classical economics
for analysis,  forecasting
and policy design

Serious Economics

Winnowing Imposters is Easy Call
By Wayne Jett © October 2, 2012

    Do you recall an economist advising that the Federal Reserve should not manipulate interest rates? If you do, you are rare, as is that economist. Radio, television and print media define “serious economist” as one who endorses interest rate manipulation as the primary instrument of U. S. monetary policy. But no serious economist can accept that premise as valid.

    Now that monetary policy has actually surfaced as an issue in the presidential campaign, let’s get to the nub of it. The U. S. central bank known as the Federal Reserve Board is a banking cartel owned and controlled by major international banks. The cartel fixes the price of bank credit, which is the principal commercial product of those banks.

                                                            Catching Up with the 19th Century

     For anyone needing a reminder, a cartel is a joint enterprise formed by independent interests to set terms of trade so as to enable those interests to monopolize affected commerce. Many Americans led by President Andrew Jackson saw central banks as banking cartels in the early 19th Century, when they helped Jackson defeat a charter extension for the second U. S. central bank.

    Now, of course, society has advanced to a sophisticated level. Americans are told we can’t possibly understand economic policy and must leave such matters to intellectuals “independent” of politics. The current environment of enforced economic ignorance testifies to the immense power presently abused by the dominant elite who own the international banks.

No “Independent” Fed Exists!

      While on the topic of the ultimate desirability – nay, necessity – of a central bank entirely independent of political influence, this outrageous canard ought to be buried permanently. Begin with this simple premise: international bankers, left alone, will pursue self-interests.

     So, give international bankers authority to form their own cartel and exclusive power to issue the nation’s currency. Make that currency by law legal tender for all debts, and guarantee the bankers’ cartel complete freedom of discretion. Are they, under these conditions, more likely to act in the public interest? Of course not!

     The answer is unaffected by presence of a front man spouting intellectual bromides through a mask of feigned confidence. The only measure of success for a Federal Reserve chairman is how well he quells public outcry against results of actions secretly taken by the central bank on behalf of the international bankers who control it.

     The argument for Fed independence is the public’s lack of trust in responsible conduct by politically elected officials who might influence monetary policy. But no greater reason exists for the public’s lack of trust in elected officials than the immense, awful powers placed in the Federal Reserve by Congress and U. S. presidents. Irresponsibility in granting powers to the Fed – or in other legislative duties – cannot justify giving the Fed complete discretion in using and abusing those powers.

Serious Monetary Policy

     Congress should not only influence monetary policy. Congress should control precisely what U. S. monetary policy is to be. Only one sound monetary policy exists: the national currency should remain as stable and unchanging in unit value as is possible to achieve. The best measure of currency value historically proven and accepted globally is the unit value relative to an ounce of gold.

      If those elected to Congress wish the United States of America to endure as a national republic, they should take direct responsibility for issuing currency. Congress should order and pledge that the currency unit shall retain a stated value reflected in the price of gold. The international bankers will not welcome such a turn of events, but better to incur their wrath in open confrontation than their continued looting of public and private purses behind the Federal Reserve’s curtain of secrecy.

Swallow This?

In this light, no serious economist can down the swill that a banking cartel’s fixing of interest rates is sound monetary policy in the public interest. Not Ben Bernanke. Not Paul Krugman. Not the late Milton Friedman. Not the late John Maynard Keynes. Every person at policy or operational levels at the Fed must realize they are fixing the price of bank credit, as well as manipulating the dollar’s value, by their actions.

     Of course, Friedman did not support the Fed or its manipulation of interest rates. He recommended abolition of the Fed, and he advised management of money quantity rather than interest rates. Friedman’s shortcoming was in failing to demand that success in managing money quantities be measured by stability of currency unit value relative to the price of gold. Otherwise, his views attest that a serious economist cannot elevate manipulation of interest rates above all else in monetary policy.

Mathematical Proof

     Here is the simple reason. Using middle school algebra, write an equation for calculating the unit value of the dollar. D = ? If you can write such a formula which includes the overnight funds rate as a variable – particularly a controlling variable – you likely will win a Nobel Prize for economics. No one can do so.

     This means, of course, the Federal Reserve cannot stabilize the value of the dollar by manipulating the overnight funds rate. Its pretense at doing so is precisely like the emperor prancing down main street buck-naked, while Keynesian economists in the crowd “oooh” and “aaah” about his magnificent new clothes. The point is made. No serious economist can do this.

                                                                                                  Serious Fraud

    Remember the allegations of widespread fraud in mortgages back in 2008? The deadbeats who bought houses they couldn’t afford were to blame, according to the financial press. Now, four years later, the Attorney General of New York has filed a complaint alleging massive fraud in the sale of mortgage-backed securities.

    But the villains are not homeowners; they are investment bankers presently doing business as J. P. Morgan Chase. The fraudulent activities may have been acquired by Chase in its takeover of Bear Stearns in 2008, which came with $55 billion in Fed cash as a sweetener. Perhaps the State of New York simply wants its cut of the pie, which would explain why this is a civil complaint rather than criminal indictments. So Chase will pay a fine, admit nothing, and the AG will go away. Justice comes to the U. S. financial sector “ponderous slow,” meaning rarely or never.

     In a similar vein, another former fund manager of SAC Capital has confessed passing along insider information to higher management and acting on the information in trading. Insider trading may have been the most innocent tactic used by SAC and other short side hedge funds during 2008. Consider again the secret meeting in Manhattan between Treasury secretary Henry Paulson on July 21, 2008, with a dozen or more hedge funds. That was when hundreds of millions of counterfeit shares of Fannie Mae and Freddie Mac were being sold naked short into the market daily. Paulson told those attending his secret meeting how he might wipe out Fannie and Freddie shareholders. Then he returned to Washington and proceeded to do exactly what he had described.

     Was that any less in the nature of insider information and civil, or criminal, fraud? Don’t bother holding your breath for an investigation, much less prosecution. This is 21st Century America. ~