Posts Tagged ‘Fed’

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.

Central Banking

October 9, 2013

What does a Central Bank do?

Plots with plutocrats. Plutoplots. Especially in the USA, where major plutocrats are Central Banks directors (and also private bank directors).

Seriously, Central Banks regulate the financial system and, thus, a large part of the broader economy. That means that the financial system is a public system masquerading as a private system (privateering system?)

Think of a financial system as an engine. The Central Bank (“Fed” in the USA, ECB in Europe) controls how much fuel there is, by manipulating its price. The Central Bank is also supposed to dictate the permissible uses of fuel. That latter mission has been completely forgotten under Clinton, the great demoncrat, that’s why plutocrats lov him.

Historically the Fed’s mandate was made very precise in 1979: “to maintain long run growth of the monetary and credit aggregates commensurate with the economy’s long run potential to increase production, so as to promote effectively the goals of maximum employment, stable prices and moderate long-term interest rates.”

What are interest rates in this engine?

The fuel of the financial system is money (generally under the form of credit). Central bank control interest rates, and those fix the price of money. The central bank raises and lowers the interest rates it charges banks when giving them money. When the central bank wants to slow down economic activity, it raises those interest rates, increasing the cost of borrowing money. Banks pass the augmentation to individuals and businesses: the latter borrow less and spend less, and economic activity slows down. When the central bank wants to stimulate the economy, it lowers interest rates.

So what happened under Fed Chair Greenspan?

In 1996, Greenspan said there was a bubble (some indicators were as bad as in 1929). However he refused to increase interest rates, because he claimed bubbles were self correcting (he read it in Ayn Rand). Yet when a fund of his friends crashed in 1998, Long Term Capital Management, he intervened (by giving enough money to friends in big banks to save his friends at LTCM and those in business with LTCM).

So Greenspan kept on piling up the fuel?

Worse than that. Under Rubin, Greenspan, Summers, in the 1990s, their boy Clinton allowed fuel to be freely used by the biggest banks to do things having nothing to do with the Fed’s mandate. Like setting fire to the entire economy and society, and then cashing in on the insurance.

Why did they allow this?

Because  the sums engaged, about ten times world GDP, or more, allowed outsize profits. They, their friends, families, and acquaintances, all made like bandits. Still do: dark pools are bigger than ever, and increase ever more every year.

After he retired, president Truman lived nearly at the poverty level. When asked why he would not cash in, he replied that he did not want to soil the office of the presidency. Compare with Clinton.

What’s your remedy?

I will come back to that. Outlaw all and any financial investment that does not benefit the economy directly (except for insurance, and some very restricted commercial derivatives, with sharp distinction between commercial operators and casino players).

Why hasn’t the Fed made larger cuts to consumer interest rates?

Because the financial system is run for profit. Lots of profits. and the financial, for profit system, is supposed to run the economies of the USA, and the EU.

That’s why some European Commissioners (Otto Rehn) are blue in the face at France for running an important socialist, not for profit economy. I mean, they are paid to be upset. When they come out of their stint at the European Commission, they expect a job at the like of Goldman Sachs.

Even Krugman has finally understood what they were up to, and condemned Rehn vigorously for the hypocrite he is; France is being attacked because it’s too much of a Republic, not enough of a plutocracy! (Basically Krugman dared to say this.)

Is the Fed powerless to reduce those consumer rates further?

There is what the central banks say they can do, and the reality that some of what they can do, they don’t even want to talk about. The Fed and the ECB have tried to distract us by a pair of novel strategies to drag consumer and business rates down. So they say.

One strategy is called Quantitative Easing (QE). The Fed has purchased more than $4 trillion in Treasury securities and mortgage-backed securities since 2008, driving up prices as investors compete for the diminished pool of available securities.

When investors pay a higher price for a bond, they accept a lower interest rate from the borrower. So the Fed’s purchases have helped to reduce the interest rates paid by the government and by home buyers. The Fed claims other interest rates are driven down, but that’s controversial.

Another campaign is called forward guidance. One reason for higher interest rates on long-term loans is uncertainty about the future level of short-term rates. The Fed has sought to decrease this uncertainty by declaring it intends to keep short-term rates near zero as long as the U2 unemployment rate remains above 6.5 percent.

Experts sing that these efforts have helped (at least a little). But, of course, this is all a sick joke.

Before you explain why it’s a joke, shouldn’t the Fed be worried about inflation?

Right now the problem is threatening deflation. All over.

Fed officials think they’ve got a clever new tool to prevent inflation. The money spent on bond purchases is credited to banks, but it is kept in accounts held by the Fed. The Fed recently started to pay interest on those accounts, giving banks an incentive to leave the money with the Fed. If the economy started to inflate, Fed officials say they can keep a lid by paying the banks higher interest rates to leave the money at the Fed.

In other words the fat cats of the biggest banks will keep on making ever more money.

President Obama said he wants no more asset bubbles like the housing bubble that caused the financial crisis. How?

Before the lamentable Greenspan, and since the bubble of the 1920s, that led to the 1929 crash, preventing bubbles used to be the Fed’s main job. As a Fed chief said generations ago, “by taking out the punch bowl when the party gets going“. This is done by rising interest rates. Volcker, named by Carter, brought interest rates up to 23.5%. That killed inflation (and the economy).

Under Clinton, the corruptocrats connected to the plutocracy claimed that there were no bubbles, on the grounds that the price of an open-market transaction is perfect by definition. If they had eyes to see, they could have observed there is no free market, just a rigged market. Others simply denied that the Fed could identify or pop bubbles. Both imbecile statements.

Why did you say that the ways presently used by central banks to decrease interest rates were a joke?

The Greater Depression started in 2007-2008 has been triggered by a crisis of banking caused by the unsupervised power of the abusers of the fractional reserve system: central banks give money to private bankers, and the latter lend 30 times that to… their friends. This happened in several ways: USA subprime, derivatives (especially swaps), European investment in continent size corruption, etc.

For example those banks could be British, French, German, and the corrupt friends could be Southern Europeans, and other Irish. When the whole castle of speculation crashed, European governments were asked to save the banks on the front lines, crashing their own governmental finances.

The rest of society was left holding the bag, while the plutocrats are dining on caviar in their castles. Instead the plutocrats ought to have been expropriated, and the castles put for sale.

A beautiful example is Greece. All the aid programs to Greece, as I have said forever, were mostly aid programs to big Northern European banks. Said programs were paid by the Public (all over Europe). The International Monetary Fund just recognized this was debated secretly inside the IMF (October 2013!).

Most of the  money created by QE goes into the derivatives business and other shadow banking and associated dark pools. It does not go to the real economy.

Thus not enough money is available to the real economy, that’s why interest rates are still high, and part of the reason QE ends up just as a subsidy to the worst financial pirates. The financial fuel goes into burning the house down, not the cooking stove.

Hence the importance of nominating Janet Yellen chief of the Fed. If she is nominated, I will explain why.

***

Patrice Ayme


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Polyhedra, tessellations, and more.

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GrrrGraphics on WordPress

www.grrrgraphics.com

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Smile! You’re at the best WordPress.com site ever

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