classical economics
for analysis,  forecasting
and policy design

Bernanke Pro Inflation

$600 Billion from Thin Air
By Wayne Jett © November 3, 2010

    Asking “would you buy a used car from this man” tests trust in motive and honesty. This question ought to be asked of every person setting U. S. economic policy, which is obviously designed to create a permanent two-class society: the ruling class and their subjects. Absolutely no presumption of good intention is justified by their record, and not one passes this simple test. So how do they continue to get away with their sadistic mischief?
    Oh, some say, don’t be so hard-edged and judgmental towards these able officials who shoulder such burdens for society – they are more capable than anyone else or they would not hold their positions. If you have thoughts of this nature, one thing is certain. You have not examined their conduct closely enough to appreciate just how destructive their actions are, or how close they are to ending hopes for general prosperity in America for many years to come.
Inflation: It’s Ba-a-a-c-k!
    Prices of staple commodities like cotton and sugar are already jumping at daily limits towards historic highs. Federal Reserve chairman Ben Bernanke fans the fires, publicly advising that higher inflation is precisely what is needed to produce higher economic growth rates and more jobs. The man surely recalls the human suffering and financial tragedies produced by his predecessors Paul Volcker during 1980-1982 and Alan Greenspan in 1996-2002, as Volcker “broke the back of inflation” and Greenspan wrung “inflationary expectations” from American minds.
    Yes, Bernanke knows. He knows. Yet he contorts “monetary analysis” in whatever way he must to justify the actions he takes as demanded by financial oligarchs who own the Federal Reserve and similarly dominate the federal government. This is why the “low taxes, stable money” advice of classical economist Robert A. Mundell is ignored without so much as a reference, much less refutation, before proceeding into practices with truly cataclysmic consequences for the U. S. and the world.
Housing Bubble Times Ten
    For the same reason, Bernanke announced November 3 a plan for the Federal Reserve to create 600 billion new dollars to lend to Treasury during the next eight months.   Treasury securities at current yields are increasingly unattractive because resulting inflation overrides yield. Without the Fed as monetizer-of-last-resort, Treasury yields must rise to attract buyers. The federal spending game would have to end if yields rise because default would become all the more obviously inevitable.
    For perspective, consider that the Fed bought a total of $147 billion in Treasuries during 2003-2006 before actually selling a net $40 billion in 2007.  The building of monetary base through 2006 was blamed later for soaring home prices, which collapsed amid plenty of financial manipulation as the Fed reversed course on cue from Wall Street. The Fed is a central bank flirting with currency mania on par with France in the early and late 18th Century, and Germany in the early 1920s.
Macro Trouble Ahead
    What is the point of the spending game, which seems so insane to anyone who does not hide under the Keynesian cover story? The banking oligarchs wanted, and have achieved, huge increases in public debt with compliant administrations in place to incur it. But to what end, other than the obvious income which flows to them in the process of issuing $600 billion in new Treasury debt and in the spending of those dollars?
    Their mid-term goal is to de-stabilize and destroy the American middle class. Nearer term, however, their tactics are difficult to forecast because they can reverse course almost overnight as a “market force,” and suddenly everything changes. Recall Fed chairman Paul Volcker stoking the monetary base in late 1979 and early 1980, seeking to re-elect President Jimmy Carter. When that cause appeared lost (as inflation and interest rates rose sharply), Volcker turned on a dime and drained liquidity.
    Why are interest rates not already licking higher? Unlike 1979-1980, private capital has been driven from credit markets (see the $1 trillion-plus in bank reserves, an historically unparalleled phenomenon) by conduct of the Federal Reserve, Treasury and FDIC, and the Securities & Exchange Commission has permitted financial fraud to drive capital from the securities markets. So much private capital is driven to shelter in Treasury securities, yields are low. But even now yields seem irrationally low. How long can it last?
Struggle for Influence
    Republican gains in the U. S. House off-year elections nearly matched the outcome of 1938, which was six years into Franklin Roosevelt’s presidency.  This time the electorate was given a clearer alternative to staying the mercantilist course advanced then by FDR and now by President Obama. Thanks primarily to rising middle class activism in choosing candidates who are not pre-qualified by gate-keepers with access to financier vaults, voters in many races could distinguish elitist policies and which party espoused them.
    But influence of the financial sector remains pervasive. The outcome of elections in New York and California show this to be true. Elitists are firmly in control there, as they are in the White House, so they will continue to affect economic policy and performance. Republicans may be able to extend current income tax rates (and perhaps current estate tax rates) another two years, but that will leave the same uncertainty affecting long-term capital investments as has hurt during the past three years.
    As to monetary policy, the dollar in great peril, thanks to the Fed’s masters. The national and global economies cannot regain health while that crisis worsens. ~