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"There Is No Honest Pricing Left" - The Epochal Error Of Modern Central Banking

Tyler Durden's picture




 

Submitted by David Stockman of Contra Corner blog,

David Stockman, Director of the Office of Management and Budget under Reagan, former Congressman, and author of the bestseller The Great Deformation: The Corruption of Capitalism in Americadiscusses his book, the gold standard, bailouts, and the problems the American economy faces today.

Mises Institute: In the book, you oppose Bernanke’s view of the Great Depression, which you point out relies heavily on the views of Milton Friedman.

David Stockman: Bernanke has cultivated this idea that he is a brilliant scholar of The Great Depression, but that’s not true at all. What Bernanke did was basically copy Milton Friedman’s misguided and very damaging theory that the Federal Reserve didn’t expand its balance sheet fast enough by massive open market purchases of government debt during the Great Depression. Bernanke therefore claimed that monetary stringency deepened and lengthened the depression, but in fact interest rates plummeted during the crucial 1930-1933 period: credit contracted due to genuine and widespread insolvencies in the agricultural districts and industrial boom towns, causing bank deposits to shrink as a passive consequence. So Bernanke had cause and effect upside down - a historical error that he replicated with reckless abandon in response to the bursting of the housing and credit bubble in 2008.

Friedman’s error about the great depression led him, albeit inadvertently, into the deep waters of statism. He claimed to be the tribune of free markets, but in urging Nixon to scrap the Bretton Woods gold standard he inaugurated the present era of fiat central banking. He held that the central banking branch of the state could improve upon the performance of the free market by targeting the correct level of M1 (money supply) and thereby ensure optimum performance of aggregate demand, real GDP, and inflation. That’s Keynesianism through the monetary control dials, and has led to outright monetary central planning under Greenspan, Bernanke, and most of the other central banks of the world today.

MI: You blame many of our current woes on the movement away from monetary and fiscal discipline started decades ago. Yet, why did it take so long for the U.S. economy to get into the deep trouble we’re in today? Have things gotten worse in recent years?

DS: Although central banking does cause moral hazards and lends itself to abuses, there have been periods in which monetary and fiscal discipline have been employed. Fed Chairman William McChesney Martin, for example, really did take the punch bowl away when the party got started because he took monetary discipline seriously. Fiscal discipline under Eisenhower and the gold standard behind Bretton Woods helped put off the day of reckoning for quite a long time. But fiscal discipline went out the window with Lyndon Johnson and Richard Nixon, and the elimination of the weak gold standard behind Bretton Woods certainly didn’t help. The deficit spending of the Reagan years made things even worse.

The Greenspan and Bernanke years then opened the door the massive abuse of the system we see today. Greenspan took the Federal Reserve, which for years had been run by far more cautious and conservative men, and turned it into a machine for fine-tuning every aspect of the economy. Bernanke has continued this, and taken it even further.

MI: Among many conservatives and Republicans, it is often claimed that the Reagan years were a victory for free markets and that the 1990s vindicated this strategy. Is this the case?

DS: In the early days of the Reagan years I thought, with many others, that the Reagan Revolution would in fact lead to smaller government. I turned out to be wrong, and politics overwhelmed any commitment Reagan had to making government smaller. The reality was huge growth in the deficit, more government spending, and the laying of the groundwork for the huge debt-based problems we have today.

During the Reagan years and since, the GOP has made peace with tinkering with the economy through the central bank, and joined the Democrats in wanting to gin up so-called aggregate demand and stimulate growth. Dick Cheney declared that deficits don’t matter, and the Republicans abandoned any serious commitment to taking a true hands-off approach to the economy.

In spite of this, the perception remains that the Reagan years were a period of laissez-faire, and this in turn has led to the myth that the fiscal indiscipline of the 1980s led to the boom of the nineties. In reality, the 1990s were a period of monetary profligacy, with a big expansion in the money supply under Greenspan, and a real acceleration in the Fed’s drive to manipulate economic growth and employment from the Fed. This in turn led to the dot-com bubble which burst in 2000-2001.

MI: We’ve been told that deregulation of the financial sector caused the 2008 crisis, and that a lack of regulation allows the “One Percent” to prosper while the “99 Percent” suffers.

DS: Fundamentally, the financial crisis was a product of the Fed’s repeated blowing up of bubbles, and not of deregulation. Moreover, any suffering inflicted on the 99 Percent by our system doesn’t come from the free market, it comes from the crony capitalism that is now our economic system. The Blackberry Panic of September 2008, in which Washington policy makers led by former Goldman Sachs CEO Hank Paulson, panicked as they saw Wall Street stock prices plummet on their mobile devices, had very little to do with the Main Street economy in the United States. The panic and bailouts that followed were really about protecting the bonuses and incomes of very wealthy and politically well-connected managers at banks and other heavily leveraged businesses that were eventually deemed too big to fail. What followed was a massive transfer of wealth from the taxpayers and middle-class savers, in the form of bailouts and zero interest rates on bank deposits imposed by the Fed, to the so-called One Percent.

As I show in my book, none of this was necessary to save the larger economy, since the losses that would have taken place as a result of the collapse would have been largely limited to Wall Street. What the bailouts did was preserve the wealth of wealthy and powerful Wall Street players. Meanwhile, we’ve seen no real economic recovery in the rest of the economy.

This transfer of wealth continues, by the way, in the form of relentlessly low interest rates, and an ongoing war by the Fed on safe and stable investment tools such as savings accounts and low-risk bonds. Indeed, this is a deliberate policy to get people away from these safer investments, and to get them investing in more volatile and higher yield investments. The idea is that the Fed can somehow force bigger returns on these riskier investments, and this will lead to a wealth effect. People will then think they’re richer, and we can then spend ourselves into a recovery. This is a terrible doctrine, but that’s what rules Washington right now. It actively works against middle-class people who want to work and save and invest their money responsibly and conservatively.

MI: It seems that the Fed today tries to manage everything from growth to employment to the mortgage rate. Has this always been the case?

DS: The Greenspan-Bernanke-Yellen Fed has become a tool for central planning and manipulation of the economy, but it hasn’t always been that way. One way to reverse this dangerous and unstable deformation of policy would be to return to the vision of Carter Glass, and employ the Fed as a “banker’s bank.” In such a situation, the Fed takes its cues from the market. The market sets prices (i.e., interest rates on money and debt), and the Fed only provides additional liquidity, in exchange for sound collateral, at a penalty rate, when the banks needed liquidity.

The system we have now is one in which the Fed decides, through a Politburo of planners sitting in Washington, how much liquidity is necessary, what the interest rate should be, what the unemployment rate should be, and what economic growth should be.

There is no honest pricing left at all anywhere in the world because central banks everywhere manipulate and rig the price of all financial assets. We can’t even analyze the economy in the traditional sense anymore because so much of it depends not on market forces, but on the whims of people at the Fed.

MI: Is there any way to fix things before a major crisis comes?

DS: You’re not going to have legislation to change the mandate of the Fed, and I don’t see how you’ll get new people on the Fed who think differently from the current group. Even if you get rid of Bernanke, then you just get Janet Yellen. I just don’t see the political will right now to make any great reforms or cut spending significantly.

I think the political realities of the situation make the most likely scenario one in which there will be some kind of real financial collapse and disorder that will require a total reconstruction of the system. It’s impossible to say how that will be done, and this may be the chance to go back to a gold standard or to a very sharply circumscribed remit for central banks.

 

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Sun, 07/06/2014 - 13:08 | 4929162 Arius
Arius's picture

i am afraid americans are going to fell and not raise to the challenge ... it hurts to see it going down the drains

Sun, 07/06/2014 - 14:00 | 4929276 DoChenRollingBearing
DoChenRollingBearing's picture

"Honest pricing" in financial assets probably is a huge problem.  Stocks & bonds have had huge run-ups.  A lot of real estate is (IMO) over-priced.

So what is fairly valued, or better yet, under-valued?  Gold.

***

It is possible that certain niches of small business may be able to make decent profits (here in America).  But, I also read that small business, here, are laboring under over-regulation and taxes...  But, I have not run a small business here since the early 1990s so I am not in a position to judge well.

I can tell you all, though, that prices for Asian rolling bearings for cars are honestly priced.  We make money with them in Peru.  Even though Peru's tax authorities are increasingly aggressive (and intrusive, oh yeah), I find that our business there has worked out better than the three small businesses (all failed in one way or another) that I started or help start here in America.

My experience with starting small business in the USA should be a warning.  And that is from the 1980s and 1990s!  It is likely worse now.

Sun, 07/06/2014 - 14:48 | 4929391 DavidC
DavidC's picture

Interesting comments DoChen.

DavidC

Sun, 07/06/2014 - 16:57 | 4929664 Anusocracy
Anusocracy's picture

Over a long enough timeline everyone gets rewarded for their stupidity.

In the case of forced collectives, for other people's stupidity also.

Mon, 07/07/2014 - 03:49 | 4930921 bycatch
bycatch's picture

Fairly priced? The reason is that the Chinese wheel bearings I bought from NAPA for my Saturn both failed within a short time, maybe?

Sun, 07/06/2014 - 17:54 | 4929804 Thinking it Thru
Thinking it Thru's picture

Americans are and will not rise to the challenge- most don't even know they are being challenged. This talk of the FED is of course TRUE but there is more to it than Stockman says. The FED will and already is paying for millions of Americans to live JUST comfortably enough- TV/Internet/Movies/Exceptionally cheap food/rent- so they don't have to work or do anything but mildly consume and play in virtual Internet reality. As such all these fears of a collapse are ill-conceived! The American economy is not going to collapse anytime soon. As long as there is free fed money then everyone will get paid, and even the majority have already or will learn to be happy with the virtual Internet driven lifestyle. People on Zero hedge sometimes like to get all charged up about a big collapse when they don't realize that the collapse is here already and most people can't and won't do a damn thing about it, nor do they even particularly care so much after a few years of classical reinforcement. The really is no reason the FED cannot/will not stop printing money. I think one day Tyler D will realize all of this. j

Sun, 07/06/2014 - 13:12 | 4929172 screw face
screw face's picture

..standing by ...............got popcorn?

Sun, 07/06/2014 - 15:40 | 4929497 Eyeroller
Eyeroller's picture

Yeah, and my popcorn is STALE.

When will this MF blow?

The longer it takes to happen, the more devastating the consequences.

Sun, 07/06/2014 - 15:57 | 4929531 JR
JR's picture

I think the political realities of the situation make the most likely scenario one in which there will be some kind of real financial collapse and disorder that will require a total reconstruction of the system. It’s impossible to say how that will be done, and this may be the chance to go back to a gold standard or to a very sharply circumscribed remit for central banks.—David Stockman

Faster than anybody thinks, because of the size of this crisis. Stockman has a burr under his saddle; thank goodness.

Sun, 07/06/2014 - 13:13 | 4929176 Spaceman Spiff
Spaceman Spiff's picture

Alternative title:  

"There Is No Honest Pricing Left" - The Apocryhal Era Of Modern Central Banking

or

 

"We fucked"

Sun, 07/06/2014 - 13:41 | 4929237 cossack55
cossack55's picture

Fuck price.  Value is almost everything.

Sun, 07/06/2014 - 13:16 | 4929183 ak_khanna
ak_khanna's picture

The stock, bond, commodity and currency exchanges have been reduced to gambling dens whereby the more powerful traders with deep pockets move the markets to maximize their own profits at the expense of the remaining not so powerful players. The big boys have enormous money power to move the markets in the direction which results in maximum profits for themselves. They effectively use the media to lure the other players in the market to a position where they would incur maximum loss.

The markets continue to rise till all short positions in the market are covered and the majority of traders move to the long side. Once this is done the market falls till all long positions are closed and short positions undertaken. Then rinse and repeat. The price mechanism has little to do with the actual demand, supply, fundamentals or state of the economy.

www.marketoracle.co.uk/Article40231.html

Sun, 07/06/2014 - 13:16 | 4929184 spinone
spinone's picture

Yes, but many of us here won't live long enough to see the collapse.

Sun, 07/06/2014 - 13:21 | 4929197 screw face
screw face's picture

-1...sad but true!

Sun, 07/06/2014 - 13:21 | 4929193 alfred b.
alfred b.'s picture

 

     Like with everything else:  it takes time; but reality always sets in!

   The Fed tried to fit a square into a circle,and some dozen years later, it's still a no-go!    And now the whole world sees the Fed as illogical.

 

 

Sun, 07/06/2014 - 15:31 | 4929472 Debt-Is-Not-Money
Debt-Is-Not-Money's picture

"They are a den of liars and thieves", Andrew Jackson

also,

"DS: Although central banking does cause moral hazards and lends itself to abuses, there have been periods in which monetary and fiscal discipline have been employed."

This term "moral hazard" bugs me to no end! A hazard is a danger and/or risk with the hazard here being immorality, therefore the term should properly be "immoral hazard".

Sun, 07/06/2014 - 16:18 | 4929584 Greenskeeper_Carl
Greenskeeper_Carl's picture

I like David stockman a lot ad read everything he writes, but he doesn't quite take it far enough. His defense of the fed under certain chairmen is where we part ways. I'm not here to bad mouth him, he has spread knowledge far and wide, and has a certain credibility that makes people actually listen to him. However, the idea the we need a central bank, and that it can be restrained long term is where we part ways. He points to a few years under a couple fed chairmen where they acted responsibly and did the right thing, but recent(and past) events show that most of the time, they act irresponsibly and merely kick the can. True free markets do not need any kind of central bank, or central planning authority. This idea of a central bank lends itself to abuse and moral hazard, and puts too much power in the hands of a small unaccountable group, and should not exist

Tue, 07/08/2014 - 17:48 | 4937056 omniversling
omniversling's picture

Recommend James Corbett's (http://www.corbettreport.com/) fresh documentary on the Fed and it's origins. Even those who've read Creature of Jekyl Island will find new info, and it's an easy one to pass on to friends/family whom may not have realised yet the origins and consequences of selfreplicating fractional reserve ponzi debt enslavement.

Century of Enslavement - The History of the Federal Reserve

https://www.youtube.com/watch?v=5IJeemTQ7Vk

Sun, 07/06/2014 - 16:32 | 4929611 Greenskeeper_Carl
Greenskeeper_Carl's picture

I like David stockman a lot ad read everything he writes, but he doesn't quite take it far enough. His defense of the fed under certain chairmen is where we part ways. I'm not here to bad mouth him, he has spread knowledge far and wide, and has a certain credibility that makes people actually listen to him. However, the idea the we need a central bank, and that it can be restrained long term is wrong. He points to a few years under a couple fed chairmen where they acted responsibly and did the right thing, but recent(and past) events show that most of the time, they act irresponsibly and merely kick the can. True free markets do not need any kind of central bank, or central planning authority. This idea of a central bank lends itself to abuse and moral hazard, and puts too much power in the hands of a small unaccountable group, and should not exist

Sun, 07/06/2014 - 21:58 | 4930434 Midnight Rider
Midnight Rider's picture

I'm not so sure Stockman is an advocate of central banks. If one exists, he indicates it should be limited in scope to being a commercial bank's bank. A bank that only clears transactions between commercial banks and provides them liquidity at a penalty rate if they need it. 

Sun, 07/06/2014 - 22:12 | 4930471 Midnight Rider
Midnight Rider's picture

The central bankers Stockman gives credit to in his book are those who helped reverse the failings of those that came before them. In the ideal world however, after these corrections were made he would prefer a central bank that is in essence only a functional clearing house for transactions between commercial banks. There is a procedural need for this function and that is what he would limit them to. There would be no central planning function or authority involved.

Sun, 07/06/2014 - 13:21 | 4929198 The Most Intere...
The Most Interesting Frog in the World's picture

Americans are going to get exactly what they deserve. You wanted a bigger government, never want to feel any pain, you are entitled to this benefit and that benefit, most are as lazy as a day is long. Now open up and say ahhhh stupid!

Sun, 07/06/2014 - 13:36 | 4929227 Endgamer
Endgamer's picture

I'm one American who doesn't deserve what's coming and there are plenty more like me.  

Sun, 07/06/2014 - 15:45 | 4929507 Eyeroller
Eyeroller's picture

Doesn't matter.

When a tidal wave comes, it collectively kills anyone who happens to be on the beach at the time, and makes no distinction between child and child molester.

The voters as a collective elected government officials in both parties who placed Bernanke, et al. in power.

 

 

Sun, 07/06/2014 - 13:21 | 4929199 I Write Code
I Write Code's picture

I think Stockman needs to revisit the events of 2008.  He's mostly right, but even a small difference might change his advice.  The market failure, largely caused by very unwise mark-to-market legislation that might have made sense in good times, would probably have wiped out 50% to 80% of my modest (not 1%) savings if *something* dramatic was not done.  Did it have to be TARP?  *WAS* it TARP?  Only half of the TARP money was ever committed, and all of that came back with a profit.  Much more damage has been done by the continuing ZIRP and QE.

ZIRP and QE do NOT follow naturally from TARP, and insofar as they were ever good ideas, they could have been a tenth the size for a tenth of the duration.  Not to mention Obama didn't have to borrow a trillion bucks a year to hand out to Solyndra and teacher's unions.  A *trillion* bucks a year, where *is* it all going?

If Stockman wants to really perform a service, he should "follow the money" in gruesome detail and publish that as a book, hopefully right in the middle of the 2016 presidential campaigns.

Sun, 07/06/2014 - 13:54 | 4929263 ebworthen
ebworthen's picture

The very idea of bailing out corrupt and failed corporations/banks/insurers is the problem.

Was it your fault?  Was it mine?  No.  Yet who was punished?  We were.  When there is immorality and unethical behavior you can't sit and debate over china patterns and color schemes.

It is simple; if government, industry, and banking don't have to pay their debts or follow the law, why should I?

This truth is distilling down through the society, and it will be a toxic brew when it is done.

Sun, 07/06/2014 - 14:17 | 4929329 nickels
nickels's picture

They stopped making cars with sloppy steering when people stopped buying cars with sloppy steering. Vote like your candidate was lying to you.

Sun, 07/06/2014 - 14:34 | 4929358 MayIMommaDogFac...
MayIMommaDogFace2theBananaPatch's picture

The very idea of bailing out corrupt and failed corporations/banks/insurers is the problem.

Bingo! +100

Prosecute the fraud -- stop bailing out failed businesses.  If they had taken this basic approach (ha-ha! I know) things would be quite different now.

Sun, 07/06/2014 - 14:39 | 4929373 I Write Code
I Write Code's picture

I had money in some major brokerage money market funds, that were unleveraged and supposedly safe, but might well have failed in the next couple of days if TARP had not been voted and partially used, and the Fed had not sopped up bad instruments over the next year.  I'd like to see a detailed analysis of what might have happened.  Of course those money market funds are gone now - their yield fell to zero, and I've probably earned less on most of those funds than the 5% or so they were yielding around 2006.  If instead the fund had lost 20% of its value, and maybe the brokerage made up half of that, and I would have lost 10%, but the fund would have survived and continued to pay say 4%, would that have been better all around?  Maybe.

OTOH the trillion dollar AIG CDS department, Citibank and Merrill SIVs, were crooked and fraudulent from the start.  Maybe TARP should have been used to bail out AIG just long enough to close it down and jail the top 100 execs, instead they are still at it, completely unreformed afaik.  Maybe they had to be saved to avoid impacting a million retirement accounts of more or less innocent individuals.  OTOH maybe those individual were NOT innocent if they were dealing with the corrupt AIG.  Maybe those million individuals had ALREADY BENEFITED from the fraudulent and corrupt activities of AIG so *should* indeed have suffered a loss.

But the decision was made to expend a lot of money just exactly to avoid sorting it all out.  There was some good in that and some bad, but overall I guess it was a good idea.  It's that NO CLEANUP followed, that is the real travesty.

Sun, 07/06/2014 - 16:47 | 4929649 Libertarian777
Libertarian777's picture

mark-to-market is bad?

I would posit (as libertarians do) that a free market in the financial sector would have prevented this.

instead of everyone just piling all their cash into money market / brokerage / FDIC insured banks, people would be a hell of a lot more concerned about WHICH bank they put their money in, where it was invested and similar.

Other products would pop up where people could easily compare banks' leverage, mark-to-market portfolios etc. and this would keep the banks honest.

Would we have a lot more bank failures? YES, absolutely. And this is a GOOD THING. There would be tens of thousands more banks, but any single bank that goes down wouldn't affect everyone in the economy.

 

Decentralization is the key thought.

Sun, 07/06/2014 - 13:29 | 4929200 earleflorida
earleflorida's picture

'Here's an interesting point of contention I have with this stockton character pushing his book-- was there anything said about the FRBsystem charter being extended beyond 2013... and, is our 'fiat'?, now on auto-pilot as a supremacist imperialist appendix, necessary for our very existence,...!'

jmo

 

Sun, 07/06/2014 - 13:55 | 4929268 Atomizer
Atomizer's picture

Silence peasant earleflordia. You leave those important decisions to our nutter Federal Reserve elected members.

/sarc

Sun, 07/06/2014 - 14:37 | 4929362 earleflorida
earleflorida's picture

LMAO... thanks I need that today, Atomizer.

Got so pissed at Stockton's piece, I had to look at our romanized government before the 'Et tu, Brute' plays the blame game via red, blue = green for me?

"Discontinuance of M3"    Mar. 23, 2006  (the final tally on the nations, Money Aggregate gone from public disclosure? Why did Greenspan do this?)   http://www.federalreserve.gov/releases/h6/discm3.htm 

"Text of the Humphrey-Hawkins Full Employment and Training Act"     Oct. 27,1978   (mandating complete control of america's labor force into the hands of a private banking system... WTF!)    http://www.govtrack.us/congress/bills/113/hr1000/text

;-()

 

Sun, 07/06/2014 - 13:29 | 4929215 Seasmoke
Seasmoke's picture

Fuck the Fed. And you too Baxter Stockboy. 

Sun, 07/06/2014 - 13:32 | 4929218 ebworthen
ebworthen's picture

Imagine a Spouse in a household who could "expand their balance sheet" of time in a day.

The other Spouse and the Children would be run ragged by this person who had infinite time.

The magical Parent could add 4-8 hours to their day and believe that everyone else in the household would "catch up".

The meaning of time for the other Parent and Children would lose meaning as they would feel slow compared to the magical Parent who seemed to have all the time in the World to accomplish things.

The non-magical members of the household would either work themselves raw trying to catch up, or just give up.

The magical Spouse would become increasingly frustrated that all their extra hours aren't making things better; yet they would continue to add hours and tell themselves "it will get better" and rationalize.

Pretty soon no one's role in the Family will have meaning or be appreciated, and the household will fall apart.

Sun, 07/06/2014 - 13:34 | 4929225 Totentänzerlied
Totentänzerlied's picture

"We can’t even analyze the economy in the traditional sense anymore"

Yes, funny things happen when your models' axioms and foundational assumptions turn out to be dead wrong.

Sun, 07/06/2014 - 13:37 | 4929228 Atomizer
Atomizer's picture

Modern Central Banking recourse. Sunday Humor.

 

I realize some don’t understand the language, thought it would be best to provide a translator.

Just a bit of humor on a slow Sunday afternoon. Enjoy.

Sun, 07/06/2014 - 13:37 | 4929232 buzzsaw99
buzzsaw99's picture

every fed president will be worse than the one before just as every usa president will be worse than the one before. it's all downhill from here bitchez.

Sun, 07/06/2014 - 14:02 | 4929291 DoChenRollingBearing
DoChenRollingBearing's picture

I have come to respect buzzsaw99's predictions.  

Ignore them at your peril.

Sun, 07/06/2014 - 21:50 | 4930410 The Most Intere...
The Most Interesting Frog in the World's picture

Agreed. At this point you would have to say Greenspan was a moderate compared to Bernanke.

Sun, 07/06/2014 - 13:40 | 4929234 Joebloinvestor
Joebloinvestor's picture

 

"As I show in my book, none of this was necessary to save the larger economy, since the losses that would have taken place as a result of the collapse would have been largely limited to Wall Street. What the bailouts did was preserve the wealth of wealthy and powerful Wall Street players. Meanwhile, we’ve seen no real economic recovery in the rest of the economy."

 

So all this was just a book promotion.

Sun, 07/06/2014 - 13:48 | 4929258 Atomizer
Atomizer's picture

Sounds as if you don't watch CPAN, book promotions galore.

Sun, 07/06/2014 - 13:56 | 4929275 ebworthen
ebworthen's picture

Perhaps he's mad that the nation is being torn down by Wall Street in collusion with Washington.

And every thing he says after "As I show in my book..." is spot-on 110% truth.

Sun, 07/06/2014 - 13:44 | 4929245 SMC
SMC's picture

What, fake statistics, focusing on optics instead of problems, lies, corruption, money "printing" and criminality are not saving the western economies? ROFL.

The only choice is between being a victim or a survivor.

Within a few years, reality may be that victim A approaches survivor B with a $100 USD bill for a dozen eggs. The survivor will tell the victim to go elsewhere or perhaps offer work on the farm in exchange for the dozen eggs.

Then again, there is always the possibility that victim A and friends will shorten their lives by attempting to influence a deal through violence and intimidation...

Sun, 07/06/2014 - 13:46 | 4929250 pragmatic hobo
Sun, 07/06/2014 - 14:21 | 4929335 ThirdCoastSurfer
ThirdCoastSurfer's picture

Please tell me how the price of gasoline can vary by $.012 by the same company over a distance of 6 miles? You want to say supply and demand, but the stations with the lower prices are on the poor side of town and they almost always have had a line 3 deep, for years, and there are no other competitors to speak of. 

Then you look at a more macro picture and you see an even greater disparity in price for which taxation and blend is often blamed. While they are certainly factors, it fails to fully expain the disparity. 

I say that the gasoline company and others are likely complicit with the Fed and the price of gas acts as a regulator to the economy. If an area of the country starts to accelerate in advance of the whole, they raise the price of gas to moderate it. 

Sun, 07/06/2014 - 14:53 | 4929406 JR
JR's picture

What followed was a massive transfer of wealth from the taxpayers and middle-class savers, in the form of bailouts and zero interest rates on bank deposits imposed by the Fed, to the so-called One Percent. – David Stockman

What did anyone expect when the world’s richest bankers secretly and aggressively set up a system for controlling America’s currency for the cartel’s own benefit? Why would anyone expect them to be civic minded or interested in developing polices that would help the economy unless it first provided a windfall for them.

These men, the richest in the world, were competitors and they came together in 1910 to set up a money trust plan that would eliminate competition among themselves while combining their efforts into a grand monopoly over the U.S. economy. And in addition to becoming partners with each other, they would bring the U.S. government into their money trust plan as a partner, a corrupting influence so powerful over America’s politicians that fiat currency would provide the means of controlling the future leaders of America, putting the entire government of the United States at the disposal of a select few men on Wall Street.

They were criminals before they came, and they came to commit a crime - the crime of the century.

The Pujo Subcommittee within the House Committee Banking Committee issued a report (1913) saying:

"If by a 'money trust' is meant an established and well-defined identity and community of interest between a few leaders of finance…which has resulted in a vast and growing concentration of control of money and credit in the hands of a comparatively few men…the condition thus described exists in this country today...To us the peril is manifest...When we find...the same man a director in a half dozen or more banks and trust companies all located in the same section of the same city, doing the same class of business and with a like set of associates similarly situated all belonging to the same group and representing the same class of interests, all further pretense of competition is useless.... " Historical Beginnings… The Federal Reserve Bank of Boston, Johnson, Roger (December 1999).
Sun, 07/06/2014 - 16:44 | 4929637 Libertarian777
Libertarian777's picture

the reality is when the current financial system collapses, those in power will use it as an example of requiring even MORE power. 

Ala Krugman's 'we didn't spend enough in stimulus to make an effect' type of thought.

So when the Fed Reserve destroys everything, they will build something else and call it the People's Bank (because it's needed).

Sun, 07/06/2014 - 18:52 | 4929981 exartizo
exartizo's picture

ummm.... this is old news.

really old news.

Mon, 07/07/2014 - 04:27 | 4930958 Ghordius
Ghordius's picture

"One way to reverse this dangerous and unstable deformation of policy would be to return to the vision of Carter Glass, and employ the Fed as a “banker’s bank.” In such a situation, the Fed takes its cues from the market. The market sets prices (i.e., interest rates on money and debt), and the Fed only provides additional liquidity, in exchange for sound collateral, at a penalty rate, when the banks needed liquidity."

that's actually the policy that Walter Bagehot championed. it even has it's own wikipedia entry, "Bagehot's Dictum"

the whole "penalty rate" idea was always founded on the premise that a central bank should allow bad banks to fail, or, alternatively, engages with the government in a nationalization or founding of "bad banks", a different form of restructuring... if they don't have the sound collateral and can't absorb the costs of the penalty rates

Mon, 07/07/2014 - 06:29 | 4931040 AdvancingTime
AdvancingTime's picture

Because of the uncertainty in today's market and the direction events might take the subject of "value and worth" continues to garner a fair amount of interest and remains relevant. History is chucked full of  distorted markets, debts unpaid, promises unfilled, and bubbles.

These "interesting times" play havoc with the value of things and what they are worth. Like some of the cruel games children play you don't want to find yourself without a chair or holding the "hot potato" when the game ends. More on this important subject in the article below.

http://brucewilds.blogspot.com/2014/05/value-and-worth-constantly-change...

 

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