Robin van Spaandonk wrote:
In reply to Jones Beene's message of Thu, 3 Apr 2008 07:05:44 -0700 (PDT):
Hi,
Whenever the people start to make actual headway, the currency is devalued to
the point that they are put back in their place. ;^) Most of the "support" being
provided by the Fed. is created out of "whole cloth" if I'm not mistaken. IOW,
they just print more money.
Actually, from what I've read this is exactly what they're /not/ doing
just now.
They had been doing that -- pushing the federal funds rate down to
2.xx%, and (presumably) pushing the discount rate down as well, results
in more money being pumped into the economy. That stimulates the
economy as a whole, at the cost of increasing the money supply, which is
likely to lead to inflation. It puts the whole economy on "speed".
But the rate reductions were largely under way even before the complete
meltdown of the housing industry. Most recently, they have had the
option of pushing rates down even farther (by pumping yet more money
into the banks) but they've been avoiding that. The fed funds rate has
been stuck at its present level for a while now. They could also buy
more Treasury debt through the open market desk; that has much the same
effect (but doesn't get reported in the news so much, maybe because it
confuses people). They haven't been doing that, either, however.
Instead, according to what I've read, they've been pushing money into
the housing industry directly, by attempting to shore up mortgage
lenders using money the Fed obtains by /selling/ treasury instruments
which are already in their portfolio. That's a zero-sum approach, which
transfers money from the economy as a whole directly into the housing
industry. The goal is apparently to beef up housing (and all related
industries, along with turkeys who bought real estate stocks on margin,
and la-de-da) /without/ blowing up the economy as a whole.
If and when that approach finally shows itself inadequate, then they'll
go back to pushing general rates down. Or so it is widely expected (the
Fed doesn't telegraph its plans, of course).
* * *
When bashing the Fed, keep in mind that we have a Federal government
whose fiscal policy is completely out of control: We are fighting a
major war without price controls and without rationing, and the Federal
deficit is dwarfing King Kong. And, of course, oil prices are going
through the roof and probably won't ever come back. The natural result
of all that is inflation. The /only/ organization fighting inflation
right now is the Fed, and all they have to work with in fighting
inflation is monetary policy. And the instruments they have to control
it are actually very blunt: They can push money into the banks or pull
it out, and that's about all. And, they're trying to pull the country
out of a financial downturn at the same time they're trying to dampen
inflation. Give Bernanke some credit; Bush has given him an impossible
problem to cope with. No doubt Bernanke could do better, but he sure
could be doing a lot worse, too, I think.
Everyone loves to bash the "independent" "private" Fed. If we didn't
have an independent semi-private Fed right now, the Republicans would no
doubt have thrown great bales of money at the economy to get it revved
up for the upcoming election, and we'd be seeing inflation rates 5 or 10
times what they currently are. Note, thought, that this isn't a problem
with Republicans; it's a problem with central governments in general.
The reason the world moved to putting independent "central banks" in
charge of minting money, rather than letting the federal governments
have direct control, is that no federal government, United States or
elsewhere, seems able to resist the urge to just "print their way out"
of all problems. Talk about setting a cat to watch the canary -- that's
exactly what happens if the federal government controls the presses, and
it's what the "independent" Fed is supposed to avoid.
Banks and businesses, which have a lot of say in what the Fed does, hate
inflation a lot more than the federal government -- in fact, in the
natural course of things, the federal government LOVES inflation: it's
the world's biggest debtor and debtors always love inflation.
The federal reserve system is far from perfect but it seems to be the
best anyone's come up with so far.
(End rant.)
This is the very definition of inflation if I'm not
mistaken. In this case, not only is the populace being made poorer through
devaluation of the currency, but the printed money is being handed openly to the
wealthy elite responsible for making a fast buck and causing the "problem" in
the first place. It's all so very "Ferengi" (one from you, two for me, one from
you, two for me...), you almost have to admire the audacity of it. Of course if
people really caught on, there would be an old fashioned lynching (...of the
scapegoat of course ;).
[snip]
Indeed it is !
Prior to reading this, I had this kind of vague and
uncomfortable feeling that something "funny" was going
on- but could not put a finger on it. Now I want to
know more!
I mean there have been so few actual foreclosures
relative tho the "claimed" losses.... and an actual
foreclosure often results in minimal real losses to
the lender after resale.
This is truly one of the most suspicious things to
happen lately at high levels - on a par with "WMD"...
and it is indicative of a system that is rotten to the
core... not just a banking system either. Goldman is
almost a second government, no? Look at the musical
chairs arrangement of personnel with Treasury.
Jones
Regards,
Robin van Spaandonk
The shrub is a plant.
