Who Is Lying: The Federal Reserve Or... The Federal Reserve? And Why Stalin "Lost"

Tyler Durden's picture

When one thinks of the early 1950's, things that often come to mind are fries and milkshake, muscle cars, Little Richard, and greased hair. Things that rarely come to mind are that the US and China were openly at war over a little piece of land called Korea, that the Treasury market did not exist, that short and long end rates were "fixed" by the Fed at 0.125% and 2.5% respectively, even as inflation was at the highest it has ever been in the post war period at over 20%. What absolutely never comes to mind, is that on March 3, 1951, the world as we know it changed forever, after a little noted event known as the Fed-Treasury Accord of March 3, 1951 took place, and mutated the role of the Federal Reserve, which set off on a path that would ultimately lead to the disastrous economic state the world finds itself in today.

Oh and another thing that never comes to mind, is that while the current iteration of the Fed, various recent voodoo economic theories, and assorted blogs, all claim that excess bank reserves are never an inflationary threat, it is precisely two Federal Reserve chairmen's heretic claims that reserves will light an inflationary conflagration, that forced then president Truman to eliminate not one but two Fed Chairmen, and nearly result in the "independent" Federal Reserve being subsumed by the Treasury to do its monetization and market manipulation/intervention bidding. Which then begs the question: who is telling the truth about the linkage of reserve accumulation to inflation - the Fed of 1951, or every other Fed since, now firmly under the control of the Treasury-banker syndicate. Because they can not both be right.

Why is March 3, 1951 such an important date? Because, more than anything, the confluence of events that led to the "Accord" signed on this day have extensive parallels to our current situation, as the attached paper by the Federal Reserve of Richmond shows in exquisite detail, yet 100% in reverse.

In a nutshell what happened in the late 1940s and early 1950s was that in the aftermath of WWII, and the outbreak of the Korean war, America found itself in a very odd situation... one never really encountered until today. The country had soaring inflation - as in real inflation, not just core inflation measured by hedonic adjustments and excluding all those thing that actually do go up in price. More importantly, it had the 1950's version of ZIRP - only then it was called a peg, in this case of 0.375%, and subsequently 0.125% on short end Treasurys, and 2.5% on long-dated paper. In other words, the monetary situation in 1951 was one where both the short and long end of the curve were artificially boosted (think ZIRP and Twist), just so holders of Treasury paper (at that time only insurance companies as banks were not allowed to invest in TSYs) did not experience losses and get further "demoralized" in addition to the war that Truman was currently waging.

In fact, the following quote from none other than Truman is as idiotic, yet as valid today, as it was 61 years ago:

[T]he Federal Reserve Board should make it perfectly plain. . . to the New York Bankers that the peg is stabilized....I hope the Board will...not allow the bottom to drop from under our securities. If that happens that is exactly what Mr. Stalin wants. (FOMC Minutes, 1/31/51, p. 9)

And this:

The FOMC met with President Truman late in the afternoon of Wednes- day, January 31.17    Truman began by stating that “the present emergency is  greatest this country has ever faced, including the two World Wars and all the preceding wars.. . . [W]e must combat Communist influence on many fronts.. . . [I]f the people lose confidence in government securities all we hope to gain from our military mobilization, and war if need be, might be jeopardized.”

This is arguably the earliest recorded iteration in modern history of a "the world will come to an end unless you don't do what I tell you" type of threat uttered by a member of the administration (ahem Hank Paulson) to a governing body. We will skip commenting on the supreme irony that according to Truman, Stalin would win if the US did not engage in the same central planning that ultimately brought the Soviet empire down. 

Yet what is so very different about this date in history, is that while it was the Treasury pushing tooth and nail for endless bond pegging by the Fed (apparently nobody had thought of QE back then yet, because it would have been all the rage), the body warning about the potential threat of runaway inflation from a surge in reserves, as well as the dangers associated with central planning was... The Federal Reserve.

Huh !!??

The same Fed that can not withhold its exuberance in encouraging ZIRP, Twist, LSAP, selling of Treasury Puts, and every other form of market intervention known to man, warning the president these very same actions would lead to ruin? And not only that but Truman being forced to get rid of not just Fed veteran Marriner Eccles (after whom the building in which centrally planned schemes are hatched every single day in yet another supreme irony), but also his successor Thomas McCabe who also refused to follow the precepts of central planning... who in turn was replaced by a Treasury muppet, or someone who will gladly monetize US debt whenever needed, at which point the scene for the final outcome was set.

That is impossible you say. Oh, not only is it impossible but it gets much better.

Because not only did the two veteran Fed chairmen warn against the state's incursion into central planning, but they explicitly said something which the Fed, or at least its modern versions, have rejected over and over, especially during congressional committees: that a build of bank reserves is the surest way to spark hyperinflation.

But....but....but.... this is what fringe tin-foil hat blogs allege.... not Fed chairmen who between them have over 20 years of tenure.

Well, here are the facts:

“We have marched up the hill several times and then marched down again. This time I think we should act on the basis of our unwillingness to continue to supply reserves to the market by supporting the existing rate structure and should advise the Treasury that this is what we intend to do—not seek instructions” (FOMC Minutes, 8/18/50, p. 137).

 

[Fed member] Sproul would state the idea that a central bank controls inflation through the monetary control made possible by allowing market determination of the interest rate: "[T]he Committee did not in its operations drive securities to any price or yield....[M]arket forces had been the determining factor, and that only in resisting the creation of reserves had the committee been a party to an increase in interest rates. That...was the result of market forces, and not the action of the Committee. (FOMC Minutes, 3/1/51, pp. 125–26)"

In response to Truman's ceaseless demands for pegging interest rates even as inflation was spiking over 20%, NY Fed president Sproul said that...

...this “would make the Federal Reserve System a bureau of the Treasury and, in light of the responsibilities placed in the System by the Congress, would be both impossible and improper” (FOMC Minutes, 1/31/51, p. 23).

In other words, pegging (i.e., ZIRP, Twist, LSAP)... is "impossible and improper"... is unconstitutional another word for it?

In retrospect perhaps we were a little too rought on Mr. Martin, who despite being a Treasury puppet, had these words to say:

In his speech accepting an appointment to the Board of Governors, Martin (1951, p. 377) said:

 

"Unless inflation is controlled, it could prove to be an even more serious threat to the vitality of our country than the more spectacular aggressions of enemies outside our borders. I pledge myself to support all reasonable measures to preserve the purchasing power of the dollar."

There are those who claim the Fed has become the bankers' puppet. It was not always so. In fact, the bankers loathed the Fed... Until the "Accord"

The banking community contributed to the Fed’s isolation by refusing to support its position. On February 2, the Board had met with the Federal Advisory Council, which represents the views of large banks. At that meeting, Eccles accused bankers of a lack of “courage and realistic leadership” (Board Minutes, 2/20/51, p. 389).

 

The Executive Committee refused to withdraw the FOMC’s letter to the President. Furthermore, it wrote a defiant letter to Senator O’Mahoney. The initial substantive paragraph began with the famous quote from John Maynard Keynes: “[T]hat the best way to destroy the Capitalist System was to debauch the currency” (FOMC Minutes, 2/14/51, p. 87).

It just gets better, as Marriner Eccles puts it into overdrive:

"We favor the lowest rate of interest on government securities that will cause true investors to buy and hold these securities. Today’s inflation. ... is due to mounting civilian expenditures largely financed directly or indirectly by sale of Government securities to the Federal Reserve.. . . The inevitable result is more and more money and cheaper and cheaper dollars." (FOMC Minutes, 2/7/51, p. 60)

Yet punchline #1:

[We are making] it possible for the public to convert Government securities into money to expand the money supply....We are almost solely responsible for this inflation. It is not deficit financing that is responsible because there has been surplus in the Treasury right along; the whole question of having rationing and price controls is due to the fact that we have this monetary inflation, and this committee is the only agency in existence that can curb and stop the growth of money.. . . [W]e should tell the Treasury, the President, and the Congress these facts, and do something about it....We have not only the power but the responsibility....If Congress does not like what we are doing, then they can change the rules. (FOMC Minutes, 2/6/51, pp. 50–51)

And #2 and final:

Governor Eccles and Representative Wright Patman, who was a populist congressman from Texarkana, Texas, went head-to-head:

 

Patman: Don’t you think there is some obligation of the Federal Reserve System to protect the public against excessive interest rates? 

 

Eccles: I think there is a greater obligation to the American public to protect them against the deterioration of the dollar. 

 

Patman: Who is master, the Federal Reserve or the Treasury? You know, the Treasury came here first. 

 

Eccles: How do you reconcile the Treasury’s position of saying they want the interest rate low, with the Federal Reserve standing ready to peg the market, and at the same time expect to stop inflation? 

 

Patman: Will the Federal Reserve System support the Secretary of the Treasury in that effort [to retain the 2 1/2 percent rate] or will it    refuse?. . . You    are    sabotaging    the    Treasury.    I    think    it    ought    to    be stopped. 

 

Eccles: [E]ither the Federal Reserve should be recognized as having some independent status, or it should be considered as simply an agency or a bureau of the Treasury. (U.S. Congress 1951, pp. 172–76)

And there you have it folks, clear as daylight, every aspect of the tension of the "independent" Fed brought to the surface. Because the few men who dared to stand up against Truman,  the doctrine of central planning, "pegging" Treasury prices,  and the banking cartel whose sole prerogative has always and only been cheap and easy money, all got their just deserts:

Fed president #1:

Eccles also reported in his memoirs that shortly before this event he had completed a letter of resignation to the President. He then decided to postpone his resignation. Eccles had been Chairman of the FOMC from its creation in 1935 until 1948. He did not intend to leave Washington with the Federal Reserve under the control of the Treasury. According to a Truman staff member, Truman had failed to reappoint Eccles as Board Chairman in 1948 to show him “who’s boss” (Donovan 1982, p. 331).

And Fed president #2...

While in the hospital, Snyder conveyed to Truman the message that he felt he could no longer work with McCabe. Without a working relationship with the Treasury, McCabe could not function as Chairman of the Board of Governors. McCabe sent in a bitter letter of resignation, but resubmitted a bland version when asked to do so by the White House. McCabe, however, conditioned his resignation on the requirement that his successor be acceptable to the Fed.

As a reminder Snyder was the Secretary of the Treasury.

And whom did Truman replace McCabe with?

On March 15, the President appointed William McChesney Martin to replace McCabe.

Martin was undersecretary of the Treasury: the same institution that wanted all objectors to central planning scrapped. His position? Quote the Fed:

Truman and Snyder were populists who believed that banks, not the market forces of supply and demand, set interest rates. Truman felt that government had a moral obligation to protect the market value of the war bonds purchased by patriotic citizens. He talked about how in World War I he had purchased Liberty Bonds, only to see their value fall after the war.

Yet by keeping bonds pegged at ridiculously low prices during the late 1940s, and early 1950s, inflation exploded.

And that is what marked the beginning of the end, as while the Fed may have gained its independence, the US presidency, acting on behalf of the banks and populism (to keep capital losses to a minimum) made it all too clear anyone who steps out of line would be fired.

Call it a Stalinist putsch.

Actually hold on, did we say Stalin lost? Perhaps we may need to revise that. And while we got closure on that, we are still confused: is the real seed of inflation in reserves?

"Forced by the rate peg issue to make a stand on the role
of a central bank in creating inflation, Eccles expressed the nature of a
central bank in a fiat money regime. It was not private
speculation or government deficits that caused inflation, but rather
reserves and money creation by the central bank."
[The Treasury-Fed Accord: A New Narrative Account, Richmond Fed, Robert L. Hetzel and Ralph F. Leach]

Ok, now we get it.

And should we listen to the Fed or the... Fed?

Read the full absolutely must read Rchmond Fed narrative of the 1951 accord here. We can only hope someone in Congress can ask Bernanke for his take on the allegations made by the man responsible for the name of the current Fed headquarters.

 

Comment viewing options

Select your preferred way to display the comments and click "Save settings" to activate your changes.
smb12321's picture

Yes, I'd say read some history books.  To compare Lincoln to a contemporary "corporate lawyer" is well, absurd.  It's like saying Solomon's temple was the first central bank or the Founding Fathers were really the bad guys.  Any good biography will document the woes and self-doubts Lincoln entertained during the war.  His benevolent attitude toward the South afterwards would have been great for the nation instead of what happened. 

FeralSerf's picture

His benevolent attitude as exemplified by General Sherman in his goodwill tour of Georgia.

GOSPLAN HERO's picture

"Honest Abe" represented railroad builders, canal builders, industrialist et al.

The Lincoln history taught in public sshools is pure BS.

My God, even dickheads like Karl Marx liked Lincoln.

 

insanelysane's picture

The Civil War was the Unjust War of all Unjust Wars.  Every state has the right to secede from the United States.  

If the whole US manages to survive for 5 more years this theory will be tested again.  States like California and Rhode Island and others will financially collapse and come looking for more than "their fair share" of government funds.  We will see if the residents of financially stable states feel like sending more of their money to these states and their useless politicians.  And then we will see how strong this Union is.

smb12321's picture

I don't understand.  Are you pulling for the collapse of the nation (it certainly seems that way)? The beauty of our arrangement up to now has been that it is explicitely understood that richer states support poorer states, i.e. the flow of monies is not equal.  I am from Tennessee, a fiscally conservative state, and I doubt any politician could get 10% of the vote if they suggested sending IL or CA funds to support their spendthrift ways. 

GCT's picture

smb you need to goggle what your state provides to the federal government and what the state gets in return.  They are already doing this.  For instance Calif. sends 43 billion to the federal government and in return gets 40 billion back.  States like Mississippi, Texas and some other states get more back from the federal governement then they send in.  This has been going on for ages.

smb12321's picture

Yeah, I know.  ZH posters (with the appropriate links to You Tube) have all the inside information on how things REALLY were.  They know all the conspiracies (in detail) and exactly how and when things will work out - although the frequent prediction of doom fails to materialize to the chagrin of those yearning for a societal downfall. 

They have the scoop on everyone.  Washington was on the take, Jefferson supported slavery, Lincoln was a "corporate lawyer" who didn't give a flip about the nation.  There are never any ideas or suggestions - simply bitching and griping at every president, senator or representative (who, it should be noted, are all corrupt).  All the insitutions are corrupt, of course, and established by those aiming for global domination.  All corporate leaders have joined this conspiracy and want to enslave America.  Reading ZH posts is like crossing into an alternate universe.

mess nonster's picture

"Show me that age and country where the rights and liberties of the people were placed on the sole chance of their rulers being good men, without a consequent loss of liberty! I say that the loss of that dearest privilege has ever followed, with absolute certainty, every such mad attempt.”

Patrick Henry

smb12321's picture

The Civil War was simply another in the long clash we've had since independence over the role of federal vs state authority. Two reasons a strong central authority emerged was the opening of territories (and rules for ownership and statehood) and the example of our two wars.

States refusing to support the effort was almost a death knell in the Revolutionary War won only by immense luck and massive foreign aid.  The US not a world power in 1860 and  it could not take chance that half the nation would sit out a war in the future.

The biggest change is the role of federal vs state.  Until recently citizens turned first to the state.  DC was distant, where national concerns were discussed. Now we turn to the feds for the slightest inquiry, problem or activity.

mess nonster's picture

In response to the ratification of the Constitution, Patrick Henry said,

“This government cannot last,” he warned, “It will not last a century. We can only get rid of its oppression by a most violent and bloody struggle.”

He was right about the first part, but not the second. The Civil war marked the death of the bill of rights, and any pretense of limited central goovernment. There will be no violent and bloody struggle now against a one world government, of which the Constitution was but the fisrt blatant lie.

The Civil war was started by Albert Pike, directed by Albert Pike, and the aftermath was controlled and led by Albert Pike. Abraham Lincoln, like his philosophical progeny in 2012, was a muppet of the first degree.

We are all Branch Davidians now if our consciences cannot allow the imposition of tyranny upon our freedoms as human beings.

DarthVaderMentor's picture

Too bad we lost the War of Northern Aggression. Fort Sumter was for the Confederacy like the Straits of Hormuz will be for the Iranians. 

holdbuysell's picture

Nice find, ZH. Thanks.

Ayr Rand's picture

The only thing surprising is that there is nothing surprising.

As usual, Tyler had done his homework.

As usual, the Fed has worked to support the banks, in a manner that its founders would have called corrupt and a betrayal of the essential purpose of the Federal Reserve. 

I am anxioiusly awaiting the WSJ and other MSM to report this story in fullness. I expect a useful response some time after my great great grandchildren have passed on.

AR

dick cheneys ghost's picture

The MSM died a long long time ago.................

prains's picture

The true end game is still not clear to me but all I know is that it just keeps getting kookier, if that's even a word. there are still several other unknown layers to this story. And a murderer and rapist like Stalin who dies in his bed on his own accord can never be said to have lost a thing.

knowless's picture

the end game is consolidation and reeducation, the wealthy will flee to the hills in gated communities, have private security forces (which may or may not be deemed "police"), and generally the same standard of living which was promised to the american middle class over the past century, the inner city work/leisure/shopping districts will be heavily policed, and everything else will be a free for all. they will create an incentive for the violent poor to populate other areas by not policing them. This process will be repeated not just in a city, but between cities. they will harvest talent from the poor who espouse a destructive and antisocial lifestyle and sell it as entertainment, as a form of population control so that no force capable of resistance can ever be reasonably expected to organize from this group, as they have been deprogrammed as to the necessity of mutual aid in bringing the whole out of poverty.

cities which are of little strategic importance will be allowed to burn themselves, those of importance to the empire will be cleaned of all unnecessary humans. it will be very efficient, and very quick, and not a word will ever be said about it in a class on the history of the early 21st century. just like no one ever hears about the nazi's.

all of this will be achieved by creating a reliance on easily directable forms of media, so that a persons specific beliefs and triggers can be ascertained through monitoring, thus granting the ones monitoring the power to send a specifically targeted message posing as reality. there will be no blanket iron fist we're watching you big brother message to everyone, the new big brother will be catered to the individual, with the intent of pacification.

the best part about this new propaganda is that those being controlled actually believe they have more power over their lives because of this technology, as in a sense they might, even if the reality they are acting on is completely different from their neighbor, it is a reality which better suits them.

this process will be repeated every generation.

 

you're living the end game.

 

pure speculation of course.

The Alarmist's picture

Holy Crap, can I have an option on this screenplay?

TheVirginian-HGWT's picture

I believe the sequel is called "The Hunger Games."

i-dog's picture

Stalin was poisoned. He'd served his purpose and was reluctant to leave. Indeed, he had become "disobedient".

eddiebe's picture

Ultimately the seductive power of the printeng press in all its forms is too much for those connected to it in any form to withstand. The inflation genie is out of the bottle and while the powers are busy on each and every front to shove it back it will prove impossible. There will be a re-set, and the damage done by the massive amounts of fractional con games will force major damage, could even cause near or terminal disaster if WWIII ensues. The horror.

TwoJacks's picture

As long as the Federal Reserve is required to buy government securities at the will of the market for the purpose of defending a ?xed pattern of interest rates established by the Treasury, it must stand ready to create new bank reserves in unlimited amount. This policy makes the entire banking system, through the action of the Federal Reserve System, an engine of in?ation. (U.S. Congress 1951, p. 158)

 

the 1951 Fed was correct.

The Alarmist's picture

Kind of Back-to-the-Future ala Shakespeare

The Fed is dead ... Long live the Fed.

GMadScientist's picture

"We will skip commenting on the supreme irony that according to Truman, Stalin would win if the US did not engage in the same central planning that ultimately brought the Soviet empire down."

"The biggest gang I know they call the government 
and a gang is a weapon that you trade your mind in for..." - Jane's Addiction

http://www.youtube.com/watch?v=KPOuoxLGy-w

smb12321's picture

I was born in the last Truman budget - 12% of GDP and revenues 14% GDP.  That's right - a surplus.   (Social spending - now 70% - was 16%).  The problem with the FED was made possible as we gradually political economy and central planning *by all those DC "experts") come into being.

Hard to imagine but at the time both parties railed against deficits.   The fact that the greatest rate of job growth and enterpreneurship came when the State consumed a much smaller part of GDP speaks for itself. 

Dr. Engali's picture

This proves that the Bernank's lips quiver so much When he speaks because he is out there as the front man for the bankers and their muppet president to spew a line of lying bull shit. He probably walks away from every public adress thinking " I can't believe they are buying this crap. What a bunch of stupid sheeple".
Great article Tyler. Thanks

Alexmai's picture

 

This weekend's must-read "viral" post

"Is there something wrong with you, Dr. Bernanke?"

http://investmentwatchblog.com/this-weekends-must-read-viral-post/#.T5LG3lxYuIA

 

lotsoffun's picture

as an analogy - that's about all it says.  but i still wonder what motivates this man.  he really must be a little man to suck up to the big bankers.

 

TheVirginian-HGWT's picture

He works for the big banks. That's all the motivation he needs.

Stuck on Zero's picture

Nature and the natural evolution of the universe created the scarcity of the heavy elements.  Silver, gold and the platinum group of metals were created in the brief flash of colliding neutron stars 4.5 billion years ag.  Their scarcity on the surface of this planet was natural and the consequence of events way beyond the caprices and whims of man.  Not so the dollar.   It is born of the machinations, manipulations, and follies of humankind.  Which are you going to trust?

xela2200's picture

This is why I don't buy into the QEx not been possible because of political reasons. When, in fact, it is the POLITICIANS who will be one more group pressuring the FED to print. Unless, they are going to stop spending more than the government takes into taxes. What happens when they raise the debt limit, and the FED refuses to print. They are already bringing the commodities under a controllable price and oil, the only one they can't control, was given a nice scapegoat (speculators).

disabledvet's picture

The Velociraptors are uniquely agitated this week. Hmmm. I wonder why that is. Anywho "they cried when Stalin died." Enuf said on that, homey. Insofar as "the only inlfation" being 48-50...WELL, c'mon! Don't tell me you forgot this good time:
http://www.youtube.com/watch?v=yhsjRL2O64g&feature=player_detailpage
I agree INFLATION SHOULD BE HAPPENING! YOU WIN! YOU WIN!
Still...i find myself...
http://www.youtube.com/watch?v=yhsjRL2O64g&feature=player_detailpage

Fred Hayek's picture

And yet, back then, even the bad guys were better than what we have now. Martin was the man who, famously, said that his job was to "take the punch bowl away just as the party's getting started".

Greenspan and Bernanke not only don't take the punch bowl away, they spike it with vodka and then go out on the street to hand out fifths and hip flasks to minors.

RopeADope's picture

The banks fell in love with the Fed after two things happened. 1) A Treasury securities trader was hired by that institution and started convincing other Fed officials to allow a floating interest rate (a.k.a Means to profit from inside information).  and 2) the Truman/Eccles battle created an environment where it became standard procedure to leak confidential information.

The combination of these two events has contributed over time to a Fed that has been captured by parties with motives in direct contradiction to the original purpose of the Fed which was to facilitate the return of wealth generating capabilities to the US citizenry.

TheFourthStooge-ing's picture

Attention Sacrilege: the crapital3x spammer has returned.

zonetraders shat out:

the 24 trading rules

More spam from crapital3x.

See for yourself:

http://www.zerohedge.com/search/user_comments?name=zonetraders

Previously shitcanned accounts from the same spammer:

http://www.zerohedge.com/search/user_comments?name=reutersanalyst

http://www.zerohedge.com/search/user_comments?name=props2009

 

ekm's picture

This article has the same effect to the brain, as it would have for the stomach when old style mediterranean food replaces north american hamburgers or german/english food (if it can be classified like that).

As that food is quite pleasureable to keep eating followed by typial slow walks outside along the Mediterranean, so it is for the brain to keep reading this article in order to be enlightened (for those who want to be enlightened).

It is ultimately about free will to be free or free will to be a slave.

DarthVaderMentor's picture

Inflation through monetary expansion was never their mission. Just the opposite. Their original charter requires them to preserve a stable currency, quite the opposite of what they have been doing. They just assumed inflation as the answer for their support for the politically connected yet leveraged elites. If the TBTF had gone bust and failed and many Wall Street and other elites had gone bankrupt, we'd be in a recovery already.

tony bonn's picture

zh has out done itself this weekend by posting the money as debt video and now this article....both are invaluable to understanding the twilight of the bankster's corrupt money system.

Harriet Wanger's picture

So, if the Treasury set monetary policy, it's central planning, but if the Fed sets it it's not?

With Eccles' way, people would have had fewer dollars that were worth roughly the same; with Truman's way people would have roughly the same number of dollars that were worth less. Either way, the public was going to take it on the shins.

Truman might be consigned to a deeper level of Hell because he chose the path of deception by creating an illusion of wealth, but Eccles might be near him for either failing to recognize or acknowledge that the federal reserve system was draining wealth away from the public, which I still think was its original purpose.

The real answer was monetary reform, perhaps along these lines :

http://en.wikipedia.org/wiki/A_Program_for_Monetary_Reform

mess nonster's picture

If only we were taking on the shins! (You're so polite!)

The Alarmist's picture

But think about it ... Truman was unwittingly willing to destroy the economy of the US because he had lost money on War Bonds after WW I, and did not want to recreate that experience. Talk about fighting the last war, and talk about not seeing the forest for the trees.

And so it is today; they are addressing a series of constituencies in piecemeal actions that are seemingly winning a number of battles but in the process they losing the whole war.

steve from virginia's picture

First: hat's off to anyone who reads through Fed economic papers. I haven't finished with this one but at least it doesn't have the confusing pseudo-math in it (so far).

Second: There have been many changes in monetary policy between Depression (targeted interest rates) and now. The monetarist approach failed (and in the UK) so there is little left for the reserve bank to do to manage the worth of money than to fix or peg interest rates.

JP Morgan did the same thing when his bank was the defacto central bank for the US before 1913. Did Morgan manipulate markets? Does a bear shit in the woods?

New wrinkle is that money worth is set in gas stations all over the world every single day. Interest rates are irrelevant. You can tell, they are all 'pegged' @ zero. Monetary policy: "If gas is too high, people don't buy". Just remember that little ditty and forget about the Fed. It's irrelevant.

Aside from having to read Fed papers (which I have done many times so I can feel Tyler's pain) I also feel sorry for him because he keeps looking for inflation @ the Fed where he can never find it. As Carl Herman so aptly put it, we don't have a money supply we have a debt supply. We have more holes than money can possibly fill.

The Fed creates holes not money (currency) and can only create a new hole by filling an old one somewhere else.

In fact, this is the problem here in the US and in the rest of the world, there is too little money (while people cry about inflation).

If the Treasury would create new currency, the US would soon not have a debt problem! but it would have a 'financier' problem, instead. That's another story for another time.

Centurion9.41's picture

"New wrinkle is that money worth is set in gas stations all over the world every single day."

Sorry, this fails due to the pseudo-monopoly of energy companies and the ability of various sovereigns to effect the supply.  Granted it eventually returns to true economic value, and hence a good way to measure the measuring ability of currencies.

However, PMs, as long as a given market is not cornered is a better measure. 

Still the best may be the BigMac, especially given the explosive growth of McD's in China.

Though given Chipotle's run, the BigMac may fall to the burrito.

Amazing how CMG is a product of MCD...

And given enough time, one or both will always be within walking distance.  So peak oil could become, irrelevant.

The Alarmist's picture

"Sorry, this fails due to the pseudo-monopoly of energy companies and the ability of various sovereigns to effect the supply.  Granted it eventually returns to true economic value, and hence a good way to measure the measuring ability of currencies."

Strikes me as a somewhat naive observation; if The pseudo-monopoly was so free to set prices, they would be markedly higher.

The kernal of truth to this is that gasoline prices are a lot more elastic than economists and other experts let on, though that elasticity is more often demonstrated at the ballot box than it might be if the commodity was cereal.

q99x2's picture

[W]e should tell the Treasury, the President, and the Congress these facts, and do something about it.

Today those dudes all work for the NWO so ain't much sense in talking to them. And, GS/NWO is the FED and the treasury and Panetta/Obama no?

We should leave the FED and the treasury out of it this time and go directly for the soft pulsating underbelly of the NWO.

Centurion9.41's picture

Tyler,

Sorry, as much as I'd like to support your reasoning, I can not.  There are two fundamental problems that cause the collapse of your assertion.

1.re " just so holders of Treasury paper (at that time only insurance companies as banks were not allowed to invest in TSYs" - the variables and mechanics during the two periods under comparison are sufficiently different that a the comparison becomes... well a classic Dismal Science attempt to make opinions and SWAG appear to be science.  It's like comparing two war battles, one of bows and arrows in a forest, the other of battleships and aircraft carriers.  Yes it's good to run though the exercise but to assert the tactics of weapons in the former apply to the current battle is a stretch.

2. re "that a build of bank reserves is the surest way to spark hyperinflation" - the money being injected into bank reserves is not a meaningful increase in reserves to create inflation, yet. 

Here's a metaphor for your reserve problem.  A Bankster has a pit 1 trillion feet deep [i.e. mark to market], that is in a "prime" location, which he want's to fill to build upon.  The bankster tells everyone it is only 500 million feet deep, too deep and dark to see the bottom.  But he's got financial mathematicians with PhDs that have a formula that shows in fact the depth is 500 million feet [i.e. mark to model].  He then goes out on a road show seeking investors with the PhD explaining the validity of the calculations.  Of course all the investors lose everything, after 500 million dollars worth of dirt, the bottom is not seen.

Yet, who comes to the rescue!  The head bankster, the Federal Reserve, and he starts taking money from the public [devaluation] and from the children yet born, and buys dirt and starts filling in the pit.

The pit is the true debt of the bankster's balance sheet.

The dirt is the bank reserves.

There wont be bank reserve driven inflation until the money pit is filled.

And yes then there will be a merda tempesta

Of course the problem right now is the various banksters spread throughout the world, all with money pits so deep the system is nothing but, at best, shadows.

Regardless, the argument you make fails for the same reasons most Dismal Science fails.  Using invalid and incomplete data sets and applying formula and logic that is also incomplete.  

It is the fundamental failure shared by both the Keynesian' and the Chicago boys. 

The data sets and all the various factors and multiples that effect Human Action are not know and any attempt to quantify is always, by its very nature, limited by the Heisenberg Uncertainty Principal. 

That said, from a historical knowledge perspective, which is always hugely helpful, it's a fantastic piece.

Cordially,

Centurion

 

ekm's picture

I've read Tyler's post and yours twice. I think I have to read both of them at least 3 more times, but my initial opinion is that your post complement's Tyler's logic, rather than opposing it.