In the absence of any real value currently in paper assets and given the continuous devaluation of national currencies, we are forced, even urged, to speculate in an attempt to stay ahead. Even retirees, who should be able to live off the interest on their lifetime saved conservative investments, cannot do so. They have been robbed of any interest payments by their own government's central bank policies. We'll all have to daytrade until we're 100 years old! But most cannot.
Obama and Bernanke did not create this monster, but they have willingly accepted it and expanded it disastrously. Fekete explains how and why following the birth of the Federal Reserve in 1913 and the economic settlements of World War I, and why it is now terminal like a bankruptcy proceeding of nations, a "chapter 99" proceeding. The monster was and is a power grab by the US central bank which replaced functioning money with credit and has bankrupted the world ever since. Fekete's explanations are chosen as they are both lucid and succinct. Many others have pointed to the same historical disasters:
http://www.professorfekete.com/articles/AEFPositionPaper6WhereKrugmanWentWrong.pdf
http://www.professorfekete.com/articles/AEFTheDeepCauseOfTheGreatFinancialCrisis.pdf
Despite the self-assured assessment of current big spenders that Keynesianism reversed the Great Depression, it did not. The Hoover/Roosevelt spending bursts did nothing. There were natural dead cat bounces in the markets from 1933-34 and from 1935-1937, like we've had since March 2009. But the 1930's economy didn't start to grow meaningfully until the war effort began in 1942, and not for the civilian economy until after World War II. Add on Japan's failed efforts in Keynesianism for the past two decades, and the Keynesian fairy tale is batting zero for two efforts, and so far, at least, zero for three and about to be four.
This is not a political rant. I don't care who is in the White House and Congress and Courts. None of them show any comprehension or want to change the jellyroll of the redistribution of wealth to the banks and their favored beneficiaries. A recent interview with the economist and, effectively, chief of staff of the Greenspan Federal Open Market Committee reveals the simple-mindedness and cheerful willingness to go much further down this absurd and destructive path of failure.
I'll identify the remarks by "Interviewer", "Interviewee", and "Commentator" (me).
Interviewer: Quantitative easing has very little history in economics.
Interviewee: There was one other important case study, the 1930s, when short-term rates were about zero from 1932 onward. When [President Franklin D.] Roosevelt devalued gold it was an effective quantitative easing, because the amount of monetary assets the U.S. had suddenly went [sic] up, even as the interest rate didn't change. That quantitative easing is seen as pretty effective.
Commentator: False.
Interviewer: What about the Japanese attempt early in the decade? It didn't seem to get much traction even though it was massive.
Interviewee: And that is also why you don't want to declare victory too soon as the Fed seems ready to act again, because it isn't just about what you do, it is how you do it. It is just as important that the Fed has the proper commitment and executes the policy properly. The problem with the Japanese is they went about easing in a half-hearted way. When they brought their policy rate down to zero, Japanese officials termed the move an "abnormal" one. If you call something abnormal you are signaling to markets that the policy will only be short-lived. Even after they began to expand their balance sheet aggressively, the tentativeness of their conviction reduced the psychological impact of the policy.
Commentator: So quantitiative easing doesn't work unless you have effective jawboning. That makes me feel a lot better about it. NOT! It also explains Bernanke's non-stop jaw-boning of the past few weeks.
Interviewer: We've already had one spasm of quantitative easing in the U.S. Was it executed well? What should we do differently this time?
Interviewee: Events were different in 2008 and 2009 than now, and that calls for a different mode of execution this time around.
Commentator: They are making this up as they go along. If it was done in 2008/2009 and didn't work, why would it work this time? Because they think and say so?
Interviewer: Shouldn't it (quantitative easing) boost other asset prices along with Treasuries?
Interviewer: There will be a spillover effect on other asset classes such [as] mortgage securities, other asset-backed debt, corporate debt and even the stock market, lifting prices some. Quantitative easing will also help in other respects. When the Fed purchases Treasuries, that also puts downward pressure on the exchange value of the dollar, and upward pressure on commodity prices.
Commentator: That's the best explanation of flat-out mindless market manipulation I've ever read.
Interviewer: Is that a good thing or bad thing?
Interviewee: That depends on your outlook. Certainly you can't expect the chairman of the Fed to go around making speeches saying 'hooray, we are depreciating the currency.' Yet dollar weakness is a good thing as long as it is limited, controlled and gradual. A currency decline helps exports become more competitive. Rising commodity prices and more expensive import prices help fight deflationary forces. Remember, the Fed has said inflation is below its mandated level at present.
Commentator: This is the way people at the top actually think and act. But QE has never worked before, isn't necessary now, and will destroy the currency and cause inflation if it does anything at all. But that's good?
That's enough of the interview. But we see that the QJ campaign (Quantitative Jawboning) is already working to destroy the dollar, increase the cost of everything we import, and reduce the value of our exports. Should we add on the great likelihood that most of what's valuable in the US will be bought up by off-shore buyers with over-valued currencies? And don't forget the currency wars that will be starting as in the 1920's and 30's. Do we really expect to get away with a continuing major devaluation while everyone else sleeps? Have the people in charge here never read the financial and diplomatic history of the 1920's and 30's?
The takeaway message is that we should get rid of our dollars and into assets that may survive this madness at the top. Or, if we are a huge bank, we go back to milking the Treasury. We short bonds after the auctions, and then wait to cover the shorts and go long when the Fed comes in with QE2+. Banking, it's a great life!
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