Posts Tagged ‘Interest Rates’

Bank Worship

May 20, 2015

BANK WORSHIP IS ALL WHAT MIGHTY ECONOMISTS KNOW:

I have fiercely condemned, for a decade, the policy of reducing the economy to interest rates. As I have said, and will say again below, this is identical to making (private) bankers into gods. “Liberal” (meaning “left” in the USA) economists love to say that low interest rates is all the socialism we need. Nobel laureate Paul Krugman is trying to make fun of the serious arguments found in scholarly critique of his “interest rate idolatry”. Says Paul:

I’m With Stupid.

No doubt, dear Paul, no doubt. Being stupid is more profitable, quite often, than being smart and moral.

Banksters Steal The World, And Prosper, Ever More

Banksters Steal The World, And Prosper, Ever More

Via FT Alphaville, James Montier has an interesting piece castigating economists for their “interest rate idolatry”, their belief that central bank-set interest rates matter a lot for the economy…” Montier writes down notions I used to brandish at the beginning of the Obama presidency. I stopped after I realized everybody (Very Serious People, Academia, High Finance, Politicians, Media) was on the con. That meant, in practice that, if one talked about it too much one was viewed as mentally imbalanced (just as pointing out that the Qur’an prescribes terrorism may one looks as a racist, according to the Politically Correct insects). Here is part of Montier’s well-thought essay:

A wider idolatry: the greatest con ever perpetuated

Lest you think I am being unduly harsh on the world’s poor central bankers, let me turn to the wider idolatry of interest rates that seems to characterise the world in which we live. There seems to be a perception that central bankers are gods (or at the very least minor deities in some twisted economic pantheon). Coupled with this deification of central bankers is a faith that interest rates are a panacea.

Whatever the problem, interest rates can solve it. Inflation too high, simply raise interest rates. Economy too weak, then lower interest rates. A bubble bursts, then slash interest rates, etc., etc. John Kenneth Galbraith poetically described this belief as “…our most prestigious form of fraud, our most elegant escape from reality… The difficulty is that this highly plausible, wholly agreeable process exists only in well-established economic belief and not in real life.”

This obsession with interest rates as a cure-all rests on some dubious views about the way the world works.”

Montier points out that the fundamental official argument for lowering interest rates down to zero is flawed: …”firms generally rely on internal financing to fund investment, rather than borrowing – witness Exhibit 6. Over 100% of gross investment is financed by internal funds.”

The obsession with interest rates has meant, in practice, that so-called liberal, self-described “progressive”, friends of “We The People” economists, have prescribed, implicitly, to lower taxes on the hyper-rich as much as possible. So they masquerade as left-wing, but, in truth, they are plutophiles. This is an old method, and why Polar Bears are white, instead of brown or black as their ancestors were. Montier:

“Just in case you were wondering about the much-lauded ability of the central bank to create inflation via helicopter drops of cash (or its modern-day equivalent), this is actually a form of fiscal policy, not monetary policy. As I noted above, monetary policy alters the distribution of net worth while fiscal policy alters the levels of net worth. Because helicopter drops effectively give everyone a boost of cash, this is clearly a change in net worth and thus is likely to be helpful in stimulating demand.

As you may have gathered from the preceding paragraph, the good news is that there is an alternative to monetary policy, and that is fiscal policy. These days fiscal policy is deeply out of vogue amongst policymakers and politicians. However, it has a much more direct link to growth than any of the channels suggested for monetary policy – it is part of the construction of GDP, and has a clear impact upon incomes.”

Krugman made a very feeble defense, which mostly consisted, weirdly, but tellingly enough, to laud Lawrence Summers, one of the architect of the dismantlement of the financial regulations under Clinton, to create a class of hyper-rich financiers. To his credit, Krugman published my comment:

In the USA, houses are started massively all the times. It’s a mark of unsustainability (presumably flimsy housing is replaced). Reducing the entire economy to this, is imbalanced. Why not consider infrastructure starts? Research? Health?

The fundamental question is: what is an economic activity which is profitable for the society?

The conventional answer is that banks know best. As the banks’ lending goes up as interest rates go down, bringing the latter down, improves the economy, say banks’ friends.

Let’s call that BANK WORSHIP.

Bank worship has enabled big banks’ heads and associated high financiers they collaborate with, to be so powerful and dishonest, that they changed the hearts & minds of all the power that be in society.

The latest case is the French Societe Generale: the police chief in charge of an inquiry on an eight billion dollar fraud therein, now admits, years later, that she was manipulated by the bank (a lower level employee, Jerome Kerviel, was sued, chased down, and condemned severely, although he claims he acted under orders). The fraud was reimbursed by taxpayers. This means that Societe Generale bosses, just in this particular case, of this particular fraud, stole around 50 dollars to each French citizens. Don’t worry for them: the thieves live big. An even bigger picture is that, in the leading countries, big bankers are banksters, and they corrupted institutions of the Republic (including politics, government, justice and police) thoroughly.

The problem is the same in Anglo-America: time after time, giant frauds of the biggest banks are exposed, and they are condemned to fines. In the end, a bank-too-big-to-fail condemned to a fine means nothing: in the worst possible cases, it’s tax payers who pay. It is the case where the criminals’ punishment is to make the victims suffer.

The latest such case is the LIBOR “punishment”, proclaimed today. In it, big banks in London manipulated the world’s leading interest rate (they call that the “market”). You would think that, after stealing billions the heads of banks such as JP Morgan would go to jail. No. Taxpayers go to jail.

Zero Interest Rates, To Serve High Finance Plutocracy:

Another problem is that zero interest rates have proven devastating for small savers, while providing the banks and their accomplices with quasi-unlimited funds for playing with each other the derivatives’ market, something that is not a real economic activity, except by making the richest ever richer.

One lends to the rich. By making lending ever easier, government policy has made the rich ever richer.

Correct economic activity would consist in the government encouraging activities which are profitable to the people at large, very long term.

The “market” is driven with what bankers think is profitable, short term.

Conventional wisdom by the economists in power is that we can trust the bankers to encourage the economic activity most suitable to the “market”, hence society.

Governments were told by the economists in power to make the job of bankers easier, to make for a better economy, hence better society. Trust bankers, give them all the lending capability, hence all the power they want, and We The People will become richer.

Thus the general strategy of bank worship assumes a trait that is true: a banker is a government official. A banker is a non-elected, uncontrolled government official, with unlimited funds, and inexistent oversight by the People’s representatives.

Bankers control the market, which controls the economy, which control society. Is that the society we want? Do we want to be controlled, financed, by an oligarchy of non-elected little Big Brothers who decide what activities the society will engage in?

Bankers are little Big Brothers who are free to finance the high financial class they belong to, as much as they want. That’s why derivative trading is more than ten times larger than real trade, worldwide. This is also why half of the world’s money is in Dark Pools. And so on.

The cause of this nightmarish world is bank worship. Bank worship is very smart for the Big Bankers. Krugman is NOT with stupid, as he disingenuously claim. He is with the winning crowd. To go interact with people such as Paul Krugman and Joe Stiglitz, the fact is, one needs to be seriously independently wealthy (then one can become a “student”, meaning a future co-conspirator, or mingle at parties).

It is very stupid for the rest of us to have become adulators of bank worship. Bank worship made society subject to a dictatorial oligarchy operating in the shadows.

What happened to the Enlightenment? It seems to have sunk in “Dark Pools”.

Patrice Ayme’

Plutocracy: I Lie, Therefore I Am

March 14, 2015

Submission To High Finance From Propaganda To Corruption, USA To EU:

IN EUROPE, OR ELSEWHERE. WHAT IS IT TO BE PROGRESSIVE, OR ON THE LEFT?

The debate about what is progress has been going since before Marx was a toddler. Actually, one can go back to Voltaire, and even all the way back to philosopher Abelard fighting Saint Bernard (Twelfth Century).

Abelard believed in debate (“Sic et Non”). Whereas Saint Bernard was all about having explained the world, all by himself, by following the herd, just as the average Christian gnu. Bernard, one of history’s greatest criminals, and thus, a “Saint, said, with revealing madness: ”I believe though I do not comprehend, and I hold by faith what I cannot grasp with the mind.”

Nowadays, many emulate Bernard, holding by faith that what they call the “free market” is the way to whatever they believe we are going to. In the “Free Market”, which is neither free, nor a market, banksters are free to enslave Peoples with as much interest as catches their fancy:

Unemployment Reached Nearly 30% in Greece, To Serve Better Banksters & Their Obsequious Servants

Unemployment Reached Nearly 30% in Greece, To Serve Better Banksters & Their Obsequious Servants

[Well above 50% of the total Greek debt is interest. The graph shall be produced another day! Greece has been ravaged by plutocracy, but is starting to resist.]

My answer is the simplest, to guide those who want a better, or just survivable world: You want progress, go with the truth. And truth is always from debate. That is what should guide the “left”, or whatever they want to call themselves.

Want some simple truths?

***

WHY CLIMATE CRIMINALS ARE RICH:

Vanuatu was just lashed by a grade 5, maximum force hurricane. Those used to be very rare. But heat is energy, so more heat, more energy.

A truth that is simple: California is experiencing the greatest drought in millennia. This is directly related, in my learned opinion, to the general accelerated upwelling observed along such coasts, at such latitudes, worldwide.

Thus the unfolding California disaster (expect striking restrictions within weeks), is part of a much more general catastrophe.

Ironically, California, as the epicenter of USA propaganda, is punished by its own instruments.

This ecological disaster wisdom is percolating down. “70% of the unfolding catastrophes experienced today are caused by the climate change.” Just said in Japan, Laurent Fabius, the extremely experienced French Foreign Minister (an ex-Prime Minister).

His USA homologue, John Kerry warned: “future generations will not and should not forgive those who ignore this moment, no matter their reasoning… It is time, my friends, for people to do real cost accounting,” Kerry said. “The bottom line is that we can’t only factor in the price of immediate energy needs. We have to include the long-term cost of carbon pollution. We have to factor in the cost of survival. And if we do, we will find that pursuing clean energy now is far more affordable than paying for the consequences of climate change later.”

Survival is the concept I have been using for years.

When the greenhouse crisis will strike in full, BILLIONS will die. It’s not just a question of acidic seas rising. One thing will lead to another. Giant wars will erupt as ecological systems collapse.

The attack on Crimea by Putin was fully part of it: Crimea controls half of the Black Sea potential oil fields (and exploration was set to start; now it has been blocked by Western law; companies such as Chevron are blocked; corrupt and backward Russia does not have the tech). Ukraine also has potential vast reserve of Shale Oil and Gas.

One should speak of climate derangement caused by the CO2 CRISIS…

***

PAY SCIENTISTS WELL, THEY WILL SAY AS PLUTO WANTS:

It turns out that some Climate Skeptics” were paid by the fossil fuel industries. All the way to the usual suspect, Harvard University. Cash for claims, that is the faith of academics who grew up in plutocratic universities (I have spent two decades in them, I should have seen many things; I did).

Says the New York Times: “For years, politicians wanting to block legislation on climate change have bolstered their arguments by pointing to the work of a handful of scientists who claim that greenhouse gases pose little risk to humanity.”

The New York Times then details the case of a Harvard-Heritage Foundation, Asian looking (that seems more serious), prostitute, who got at least 1.2 million dollars below the table to say absurdities about CO2.

“Historians and sociologists of science say that since the tobacco wars of the 1960s, corporations trying to block legislation that hurts their interests have employed a strategy of creating the appearance of scientific doubt, usually with the help of ostensibly independent researchers who accept industry funding.

Fossil-fuel interests have followed this approach for years, but the mechanics of their activities remained largely hidden.

[By the way, the recent revelation are coming, through Greenpeace, thanks to Freedom of Information Act, which acts only on government agencies, in this case the Smithsonian Institution; lying, private, plutocratic universities are not forced to reveal the corruption; and also: why did the Obama administration revealed it by itself?]

“The whole doubt-mongering strategy relies on creating the impression of scientific debate,” said Naomi Oreskes, a historian of science at Harvard University…”

The god debate in the USA is the mother of all plutocratically founded brain washing: thousands of extremely rich people in the USA work for god, and are paid by taxpayers.

Plutocrats love god, because god works for them.

As Jesus will save all Americans, Americans should just lay nailed to the cross, as plutocrats walk all over them, and just thank them for giving us a hard time, easing our way closer to you, my lord (of Wall Street).

***

SWEDISH CIA WHORES CHANGING SONGS:

So Sweden, who told us that it was “illegal” to go interview Julian Assange for hard-to-believe sex charges, is changing its mind. Now that plutocrats have spent already 20 million dollars keeping him caged because he looked at a Swedish CIA woman funny.

After 1,000 days of detention in the Ecuadoran embassy, Julian Assange will be interviewed by Swedish prosecutors inside the embassy (for having sex in a non-Swedish way).

British plutocracy has spent more than 10 million pounds watching Assange. Yes, more than 18 million dollars.

Money in the pursuit of plutocracy has no limits. This, from a government which introduced PAY TO PLAY, all over Britain, including education.

It is widely expected that, as Sweden is a stooge for the USA, Assange would be deported to the Guantanamo Archipelago, to see his human rights trampled into nothingness. Nothing personal, it’s all about terrorizing Americans.

Sweden’s Minister of Justice, Bodström

Two women admitted to consensual sexual relations with Assange, but then asked him, they said, to stop what they had agreed to, and that he did not. After this sort of interrupted coitus interruptus, one woman lauded Assange on the Internet, and to the next future victim, who proceed immediately to be equally victimized, upon apparent recommendation of the first.

It turned out that one of the accusers of Assange provided the CIA torture program called “rendition” with victims. So Sweden’s Minister of Justice, Bodström tortures, and that is OK. (That was obvious all along, as he tortured Assange for all to see.)

Assange’s biggest crime? Publishing a video showing Americans pilots gunning down journalists, and then those who tried to rescue them. The Pentagon immediately claimed that WikiLeaks was a “security threat”.

It obviously said something about the USA, namely that the behavior of police in Ferguson is something that the USA finds so natural (shoot first, check later) that it is anti-American to reveal it.

***

HAVE THE COURAGE TO CALL POLITICIANS CORRUPT CRIMINALS:

Matthew Yglesias repeated like a parrot what I have said for many years: small-country, and even medium-countries (Sarkozy, Brown, Blair, Monti, Schroeder), or large-countries (Clinton) politicians generally have personal incentives to go along with troika, or plutocratic demands even if they are against their nation’s interests:

“Normally you would think that a national prime minister’s best option is to try to do the stuff that’s likely to get him re-elected. No matter how bleak the outlook, this is your dominant strategy. But in the era of globalization and EU-ification, I think the leaders of small countries are actually in a somewhat different situation. If you leave office held in high esteem by the Davos set, there are any number of European Commission or IMF or whatnot gigs that you might be eligible for even if you’re absolutely despised by your fellow countrymen. Indeed, in some ways being absolutely despised would be a plus. The ultimate demonstration of solidarity to the “international community” would be to do what the international community wants even in the face of massive resistance from your domestic political constituency.”

But a genuine government of the left would be very different. And this is what we have got in Greece right now with Syriza. — not because its policy ideas are wild and crazy, which they aren’t, but because its officials are never going to be held in high esteem, and great gratitude by the Davos, private jet set. Alexis Tsipras is not going to be on bank boards of directors, president of the BIS, or, probably, an EU commissioner. Neither he, nor Finance Minister Varoufakis even like to wear ties, and they have announced they won’t wear any as long as the Greek debt crisis goes on.

Yglesias’ cogent remarks are nothing new, I have been writing about them for more than a decade. OK, Yglesias is part of the establishment of sorts, he has high visibility, he went the plutocratic university par excellence, Harvard, studying philosophy, so he is supposed to be taken seriously (Krugman refers to him continuously, while censoring my declarations saying the same for years).

All right, so that leaders of small countries betray their countries to foster their careers, is not new, indeed. Draghi, for example is a pure product of AMERICAN plutocracy (PhD MIT, jobs at prestigious American Think (Sink?) Tanks, Goldman Sachs, etc.). So how come this pure pluto made in USA is one of the leaders of Europe? Because European plutocracy is the poodle of American plutocracy.

Not that I do not like Draghi. He is better than his Prussian alternatives. That was just an example.

The situation with Luxembourg and Juncker has been even worse: we are talking about 200 billions of tax evasion a year, there.

When there is no economy but corruption, Pluto is its prophet.

We need a name for all this activity. We have it: corruption.

OK, let’s take a rest. Next I will explain why, as in Greece, Nationalism may help. Syriza governs with a right wing party. In Israel, the corrupt Netanyahu may lose power to a left wing opposition which proclaims its nationalism (“Zionism”).

But it will not end before the fat lady sings, and it’s in France that she playing Valkyrie. Fear, little Plutos, the pain you visited on the world!

Patrice Ayme’

Housing & the Money Trap

November 23, 2013

Economics is a subject founded, and dominated, by philosophy. or rather, it should be. Instead it got to be dominated by gangsters and banksters.

The crisis the western economy comes from what passes for rational economic theory is far plutocratic lunacy. To put it in one sentence: “greed is not just good, but god.”

How did this come to be? Force. Force is what gave meaning to economics. In 1945, Allen Dulles, head of the OSS, was sitting in Berlin, in charge of de-Nazifying his Nazi friends he had made such good business with. A few thugs got tried, but the real friends and business associates were taught to make American style jokes, so they could go back to business. Force works:

Wall Street Golden Calf: Larger Than Life Itself

Wall Street Golden Calf: Larger Than Life Itself

Decades unfolded. The OSS, now called the CIA imposed military men all over the Americas, if not the World, covered up by Harvard, Chicago or Stanford certified “economists”. No god, but greed: an old story, already found in the Bible (the adoration of the gold calf). That was great for We The People of the USA, as riches flowed towards the USA. That comforted USA universities in their knowledge that their vision of economics as all about greed was correct.

The City of London poodle reinforced that notion and that system, after Thatcher came to power.

Then Reagan came to power. His greatest feat was probably to have introduced a tuition in the public University of California. That University had been founded specifically to be free, in contradistinction with the plutocratic universities, where diplomas were paid for, to give the appearance of distinction and qualification on merits to the children of plutocrats. Reagan broke that nasty idea.

From there on, all what was worthy in the USA would be paid for.

Reagan had in his cabinet two twenty-something economists, eager to please and succeed: Larry Summers, hyper connected to plutocratic economists with Nobels, and Paul Krugman. Nowadays Krugman, is viewed, erroneously as the most progressive economist there is. And his blog is the most read in economics, worldwide (complete with my more damaging comments censored).

Summers’ attempt to head the Fed, supported by Obama, was shot down by an Internet born campaign. As far as I know, I am the first to have excoriated Summers from way back. What Summers did under Clinton would have made FDR scream. Summers not only destroyed the Banking Act of 1933, FDR’s most important economic reform, but he allowed the expansion of banking scams to realms never imagined before.

Now, Summers, seconded by Krugman, has embarked in a vast campaign to justify the abysmal economy they helped to create in the last three decades. See:

http://krugman.blogs.nytimes.com/2013/11/16/secular-stagnation-coalmines-bubbles-and-larry-summers/

Recently, Krugman has been trying to explain that Keynes was not an idiot, that Keynes was just joking when he said real stupid stuff. I have long argued Keynes was partly a confirmed idiot, and even a lethal one.

See: https://patriceayme.wordpress.com/2010/09/04/colbert-good-keynes-not-so-smart/

Lord Keynes was just not an idiot, in many ways, he was also a Nazi. A Nazi incubator. a mother hen for Nazism. No wonder he wanted people to fill up holes at the bottom of coal mines; he was inspirational for Nazism.

Krugman is a strange case: on one hand, he is violently and haughtily condemning those who call him, Larry Summers, Alan Greenspan, Robert Rubin Jews, as they originally are, although he admits he is badly estranged from his roots.

On the other hand, Krugman exhibits wild enthusiasm and total devotion to Lord Keynes. Lord Keynes was a rabid partisan of murderous, German fascism, and regretted loudly and extensively that the Versailles treaty had freed enslaved nations subjugated by Prussia and Vienna. Keynes, as early as 1919, wrote down the entire system of thought the Nazis would run away with. Then he published it, as “The Economic Consequences of Peace” and that piece of trashy Nazi propaganda became the Bible of pseudo-progressives plutocratic sycophants throughout the Anglo-Saxon world. Including presumably, that of Krugman as he is all things Keynes, night and day.

To this day, Keynes’ TECP is the source of much anti-French hatred and contempt in the Anglo-Saxon world (something Krugman deplores, another of his charming contradictions). Most cultivated Americans have been brain washed, by a time honored Nazi tradition,  to deplore “Versailles” as the cause of everything bad. Those Americans ought to have to line up, and be spanked vigorously by Poles, Czechs, Slovaks, Romanians, Serbs and assorted others. French judges could assert when USA buns are rosy enough.

So now Krugman is again in love with Summers for all to see (Curiously he does not extend that affection to Summers’ compère, the Maestro of bubbling, babbling and mumbling, Alan Greenspan (Greenspam, Greenmail? who is out with another trash book).

Summers’ theory is that bubbles are good. It’s nothing new: that “theory” was put in practice by him and Greenspan under Clinton. Now our errant boy, Krugman, is embracing it idly (caveat: although, before anyone, I pointed out 4% inflation was good, I do not embrace bubbles.) In ‘Bubblephobia and Monetary Policy’ Krugman opines that:

How do you know that monetary policy is too loose? The textbook answer is that excessively expansionary monetary policy shows up in rising inflation; stable inflation means money is neither too loose nor too tight…I’m pretty sure the side Janet Yellen is on, says that at low inflation rates this rule breaks down… stable inflation at a low level is consistent with an economy operating well below potential. [I agree with this.]

But there’s a critique from the other side that seems to be gaining a lot of traction with central bankers not named Janet Yellen — namely, the notion that if asset prices are rising, and that this might signal a bubble, it’s time to tighten, even if inflation is low or falling.

And Krugman to inform us than an esteemed colleague at the Swedish Central Bank was fired because he disagreed with rising interest rates. Indeed, it makes no sense:

Killing The Economy: Good, Say The Plutos, We Will Shine More Brightly

Killing The Economy: Good, Say The Plutos, We Will Shine More Brightly

 

The Riksbank raised rates sharply even though inflation was below target and falling, and has only partially reversed the move even though the country is now flirting with Japanese-style deflation. Why? Because it fears a housing bubble.

This kind of fits the H.L. Mencken definition of Puritanism: “The haunting fear that someone, somewhere, may be happy.” But here’s the thing: if we really are in the Summers/Krugman/Hansen world of secular stagnation, things like this are going to happen all the time.”

Krugman, Summers, Greenspan, and the entire economic establishment are barking up the money tree. But an ultra major economies have worked without money. I sent Krugman the following, and, perhaps having understood it, he kindly published it.

Thinking of the economy in terms of money only brings the lowest bounds and deliquescent traps to the economic discourse.

There is a housing problem, from Germany to California. A neighbour’ two full grown, professionally employed children, just moved in to share her small apartment. Why? Because in San Francisco, studios are renting at $3,000 a month.

Real estate prices have tripled in Munich, und so weiter.

Verdict? It’s not about money, or “inflation”, it’s about supply of housing. The old solution is to throw money at banks and to hope them to throw some more money at the housing market.

But bankers, and other rich people, have interest to see housing prices go up: thus they become richer, while doing nothing. That is they have more and the others, relatively less. So housing’s supply diminishes, relatively speaking.

In more than three decades, the population of California more than doubled, but housing did not. Especially not where the jobs are. So prices exploded, especially after international plutocracy bought itself a few adobes. Does that mean there is inflation? No. Just not enough housing.

How was the problem solved after WWII in Europe? Entire cities had been levelled (say Toulon in France). Well, the governments simply decided to build housing. Forget the banks. Just pay the contractors directly, and get on with the work.

This stays true today. Government driven, quality (energy neutral) housing ought to be governmentally decided throughout the West.

That would surely help the economy more wisely that frantic fracking. (Fracking can be considered a Ponzi, or pyramid scheme, because it does not pay for the escalating damage it causes, so it’s a repeat of the “subprime” madness, and a crazed bubble.)

So we need more governmental intervention in the economy. But not by just exacerbating the consuming. Turning “patients” into “consumers”, on the “health marketplace” as the clueless Pelobama did, is the way of error. What we need is a government that brings work where needed, directly. (Although fiscal tools could help, say by cutting taxes on construction, and relaxing some regulations.)

Big time energy policy, both in research (Thorium reactors, Thermonuclear Fusion, etc.) and development (replacing planes by nuclear-electric trains, so to speak, etc.) scientifically driven is needed. There are simply projects only the government is big enough, and free from short term profit enough to engage in; see “Synthesis Found”.

Just throwing money at banksters, so they be good, as Krugman and his colleagues have advocated, forever, is not good enough. It’s just perverse enough.

And measuring inflation, as is done in housing, by lack of supply, is deeply erroneous, indeed.

***

Patrice Ayme

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.

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Patrice Ayme