The Fed is Stealing from the Poor to Give to the Rich
By default or design, Ben Bernanke may effectively be the most corrupt individual ever to head up the Federal Reserve. Although he didn’t use the word “corrupt,” there’s not much other conclusion to reach after reading Camden Fine explain the Fed’s perma-low-rate policy in today’s WaPo:
In my view, the Fed’s policy is nothing more than a backdoor bailout for the Wall Street mega-banks and investment houses; it amounts to the back of the hand for the community banks of this country. The Wall Street money houses are basically getting free money that they can hedge and arbitrage worldwide to make baskets of money, while local banks are stuck with deposits costing more than the federal funds rate, sluggish loan demand and a 2.20 percent 10-year Treasury. For the extended future, earnings contractions will accelerate as the investment portfolio prepays and runs off, and capital will be difficult if not impossible to raise, stifling growth on America’s Main Streets.
You need to remember that Bernanke is making it impossible for lower- or middle-class Americans to save money on purpose. That’s the stated policy of the Fed, to get the economy “moving again.” It’s the high-finance version of slaughtering perfectly healthy pigs during the New Deal, to protect farmers.
But I’ve said it before and I’ll say it again: You don’t get rich by destroying wealth. But that is precisely what Bernanke is doing. He is impoverishing the middle class and retirees to entice them into spending money today instead of saving it for tomorrow.
You see, after decades of living off easy credit, that’s all the government has left to get things moving again in time for the next (or any) election. Things have gotten so bad, Bernanke can’t even create the inflation he wants by printing up trillions over the last three years, and keeping interest rates artificially low for half a decade or longer.
The only real way out of this trap is to get back to what we once did so well: Defer consumption, earn interest on our savings, and use credit sparingly. Bernanke’s policy — all of Washington’s policy — is rapid consumption, zero interest, and easy credit. Yet that’s exactly what got us into this mess.
As an accomplished drinker, I can tell you: A little hair of the dog after a binge only delays the inevitable — and makes it worse, too. It’s childish even to try it.
Are there no grownups in charge of anything in our nation’s capital?
Gee, maybe Rick Perry was right about Bernanke.
If Rick Perry understood why Ben Bernanke is bad he’d also understand what’s wrong with the sort of crony capitalism he consistently wallowed in as Governor. So it’s much easier to believe he’s just parroting the words he think will take him to the White House.
This Rick Perry thing is driving me nuts – his record is just as superficial and contradictory with his rhetoric as the current President. He’s the Republican’s Barack Obama – a guy with the right look, the right catch-phrases, and the right demeanor, but when it comes to actual actions is just another establishment politician lining his pockets all the way up.
The bummer is, the fix is almost there. Banks aren’t lending, which is good, because both individuals and companies have too much debt. Companies, and some individuals, are flush with cash, which is only sorta good, because they’re scared to death of what to do with it. Up interest rates, and cut out the punitive rhetoric (and regulations) towards equity investors, and bam, we’re there. Of course, it feels better to force banks to lend to politically connected constituencies whilst bashing the “wealthy” and those dang CEOs that just won’t hire with all that cash, so I’m not holding my breath.
I love your optimism, and I think you’re right – in theory. The problem is getting politicians – not just the Dems – to go along with it. The only plan I’ve seen that thrills me is Rand Paul’s proposal to balance the budget largely by sticking legislative shotguns to the heads of various cabinet-level departments and pulling the trigger. Bam, gone. You get the immediate deficit reduction, plus eliminating whole chunks of regulatory meddling would really kick things off. It would take 12 – 18 months for the country to “absorb” the change, businesses to adjust their plans and strategy, etc, but you’d get a nice solid boom out of it (pun semi-intended).
The real problem is that even the mainstream of the so-called free-market GOP is terrified to touch something like this. There are a maybe 10 Senators and a couple of dozen in the house that would vote for it, but even a GOP takeover of Congress won’t get this done. It will take a hard-core economic radical in the White House to force Congress into something like this. No way in hell Mitt Romney does it. I can see Rick Perry talking about it but then compromising away 90%. I have no earthly idea what Michell Bachmann will do; I’m gratified that she’s taken to reading Mises lately but she holds some beliefs and has made some pledges that are deeply inconsistent with that sort of philosophy. I really wish Gary Johnson had some momentum – he’s the ideal person for this situation: a guy with executive experience (entrepreneur, governor), an uncompromising record, and a guy who stuck to his guns and got things done in a deep-blue state with a very hostile legislature and stayed popular in the process (and, yes, twice the jobs growth rate that Perry’s boasting, albeit in a better economy). That leaves me with He Who Shall Not Be Named (yeah, yeah).