In perhaps the most courageous (and now must-read) speech ever given inside the New York Fed's shallowed hallowed walls, Economic Policy Journal's Robert Wenzel delivered the truth, the whole truth, and nothing but the truth to the monetary priesthood. Gracious from the start, Wenzel takes the Keynesian clap-trappers to task on almost every nonsensical and oblivious decision they have made in recent years. "My views, I suspect, differ from beginning to end... I stand here confused as to how you see the world so differently than I do. I simply do not understand most of the thinking that goes on here at the Fed and I do not understand how this thinking can go on when in my view it smacks up against reality." And further..."I scratch my head that somehow your conclusions about unemployment are so different than mine and that you call for the printing of money to boost 'demand'. A call, I add, that since the founding of the Federal Reserve has resulted in an increase of the money supply by 12,230%." But his closing was tremendous: "Let’s have one good meal here. Let’s make it a feast. Then I ask you, I plead with you, I beg you all, walk out of here with me, never to come back. It’s the moral and ethical thing to do. Nothing good goes on in this place. Let’s lock the doors and leave the building to the spiders, moths and four-legged rats."
H.L. Mencken was a renowned newspaper columnist for the Baltimore Sun from 1906 until 1948. His biting sarcasm seems to fit perfectly in today’s world. His acerbic satirical writings on government, democracy, politicians and the ignorant masses are as true today as they were then. I believe the reason his words hit home is because he was writing during the last Unraveling and Crisis periods in America. The similarities cannot be denied. There are no journalists of his stature working in the mainstream media today. His acerbic wit is nowhere to be found among the lightweight shills that parrot their corporate masters’ propaganda on a daily basis and unquestioningly report the fabrications spewed by our government. Mencken’s skepticism of all institutions is an unknown quality in the vapid world of present day journalism.
H.L. Mencken understood the false promises of democracy 80 years ago:
“Democracy is also a form of worship. It is the worship of Jackals by Jackasses. It is the theory that the common people know what they want, and deserve to get it good and hard.”
We deserve to get it good and hard, and we will.
In the science of physics, we know that ice freezes at 32 degrees. We can predict with immense accuracy exactly how far a rocket ship will travel filled with 500 gallons of fuel. There is preciseness because there are constants, which do not change and upon which equations can be constructed.. There are no such constants in the field of economics since the science of economics deals with human action, which can change at any time. If potato prices remain the same for 10 weeks, it does not mean they will be the same the following day. I defy anyone in this room to provide me with a constant in the field of economics that has the same unchanging constancy that exists in the fields of physics or chemistry. And yet, in paper after paper here at the Federal Reserve, I see equations built as though constants do exist. It is as if one were to assume a constant relationship existed between interest rates here and in Russia and throughout the world, and create equations based on this belief and then attempt to trade based on these equations. That was tried and the result was the blow up of the fund Long Term Capital Management, a blow up that resulted in high level meetings in this very building. It is as if traders assumed a given default rate was constant for subprime mortgage paper and traded on that belief. Only to see it blow up in their faces, as it did, again, with intense meetings being held in this very building. Yet, the equations, assuming constants, continue to be published in papers throughout the Fed system. I scratch my head.
Tarp Overseer Debunks Bailout Myths: Big Companies HAVEN’T Repaid Tarp Funds … And Funds to Help Homeowners HAVEN’T Been PaidSubmitted by George Washington on 04/25/2012 13:53 -0400
Debunking Bailout Myths
Government On the Verge – Yet Again – of Doing Something Which Causes More Harm Than Good
The political left misunderstands the causes of income inequality —confused by the belief that government can somehow challenge the corporate and financial power it created in the first place — and thus proposes politically unrealistic (non-) solutions, particularly campaign finance reform, and raising taxes on the rich and corporations. Yes, the left are well-intentioned. Yes, they identify many of the right problems. But how can government effectively regulate or challenge the power of the financial sector, megabanks and large corporations, when government is almost invariably composed of the favourite sons of those organisations? How can anyone seriously expect a beneficiary of the oligopolies — whether it’s Obama, McCain, Romney, Bush, Gore, Kerry, or any of the establishment Washingtonian crowd — to not favour their donors, and their personal and familial interests? How can we not expect them to favour the system that they emerged through, and which favoured them? In reality, the system of corporatism that created the income inequality will inevitably degenerate of its own accord. The only question is when…
The campaign of Barack Obama in 2008 was a perfect example of the propaganda pageant, complete with visceral slogans like “Hope” and “Change”. After eight years of the clownish George Bush Jr., when our country spiraled down into a state of disturbed and vicious adolescence, people were looking for a renewal. They were looking for a path away from the edge of the abyss. Instead, they were given a better liar, with a brand new costume. The American Dream has become harder to sustain since…to say the least. In 2012, what I see is like a lightning bolt in slow motion. I can sense it branching out across the sky towards the ground and tearing through our surroundings, upending everything we know. Both the President and Congress have some of the lowest approval ratings in history. The question of whether anything can be accomplished through government has been answered for most people with a resounding “no”. The citizenry is on the verge of total fury. I wish I could say that most have abandoned the fleeting hollow satisfaction of choosing the “lesser of two evils”, but that would not be accurate.
“It Is Incumbent On Every Generation to Pay Its Own Debts As It Goes - A Principle Which If Acted On Would Save [Half] The Wars"Submitted by George Washington on 04/17/2012 18:42 -0400
The Founding Fathers Knew that Debt-Financed Wars Ruin the Country
Gallup Finds Obama, Romney In Dead Heat As Daily Tracking Begins, With Independents Leaning Toward GOPSubmitted by Tyler Durden on 04/16/2012 15:05 -0400
Now that the GOP primary is essentially over, and Mitt Romney is set, for better or worse, to be the Republican frontrunner, Gallup has launched its daily tracking poll to keep an eye on each one's presidential prospects. Not surprisingly, the result is a dead heat. "Mitt Romney is supported by 47% of national registered voters and Barack Obama by 45% in the inaugural Gallup Daily tracking results from April 11-15. Both Obama and Romney are supported by 90% of their respective partisans." What is curious is that "The crucial voting bloc of independents breaks toward Romney by 45% to 39%, giving the GOP challenger his slight overall edge." So will Obama now be forced to make a moderate push to attract what will likely be the critical voter constituency in November? We will find out over the next few months.
If you're looking strictly at a chart of the "official" unemployment rate, you should flip it upside down
The Fed's currency swap with the ECB is nothing more than a covert bailout for European banks. Philipp Bagus of Mises.com explains how the USD-funding crisis occurred among European banks inevitably leading to the Fed assuming the role of international lender of last resort - for which US taxpayers are told to be lucky happy since this free-lunch from printing USD and sending them overseas provides an almost risk-free benefit in the form of interest on the swap. Furthermore, the M.A.D. defense was also initiated that if this was not done, it would be far worse for US markets (and we assume implicitly the economy). The Fed's assurances on ending the bailout policy should it become imprudent or cost-benefits get misaligned seems like wishful thinking and as the EUR-USD basis swap starts to deteriorate once again, we wonder just how long before the Fed's assumed role of bailing out the financial industry and governments of the world by debasing the dollar will come home to roost. As Bagus concludes: "Fed officials claim to know that the bailout-swaps are basically a free lunch for US taxpayers and a prudent thing to do. Thank God the world is in such good hands." and perhaps more worryingly "The highest cost of the Fed policy, therefore, may be liberty in Europe" as the Euro project is enabled to play out to its increasingly centralized full fiscal union endgame.
Who will buy our debt in the coming months and years? Europe is saturated with debt and doesn’t have the means to purchase our debt. Japan is a train wreck waiting to happen. China’s customers aren’t buying their crap, so their economic miracle is about to go in reverse. The Federal Reserve cannot buy $1 trillion of Treasury bonds per year forever without creating more speculative bubbles and raging inflation in the things people need to live. The Minsky Moment will be the point when the U.S. Treasury begins having funding problems due to the spiraling debt incurred in financing perpetual government deficits. At this point no buyer will be found to bid at 2% to 3% yields for U.S. Treasuries; consequently, a major sell-off will ensue leading to a sudden and precipitous collapse in market clearing asset prices and a sharp drop in market liquidity. In layman terms that means – the shit will hit the fan. The Federal Reserve and Treasury will be caught in their own web of lies. The only way to attract buyers will be to dramatically increase interest rates. Doing this in a country up to its eyeballs in debt will be suicide. We will abruptly know how it feels to be Greek....The entire financial world is hopelessly entangled by the $700 trillion of derivatives that ensure mass destruction if one of the dominoes falls. This is the reason an otherwise inconsequential country like Greece had to be “saved”.
In the not quite 100 years since the founding of your institution, America has exchanged central banking for a kind of central planning and the gold standard for what I will call the Ph.D. standard. I regret the changes and will propose reforms, or, I suppose, re-reforms, as my program is very much in accord with that of the founders of this institution. Have you ever read the Federal Reserve Act? The authorizing legislation projected a body “to provide for the establishment of the Federal Reserve banks, to furnish an elastic currency, to afford means of rediscounting commercial paper and to establish a more effective supervision of banking in the United States, and for other purposes.” By now can we identify the operative phrase? Of course: “for other purposes.” As you prepare to mark the Fed’s centenary, may I urge you to reflect on just how far you have wandered from the intentions of the founders? The institution they envisioned would operate passively, through the discount window. It would not create credit but rather liquefy the existing stock of credit by turning good-quality commercial bills into cash— temporarily. This it would do according to the demands of the seasons and the cycle. The Fed would respond to the community, not try to anticipate or lead it. It would not override the price mechanism— as today’s Fed seems to do at every available opportunity—but yield to it.
This chart tells millions of stories. That’s right: since 1984 (surely an appropriate year) while the elderly have grown their wealth in nominal terms, the young are much worse off both in inflation-adjusted terms, as well as nominal terms (pretty hard to believe given that the money supply has expanded eightfold in the intervening years). So why are the elderly doing over fifty times better than the young when they were only doing ten times better before? There is enough money to keep the economy flowing so long as there are opportunities for people to make themselves useful in a way that pays. With the crushing burden of overregulation and the problem of barriers to entry, these opportunities are often restricted to large corporations. These issues of youth unemployment and growing inequality between the generations are critically important. Unemployed and poor swathes of youth have a habit of creating volatility in response to restricted economic opportunity.