smart Chairman with no vested interest would first remove all the secrecy in order that he not be savaged when his predecessors misdeeds could no longer be inflated away.  Does Congress even want the American people to know that the Fed propped up the stock market?

"You want the truth?  You can't handle the truth!"

I think Jaime Dimon would be a brilliant Fed Chairman, but I suspect he would INSIST on revealing all the crap behind the curtains.  He's been too smart to engage in a political career thus far, except perhaps as a behind-the-scenes kingmaker.

[Anonymous]

"he would INSIST on revealing all the crap behind the curtains"

except that crap that he and his boys dumped themselves

[Anonymous]

Why do I have the same feeling?

[Anonymous]

Insiderman = Mrs. Dimon?

He's as fraudulent as all of them, don't believe it any other way for even a second.

[Anonymous]

"Generally most commentators have fallen for the populist line that the banks are to blame"

BS!

The banks did the underwriting, not the CBs. The banks were responsible for discerning the risk and they failed miserably.

When are the banks going to fess up?

[AtTheMurph]

Why would the banks be responsible for discerning the risks? The government CBs had given them the de facto rubber stamp that is better stated as "too big to fail".

The banks were taking no risks because they were selling the loans.

The borrowers were taking no risks because they had no skin in the game.

The investors were taking no risks because these pieces of shit were either GSE guaranteed or had private insurance from the too big to fail AIG or others.

And guess what, the market assumed properly. These pieces of shit were guaranteed and riskless to them! What we didn't know is that the Fed would nationalize the losses on the average Joe and the uber-rich would keep their money.

The banks only have to "discern the risk" if they assume a risk. They never assumed any risk with a government backstop behind them, which has now been proven.

[Howard_Beale]

Nice to see the reference to me in his being mad as hell and not going to take it anymore. Excellent post.

[Anonymous]

It looks like some big boys saw these Obama bank rules coming early, cuz this mentions some big put buying recently in EEM and a couple other emerging market etf's:

http://www.goldalert.com/gold-stocks.php

[mthomas]

It looks like some big institutions saw these Obama bank rules coming early, cuz this mentions some big put buying recently in EEM and a couple other emerging market etf's:

http://www.goldalert.com/gold-stocks.php

[Jean Valjean]

And this hidden multi-decade long theft would have and should have ruined the very rich that it supposedly was designed to help were it not for the very blatant, very recent, bailout theft that was so graciously agreed to by our ignorant representatives.

I'm sick and tired of not letting this water find it's own level.  If I weren't married with no debt I'd be just like Chumba.  There is nothing I'd rather see than a complete financial meltdown.  Just think of the foundational strength of the organizations that would step in to move this country forward again.

The world would be simple again.  How refreshing.

[cougar_w]

[The world would be simple again.  How refreshing.]

I almost agreed with you, for an instant.

Then a little voice said "But it doesn't ever seem to work that way."

Water flowing up a hill.

Go forward, but carefully.

[Anonymous]

Jean, that same thought ("if I weren't married") has occurred to me many times in the past year, with the addition of "if I didn't have kids." But I have both, and I am struggling to wrap my head around the appropriate course of action, and I am putting on a brave front. In the meantime, I feel like a jacklighted deer.

[Psquared]

I believe this is the same fellow who said in early December of 2009 that the next leg down of the bear market was imminent. There is no way to tell if he was prescient or lucky, but absent a hard rally this afternoon we will likely close below some serious support today.

If it is followed by a rally tomorrow morning that loses steam and we have a third down day in a row then I would say look out below.

[viahj]

a pattern may be developing, with the benefit to the bonds.  also, declining equities makes it politically safer to raise the debt ceiling amid cries of further stimulus, QE2, extending MBS purchases and drainging the last drop out of the middle class before the end of the quarter.

[chet]

The middle class is a herd of cows to be milked ruthlessly while we can produce.  Once we stop producing, we're dismembered for our meat and hooves.

I am told there was a time when the middle class was understood be America's great strength. Not sure if this is true.

But it's become increasingly clear to me over the last couple of years, that middle class families are just big-ass targets.  For the government, for financial services, for products of all kinds.  We're relentlessly marketed to, almost 24-hours per day.

And it isn't just frivilous consumption where they suck you dry.  The so-called "must haves" just get more and more expensive.  All forms of insurance, utilities, phone, internet, cable, credit of any kind, college tuition.  They just up the fees constantly.  Your bill goes up two or three times a year regardless of the economy.

The middle class is no longer something to be protected (if it ever was).  It is the golden goose for just about everything.

[cougar_w]

Let me tell you something about the middle-class.

The middle-class of any nation, state or culture is the glue that holds all that together. The rich are bored and seek diversion in excess, destroying everything. Useless. The poor don't exist except as food for the rich.

The middle-class is poor enough to want things like justice, equality and opportunity, and rich enough to tax themselves to buy these, and mindful enough of their proximity to poverty to buy these things for everyone.

That is special. You can't create that out of whole cloth. You have to grow it, bottom up, the hard way.

With that, you have a future.

Without it, you have a spiralling descent into madness.

The bankers saw the middle-class, and smelled money. They didn't know what they were dealing with. They were too limited, their vision clouded by a century of unbridled greed. Nobody said they were smart, just that they were rich. Rich is not enough and the ignorant fools have killed their host.

The center is not going to hold. The journey into an abyss looms before us. I don't know how we will avoid it.

[JR]

America’s stars shine in the middle-class: her traders, small merchants, professionals, highly-skilled workers, innovators...  Destroy America’s middle class, her “Dickson McCunns,” and you are right, you destroy America. 

In John Buchan’s Huntingtower (1922) Dickson McCunn rescues a Russian  princess whose country had been brought down by the Bolsheviki, where miscreants had acquired that to which they had no title and world-wide graft had broken the crust of her civilization—where unfettered crime had found headquarters and broken Russia to pieces,  had unchained evil and become a country with “no law in it.”   

McCunn--"the petit bourgeois, the epicier--of  the class that does three-quarters of the world’s work and keeps the machine going and the working man in a job--which the world ridicules,” said Princess Saskia was the answer to her country’s ills:

“He is the answer.  You will not find him in Russia.  He is what we call the middle-class, which we who were foolish used to laugh at.  But he is the staff which above all others makes a great people.  He will endure when aristocracies crack and proletariats crumble.  In our own land (Russia) we have never known him, but till we create him our land will not be a nation.” --- John Buchan, Huntingtower (1922).

[Rainman]

.......reminds me of an old saying, Chet.

" On the farm there are no pets. You produce or you are eaten. "

[JR]

Who could, at this moment, shed a tear for the bankers.  Their public image rivals that of former presidential candidate John Edwards for single digit numbers.  Guess what?  The worst sensitive president we’ve ever had has sensed this.  And while he used Edwards to push Hillary aside and Goldman used him to push us aside, the president now implies he hates banks.  (No word yet on how he feels about good soldier John Edwards’ admission today that, in fact, he is the papa-out-of-wedlock).

“Banks,” says Albert Edwards, “are not the primary cause of the bust.  Just as in Japan, a decade earlier, bank problems are a symptom of the bust.  It is monetary and regulatory authorities that are responsible for this mess.”

All roads, then, lead to one Rome:  the New York Federal Reserve Bank, not a bank but a private power cartel, and players like Goldman Sachs and JP Morgan, with banking hardly more than an excuse for their presence.

The Federal Reserve System, managed soup to nuts by NY Fed oligarchs, has power that exceeds that of seventeenth century monarchs of Europe.  For kings, for all their tyranny did not have a complete monopoly, secretly exercised, on the control and value of a nation’s currency.

This monopoly, bad enough in every year it has existed since 1913, has now seized control of U.S. foreign power, the president’s legislative agenda, and nothing less than the reins of the U.S. Congress.

The solution: Abolish the Fed.  In the meantime, for heaven’s sake, jettison Professor Bernanke, errand boy of the monopoly but, without question, public enemy number one to the honest citizens of the United States.

[Anonymous]

There's always another bubble to blow. When the golden bubble pops it'll validate the paper, in a perverted sort of way.

[Anonymous]

"America spoke in Massachusetts"

An interesting read on how it was done.

http://www.nytimes.com/2010/01/21/us/politics/21reconstruct.html?pagewan...

I thought it was 13 X 35

[brodix]

Revolution isn't so much a function of the people rising up, because people are always trying rise, but of the system riding those people falling apart. For a long time the managerial class has catered to wealth, but now realizes the structure is top heavy and are going to start sacrificing selected members of that class in order to right the system. The problem is this creates a situation ripe for demagogues. Let's just say that Stalinism wasn't exactly what Marx had in mind when he said power to the workers.

 What is wrong is that we have created a system of notational wealth to replace the need for trust in a mass society.

The basic problem with capitalism is that the law of supply and demand applies to capital. We can only save as much as can be prudently loaned. Beyond that and excess savings inflates asset prices. We have tried patching over this by having government borrow lots of money, lowering loan standards and creating excess circulation with derivatives and securities.   As drawing rights on community productivity, money is a public utility that we treat as private property to encourage free exchange, but this enables and encourages hoarding and that creates surplus savings.   If people understood money is a form of public commons, they would be far more careful about draining value out of their social relations and environmental resources to convert into money.  We all like having roads, but there is little inclination to pave more than we need. The same should apply to monetizing our lives.  This would solve the issue of creating surplus savings by keeping the value within social relations and environmental resources. We would become members of society and residents of planet earth again and not just consumers in the belly of the beast. If we are going to have a publicly guaranteed currency, than we need a public banking system, not the current hybrid of private banks profiting from public guarantees.   Like democracy, it would have to be a bottom up system of local banks serving their own communities and these as shareholders in state banks, which govern a national bank to manage a national currency.  A related problem is government funding. This system is designed to overspend by buying votes for enormous bills that can only be passed or vetoed. This serves to create debt in order to store capital.  In the spirit of actual budgeting, a possible solution would be to break these bills down to their constituent items and have every legislator assign a percentage value to each one and then re-assemble them in order of preference. The president would draw the line at what would be funded. This would divide responsibility, allowing the legislature to prioritize, while giving the president final authority over total spending. Since making the cut would be graded on a curve, there would be much less incentive to trade favors and the percentage system would allow legislators to fine tune their granting of favors to other legislators and lobbyists. Since this would reduce local spending, a system of local community banks funding their own communities would fill this need.  We would have an economy built on actual assets, not debt based currency.

[Anonymous]

From Simon Johnson's "The Quiet Coup":

"...The government, in its race to stop the bleeding, will typically need to wipe out some of the national champions—now hemorrhaging cash—and usually restructure a banking system that’s gone badly out of balance. It will, in other words, need to squeeze at least some of its oligarchs.

Squeezing the oligarchs, though, is seldom the strategy of choice among emerging-market governments. Quite the contrary: at the outset of the crisis, the oligarchs are usually among the first to get extra help from the government, such as preferential access to foreign currency, or maybe a nice tax break, or—here’s a classic Kremlin bailout technique—the assumption of private debt obligations by the government. Under duress, generosity toward old friends takes many innovative forms. Meanwhile, needing to squeeze someone, most emerging-market governments look first to ordinary working folk—at least until the riots grow too large.

Eventually, as the oligarchs in Putin’s Russia now realize, some within the elite have to lose out before recovery can begin. It’s a game of musical chairs: there just aren’t enough currency reserves to take care of everyone, and the government cannot afford to take over private-sector debt completely."

http://www.theatlantic.com/doc/200905/imf-advice

GS is being publicly squeezed now to deflect heat from the Federal Reserve and the Bernanke confirmation. They are starting to eat their own, although I think GS will do just fine as a straight investment house or hedge fund.

What is missing from Albert Edward's analysis, however, is the complicity of all of those homeowners and borrowers who overextended themselves as they left sound financial decision making behind. Unless someone put a gun to a homeowner's head when they signed the contract for a house that was well beyond 2.5 to 3 times their annual income, particularly a non-fixed rate loan, I don't have much sympathy. Responsibility and sensibility was missing at so many levels.

Lux Fiat

[Cindy_Dies_In_T...]

ah the sweet smell of cannibalism. Lets face it, this boils down to a pissed off dude with a great CV saying, "Bring it on, mofo, here's some mutually assured destruction for ya!!"

[Anonymous]

The middle class milked their assets, blew the dough and borrowed more to spend on discretionary items or as down payments on depreciating or high-maintenance assets. I feel no sympathy for the drones. Let them eat cake.

[ToNYC]

You sound like a player who feels entitled with your club/gang to be shaving the crumbs off the cake in the dark with a phone instead of a mask and a gun

[Anonymous]

BTW, Volker is just getting a little reach-around from The Arab (ObAmA). Volker is a diversion, just like the election antics

[OutLookingIn]

It's a BIG bed. Government owned and made, with the purchase loan written by the Fed and money provided by Wall Street.

Who's in this BIG bed? Government in the middle with the banks on one side and the citizens on the other and the Fed reading the bedtime story! 

It takes more than one to dance to a tune, only the dance floor is uneven and rough and the participants sometimes fall, only to be replaced by an unending line up of wall flowers.

Lets face facts, it took many years to get to this place - ALL of us. Did the banks force you to take that home loan, to buy that new car? Was there regulations stating that you MUST own and purchase using credit cards? Tell the truth now - did you tell a little "white" lie to get that mortgage? And did you ignore people who were saying that the economy was in trouble? Only to dismiss them as 'crackpots', or spouting boring economic stuff?

People who live in glass houses should not throw stones. Agreed that change is not only needed but required. Start with the person looking back at you from the mirror.  

[Anonymous]

What is this "WE" white man. I don't live in a glass house. My earnings are worth less because a bunch of greedy people conspired to blow this bubble and then have me pay for it. I put my money into my 401k like I was supposed to and the money has lost value. Even if I got back what I put in, the money buys less.

Yes the rich are stealing from everyone else and they are our government. I can hardly believe the so called Justices just equated the voice of a corporation with that of a human being. ACK!!!

[Anonymous]

Middle class... Should focus on the material conditions for a middle class to notice that bankers are not forcefully responsible of it all.

In Europe, the middle class emerged following a fortuitous event: the Black plague, that killed selectively a large amount of people, mainly within the lower class. More for the survivors who could assemble and progress to the middle class.

In the US, a generous group of donators named the Indians who preserved an entire continent allowed to bring to new heights the model of conquest: taking wealth from another group and redistributing it within your own.

More or less, through the last two waves of globalization, every rich country has adopted the last model.

This model is of course sustainable as long as there is wealth to be taken from an exterior as the US confirmed when they ran out of Indian lands to distribute to their population, leading them to the Great Depression.

Now what? As the whole world is mapped and nearing the optimal rate of extraction of environmental resources, there are two ways of providing the material conditions for middle classes to endure.

-selective depopulation among the first world, this would leave room for the have nots of the world to constitute a new middle class

-a new planet, totally compatible with human life and more than anything, packed with mineral assets, is discovered within the solar system, and close enough, pretty close enough to allow transfer.

Ummmmmmm...

[Mr Shush]

Off-world colonisation will become a necessity for continued growth at some point, sure. I don't see the problem with that. It's ludicrous to say that it requires a planet "totally compatible with human life", however. The ability to terraform at least large sections of a rocky planet with substantial quantities of water, such as, ooh, I don't know, Mars, is a near-future technology. The only likely resource bottleneck is energy, and it's my opinion that we will in all probability have adequate replacement technologies in place before hydrocarbon depletion becomes a major issue. If you can produce enough energy cheaply enough, you can solve pretty much any other scarcity issue. Asteroid mining is also likely to be a long-term factor in increasing the supply of certain high-value elements.

I also think you are in all probability mistaken in equating the conditions necessary for the emergence of a middle class in a primitive society/economy in which land is the primary source of wealth to the conditions necessary for the continuation of an existing middle class in a high tech society/economy. If the middle class does disappear (and I'm not saying it couldn't) it will be the result of contingent political events, not inevitable natural laws.

[RSDallas]

Not sure if it was all orchastrated, but the outcome is evident.   

[RSDallas]

Not sure if it was all orchestrated, but the outcome is evident.   

[Anonymous]

Sad but true...

Bernanke is not the leader type....

He is an academic....

He belongs in a classroom....

Not the real world ....

Experiments should not venture outside of the classroom....

The US is not a laboratory....

[Anonymous]

Buy gold no matter who is confirmed, it's the system that is rotten and ridden with debt-period.

[Mr Lennon Hendrix]

Somewhere someone is saying "Middle class?  What middle class?"

Tis true that the banksters stole what was left.

[Jim in MN]

We need a new video game in which the global superrich are pursued around the world (OK, into orbit, maybe a couple of lunar levels) and then the real high level stuff happens in the deep Swiss vaults, with JFK's brain, Elvis, leftover nonhuman bipeds from our early years (OK, elves and trolls)...and lots and lots of gold bars, chocolate, and ammo.

Yes, it was and is deliberate.  It is a cancer in the heart, a petri dish experiment gone all gooey-kablooey.  The organisms in power will continue to eat, to eat power and resources, until all is lost.  The systems that were supposed to regulate them have been infected and rendered useless to stop the process. 

Read The Andromeda Strain for a taut example.  Then get anything you value the hell away from New York or Washington DC or any computers connected to New York or DC. 

Me, I am refinancing my mortgage away from one large bank to a Credit Union, zeroing debts, and will also move all checking and other value to local Credit Unions.

It's time....way past time....to vote with our wallets.  We have many, many forms of power not yet exercised.  Perhaps it will be too little.  Let's find out.

[Anonymous]

Common notions:
1. Things which are equal to the same thing are also equal to one another.
2. If equals be added to equals, the wholes are equal.
3. If equals be subtracted from equals, the remainders are equal.
4. Things which coincide with one another are equal to one another.
5. The whole is greater than the part.

[Anonymous]

Hey !! But didn't SocGen benefit from the AIG swaps ? Where was Al Ed at that time when SGen was getting these contracts written? He did not blame the Fed for lack of oversight then !! HYPOCRITE !!

[TimmyM]

Why no mention of military Keynesianism?

Bush 1 created the Saddam enemy just in time to spend the falling wall peace dividend. Our new populist friend from MA is the virgin outsider with a militarist bent.

High taxes and big government are perpetuated in many ways. The middle class was destroyed by more than central banks. All big government just keeps changing the flavor of corporatism.

[boiow]

the middle class destroyed itself by borrowing money. period

[ToNYC]

Only by the Central Banks creating excessive phony fiat money was there any money to borrow; the primary enablers were not the middle class...with a fixed amount of money incremented by historical leverage ratios, the system clears naturally. The Fed was responsible to monitor/allow the creation of 100:1 syndication opportunities, but they rather loved the party going on where everyone was coming.

[Anonymous]

Bollocks. It was parasitised by a combination of usury and inflation, dual forms of private and governmental fraud. Fractional reserve banking is fraud, just as the goldsmith's scam is fraud. Inflation, too, is fraud.

They only seem normal because the leeches have been there so long that we've forgotten that prosperity without the bloodsuckers is possible. The booming 19th century had no inflation and usury was rightfully scorned by religions for centuries. See how well Guernsey's doing without interest, with lending as a public service.

[Anonymous]

Seductive post but IMHO way off the mark.

The real problem is that in the past 30 years the REAL investment opportunities have ben progressively leached away into the BRIC, mostly tightly controlled by those governements, China especially of course.

Even if I was happy to invest in China, and even if I could, even if there was no dicttaorship or political risk, even if I could sell my assets into a liquid marke at any time of my choosing, would I really put that proportion of my wealth there that logic dictates? Probabaly not - too far away, I'm not familiar with the opportunities, the companies, the management and so on.

Instead we have had a huge tidal flow of money - the wealth of Western baby-boomers - chasing fewer and fewer real investment opportunities available to retail investors in the developed economies. The result is simply bubble after bubble - 1987, 1999, 2007. Pity any central bank trying to control the uncontrollable. It'll stop when the wealth has been destroyed, when all the new wealth sits in the hands of its new owners.

The next bubble is building right now, because it's inevitable, that's why.

[THE DORK OF CORK]

I completly disagree with the above comment - we are not spending the wealth of baby boomers , that was spent already. We are consuming the wealth of future generations - that is what 50 times leverage on a investment with no long term gain means.

[THE DORK OF CORK]

I completly disagree with the above comment - we are not spending the wealth of baby boomers , that was spent already. We are consuming the wealth of future generations - that is what 50 times leverage on a investment with no long term gain means.

[Anonymous]

We are consuming wealth of future generations?

Future generations of whom?

Currently, you can oppose among many groups of countries, two groups of countries:
one who is paying with debt and repays its debt with debt
the other is yielding real wealth against a debt.

The first one (the US is part of it) must be depicted as hoarding real wealth for its future generations and consuming the future of the other people's generations.

The second one must be depicted as squandering the real wealth of their future generations and allowing the hoarding process of the first group.

Yes, the US is consuming the wealth of future generations but not the wealth of its own future generations.

[THE DORK OF CORK]

You make your point well Anonymous and I have to concede you are right at least in a narrow sense , but the wealth extracted is consumed in deficit countries and not reinvested in assets that can sustain future wealth

This can be achieved by increasing capital ratios and reducing profit at least over the short to medium term

[Anonymous]

Speaking of being "actively complicit", have you seen this article about possible insider trading of former NY Fed Chair Stephen Friedman?

http://dailybail.com/home/is-stephen-friedman-guilty-of-insider-trading....

Actively profiteering, too!!

[Anonymous]

"only that median income had declined over the last 10 years in real terms, but that this is the first full decade that real median household income has failed to rise in the US"

Continue ignoring mass immigration and its effect on wages.

"In addition, the middle classes also need to be thrown a sop to disguise the fact they are not benefiting at all from economic growth"

Translation:

"Growing the herd through immigration and debt doesn't do the herd members any good whatsoever, it only benefits the herd owner and dramatically increases individual herd member competition".

.

[Anonymous]

11 Big Surprises for the Next Decade
A Third Party Emerges In The United States- When Obama's first and last term ended the American public was fed up with anything that had to do with the elite- Wall Street, the big banks, Congress, the Senate, the Federal Reserve and both of the big parties. As a result a third party emerged which managed to get a large amount of seats in both houses. The party's candidate for president got 25% of the votes in 2012 and won the election in 2016. The third party fundamentally changed the way politics is done in Washington and resulted in a large change in United States foreign policy. A lot of countries where left to deal with their problems alone. At the beginning, this policy caused havoc and even chaos in different countries around the world which suddenly where shocked by the shortage of American financial and military aid.

6. Top Officials in the Federal Reserve Criminally Investigated- A silent change that started after the financial collapse of 2008 gained momentum with the bill to audit the Fed. After the bill was approved everyone could know who got all the money that Ben Bernanke printed during the great panic days of 2008. The public was outraged and demanded an investigation of the Federal Reserve activist throughout the last 100 years. A special investigation was held and millions of pages where opened to public's eye reveling very close ties between the Federal Reserve and the financial elite of the United Stated dating back to 1913. A special committee of subprime court judges announces that part of the activities held by top fed officially where " criminal by no doubt"
http://israelfinancialexpert.blogspot.com/search/label/predictions%202010

[Anonymous]

http://www.latimes.com/news/nation-and-world/la-na-court-corporations22-...
Quote
In a 5-4 decision that strikes down a 1907 law, the justices say the 1st Amendment gives corporations, just like individuals, a right to spend their own money on political ads for federal candidates.
End

It did not surprise me to learn that Justice Scalia was among those supporting this decision.
I was in the audience in Warrensburg Missouri March 4, 2008 during Justice Scalia's
one-man show, and heard the audience's nervous laughter when Scalia said:
http://blog.showmeprogress.com/showDiary.do?diaryId=808 (some transcripts)
Quote
...I don't mean to suggest that in the bad old days judges never distorted the Constitution. Of course they did. You're going to have willful judges with you until the end of time. But in the good old days they had to distort the Constitution the good old fashioned honest way. They lied about it [laughter]...
End

[Trifecta Man]

If the system does not work, get rid of the system.  The Federal Reserve does not work.  The Federal Government does not work.  It's time to secede from the Union.  The problems of the United States are too large to solve.  The answer to TBTF is break them up.  We need a fresh start, independent states, with simple laws, and honest money.

[Anonymous]

Reverse Robin Hood: The Inflationary Predator

Well, well, well China’s growth and inflation actually accelerated more than forecast – and the forecasts were pretty robust. Now, China fears overheating and rampant inflation – what a difference a year makes, eh? But it is always the way: one wants what one cannot have and what one does want one has in abundance. In China they wish for disinflation and instead they have inflation looming, in the US they want inflation, yet they are pinned back by the immeasurable force of disinflation via the treacherous back-draft of a credit and consumer contraction which has never been seen before.

In the West we’re used to inflation, the average City Boy was not alive during the stagflation of the 70’s or certainly not old enough to care. When the Fed does everything in its power to inflate the economy “back to health” we should stop to consider what the consequences may be. We’re born into inflation, it courses through our veins the minute our parents fail to increase our pocket money in line with the "candy inflation" running riot in the playground. Not only that, our central bankers are equipped to fight inflation, there is no limit on how high interest rates can go - but there is a limit on how low they can go. So it is deflation, on the other hand, which is the monster that lurks beneath as we apparently have no defense for it. So we've been programmed to err on the side of the devil we know – inflation.

But how well do we truly know this monster? We are children of a globalized, disinflationary, internet age – c’mon what do we really know about inflation!? Have we really taken the due time to consider the ramifications of an exploding Monetary Base which eventually manifests itself in rampant price-levels?

The truth of the matter is; runaway inflation, left to its own devices is a form of financial terrorism exhibiting an incredibly destructive and asymmetric force on capital and society. Zimbabweans would not consider this an exaggerated statement. The relentless power of inflation is not lost on Beijing policy makers either, for whom the inflation-fueled Tiananmen Square massacres are still a fresh memory. The Chinese will not tolerate inflation, so when the numbers come out at double-digit growth and monetary policy tightens up and carefully worded language from officials changes tone – you’d better sit up and take notice.

Let’s take time to examine just how inflation (the thing we apparently crave in the West) would go about its work in a developed economy. Let’s open with Puru Saxena’s comment in the piece Inflation 101:

We want all our readers to understand that inflation is a disaster for society and it only benefits the elite. In fact, we will go even further by stating that inflation is a hidden tax, an insidious crime against the public. It is the easiest way for any government to confiscate the savings of the public and for generations, wealth has been transferred in this manner.

In our opinion, inflation is evil and the sole reason why human beings have become modern-day slaves. Remember, money is supposed to be a store of value, however due to reckless central bank-sponsored inflation, it can no longer fulfill this critical role. This is precisely the reason why human beings are never satisfied with what they have because nobody knows what their savings will buy them in ten or twenty years time. So, rather than enjoy their lives, the vast majority of people continue with their never ending pursuit of acquiring even more money! Unfortunately, nobody questions the inexplicable loss of the purchasing power of their savings, thus, central banks get away with financial murder.

It is our contention that inflation distorts the economy, it brings great harm to the public and it encourages speculation and mindless risk-taking. In fact, inflation acts as a poison for retired people since they are no longer able to earn more money in order to maintain their standard of living. So, thanks to inflation, most senior citizens are unable to enjoy the fruits of their labour.

The "Cons" of Inflation

Inflation is a tax.
I have to say, I couldn’t agree with Saxena more. When you are a government in debt, running huge deficits, you face a mis-match of income versus expenditure. If you don’t want your economy and political power to go down the toilet, this has to be matched somehow – either by taxing your people even more than they are already being taxed (not very popular and often counterproductive too) or by inflating those debts away. But lest you thought you could get “something for nothing”, make no mistake: inflation is a tax. Not only is it a tax, it is a tax of the ugliest sort. That it happens for “economic reasons beyond control” is one of the biggest deceptions made by establishment to the public you will ever hear in your lifetime. There is a choice, but we all know, politicians tend to make the choices that increase the chances of them being re-elected.

Inflation taxes the poor and middle class.
Yes, that’s right. There is actually disproportionate taxation on the poor largely because the poor have little choice. The rich have options, most importantly they can choose to “invest in inflation” at an early stage when they see money supply spiking. The assets and investments (like property, commodity investments, shares) they hold often rise with inflation - so their net wealth effect can keep correlation with the rising cost of living. But the poor don’t have these options. Also inflation is a “survival tax”, and this is where it gets really ugly. No matter how rich or poor you are, we all consume roughly the same amount, we all need to get around roughly the same amount. So, if the cost of feeding and transporting yourself goes from say $10k per year to $20k per year, the millionaire barely feels teh pinch. It’s pittance compared to the $50k rise in the value of his assets. But the guy who takes home 20k per year? Well he’s screwed isn’t he? Inflation has literally driven him to the point of desperation. It shoudl not surprise us that inflation segregates society like nothing you’ve ever seen. The two things that humans need most of all for survival is food and energy – which is why I find it ironic that the Fed chose to disband all measures of inflation which included food and energy prices and now use only “core CPI” (or what I call inflation without all the inflationary bits) to gauge their “success”.

Inflation is volatile.
It’s not often mentioned but what is equally as destructive as the relentless expansion of money and the rising of prices is the volatility or the uncertainty of this. It’s an incredibly disintegrative frictional cost on society. If you can imagine having to purchase materials while having no confidence in predicting the monetary pricing of them a year, a month or even a week later. This of course results in yet higher premiums for goods and services based on uncertainty. To add insult to injury, for the average worker, employers are always behind the curve on adjusting wages to inflation spikes.

Inflation rewards failure, punishes prudence.
This is especially true in a Western Society addicted to debt and hell bent on trying consume its way to prosperity. By inflating away people’s savings and retiree’s hard-earned pensions the prudent, the careful, the diligent are being compromised in order to subsidize the irresponsible indebted section of the economy. It’s ironic that there is so much media focus on The Big Bad Banks’ Bailouts and their inability (or ability to “pay back TARP money). Which in effect is a marvelous sideshow which helps distract us from a capital fraud that would make Madoff blush. That is that The Government is attempting to bail out an entire nation of indebtedness by using YOUR hard earned savings and it will manifest itself in the very thing you need to keep yourself alive – the cost of survival. This is no normal tax. You have absolutely no escape from the claws of this beast. Be taxed or die. Ironically, the "bonus fracas" the politicians and the media have got hold of, is something which I think should be (and perhaps is) welcomed by the banks as it detracts from the fact that they are, as a single group, perhaps the biggest benefactors of inflation. The banks, inflationary policies and the Federal Reserve have been around a long time and they’ve gotten good at making money out of it. As Saxena points out again in Inflation 101:

"Apart from diminishing the purchasing power of savings, inflation also creates unfair advantages for the elite. When a new cycle of inflation (expansion of money-supply and credit) commences, usually the governments and banks have first access to this newly created money and they obtain this cash at a time when prices within the economy are still depressed. Therefore, these powerful entities are able to buy inexpensive goods by using this newly created money. Now, by the time this surplus money has permeated through the economy and reached the masses, prices have usually risen significantly by then. Accordingly, the public gets access to the additional money at a time when prices are much higher than the commencement of the inflationary cycle!"

Put loosely, inflation enables the banks (remember who facilitated much of this crisis) to benefit disproportionally by the painful work-out scenario path that the Federal must (and always does) follow.

Reported Inflation numbers are phony.
As if to add insult to injury, to our miserable, ignorant little lives, not only has the Federal reserve resorted to fixating on “inflation without all the inflationary bits”, not only have we seen the disbandment of the reporting of real inflation such as money supply measures and the monetary base (Yes: why? You might ask), but the numbers we now see are just a convoluted, manipulated, manufactured mess of what they should be. They are to statistics what melamine-coated chocolate is to healthy eating. The consequence, of course, is a sterile looking data set which performs exactly as the Fed and banking system wishes it to perform. That is, to show low volatility at a benign absolute level consistently – core PCE seems to do this job perfectly. You will know all the sordid details from my comments on 4th November and 5th November, where I refer to Chris Marthenson’s Fuzzy Numbers.
Inflation is a predator which stalks and seeks to destroy harmonious society, if it was true for the Romans it’s certainly true for us - I’ve always said and it’s been true since civilization began:

“…taxation and inflationary policies together, for some reason, work a magically lethal cocktail mix on society… they seem to be both divisive and antagonistic in nature.”

Right now, we’ve managed to temporarily patch up some of the wounds of our global organism. But. as we stumble and crawl through the thick and vile undergrowth that is the economic jungle before us, latent infections are taking hold as bacteria multiplies under the skin. We fumble frantically unbeknown to the whereabouts of the inflationary predator which stalks the very woods we seek to exit and, should it catch the stench of our rotting flesh down wind, it will make short work of tearing our hapless body to pieces before we even know what’s hit us.

[Anonymous]

I have seen the future....Housing worth about 50% less than current prices.
U.S. "dollar" being devalued by 80% and quite possibly being replaced by a different type of paper money...in one overnight action by the government.
Think of the term coined in the '30...Ten Cents on the Dollar.
retirement benefits of EVERYONE being slashed by 30%(could be much higher,just ask the retired elderly in Russia).
Food prices increased by 200%.
Fuel and heating costs rising by 30% per year.
Very little work for the lower classes and few jobs even for the "middle class".
Look at what's happening to Detroit and see your future.

[Anonymous]

I recently came across your blog and have been reading along. I thought I would leave my first comment. I don't know what to say except that I have enjoyed reading. Nice blog. I will keep visiting this blog very often.

Lucy

http://forextradin-g.net

[guidoamm]

Once again, a good article but that only goes so far in explaining the why and how. Are the central banks to blame? Most certainly. But how do the central banks get to do what they do? Where do they derive the power/right to do it?

The answer of course is in the arbitrary, unilateral choice and imposition of the monetary system; to be exact, an unchecked fiat monetary system.

Many good comments too in my opinion:

By Cursive - check

By Apocalypse @ 21.07 - We are well into the final stages of the unchecked fiat construct so that the only viable options left to keep it going are things like the amalgamation of executive power and simultaneous dismantling of democratic legislation: i.e. the Lisbon Treaty and Patriot Acts - the IMF, the World Bank or the BIS are only enablers. 

By Mark Beck: No need to hold USDollars to get hurt. Globally today we are all on an unchecked fiat monetary system based on floating exchange rates. Ergo, each currency's value is predicated on the value of all the other currencies. Thus, if the USDollar is the reserve currency, anything that happens to the Dollar influences all other currencies. Other than that, good points in your comments. What are the viable solutions?

By Crab Cake - Agree. The masses are largely ignorant. However, my position is that inherent in the choice of monetary system is also the need to keep the masses in the dark. It is the only way a fiat monetary system can work. Thus, ignorance is, by and large, due to lack of fiduciary duty on the part of the governing elite.

By Zenon - Clever observation

By Chumbawamba - You are the avantgarde of what will inevitably happen anyway. It is the logical ramification of an unchecked fiat monetary system

By JR - You hit the nail on the head (I thihk) as your comment implies what the problem is without stating it outright.

There is nothing particularly wrong with a fiat monetary system in and of itself. A society or a country need a monetary system and the choices are fairly limited really. The problem is in the unilateral choice and imposition of an unchecked fiat monetary system. Unilateral because the choice is never submitted to the people for ratification even in ostensibly "democratic" countries.

In truth, returning to a policy of "sound money" could be achieved even within the context of a fiat monetary system. All you need to do is to fix the quantity of money to a set of parameters. In so doing, what would happen is that the variable becomes the preference of holding money or other asset.

Any monetary system can be gamed and the historical record shows that has always been the case. What changes cyclically is the degree of fiduciary duty that the governing elites are willing to afford to society.

The most urgent matter at hand now, is in correctly identifying how this iteration of fiat money comes to an end. So far, all indiactions point to a conflict of global proportions. A conflict this one, that will be the real thing complete with food and energy rationing, conversion of civilian industry to war industry and the masses being packed off to the front across Western countries.

http://guidoromero.wordpress.com/2009/11/07/the-utility-of-a-fiat-moneta...

[WaterWings]

Any monetary system can be gamed and the historical record shows that has always been the case.

Which is why any politician supporting a fiat currency should be horsewhipped and run out of town - sell your snake oil and "equality for all" somewhere else. Anybody that promotes socialism wants easy votes for they either have no understanding of the consequences of long-term wealth siphoning or they are exactly aware.

[guidoamm]

"equality for all"??? How have you construed that I promote socialism from what I have written?

[WaterWings]

Oh, I didn't mean to blast the mega-horn in your direction - I was speaking in general. Good comment.

[Anonymous]

America's problems are a result of BIG Government ...plain and simple. Corporations and elites merely pay a few stipends to have the levers pulled in their favor.

If you want change then you have to accept this.Save your pseudo intellectualism for wine sipping adjectives.

Want to be a prosperous Freeman!!! Shrink governemnt and use less of it. Like big government? Then accept your minimal lifestyle.

It's all to simple ..... You gave big government the authority over you and some smart cat paid to have it benefit him at your expense. He was smarter than you.... Your the sucker who keeps handing him the power to run the machine every time you vote for your corrupt congressman, senator etc. Ohhh! but it's not your representative is it?

[Anonymous]

Corporate governance smells like shit. The problem is that the masses can't smell beyond the end of their nose.

Welcome to new Corporate States of America. Just leave your rights, liberty and security at the border, suckers.

-Love Rahm

[rapier]

It is perfectly natural for free markets to concentrate income and assets and power to the top.  It is always done in cooperation with the government, or collusion to use another term. This is how the world works.  You want free markets this is what happens.

The lowering of top tax brackets and capital gains taxes inevitably lead to this relentless concentration of income, assets and power.  High tax states have more equitable wealth distribution. The facts are obvious. You can go blind looking at all the charts and tables on the net, go knock yourself out.

It never ceases to amaze me the free market believers and ideologues get outraged by this outcome because it is the necessary outcome.  Pleading that it isn't really free markets is insane. Of course it is. There are markets in power and power allocates to itself by law and collusion more wealth and then again more power. This is the free market in action and perfection. Get over it.  Ideology allows no compromise.

[faustian bargain]

'Markets in power', that is not the same as 'free markets'. You need to stop reading Marx.

[Anonymous]

He has a point when he depicted the behaviour of free marketeers.

For free marketeers, the free market always fails to deliver because of an external cause, never because of itself. In other words, a free market is never free in their eyes.

And where it becomes funny is that they claim to already know the outputs of a free market, even if by their own standards, they have never observed one, the game is endless.

A market developps. If its output does not match the claims of free marketeers (and it has not and wont), it is not free. Therefore you can deduce nothing on a free market until a true free market emerges, the true free market being the one delivering the output claimed by free marketeers. And the very idea that the market might be free but the claims on the output of a free market might be wrong( a sensible notion considering the way free marketeers define a free market) is impossible to insert in the loop.

[Mr Shush]

You are of course right that there has never been and will never be a perfectly free market, so no observation as to how one behaves can be made.

That said, we do have ample evidence which strongly suggests that freer market, smaller government, lower tax economies perform far better in the long run than more regulated, higher tax, bigger government ones. More aggregate wealth can and should mean more wealth for everyone in absolute terms, even if the wealthiest do benefit disproportionately.

To be clear, I'm not advocating zero redistribution or zero government. I'm just saying that there is pretty compelling evidence that the inflection point is well below where most developed countries set themselves.

[Glaucus]

It is perfectly natural for free markets to concentrate income and assets and power to the top.  It is always done in cooperation with the government, or collusion to use another term. This is how the world works.  You want free markets this is what happens.

No, rapier, this is what happens when government intervenes in free markets and thereby captures them.  If you want free markets, get the government the hell out.  Of everything:

http://libertarianpapers.org/2009/32-white-gold-the-golden-rule-and-gove...

[Anonymous]

yes man, you know, someone said: "there are people who want to think, and there are people who want to believe"

the effects of the last 8 years of Bush tax reforms and politcs, the 30 year lobbying by the Chicago boys are attribuited to 1.5 years of Bernanke

but my question of the day to the "believers" is: do you gain something in "free markets", or you only believe like sheep, against the whole world made by "evil Commies" ... I'm couriuos, seriously

Plinskeen

[Madcow]

The Federal Reserve - and the IRS as well - are not legally protected institutions in these United States.

The Congress left us with an escape hatch "just in case ..."

The only road forward is through a deflationary collapse of illusion and a removal of these corrupt institutions and abandonment of belief in antigravity devices and faith in perpetual motion machines 

[Anonymous]

Maybe hope yet that Ben gets his walking papers...

http://blogs.abcnews.com/politicalpunch/2010/01/senate-dems-not-sure-the...

[Anonymous]

Get rid of the Fed and issue a new US dollar. Pay out the old dollar debt to a maximum of 250k per person. Start new banks.

[moneymutt]

two great comments:

guidoamm

"Any monetary system can be gamed and the historical record shows that has always been the case. What changes cyclically is the degree of fiduciary duty that the governing elites are willing to afford to society."

 rapier

"It is perfectly natural for free markets to concentrate income and assets and power to the top.  It is always done in cooperation with the government, or collusion to use another term. ......There are markets in power and power allocates to itself by law and collusion more wealth and then again more power. "

Okay to where does this all leave us?

To encourage innovation, creative destruction, efficiencies, we need free, non-corrupt markets. I believe we also need a healthy mix organizational structures such as non-profit, private, public corporation, regulated businesses (like regulated monopolies like utilities) and local and federal agencies. (and yes, libertarians, government agencies demonstrably and provably sometimes deliver the best value for citizen consumers in particular areas, studies show my private garbage collection service is at least 20 percent more expensive than comparable govt run or govt regulated monopoly servicer, and via five times more truck traffic, much more wear on roads etc, another example is Vet hospital system that provides high value and outcomes for much less cost than private providers)

If we leave private enterprise unchecked, we get cartels and monopolies, fraud and market manipulation, so we must have some rules and cops to enforce them and we must have those cops be fair and uncorrupted to get markets the create the most common wealth and serve consumers best.

With monetary system, fiat money, when properly controlled and does not solely benefit a parasitical elite, does provide excellent economic results.

So how do we avoid excesses like private, undemocratic hands controlling fiat money for their enrichment and power and in the case of democratic control, politicians doing short sighted manipulations for current political gain such as printing too much money.

How do we police markets to maintain trust and avoid corrupting concentration of power while still allowing sufficient freedom to constantly improve and innovate? Both systems of 1) captured regulators protect certain big businesses (US) or 2)concentrated government run industries (Mexico, former USSR) lead to moribund economies and biased markets that do not serve commonwealth best but rather siphon wealth to concentrated, parasitical elite (govt or private) and squelch productivity improvements.

The trick always seems to be placing sufficient democratic checks and balances and controls to keep out corruption and market manipulation while still allowing sufficient freedom to encourage efficiencies and innovation.

With monetary systems it seems to be having good democratic controls so private or govt hands do not hijack currency for their private benefit or short term political gain.

I do not know how you do it, but best systems seem to be the ones with healthy churn of business evolution and innovation, a good spread of wealth and fairly flat incomes (read healthy, very large middle class) and thriving democratic checks and balances, on too much power concentrated in private elite hands (Dickens England?) or in powerful government hands (USSR), or, as seems more usually the case, currently, a mix of private elite and corrupt government agencies.

Which historic and current economic systems seem to work best, produce best commonwealth?

US in 50s and 60s had very flat incomes, incredibly well-off middle class and fairly innovative and consumer friendly markets but it also benefited from cheap imported raw materials and energy and a manufacturing advantage after WWII, so may be historic freak. But union activity and progressive legislation started in the 30s meant prosperity of 50s and 60s was well distributed, which lead to seemingly healthy economy.

Early northern colonies before formation of US achieved high level of economic success that was well distributed among common man until Brits got too carried away with their ruling. Mercenary soldiers from Europe brought into to help British how to fight marveled at how well Americans lived, compared to pathetic status of common folk in Europe and couldn't figure why they were revolting. Pennsylvania colony had their own fiat currency that served them well, again, til Brit interference.

How do we ensure a good democratically controlled system that produces steady healthy lifestyles for the greatest amount of people including the best efficiencies and innovations, with the least amount of unproductive parasites? How do we avoid common excesses of captured regulators, concentration of private economic power, cronyism, or unproductive government control/bureaucracies, misused fiat currency?

[SWRichmond]

Yes, yes, the command economy can work if only we do it right and avoid excesses...next time perhaps?  Love the central planning state, hate its excesses.  None are so blind as those who will not see, namely "third-way" statists who want to enable the golden goose only so its eggs can be stolen.

The existence of central planning provides the opportunity for abuse through rent-seeking, an opportunity that never goes overlooked for long.  Fiat currency and central banking are major hallmarks of a modern control  / pillage state.  Central banking and fiat currency enable and simplify the manipulation of the business environment; along with the regulatory state, this is how any economy can be converted to a command economy.

How do we ensure a good democratically controlled system that produces steady healthy lifestyles for the greatest amount of people

How about you back off, right out of my life entirely?   I am not a tool for your use in implementing your worldview.  Who are you to choose lifestyles for me, to decide what is healthy or not, in my best interests or not?  Are you smarter than me, or just better connected?

Your hubris is shocking.

[WaterWings]

+1

I was in disbelief. Here's a gem:

another example is Vet hospital system that provides high value and outcomes for much less cost than private providers

I wonder why that is?

[sarcasm on]

VA hospitals as the beacon on a hill for health care! "We'll show you the way - our veterans get the best!"

[sarcasm off]

With monetary systems it seems to be having good democratic controls so private or govt hands do not hijack currency for their private benefit or short term political gain.

Which is why I am so glad the Founding Fathers created a Constitutional Republic, not a Democracy, for the children. The words "good" and "democratic" are almost abusive when used together like that. What is good about mob rule and populism? If anything it is feckless. We don't need fair-weather fans, and their elected ilk, running this country into the ground.

SW, I find it astounding that Libertarians are considered extreme, when all they want is the letter of the law to apply, read from The Constitution! Disregarding the checks and balances of The Constitution is very, very dangerous - anyone proposing to do so, in an elected position, is guilty of gross negligence in the least. Treason if evidence can be provided. 

Is that extreme? It would sure save a lot of bloodshed to weed out the destroyers before we have to burn the whole field and start anew.

[SWRichmond]

Yeah, it's incredible.  We have a document, and we have the history that shows that why it was prepared the way it was: to try to keep us out of the situation we're in right now, human nature being what it is.  The people who wrote the Constitution understood people, and people don't change.  We're motivated by the same factors, people try to pull the same bullshit, we just wear different clothes.  The core principles of the document are obvious to anyone who devotes a little time.

[THE DORK OF CORK]

I will have to disagree with your contention that by vacating any responsibility to control public utilities these vital services will find a equilibrium within a market.

This to my mind is the central weakness of core libertarians since it merely fosters a power vacuum that is filled by non-state agents who gain a monopoly postion and begin to destabilize the ecology of both the state and the markets

A state that does not have  some control over vital corporations becomes a vassal state subservient to their interests.

This is the essence of a fascist state.

Conservatives should always strive to maintain both a balance of powers and a seperation of powers within the state

Conservatism as advertised in America at the moment is alien to me.

[WaterWings]

You're right, the transition would be very ugly. However, I feel that if we continue this slow slide we will end up with even more fascism than we already have: a prison planet.

We must choose which - default is worse than temporary chaos if you ask me. The only reason we face these two, and only these two choices, is because the ways of the Founding Fathers have been disregarded and perverted.

Good luck, humanity. You're on your own - wake up before it's too late.

[Anonymous]

I immediately pegged Nietzsche for a limp wristed sub intellectual attempting to party with the big boys.
Utterly lacking a spine he's a heartless little shit.
Dead and gone , burning in hell.

I'd so love to watch Genghis Khan meeting Nietzsche for the first time.

Something tells me Nietzsche head would be outside the tent on a pole in about 20 minutes.

-MobBarley

All Gods must be put to death, but only Jesus rose from the dead.

[Oso]

Good evening, London. Allow me first to apologize for this interruption. I do, like many of you, appreciate the comforts of the everyday routine, the security of the familiar, the tranquility of repetition. I enjoy them as much as any bloke. But in the spirit of commemoration - whereby those important events of the past, usually associated with someone's death or the end of some awful bloody struggle, are celebrated with a nice holiday - I thought we could mark this November the fifth, a day that is sadly no longer remembered, by taking some time out of our daily lives to sit down and have a little chat.

There are, of course, those who do not want us to speak. I suspect even now orders are being shouted into telephones and men with guns will soon be on their way. Why? Because while the truncheon may be used in lieu of conversation, words will always retain their power. Words offer the means to meaning and for those who will listen, the enunciation of truth. And the truth is, there is something terribly wrong with this country, isn't there?

Cruelty and injustice...intolerance and oppression. And where once you had the freedom to object, to think and speak as you saw fit, you now have censors and systems of surveillance, coercing your conformity and soliciting your submission. How did this happen? Who's to blame? Well certainly there are those who are more responsible than others, and they will be held accountable. But again, truth be told...if you're looking for the guilty, you need only look into a mirror.

I know why you did it. I know you were afraid. Who wouldn't be? War. Terror. Disease. There were a myriad of problems which conspired to corrupt your reason and rob you of your common sense. Fear got the best of you and in your panic, you turned to the now High Chancellor Adam SutlerObama/Geithner/Cronies. He promised you order. He promised you peace. And all he demanded in return was your silent, obedient consent.

Last night, I sought to end that silence. Last night, I destroyed the Old Bailey to remind this country of what it has forgotten. More than four hundred years ago, a great citizen wished to embed the fifth of November forever in our memory. His hope was to remind the world that fairness, justice and freedom are more than words - they are perspectives. So if you've seen nothing, if the crimes of this government remain unknown to you, then I would suggest that you allow the fifth of November to pass unmarked.

But if you see what I see, if you feel as I feel, and if you would seek as I seek...then I ask you to stand beside me, one year from tonightAND RISE UP NOW, DEMAND AN END TO THE PILLAGING OF OUR GREAT COUNTRY, outside the gates of Parliament IN FRONT OF ANY GOVT BUILDING. And together, we shall give them a fifth of November A MESSAGE that shall never, ever, be forgot!

[WaterWings]

+V^{^48}

   But on this most auspicious of nights, permit me then, in lieu of the more commonplace sobriquet, to suggest the character of this dramatis persona. Voilà! In view, a humble vaudevillian veteran, cast vicariously as both victim and villain by the vicissitudes of Fate. This visage, no mere veneer of vanity, is a vestige of the vox populi, now vacant, vanished. However, this valorous visitation of a by-gone vexation, stands vivified and has vowed to vanquish these venal and virulent vermin van-guarding vice and vouchsafing the violently vicious and voracious violation of volition. The only verdict is vengeance; a vendetta, held as a votive, not in vain, for the value and veracity of such shall one day vindicate the vigilant and the virtuous. Verily, this vichyssoise of verbiage veers most verbose, so let me simply add that it's my very good honor to meet you and you may call me V.

[Anonymous]

I love this comment especially the bonus part about Lehman and Wamu.

" Geithner's "too big to fail" bailout policy has led directly to today's Wall Street bonus fiasco: There's no "bonus problem" at Lehman or Wamu.
Geithner's insistence on always putting Wall Street first has contributed to the populist rage that is now sweeping the nation and bludgeoning Obama in the polls."

[Cpl Hicks]

This is an outstanding article. It's worth printing out along with the charts.

What I have heard on the radio in Seattle in just the past 2 or 3 weeks is the return of the seductive voices of the mortgage companies:

"Rates are back at their lowest in years!"

"The FED has stepped up to the plate to help the American homeowner in this time of crisis!"

"You can refinance now and pay off all those bills with one low interest loan!"

[Anonymous]

While the concept of a "central bank" is older, it was Karl Marx who introduced the idea of a central bank capable of printing money untethered to any gold or bi-metal standard. The Fed, once it was finally untethered by closing the gold window in 1971 (Volcker was a key driver of the move, which Nixon later called a mistake and regretted), has been a socialist enterprise - by design. Yes, it took time before it started acting to massively "redistribute wealth" (largely to foreign powers as part of a scheme of "globalization" pushed by the elites connected to the Peterson Institute (Volcker, Trichet, Greenspan, Rockefeller, others, see http://www.iie.com/institute/board.cfm

[Anonymous]

Financial markets are all about beliefs and nothing about values. Financial markets are just about gambling. Buy when you believe everybody else will buy tomorrow. The more the price rises, the more you have peolpel willing to buy. Financial markets do not comply with the laws of demand and supply. And thanks to 30 years of deregulation, the entire economy is tied to this casino now.

[Anonymous]

Financial markets are all about beliefs and nothing about values. Financial markets are just about gambling. Buy when you believe everybody else will buy tomorrow. The more the price rises, the more you have peolpel willing to buy. Financial markets do not comply with the laws of demand and supply. And thanks to 30 years of deregulation, the entire economy is tied to this casino now.

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[hama]

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