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Want To Reduce Income/Wealth Inequality? Abolish The Engine Of Inequality - The Federal Reserve

Tyler Durden's picture




 

Submitted by Charles Hugh-Smith of OfTwoMinds blog,

The Federal Reserve is the primary obstacle to reducing income/wealth inequality. Those who support the Fed are supporting a neofeudal arrangement that widens the income/wealth gap by its very existence.

The issue of income/wealth inequality is finally moving into the mainstream: which is to say, politicos of every ideological stripe now feel obliged to bleat platitudes and express cardboard "concern" for the plight of the non-millionaires with whom they personally have little contact.

I have addressed the complex causes of rising income/wealth inequality for years.Indeed, my book Why Things Are Falling Apart and What We Can Do About It is largely about this very issue.

Here is a selection of the dozens of entries I have written about rising income/wealth inequality.

Income Inequality in the U.S. (August 22, 2008)
Made in U.S.A.: Wealth Inequality (July 15, 2011)
Let's Pretend Financialization Hasn't Killed the Economy (March 8, 2012)
Income Disparity and Education (September 26, 2013)
Is America's Social Contract Broken? (July 17, 2013)
Rising Inequality and Poverty: Can They Be Fixed? (August 15, 2013)
How Cheap Credit Fuels Income/Wealth Inequality (May 30, 2013)
Why Is Debt the Source of Income Inequality and Serfdom? It's the Interest, Baby(November 27, 2013)

While many key drivers of declining income are structural and not "fixable" with conventional policies (globalization of labor and the "end of work" replacement of human labor by robots, automation and software, to name the two most important ones), the financial policies that create wealth/income inequality are made right here in the U.S.A. by the Federal Reserve.

We should start addressing wealth/income inequality by eliminating the primary source of wealth/income inequality in the U.S.: the Federal Reserve.

The Fed generates wealth/income inequality in three basic ways:

1. Zero-interest rates (ZIRP) and limitless liquidity creates cheap credit that enables the super-wealthy to buy rentier income streams that increase their wealth.

The closer one is to this gargantuan flood of "free money for cronies," the wealthier one can become by borrowing from the Fed for near-zero and buying assets that yield returns well above zero. If your speculative bet goes bad, the Fed will bail you out.

2. Zero-interest rates (ZIRP) and limitless liquidity feeds financialization, broadly speaking, the commoditization of debt and debt instruments. The process of commoditizing (securitizing) every loan or debt greatly increases the income and wealth of the financial sector and the state (government), which reaps higher taxes from skyrocketing financial profits, bubbles and rising asset values (love those higher property taxes, baby!).

There is no persuasive evidence that cheap credit enables legitimate wealth creation, while there is abundant evidence that cheap credit fuels speculation, credit bubbles and a variety of financier schemes and scams that create temporary phantom wealth for crony capitalists and impoverishes everyone who wasn't in on the scam.

The housing bubble was not just a credit bubble; it was a credit bubble enabled by the securitization/financialization of the primary household asset, the home.Those closest to the Fed-enabled flow of credit reaped the gains of this financialization (or were subsequently bailed out by the Fed after the bubble burst), while the households that believed the Fed's shuck-and-jive ("There is no bubble") suffered losses when the bubble popped.

This chart of income inequality depicts the correlation between the Fed's easy-money credit expansion and the extraordinary increase in income inequality.Please note the causal relation between income and wealth; though it is certainly possible to squander one's entire income, those households with large incomes tend to acquire financial wealth. Those with access to cheap credit are able to buy income-producing assets that add to their wealth.

Financialization is most readily manifested in the FIRE sectors: finance, insurance, real estate.

You can see the results of financialization in financial profits, which soared in the era of securitization, shadow banking, asset bubbles and loosened or ignored regulation:

Here's how cheap, abundant credit--supposedly the key engine of growth, according to the Federal Reserve--massively increases wealth inequality: the wealthy have much greater access to credit than the non-wealthy, and they use this vastly greater credit to buy productive assets that generate income streams that increase their income and wealth.

As their income and wealth increase, their debt loads decline.

The family home is supposed to be a store of wealth, but the financialization of housing and changing demographics have mooted that traditional assumption; the home may rise in yet another bubble or crash in another bubble bust. It is no longer a safe store of value, it is a debt-based gamble that is very easy to lose.

Credit has rendered even the upper-income middle class family debt-serfs, while credit has greatly increased the opportunities for the wealthy to buy rentier income streams. Credit used to purchase unproductive consumption creates debt-serfdom; credit used to buy rentier assets adds to wealth and income. Unfortunately the average household does not have access to the credit required to buy productive assets; only the wealthy possess that perquisite.

The Fed's Solution to Income Stagnation: Make Everyone a Speculator (January 24, 2014)

As a direct result of Fed policy, the rich get richer and everyone else gets poorer.

3. But that isn't the end of the destructive consequences of Fed policy: the Federal Reserve has also created a neofeudal society in which debt enslaves the masses and enriches the financial Elites.

Put another way, not all wealth is created equally. Compare Steve Jobs, who became a billionaire by developing and selling "insanely great" mass-market technologies that people willingly buy because it enhances their lives, with a crony-capitalist who reaps billions in profits from risky carry trades funded by the Fed's free-money-for-cronies policy or by selling phantom assets (mortgages, for example) to the Fed at a price far above market value.

Clearly, there is a distinction between those two fortunes: one created value, employment for thousands of people, and tremendous technological leverage for millions of ordinary people. The other enriched a handful of financiers. This financial wealth could not be conjured into existence and skimmed by Elites without the Federal Reserve.

This Fed-enabled financial wealth destroys democracy and free markets when it buys the machinery of governance. To the best of my knowledge, Jobs spent little of his time or wealth lobbying Big Government for favors, special laws eliminating competitors with regulatory hurdles, etc.

Compare that to the millions spent by the "too big to fail" banking industry to buy Congressional approval of their cartel's grip on the nation's throat: Buying Off Washington To Kill Financial "Reform".

Much of the debate about wealth inequality focuses on whether the super-wealthy are "paying their fair share" of the nation's taxes. If we refer to the point above, we see that as long as the super-wealthy can buy the machinery of governance, then they will never allow themselves to be taxed like regular tax donkeys.

Unfortunately, only the top 1/10th of 1% can "afford" this kind of Fed-funded "democracy." As of 2007, the bottom 80% of American households held a mere 7% of these financial assets, while the top 1% held 42.7%, the top 5% holds 72% and the top 10% held fully 83%.

The income of the top 5% soared during Fed-enabled credit bubbles:

Since all these distortions originate from the Fed, the only solution is to abolish the Fed. Those who have absorbed the ceaseless propaganda believe that an economy needs a central bank to create money and manage interest rates.

This is simply wrong. The U.S. Treasury (a branch of government actually described by the Constitution, unlike the Fed) could print money just as it borrows money. Should a liquidity crisis squeeze rates higher, the Treasury has the means to create liquidity and make it available to the legitimate financial system.

All the Fed's regulatory powers were power-grabbed from legitimate government agencies defined by the Constitution.

The Federal Reserve is the primary engine of income/wealth inequality in the U.S. Eliminate "free money for cronies," bailouts of the "too big to fail" banks that own the Fed, manipulation of markets, the purchase of impaired private assets at high prices, and all the other tools of financialization the Fed wields to enforce its grip on the nation's throat--in other words, abolish the Fed--and the neofeudal structure that feeds inequality will vanish along with the feudal lords that enforced it.

We don't need to "fix" things as much as remove the obstacles that are blocking the way forward. The Federal Reserve is the primary obstacle to reducing income/wealth inequality. Those who support the Fed are supporting a neofeudal arrangement that widens the income/wealth gap by its very existence.

 

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Tue, 01/28/2014 - 09:21 | 4374553 TeamDepends
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Amen!

Tue, 01/28/2014 - 09:28 | 4374584 WarriorClass
WarriorClass's picture

First, kill all the banksters.  

Then, the lawyers.

Tue, 01/28/2014 - 09:34 | 4374621 economics9698
economics9698's picture

Anyone ever notice that all the professions where the tribe members work are all fixed or have heavy government involvement?

Banking the Federal Reserve, lawyer and the law, medicine $1.1 trillion and growing of governed money.

 

It almost as if 2% of the very wealthy get every law passed to help them whenever they want.  All the jobs with high pay and very little physical work.

Tue, 01/28/2014 - 09:34 | 4374631 suteibu
suteibu's picture

With all due respect...

Well, duh.

Tue, 01/28/2014 - 09:49 | 4374701 toady
toady's picture

It's all perfectly legal.

Tue, 01/28/2014 - 09:59 | 4374744 Papasmurf
Papasmurf's picture

It's all perfectly disgusting.

Tue, 01/28/2014 - 10:18 | 4374809 Bearwagon
Bearwagon's picture

See my comment 4374805 below.

Tue, 01/28/2014 - 10:35 | 4374880 Stuck on Zero
Stuck on Zero's picture

It's called feudalism.  Trade guilds are granted monopolies by the royalty in exchange for tribute.

 

Tue, 01/28/2014 - 10:53 | 4374953 RaceToTheBottom
RaceToTheBottom's picture

Nope, they have to be killed at the same time.  Two sides of the same coin.

Tue, 01/28/2014 - 10:01 | 4374748 FightingtheFed
FightingtheFed's picture

Thanks for the truth.

Tue, 01/28/2014 - 10:01 | 4374749 FightingtheFed
FightingtheFed's picture

Thanks for the truth.

Tue, 01/28/2014 - 09:24 | 4374554 SilverDOG
SilverDOG's picture

NOW NOW NOW NOW !!!!!!!!!!!!!!!!!!!!!!!!!

 

Andrew Jackson did as such and garnered every American with gainfull deflation, our friend.

Tue, 01/28/2014 - 16:19 | 4376602 Flakmeister
Flakmeister's picture

Do you really think that the US of 1830's bears any resemblance to current version?

Tue, 01/28/2014 - 09:23 | 4374561 reader2010
reader2010's picture

Whether or not you control any means of production determines the income equality. In other words, whether you're a slave or an owner of means of production determines everything. 

Tue, 01/28/2014 - 09:22 | 4374562 maskone909
maskone909's picture

Abolish? How about demolish!

Tue, 01/28/2014 - 09:22 | 4374563 suteibu
suteibu's picture

Nice sermon.  Heard it all before. 

Tue, 01/28/2014 - 09:24 | 4374567 new game
new game's picture

Charles, with all due respect, this wish/think stuff is getting old. we need some good old violence to get real change. dude the system is controlled top to bottom. you know it too, so get to intellectual honesty and call out for a movement of confrontation. ron paul tried this already and it got where?

Tue, 01/28/2014 - 10:43 | 4374921 sleigher
sleigher's picture

Until people are ready to give up cable TV and Starbucks, Ron Paul and everyone else is just blowing hot air.  I like Ron Paul and the things he says, but no one is giving up their quality of life, even though they are slaves.  There are some who will, but for real change, it is gonna have to get a lot worse than this.

Tue, 01/28/2014 - 14:56 | 4376201 N2OJoe
N2OJoe's picture

But but but TPTB constantly tell us that that nonviolence is the only way to break their stranglehold.

Do you mean to say that they... LIED to us?

I'm Shocked, I tell you! Shocked!

Tue, 01/28/2014 - 13:42 | 4375787 Crash Overide
Crash Overide's picture

It keeps coming until the day it stops... and that is up to all of us.

Every system has it's breaking point, waves, cycles, nature will correct.

Soon.

Tue, 01/28/2014 - 09:26 | 4374574 Intelligence_In...
Intelligence_Insulter's picture

Yea, let's just make everybody poor.  Income inequality is natural,  there are winners and losers.

 

 

Tue, 01/28/2014 - 09:33 | 4374627 Dr. Engali
Dr. Engali's picture

"Yeah, let's just make everybody poor"

The fed is doing a fine job of that on it's own.

Tue, 01/28/2014 - 10:14 | 4374795 Bearwagon
Bearwagon's picture

Of course income inequality is natural, at least to the winners. But this is not just about income - it's also about wealth, and there is a fine difference ....

Tue, 01/28/2014 - 10:55 | 4374965 RaceToTheBottom
RaceToTheBottom's picture

A country of laws.....

A meritocracy.....

LOL, I got a bridge to sell you,

Muppetfood, that is what is being peddled.

Tue, 01/28/2014 - 09:28 | 4374582 blindman
Tue, 01/28/2014 - 09:27 | 4374585 Dr. Engali
Dr. Engali's picture

A good article Charles. Welcome to the club of fed haters. Unfortunately neither of the two official choices of political parties we 'elect to represent us' neither has backbone nor the desire to eliminated the fed. After all they know who butters their bread. There is only one of two ways that the fed will ever end. It will either destroy itself, which right now it seems damned set on doing, or it will end in violence.

Tue, 01/28/2014 - 09:29 | 4374590 SAT 800
SAT 800's picture

T he Fed is not the primary instrument of inequality. You don't understand the subject properly. The central core of the inequality problem is the lack of the rule of law; the systematic and systemic turning away from the rule of law over, oh let's say, the last forty years. As elements in this program we see the criminal congress creatures sell out their country for their payoffs, by completely de-regulating the "financial industry"; and the government institutions, such as the SEC putting the word out; that "don't worry we're not going to investigate or prosecute anything". Ancient rome didn't even have a Fed. Reserve, but they had exactly the same situation during their fall and dissolution. The wealthy Senators, the military, and the military contractors, fleecing the republic for their own gains. Always, with a veneer of patriotic propaganda, of course.

Tue, 01/28/2014 - 09:37 | 4374638 SheepDog-One
SheepDog-One's picture

The human species is actually devolving on the road to extinction.

Tue, 01/28/2014 - 10:13 | 4374798 economics9698
economics9698's picture

"the systematic and systemic turning away from the rule of law over, oh let's say, the last forty years."

August 15, 1971 or so?

Tue, 01/28/2014 - 11:38 | 4375190 Flakmeister
Flakmeister's picture

So for shits and giggles, let's pretend that you are Nixon.

This is the choice you are faced with:

Stop convertability of dollars into gold or face US gold reserves vanishing within 6 years to pay for oil imports.

Look at the import curve here:

http://en.wikipedia.org/wiki/File:US_Crude_Oil_Production_and_Imports.svg

Pay attention to figure 1 here:

http://goldnews.bullionvault.com/US_gold_reserves_01120092

 I suppose that you could have kept the US on the gold standard however at the price of depression as oil consumption would be brought in line with domestic production. So what are you going to tell the American people?

Tue, 01/28/2014 - 11:44 | 4375216 economics9698
economics9698's picture

If you are on a real gold standard as gold flows out imports become more expensive for the, in this case the USA, and imports cheaper for, in this case oil exporting countries.  

The USA would have to cut back on imports and increase exports.  

And what is wrong with that picture?

Seems like a fair system to me. 

Tue, 01/28/2014 - 14:31 | 4375578 Flakmeister
Flakmeister's picture

Telling the American people that they can't have whatever they want has been a losing political strategy... Staying on the gold standard would have resulted in a 50% decrease in econmy...

The US would also had to have given up its hegemony at the time... 

Sorry the game doesn;t work like that, never has and never will...

BTW, another way of stating the problem was that the the flow of oil dwarfed the stock of gold. Given the world reliance on oil and the distribution of production, an international gold standard cannot work. Do the math..

Tue, 01/28/2014 - 23:43 | 4378392 X_mloclaM
X_mloclaM's picture

wrong.

That'd be the right way, mark up oil, consume less, stay solvent, stay to the rule of law, limiting means for crony inequality, staying #1, rather than where we are today.

 

Falk = krugs itd be so muhch wurse

Tue, 01/28/2014 - 23:57 | 4378477 X_mloclaM
X_mloclaM's picture

revauling gold wuld add reserves, that would have kept price inflation down, funded more earl, and allowed for a return to market pricing. by 1980 and we wouldn'ta needed Volker's reserves vaccuum, but could rather let the free market set the price of money -- no, this was all about going fiat, globally, first in the eu region, then more broadly, so we COULD leave the sanctity of gold, where consumers, the meek, and the Earth prospers, to a world where labor is taxed at the rate of the mon sys owners

They got em purdy good already with the dollar penetration with this go of it, the harvest cycle will be a nice one, yes, but nothing relative to a digital system reaching even more subscribers

Wed, 01/29/2014 - 00:55 | 4378610 Flakmeister
Flakmeister's picture

So you don't have an issue telling current oil exporters what the price of their oil in gold should be.... At gun point if need be?

The price of oil in gold has long pretty steady history, before and after Nixon reneged on Breton Woods.... You did know that, didn't you?

Tue, 01/28/2014 - 11:54 | 4375268 PGR88
PGR88's picture

I agree that Nixon had no choice - the important decisions about oil prices, gold, the Vietnam war, funding LBJ's "great society" were made with easy money 10 years prior.

Its like a smoker diabetic having to amputate fingers and toes.  at that point, its unavoidable.  Their disease was brought about by decisions made decades before.

The FED is the same.  We allowed it to bail-out its crony-capitalist TBTF banks.  We gave politicians the opportunity to run $1 trillion deficits to fund crony-capitalist "progressive" government.   We allowed a mechanism to create zero-interest rates for 6 years.     And we are paying the price in 1000 aspects of society.  I don't expect it to get better immediately either.  The disease must run its course.

Tue, 01/28/2014 - 12:00 | 4375289 economics9698
economics9698's picture

Pay now or pay latter, well it's latter and we have a pretty big payment due.

Tue, 01/28/2014 - 13:24 | 4375691 Flakmeister
Flakmeister's picture

Check the data: At the time, deficits were around 2-3% of GDP...

You forget that rate of change in US oil consumption was  a moon shot and production was peaking.. No long term plan, the economic game plan had to be changed when the wall was hit. The only guy who predicted it was Hubbert....

Combine that with the influence of DeGaulle and the French who decided to take the gold based on historical precedents...  

Tue, 01/28/2014 - 20:01 | 4377468 LibertarianMenace
LibertarianMenace's picture

"the economic game plan had to be changed when the wall was hit."

Trouble is, some game plans suck more than others-and while Nixon arguably made the simplest choice, in hindsight the expedient alternative he picked has been a complete failure. The quantiity of gold specie is limited, but at any given time this is also the case for the proven reserves of petroleum. The people who were selling petroleum and at the same time demanding payment in gold specie would have done well to consider this. Too bad Nixon didn't/wouldn't(?).

Regardless, the job of an honest monetary system is to reconcile the comparative value between the two.

The solution should have been to eliminate legal tender restrictions and return to issuing competitive notes backed by specie; in this case any specie metal will do. Historically this has been successfully demonstrated mostly by gold, but silver and copper have also served this purpose.

Privately issued notes backed by specie that must also compete daily for public demand against their betters would have priced gold at a premiuim and discounted oil until the demand for each good reached an equilibrium. Money's supposed to be an abstraction layer that forms naturally between different economic goods. Monetary history has demonstrated that government sanctioned fiat metallic standards aren't needed to perform this function. 

The economics are easy, apparently the politics aren't. In economic terms, Nixon remains a complete bag of shit, a craven, gutless wonder that as a slave to pragmatism could think only in terms of expediency. We're still paying for his failure of imagination.

 

Tue, 01/28/2014 - 23:47 | 4378422 X_mloclaM
X_mloclaM's picture

spot on, and this Charles L. Hornblaster guy has the congress running the presses like a greenbacker Dimon acolyte -- can we just get freedom? The free production of money, no legal tender -- let em pick whatever they want for tax collection, and we'll do the FX if wetaded enough to save in BTC

Tue, 01/28/2014 - 23:48 | 4378430 X_mloclaM
X_mloclaM's picture

If I could make 1 suggestion to the author:  Read https://mises.org/daily/6175/How-to-End-the-Fed-and-How-Not-To

Wed, 01/29/2014 - 01:03 | 4378633 Flakmeister
Flakmeister's picture

So Nixon should have thrown American hegemony out the window...

BTW, you need oil to make gold so to speak... The goods that you buy with your gold originate with the use of oil. It is the oil that truly has the value, oil allows you to project power... 

In other words you have it bass-ackwards... 

Tue, 01/28/2014 - 23:43 | 4378401 X_mloclaM
X_mloclaM's picture

thats cuz the price was wrong, bitch  (for oil, and our deficits got us into the gold outflow situ in the first place)

Tue, 01/28/2014 - 09:56 | 4374739 toady
toady's picture

It's all perfectly legal.

Tue, 01/28/2014 - 10:16 | 4374805 Bearwagon
Bearwagon's picture

"Legal" just means that the outright injustice is enforced through a "law".

Tue, 01/28/2014 - 11:23 | 4375111 novictim
novictim's picture

I want MOAR of you. SAT 800!

Tue, 01/28/2014 - 09:29 | 4374597 NoDebt
NoDebt's picture

I'm afraid we've crossed the Rubicon on this issue.  Nice forensic analysis, but no action will be taken to wind this back.

Tue, 01/28/2014 - 09:29 | 4374600 Ranger4564
Ranger4564's picture

Yeah! There was so much more income / wealth equality before 1913.  

O.o

Tue, 01/28/2014 - 10:17 | 4374807 csmith
csmith's picture

"...before 1913."

 

Let's take it back even further...to when we all lived in the dirt. We were ALL equal then. "Equality" is not the point; growth is. You can have one or the other, but not both.

Tue, 01/28/2014 - 09:32 | 4374607 madbraz
madbraz's picture

Back in the day when this was a country run by the people (and not by the corrupt 1%), the politicians abolished the 1st and 2nd bank of the United States (the Fed, back in the day) - their charter was not renewed due to some of the same concerns raised here.

 

If somehow people could become aware that they are being raped by their "leaders" and their crony financial bosses, perhaps we could have general strikes and simply decide that as a people that we've had enough.  Better yet, if everyone took their money out of the top 5 banks and put them in smaller banks we would have a start - those entities would be wiped out and a message would be sent.  Dimon is out of business if 10% of deposits flee his evil bank.

 

 

Tue, 01/28/2014 - 09:31 | 4374612 Seasmoke
Seasmoke's picture

We need to allow mom and pop entrepreneurs to be able to prosper again. Very simple. But that's not why Obama was picked to stink up the Whitehouse..

Tue, 01/28/2014 - 09:47 | 4374680 Intelligence_In...
Intelligence_Insulter's picture

What is stopping them?  Mom and pop stores are thriving, it just aint the mom and pop you are thinking about,  the foreigners that own the corner store that jack up the prices every few weeks?? That's them.  

Tue, 01/28/2014 - 09:33 | 4374618 B2u
B2u's picture

Fuck you Bernanke...

Tue, 01/28/2014 - 09:40 | 4374622 SheepDog-One
SheepDog-One's picture

OK yea we know, so who is going to actually do anything about it? Anyone who can is too well paid to rock the boat, everyone else only cares about the coming drunken StuporBowl bread and circuses and just loves their Fed/politician overlords.

Tue, 01/28/2014 - 09:37 | 4374644 f16hoser
f16hoser's picture

End the FED! WOW! That's what I said! Yet, I got 4 dislikes. weird.

Tue, 01/28/2014 - 09:43 | 4374668 gwar5
gwar5's picture

End the FED. And abolish their loudmouth political accomplices.

 

In the State of the Coup address tonight, Obama is going to bitch about minimum wage and inequality. But Obumba is perp #1 for running up deficits and inflation causing need for higher wages. Free condoms for 30 yo sluts going to $50K/yr Georgetown University are not going to rebuild America's economy.

 

 

Tue, 01/28/2014 - 11:15 | 4375072 mijev
mijev's picture

"Free condoms for 30 yo sluts going to $50K/yr Georgetown University are not going to rebuild America's economy."

 

Feeling a little repressed? I wish i could bang a few 30 old sluts. I like older women. Condoms should be given out free to everyone over the age of 13. Less dumb fucks being born every day may just help rebuild america's economy. 

Tue, 01/28/2014 - 09:49 | 4374704 RabbitChow
RabbitChow's picture

The Fed will end only when the FRN is worthless.  That may not be too far away, as all we need (like Germany in the 1920's) is for all those USD's do come back home to roost.  The sly game was one of *requiring* transactions for oil and other stuff to be processed using USD.  Adding to that is China and their massive store of UST bonds.  If there is a crashcasde of defaults starting in China, look out, they will start selling UST's at fire sale rates.  When the flood of USD begins to hit the shores of the US, hyperinflation will hit, because importerd goods will skyrocket.  We have the perfect storm emerging with potentially higher priced imports and shortages of foodstuffs within the US coming. 

Tue, 01/28/2014 - 10:38 | 4374901 Flakmeister
Flakmeister's picture

This is wrong on so many fronts...

When the Bond market craters (and it will one day) a lot of those dollars (which exist in the form of debt) vanish. There will be no flood of Benjamins hitting the shore....

And in case you did not notice the FED is buying the equivalent of the Chinese holdings every 12 months...

The game ends when dollars are no longer convertible into oil. Loss of US military hegemony or a fall of the House of Saud are possible catalysts. Even then dollars will not become worthless, per se....

Tue, 01/28/2014 - 10:06 | 4374777 22winmag
22winmag's picture

People are waking up at exponential rates. I overhear people griping about the FED and the Golfer in Chief all the time at places like the pizza shop, the gas station, and the ammo counter at WalMart and my local gun shops.

 

The straw that broke the camel's back is imminent for the cops, the military, and what's left of the middle class wake up to their own complicity in the matter, join with the people, and storm the Bastille.

Tue, 01/28/2014 - 10:51 | 4374942 novictim
novictim's picture

Meanwhile, in Germany and in Sweden, and in the most socialist societies of northern Europe, people are enjoying decent, dignified lives.

 

And many have the sense that AMERICA has lost it's mind.

 

America's FBI and CIA broke laws and violated the Constitutional rights of the citizenry to form Unions and fight for better wages starting in the late 1940s.  They did so because the wealthy American aristocracy (Bankers, Industrialists) asked them to.  And it has not changed.

 

The natural course for capitalism is toward a wealthy few in total control and in the abject poverty for the rest.

Tue, 01/28/2014 - 10:59 | 4374997 moonman
moonman's picture

"Meanwhile, in Germany and in Sweden, and in the most socialist societies of northern Europe, people are enjoying decent, dignified lives."

 

Bullshit


 

Tue, 01/28/2014 - 11:08 | 4375034 Flakmeister
Flakmeister's picture

Yeah, the Danes have their asses kicked...

Tue, 01/28/2014 - 11:17 | 4375078 novictim
novictim's picture

I think you need to get off your butt and take a vacation. Book that flight to Stockholm ASAP.

Or are you worried you might blow your ideological cover?

Tue, 01/28/2014 - 11:52 | 4375254 Clowns on Acid
Clowns on Acid's picture

hey dickhead.... go to Stockholm and get your ass kicked by a muzzie.

Tue, 01/28/2014 - 12:33 | 4375448 Debt Slave
Debt Slave's picture

The natural course for capitalism is toward a wealthy few in total control and in the abject poverty for the rest.

Much the same can be said of communism.

Tue, 01/28/2014 - 13:26 | 4375709 Flakmeister
Flakmeister's picture

Much can be said about humans in general....

Tue, 01/28/2014 - 20:50 | 4377639 novictim
novictim's picture

And your point?

Tue, 01/28/2014 - 10:13 | 4374796 csmith
csmith's picture

Deflation is the permanent (and beneficial!) aspect of capitalism. If blocked by the financial sycophants, the system fails.

Tue, 01/28/2014 - 10:39 | 4374903 novictim
novictim's picture

Deflation is great for those who hold wealth.  And that's about it.

 

Tue, 01/28/2014 - 11:50 | 4375243 Clowns on Acid
Clowns on Acid's picture

and bad for those who hold leveraged debt... like all the banks and the levered real estate shlocks in NYC.

Tue, 01/28/2014 - 12:43 | 4375480 MeBizarro
MeBizarro's picture

And look at who holds the overwhelming majority of debt and aggregrate levels of debts service.  Deflation would be horrendous for them as it would crush their personal finances and dry up their access to capital.

Deflation through technological improvement of products and services which results in a reduced lower cost of production is a different thing entirely than just currency deflation.

Even the most basic economic concepts on here are foreign to msot of the posters. 

Tue, 01/28/2014 - 10:32 | 4374865 Flakmeister
Flakmeister's picture

The Fed is only part of the problem...

The GINI ratio had an inflection point in the '80s and was driven by different factors...

Tue, 01/28/2014 - 12:37 | 4375464 MeBizarro
MeBizarro's picture

It was driven by tax policy changes that greatly reduced the top income tax brackets, reduced tax to favor income derived from capital instead of labor, and 'free trade' policies since the end of the Cold War.  Meanwhile things like the SSI tax (which is the most regressive tax on the planet) were raised and hitting the little guy earning under 40k hard.  You have also seen a number of states raise sales tax and remove items historically that were exempt from sales tax including clothing and unprocessed food.  Again this just f@cks the little guy.

Yet all kind of dopes on here rant endlessly about the Fed and how a return to the gold standard would be a magical panacea for workers' woes despite the complete OPPOSITE of what occurred in the late 19th/early 20th century in the US when you had huge blocks of working people who want either a dual-metallic standard or to get off the gold standard completely. 

Tue, 01/28/2014 - 10:35 | 4374868 novictim
novictim's picture

NO NO NO NO

Capitalism naturally leads to inequality in wealth.  It has done so throughout history.  

You folks here at ZH have these really idiotic ideas of how the world works.  Idealism has blinded you.

You believe in some force of nature that creates an equitable distribution of wealth, some tooth fairy that naturally rewards hard work and clever ideas for the majority of people.  

It's just not the case.  

Life is tooth-and-claw and deeply unfair unless we, as a society, impose our will to make life better for each other.  The further down the libertarian rabbit hole a society goes, the worse the outcome for the majority of citizens.

 

 

Tue, 01/28/2014 - 10:41 | 4374904 Flakmeister
Flakmeister's picture

Yep....

Tue, 01/28/2014 - 11:03 | 4375013 toady
toady's picture

I don't think anyone is talking about equal distribution of wealth or goods, just an equal chance at wealth &goods.

When the legal system is so out of tilt in favor of the wealthy everyone who is not gets angry.

It's the same old story. A society is built, there are winners & losers, the winners take control and enshrine their 'winner-ness', forcing the losers to die or tear down the shrine.

The US came close with 'the greatest middle class in history' but the winners couldn't leave it alone, had to take it for themselves. Now there's nothing left but to tear it down and restart the cycle.

Tue, 01/28/2014 - 11:10 | 4375041 Flakmeister
Flakmeister's picture

You do understand that taxation is part of the legal system...

Tue, 01/28/2014 - 11:35 | 4375175 PGR88
PGR88's picture

Please tell me what is "capitalistic" about the Federal Reserve?  Does it not rig markets?  When it does so, who are its primary beneficiaries?

 

What the hell does "impose our will to make life better for each other" even mean.  It means abdicate responsibility for your life and pass power over to corrupt politicians and their crony-capitalist friends. 

Tue, 01/28/2014 - 13:23 | 4375693 novictim
novictim's picture

"impose our will to make life better for each other"

This means that We the People are in a constant, never ending struggle to regulate and modify our governmental systems in order to create a just society that grants proportional benefits for merit and sets minimum standards for human decency and human dignity.  

The "will" comes from our own decency and our choice to act.  Are we a good people?  Or are we crap?  Look to the homeless mentally ill folks on your street corners and then answer this.

Regarding the Federal Reserve, it's a clearly imperfect tool lead by imperfect directors who are in turn directed by a corrupt political class.  Much needs to be fixed starting with the campaign finance system.  But the Fed was created for good reasons that exist today just as they did in 1913.  Private banks have proven over and over that they need a chaparone to keep them from raping the depositors and investors.  

Tue, 01/28/2014 - 12:31 | 4375421 MeBizarro
MeBizarro's picture

Yup.  You can post fact and fact on here about how miserable life was for the overwhelmingly majority of American in late 19th century/early 20th century America (you saw much more labor disruption/riots in both the 1880s and 1920s than the 1960s) and that if the Fed was magically absolved that some form of alternative cabal wouldn't emerge in its place & usurp its role.

True and unmitigated capitalism (contrary to the idiocy you often read on here) is largely 'Might makes right' and the little guy gets crushed.  Go back and read any late 19th century autobiography written at that time of an industry titan and how they regarded their workers.  Largely that they were replaceable cogs who deserved little more subsistence wages, should work a minimum of 6/days a week and at least 10-12 hours/day, etc.   If that worker got hurt/injured/sick, who cares even if it was at work.  Who cares.  Ditto with getting old.  They better have a family willing to take care of them or they were going to a county poor house which provided little more than basic subsistence to survive.  Retards or cripples were considered useless and largely an issue that a family deal with.  Again if they didn't they were put in a debtor's prison or a county poor house. Same if they didn't have access to clean food and water. 

Tue, 01/28/2014 - 12:57 | 4375554 novictim
novictim's picture

"Retards or cripples were considered useless and largely an issue that a family deal with."

I strongly doubt that any of these ZH Free Market Fanatics have families who are willing to look after them...there are limits to compassion.

Tue, 01/28/2014 - 13:06 | 4375604 MeBizarro
MeBizarro's picture

The worst cases were dumped in jails/lunatic asylums/poor houses but it was mainly on the responsibility on the family.  Really depends upon what time you are talking about in the US and what state. It largely is today too and access to mental health faciliites/treatment in the US has always been pretty underwhelming. 

 

Tue, 01/28/2014 - 13:06 | 4375616 MeBizarro
MeBizarro's picture

Any person who is a free market 'funatic' or idealizes Ayn Rand is an idiot who shouldn't be taken seriously.  Almost the same as with any religious fanatic.  People who have a seriously misguided and set vision of the world, their place in it, and find little/no compromise.

Luckily, there are generally a minimal amount of thse people. 

Tue, 01/28/2014 - 13:57 | 4375849 novictim
novictim's picture

IN the spirit of laissez-faire economics and Objectivism, few attended Ayn Rands funeral...and all found it a boring occasion. 

Tue, 01/28/2014 - 10:39 | 4374895 yogibear
yogibear's picture

Now CNBC is talking about the US Fed bailing out the rest of the world. The US Fed is so egotistical to think they can do it.

Just when you think markets will normalize you have the Fed trying to blow a bigger bubble.

 

Tue, 01/28/2014 - 10:44 | 4374918 JR
JR's picture

 “The doctrine that some banks were too big to fail subverted the most basic banking franchise of all, safety; promising to protect its depositors’ money at all hazards, a small, safe bank could make no competitive headway against a large, risky bank. The Treasury Department was the ultimate big-bank stockholder.” --- James Grant, Money of the Mind: Borrowing and Lending in America from the Civil War to Michael Milken.

In a 1992 review of the book, JAMES PICERNO,  associate editor of Stanger’s Investment Advisor, explains how Money of the Mind , overall, “provides an engaging look at how government monetary policies have infiltrated and corrupted the market process. 

When the private market stumbles, it is typically “corrected by assessing penalties to the offending parties. In contrast, government-induced improprieties in monetary affairs are rarely corrected. Instead, such statist errors are allowed to multiply, primarily because responsibility is diluted and pawned off onto millions of unwilling taxpayers who have no culpability, and no avenue for redress of grievances against the autonomous Fed.”

Picerno continues:

“Of all the distortions government creates when it intervenes in the free market process, few, if any, are more deleterious to the economy than when it socializes credit risk….

“A good deal of the country’s monetary and credit ills can be traced back to the creation of the Federal Reserve System just before World War I, Grant suggests. Few can argue with this notion, as this system has contributed greatly to the politicization of monetary policy, partly by removing formal institutional constraints on monetary excesses, as in the jettisoning of the gold reserve ratio.

“Over the years, Fed power became increasingly centralized—a predictable development, given the nature of the beast—giving it more authority to act unilaterally and, consequently, beyond market rationality.

Here is one example given of this increasing centralization: The Banking Act of 1935 “removed individual banks’ influence in open market monetary operations, ceding that ability to the Fed. Subsequently, all key monetary decisions were to come within its domain. Unfortunately, the situation has degenerated so that monetary policy choices are often derived from a political calculus. Such power shifts opened the door for Congress to sanction irresponsible fiscal policies, as in 1946 when it promoted monetary excesses by directing the Fed to promote high employment under the Full Employment Act...

http://www.fee.org/the_freeman/detail/money-of-the-mind-borrowing-and-lending-in-america-from-the-civil-war-to-michael-milken#axzz2rhebZyJC

Tue, 01/28/2014 - 11:09 | 4375038 novictim
novictim's picture

Oh, you are sooo right!  Private banks are just so trust worthy.  

 

BTW: 1946 up to 1970s were the greatest years in America to be a worker raising a family.

Tue, 01/28/2014 - 11:37 | 4375182 JR
JR's picture

You are divorcing yourself from the reality of the international bankers.

Since WW II, the freedoms of Americans have been steadily declining; and it’s been much the same for a banking industry under the despotic control of the International Bankers.

These men are not bankers, they are tyrants and since 1913, they have steadily increased their control of the American government. By 1946, the evidence of tyranny was only beginning to be visible to a slim few such as Eustace Mullins and G. Edward Griffin and, yes, Woodrow Wilson who signed the Federal Reserve Act. But in the past decade, this complete domination not only of the American economy but the American government is in full view of all Americans. And they can trace the hardships of WWI, WWII and the Great Depression directly to the door of the International Bankers’ tyrannical weapon, the Federal Reserve.

Huge expenditures and market interventions by Washington and the Fed have had little remedial effects. In fact, they “are said to have exacerbated the problems because they redistributed corrective pain and thereby mitigated the healing effects of the market. ‘It was the perceived wisdom of the 1970s and early 1980s,’ Grant writes, ‘that modern banks do not fail (thanks to federal deposit insurance) and that inflation is a permanent American condition (as a result of the Employment Act of 1946). However, the impossible proceeded to happen.’”

It was there in 1946, novictim. And just because you didn’t notice it does not mean that it was not going to grow and grow and grow…

Tue, 01/28/2014 - 12:27 | 4375428 Debt Slave
Debt Slave's picture

And they can trace the hardships of WWI, WWII and the Great Depression directly to the door of the International Bankers’ tyrannical weapon, the Federal Reserve.

It isn't hard work for anyone who has an interest. What is baffling is that so many depend on money and economics in their daily lives, and how few actually give enough of a damn to learn a few basic things about it.

Tue, 01/28/2014 - 12:42 | 4375486 novictim
novictim's picture

" 'The Banking Act of 1935 ' removed individual banks’ influence in open market monetary operations, ceding that ability to the Fed. Subsequently, all key monetary decisions were to come within its domain. "

...I take it from this that you feel that the private US banks (all the banks other than the very solvent and socialist Bank of North Dakota) should be the only forces to influence monetary operations?  So, what?  The Libor scandal and the Gold price manipulation scandals were not sufficient to break you of this idea?  The fraud in home mortagage backed securities didn't raise your shackles...how many retirement portfolios were gutted by this?  What could I possibly say to you to change your mind about the dastardly nature of private banks?

 

Or are you saying that private banks and the international bankers are in collusion and should be, what?  Eliminated?  Then what?  

Maybe we need to have coop owned banks where the depositors are the owners..?

 

But if you got rid of the Federal Reserve because you wanted to stop the socialization of Banking losses (applaud)...you realize that the losses just then fall on the little people who stored their paychecks in those banks, right?  

I mean, look up "bank runs" and tell me that the FDIC is a bad thing!  I dare you.

 

I think that when we look to the banking sector per se to find THE villain to pin the growing wealth inequality on then we are missing the mark.  There are plenty of countries that have far less inequality in their wealth than is occuring in the USA and these countries are all more SOCIALIST than the USA is today.  

We should either look back to FDR's New Deal policies (FDR did say of the banks "I welcome their hatred") or look sideways to Germany or Sweden to model our way out of this trap we are in.

But, again, JR, the banking system is just a part of the problem/solution.  The capitalist model, left unregulated and untapped, is the culprit of both our initial growing prosperity and now of our shrinking middle class and growing poverty.

 

Tue, 01/28/2014 - 14:00 | 4375871 JR
JR's picture

These are not private banks that I’m talking about. I’m talking about despotic international organizations that use banks, corporations and governments for their own empire.

The men who control the Federal Reserve are hardly bankers; they are international banking families that own corporations, energy resources and governments.

To compare them to your local bank is wrong; just like they indirectly own that bank, they control you.

Their aim, as Dr. Carroll Quigley outlined, is universal collectivism, sans private property, which is slavery.

Let’s be honest. The question we need to face is: “Who runs this government, the people or the tyrants? It’s a matter of who is the authority.

Rights for Robots

Millions of our people now look to the government much in the same fashion that their fathers of Victorian times looked to God. Political authority has taken the place of heavenly guidance.


Herbert Spencer in that wonderful prophecy, The Man Versus the State, explained in detail what would happen. He foretold with exactitude the present rush of the weaklings for jobs as planners and permitters, telling other people what not to do.


You will have noticed that while we are all under the thumb of authority, authority becomes composed of those who, lacking the courage to stand on their own feet and accept their share of personal responsibility, seek the safety of official positions where they escape the consequences of error and failure. Active, energetic, and progressive persons, instead of leading the rest, are allowed to move only by the grace and favor of that section of the population which from its very nature lacks all the qualities needed to produce the desired results. Authority is the power to say no, which requires little or no ability.


On a broad view, the all-important issue in the world today is individualism versus collectivism.


The Individualist thinks of millions of single human souls, each with a spark of divine genius, and visualizes that genius applied to the solution of his own problems. His conception is infinitely higher than that of the politician or planner who at best regards these millions as material for social or political experiment or, at worst, cannon fodder.

Source: Sir Ernest Benn
As quoted in The Freeman, December 1992, p.480

Tue, 01/28/2014 - 14:49 | 4376155 shovelhead
shovelhead's picture

On a broad view, the all-important issue in the world today is individualism versus collectivism.

 

And there it is.

Tue, 01/28/2014 - 11:13 | 4375060 hangemhigh77
hangemhigh77's picture

You will know the people figured it out when millions start massing in front of the NY Fed and the Fed building in DC. with shotguns

Tue, 01/28/2014 - 11:15 | 4375077 hangemhigh77
hangemhigh77's picture

Start building gallows in front of all Fed buildings. Also hang all the politicians for treason.

Tue, 01/28/2014 - 12:51 | 4375525 moneybots
moneybots's picture

"This Fed-enabled financial wealth destroys democracy"

 

We are not a democracy, we are a constitutional republic.

Tue, 01/28/2014 - 13:17 | 4375676 Debt Slave
Debt Slave's picture

That all changed on May 31, 1913 with the 17th Amendment.

Coincidence, eh?

Tue, 01/28/2014 - 16:21 | 4376616 Flakmeister
Flakmeister's picture

Really? I think that you may have missed a few dots that need connecting...

Tue, 01/28/2014 - 13:03 | 4375583 yrbmegr
yrbmegr's picture

I think a large source of inequality in this country stems from the fact that capital enjoys a tax advantage in this country versus labor.  We need to remove that distortion.  There is no justification for it.

Tue, 01/28/2014 - 13:40 | 4375774 novictim
novictim's picture

Yes!  Why should a capital gains taxation be less than income tax?  

Especially when we are in a situation where there is a 20% over-capacity to produce meaning we don't need more production capacity.  We don't need to insentivize the flow of money into creating more production...It is consumption and consumer demand that is lagging.  

We need more consumption capacity!  Lower taxes on the consumers, raise it on the wealthy and you will see demand rise, unemployment lowered and prosperity kick started.  The best years of the USA were from WW2 up to 1970's and the maximum tax rate was in the 70-90% range.

 

Did I mention that Thomas Paine and the US founding fathers wanted to create a meritocracy?

Thomas Paine believed that we should all start out on an even playing field at birth with regard to financial wealth and he felt that all the accumulated wealth at the end of one's life should be heavily taxed...ewww...but you want your own kids to have an advantage, don't you ZH assholes (present company excluded, of course).

Tue, 01/28/2014 - 20:26 | 4377555 Walt D.
Walt D.'s picture

The big difference is actually mobility. Industries that do not require large capital expenitures can move to another state or move offshore. (The international Dukakis effect). Skilled workers can do likewise. However, unskilled workers do not have this choice. Apple has biilion of dollars in capital that was earned overseas. However, if they bring it back into the US it will be taxed. (it is delusional to think that any of this tax would trickle down to the little guy. It would be pissed away as usual or would flow into the pockets of banksters cronies and bundlers.)

The key thing that is adding to the ranks of the poor are the 6 miilion people who came into the workforce in the last 5 years and are still looking foir their first job.

Anyway, nothing that a teleprompter and another crappy speech can't fix.

Tue, 01/28/2014 - 13:57 | 4375853 malek
malek's picture

 selling "insanely great" mass-market technologies that people willingly buy because it enhances their lives

Great unintentional comedy!

Tue, 01/28/2014 - 14:53 | 4376191 shovelhead
shovelhead's picture

What?

Duckface selfies on FB doesn't enhance your life?

 

Heathen.

Tue, 01/28/2014 - 15:13 | 4376303 Fishhawk
Fishhawk's picture

novictim, you seem confused about the purpose of banks in the current era.  The US is run as a democratic (mob rule), socialist, corporation, with a profit motive, and with all profits delivered to the bankers, who own the country.  See the Federal Bankruptcy Act of 1933.  As a US citizen, you have no rights; the corporation (US Federal government, incorporated in 1861) determines what is best for maximizing the profits of the bankers. The venal politicians understand that they must comply with every demand of the bankers, thus debunking any pretense that the people have a representative government. And once you join the great society (by signing up for social security, another ponzi scheme), you become chattel property of the bankers, through the security agreement with the IMF.  The key element of socialism is that the individual is meaningless; only the group has any rights.  The US does not have a treasury, or own any gold (confiscated by the bankers in 1933).  All this is supported by the private issuance of currency (debt notes; see security agreement), enforced with legal tender laws, with taxes collected to pay the interest on this usurious and odious debt to the criminal cartel who issued the debt 'money'. "Gold is the money of kings, silver the money of merchants, copper the money of households, and debt the money of slaves."  What's in your wallet?  And you think private banks are unsound?  All banks are insolvent, as they loan out 'money' they don't have.  This is fraud, and violates all laws of contracts.  So the problem remains that this country has lost the rule of law.  See Argentina for an example of what comes next...

Fishhawk 

Tue, 01/28/2014 - 16:26 | 4376629 Flakmeister
Flakmeister's picture

The world does not really work like that...

And your grasp of "socialism" would make Glen Beck blush...

That being said, TARP was indeed a financial coup d'etat...

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