Archive for July 12th, 2021

The Central Bank Cannot Be The Government

July 12, 2021

Pretending otherwise has been a pretext to plutocracy, because, intrinsically, the Fed is all about making the wealthy, wealthier.

The central bank, known in the USA as the Federal Reserve bank (“Fed”), centralizes banking policy. Banks provide financial capital which they typically charge with interest. The big banks are for profit, and on the board of the Fed. That’s it. Banks are not in charge of health, education, defense, energy policy, welfare, children, agricultural production, food distribution, empathy, etc.

As private financiers are strongly represented on the Fed board, individuals such as Jamie Dimon, JP Morgan-Chase CEO since 2005, one may suspect that the Fed is by the financially wealthy, for the  financially wealthy. Actually the rescue plan of the wealthy implemented starting in late November 2008, was elaborated by the ex-head of Goldman Sachs, then Bush’s Treasury Secretary… with the approval of president-elect Obama (a lawyer and senator, novice in financial matters).

The fundamental error in recent decades has been to delegate many governmental functions to a purely financial organization the composition of which is, at least in part, for profit… Although the Fed’s mandate is not for profit, its operators are mostly individuals whose modus operandi is to give others the means (financial capital) to work. Those individuals don’t work themselves: they make others work. Sociologically, they interact with the world’s wealthiest individuals, those who need gigantic amounts of capital. Small earners are not in their sociological or visual domain. It’s systemic class separation in decision and influence making.

In contradiction with the preceding, the Fed charter mandates that the crocodiles shall raise hens. That’s not how the universe works.

Patrice Ayme

***

Thank you Obama, you deserve the 100 million dollars we the wealthy gave to you to reward you for your work on our behalf. Notice that Trump helped a bit the wealth of the 50% lower half, demonstrating once again that he is, indeed, a hateful, despicable populist. (Graph from NYT using Fed data.)

P/S: Except for the first, and last two sentences, the preceding was a comment to the NYT. It was published within one second, and I am grateful… That’s the way my cogent comments should be published (instead of being blocked, or delayed three days… As the NYT generally does, especially in opinion pieces which are full of lies, dissembling and distortions)

Only the Rich Could Love This Economic Recovery

By Karen Petrou. July 12, 2021

Ms. Petrou is the managing partner of Federal Financial Analytics and the author of “Engine of Inequality: The Fed and the Future of Wealth in America.”

Conventional wisdom has it that the lower a central bank sets interest rates, the faster the economy grows. But the longer rates stay ultra-low, it’s not the economy that grows — it’s inequality.

There are signs of worsening inequality across the U.S. economy. But recent surges trace back to a major change after 2008, which transformed how America fights economic recessions.

The Fed, which controls America’s monetary policy, is mired in conventional thinking, even though its policy since 2008 has been unconventional in scale, scope and omnipotence. Adhering to its “lower rates are better” axiom, the Fed has kept “real” U.S. short-term interest rates at — or even below — zero, after taking inflation into account. The Fed now plans to keep rates ultra, ultra low until about 2023, even if inflation ticks up.

This results in even wider wealth inequalities as the gap between rich and everyone else grows.

Is the stunning growth in U.S. inequality all the Fed’s fault? Of course not. Tax policy has favored the wealthy and corporations for decades, to name one other cause. But income and wealth inequality result from who gets the money. And the Fed has unrivaled power over who gets the money across markets, communities and even families.

***

I have been saying this for a very long time, and when I say it, or roll out numbers, critters come and contradict reality (the facts) in the guise of criticizing yours truly… But here are the facts and their numbers:

***

Karen Petrou:

The Fed controls the flow of money, and it flows to the wealthy

The Fed’s main tools for fighting recessions are twofold: those ultra-low interest rates and a policy known as quantitative easing, or Q.E. Q.E is what happens when the Fed buys up assets, like bonds, which keeps money flowing and gives banks lots of liquidity that is supposed to make lending easier.

To get an idea of the magnitude of the Fed’s role, take a look at its portfolio. Assets the Fed has taken out of the economy as part of Q.E. now stand at $8.1 trillion, or about one-third of gross domestic product.

A growing portfolio: To stimulate the economy after 2008, the Federal Reserve increased its balance sheet and slashed interest rates. The current coronavirus pandemic sent that strategy into overdrive, creating the largest balance sheet on record and the lowest interest rates in modern U.S. history.

No one else could own that much, meaning no one but the Fed has so much power over the economy’s winners and losers.

The Fed’s approach is premised on trickle-down expectations adopted, following Reagan and his advisers, by the… Democrats, starting in the 1980s…

***

Karen Petrou:

U.S. central bankers believe the higher that markets fly and the more that the wealthy spend, the better that everyone else will be.

In truth, this policy works only for the wealthy.

Although the Fed’s huge Q.E.-based portfolio initially prevented still worse economic mayhem when the 2008 and 2020 financial crises struck, its benefits over time were 10 times greater for stock-market prices than for overall economic prosperity.

Ultra-low interest rates are meant to spur growth. But they stop having a beneficial effect when they dip so low that they distort savings incentives and instead drive speculative investing, like in Bitcoin or GameStop, to cite two current examples.

Savings, home values and stocks are up — but these also favor the rich

Many Americans own stock, but most stocks – 54 percent – are owned by the 1 percent and much of the rest by the next 9 percent.

The same can be said of real estate. Low interest rates set by the Fed spur lending, creating more demand to purchase homes and forcing prices higher. Rising equity is great for existing homeowners, but richer Americans who own property are the ones who benefit most.

***

Karen Petrou concludes, observing that the Fed charter mandates that the crocodiles shall raise hens:

“What is the Fed for?

The Fed’s role is spelled out under its statutory charter, which establishes the road map for unraveling the inequality it helped create.

The charter’s first goal is “full employment,” meaning pretty much everyone who wants a job has one. This would get a meaningful, immediate boost if the Fed reversed its cheap-debt policies that lead companies to take out debt to fund investor profits, instead of funding new plants or products.

Another goal is “price stability,” best measured by what it costs for a middle-class household to make ends meet. The measure the Fed uses misses the cost increases obscuring a household-to-debt build-up for all but the wealthiest. The Fed thus misses the long-term risks this debt poses to financial security, home ownership, and a secure retirement.

The law has a third Fed goal: “moderate” interest rates. Rates below zero after taking inflation into account are anything but moderate, so they must be gradually raised, starting now.

The current recovery is being driven not by the Fed but by the stimulus bills passed by Congress. After that spending fades, we will be a nation in which at least a quarter of middle-class households still can’t even afford the medical treatment they require, lower-income millennials have student debt equal to at least 372 percent of income, and still more won’t be able to handle even a $400 unexpected expense.

This is wealth without prosperity, a violation of every tenet in the Fed’s statutory mandate. Instead of regretting inequality even as it makes inequality worse, the Fed can and must quickly rewrite policy with a new goal in mind: shared prosperity, measured by how most of us do, not by how high the market flies.”

So why is it that officials and opinion makers believe that the Fed’s crocodiles can should, and do raise hens? Plutocratic information and opinion making control, in an awesome colluding conspiracy is the answer. Roman emperors ruled, because they had made the people ignorant, stupid and gullible.


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