(We’re airing this commentary for a second day because it stimulated such a lively discussion in the forum. Indeed, some of the responses could have run as commentaries by themselves. RA)
We weren’t really trying to defend Helicopter Ben here the other day for his handling of the economy, we were only trying to provoke a discussion by suggesting he did only as much as was politically necessary. Could he have done more – or perhaps less – to put the economy back on track? We doubt it. In retrospect, less – much less – would have been the right course to have followed. But since when has the Fed ever been allowed by the tide of popular opinion, let alone by the whim of political desperation, to do nothing while the economy sank into deepest recession?
Some readers said that if they’d been in Bernanke’s shoes, they’d have had the courage to do the right thing anyway: letting the banks fail — and with them the entire financial system. But it is naïve to think that mere courage would have sufficed to carry the day politically for laissez faire’s version of the nuclear option. Indeed, many a courageous leader has wound up in front of a firing squad. Bernanke, and more than a few of his colleagues, would have found themselves in front of one too if, arguably, just one more company, AIG, had been allowed to fail.
The fact that Bernanke’s egregiously misguided efforts have set the U.S. economy inexorably on course for a Second Great Depression is as much an indictment of our political system as it is of one man. Some would say he deserves all the blame anyway because, as chairman of the Federal Reserve, he is The Most Powerful Banker in the World. But we never bought that line to begin with. As far as we were concerned, it was just a bunch of hype – like calling Mel Gibson the Sexiest Man Alive.
Especially Greenspan…
In truth, most of the men who have held the reins at the Fed have gotten much better press than they deserved, and none so much took charge of the economy as go through the motions, with each in his turn helping to cause fatal quantities of debt to accumulate from one recession to the next. Alan Greenspan must be singled out as the very worst of them all. The news media seemed to hold him in awe, but in reality they merely propped him up with stupid headlines: “When Alan Greenspan Speaks, People Listen”. What hogwash! If anyone had actually been listening, they’d have realized Greenspan was just a real-life version of Chauncey Gardiner, the empty-headed advisor to Presidents in the satirical movie Being There. Need we remind you yet again that Greenspan encouraged us all, and more than once, to think of inflated home values as real wealth? He also spoke of a capital investment boom in the U.S. at a time when household savings growth was negative. How this guy passed Econ 101 will always be a mystery to us.
Lest we heap all the blame on just a few eggheads with friends in high places, we should mention the news media’s disgraceful complicity and dumbfounding ignorance, which seem to be growing more blatant with each new day. How else to characterize this opener from a Wall Street Journal stock-market wrap-up yesterday: “U.S. stocks snapped back Wednesday as investors reined in their expectations for a major bout of easing by the Federal Reserve to stimulate the economy.” Where to begin? The sentence is a nightmare to deconstruct, but we’ll give it a try. For starters, there is the question of who actually believes more “stimulus” will achieve anything. There is also the matter of whether the mere purchase of Treasury debt by the Fed constitutes “stimulus” at all. And, pray tell, what caused investors to all of a sudden “rein in their expectations” when, just a few days earlier, stocks were flying, supposedly on expectations that QEII of at least $1 trillion was on its way?
Come Again?
Usually, when impossible-to-answer questions like these threaten the narrative arc of a news story, the reporter will find someone he can quote to pull things together. Instead, we get an explanation from a money manager that somehow manages to encrypt the facts-at-hand: “The Fed will probably indicate that easing will be open-ended — they’ll want to see how that first round plays out,” said David Katz, principal at Weiser Capital Management, who says that any attempt at “shock and awe” by the Fed could spook the markets. “If there was a perception that the Fed needed to drop $2 trillion into the economy on day one, then perhaps things are a lot worse under the rug than we think they are.”
So, let’s see if we’ve got this straight: If the Fed were to quietly dribble another $2 trillion onto the economy on days two, three and four, maybe we won’t think things are so bad?
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The issuance of new money is always based on the same factors, bank “credit” or social credit alike.
It is not a free lunch in either system. We would still have to work for it!
The joke is, if we were to change our system of money creation right now, no one would even notice.
The rules are essentially the same.
However, over time, the difference would be quite obvious.
No booms & busts, bubbles & recessions, etc.
This roller coaster of an economy can be easily understood by first understanding how debt financing (of a country) works.
And this is not theoretical either – we have historical examples of social credit, (though few, for political reasons).
And we certainly have tons of examples of what debt-money does – over & over & over again.
Always the exact same pattern. It cannot be otherwise.
Looking back to the “golden years” is disingenuous at best.
They were only golden because we were on the up-side of the debt curve.
Fools ’em every time!
Of course, we had not yet exported our manufacturing sector, so exports could indeed pay off domestic debt… but that’s another story.
See Canada’s national debt from 1935 – 1974.
We had a real central bank during those years, and private bank credit too,
(debt was flat to 1974, then soars like Al Gore’s hockey stick thereafter).
We have just enjoyed the most productive century+ in the history of man.
Yet (almost) every country is essentially bankrupt, and the working / middle class is getting poorer & poorer.
Social programs are always blamed, but they have actually been shrinking as % GDP.
So I ask you… where did all the money / wealth go?
If we were to argue that non-debt based currency should be issued to support non-productivity, then you’d have a point.
But reality has a way of taking care of this automatically, (currency value would crash – again, in either system).
The real question here is why do we have to pay a (continuous/compounding) tax on new money?
And why to those w/o the money they lend?
(I’m not referring to income tax, I am referring to the tax we pay on its very creation).
Units of credit, (that one has to earn, in either system), represent units of productivity.
It’s really very simple, and quite easy to enact today thanks to technology.
Both systems create money today against future earnings.
This idea actually revolutionized the entire world –
otherwise, we’d just have mountains of goods nobody could buy,
and billions of people no one could afford to hire.
There’s no free lunch here at all.
Or, to the degree that there could be when such is abused,
the value of the currency would simply fall, exactly as it does now, in either system.
As it is, the greater the growth, the greater the productivity = the greater the debt.
All of our creativity / productivity has been monetized into debt – and that’s a fact!
And there is no way to pay it back, and no good reason for it in the first place.
Derivative bubbles have nothing to do with this at all.
In fact, these types of abuses all treat money as having value in and of itself.
If anyone could be accused of living off a free lunch, it is those who manipulate money to earn more money, at our expense.
It is this element of society that is really enjoying the free lunch,
as they contribute nothing worthwhile whatsoever, (quite the opposite, in fact).
And today, this is the highest earning sector of all!
If there were ever a free lunch, it is for those who create
money for us, at interest, w/o having to do anything at all.
Derivatives, mortgage scams, market manipulations, etc., are completely off topic.
Creative accounting / fraudulent scams – the lot of them.
And Rick, if you are no fan of fractional banking yourself,
then how would you suggest we create new money?
BTW, if one were to lend money one actually has, I have no objections whatsoever.
Interest charges would then be no different than my renting a tool or motorcycle for the day.
Renting money is really no different, and is entirely optional.
However, this does not create any new money for a growing economy.
It’s a curious thing, how we value our own labour.
The scammers are multi-millionaires, (the poorer ones, that is),
yet we continue to import cheap labour to do the things “we refuse to do”,
(like picking fruit or cleaning toilets, say).
But if we were to pay what the “free market” dictates,
then toilet cleaners would perhaps earn the same wage as lawyers or da boyz. And they’d deserve it too!
Rather than this idea being Keynesian in nature, I do believe it is the exact opposite.
Didn’t Keynes advocate deficit spending?
Isn’t that what we have now?
But admittedly, I try to steer clear of what economists have to say on just about everything!
With all due respect, this is not really an economic or mathematical issue.
It is simple logic not to monetize the entirety of our collective labours / creativity / productivity into debt – insane by any measure.
Unbelievable that we even have to debate it at all.