Results 1 to 3 of 3

Thread: The Fed and conflict of interest.

  1. #1
    Trumpaloompa Tormenter Cicero's Avatar
    Joined
    Dec 2010
    Posts
    36,825
    Thanks
    23803

    From
    Virginia

    The Fed and conflict of interest.

    The Fed And Conflict of Interest.

    In the article entitled “Dissecting the Mind of the Fed” author David Leonhardt opines “Why does the Fed skew more hawkish than the economics profession as a whole? Part of the answer lies in the way the 12 voting members of the policy-setting committee are chosen. They are a mix of presidential nominees subject to Senate approval, with 14-year terms, and regional Fed presidents, who are chosen by outside boards that are made up partly of private-sector finance executives.

    David Levey, a former managing director at Moody’s and another critic of Fed inaction, points out that banks often have more to lose from inflation than from unemployment. Inflation reduces the future value of the money that their debtors — homeowners, car buyers, small businesses and the like — will repay them.

    “The Fed regional banks represent, in essence, the banking community, which tends to be very conservative and hawkish,” Mr. Levey says. ‘Creditors don’t like inflation — it’s good for debtors.’ Indeed, the three recent dissents all came from regional bank presidents: Richard W. Fisher of Dallas, Narayana R. Kocherlakota of Minneapolis and Charles I. Plosser of Philadelphia . “ http://www.nytimes.com/2011/08/28/su...wpisrc=nl_wonk


    At the heart of this issue is whether you believe that the Federal Reserve can be trusted to set aside its own interests, and years of canalized thinking, to act as an honest broker for the people when the interests of the people conflict with the interests of the banks and financial services sector? In holding down the rate of inflation (by suppressing interest rates) Chairman Bernanke appears to be taking an action which favors the financial sector at the expense of the rest of us. The record low interest rates create a “raid and trade” economy which discourages thrift while not encouraging spending. Indeed, this artificially low rate of interest allows banks, brokerages, and companies to borrow on extremely favorable terms, and to invest in relatively low to moderate risk financial instruments and reap a significant profit. As a result of this policy there is no real incentive for companies to invest in growth, research or product development because they can exist, quite well, without them.

    This policy also creates a downward pressure on the value of the dollar. This weak dollar means that consumers pay MORE for imported goods. Normally this problem would be offset by an increased demand for domestically manufactured products, but the US is singularly lacking in a domestic manufacturing base. While the weak dollar makes our exports more attractive, the vast majority of our economy is not based in industries which produce exportable goods. Couple this problem with the decrease in demand by the consumers, (attributable to artificially depressed wages, economic uncertainty, and the increased cost of necessities like gasoline) and you have an economy where the disparity between the economic performance of 90% of America and the wealthy, the mega-corporations, banks and other “too big to fail” enterprises.

    You know…the guys we bailed out with our tax dollars. They’re getting richer, we’re getting poorer, and the Fed is making it all possible.

    Okay, so we know the problem…what’s the solution? First of all, nationalize the Fed. Eliminate its quasi-private status. Just as a man cannot faithfully serve two masters, the Fed cannot act as an honest broker for the PEOPLE of the United States when it is bound to another interest. Decoupling the Fed from the influences of the private sector would end the de facto outsourcing of Treasury functions and place many of its monetary functions back in the realm of policy and oversight, both of which are defined as inherently governmental functions. Further to the point, it would eliminate much of the debt the government owes itself, thereby improving our national fiscal standing. Finally, it will eliminate the barriers to an effective monetary policy that is responsive to the needs of the NATION and not to the whims of the banks and moneylenders.

    The next step is to re-regulate the financial sector and impose fees and taxes to offset the costs of rescuing them from their folly. The purpose of these fees is to raise the cost of non-productive economic activity (arbitrage) and to thus encourage redirecting money into productive activity. When it’s no longer profitable to trade wealth, rather than actually making things, then the private sector will begin to invest in manufacturing again. This move will also damper the trend started by the Bernanke policy which has caused people on annuities and 401(k) plans to flee from low-moderate risk investments to higher risk investments for a better return on investment. It will encourage thrift rather than speculation. This transition will allow us to move to the final part of the plan.

    The final step is to use the anti-trust laws to break up the mega-corporations and financial institutions. This disaggregation will put an end to companies that are “too big to fail” and “too big to regulate.” The goal of this program is to reduce the level of systemic risk and to mitigate against corporations incurring moral hazards in the mistaken belief that they can continue to privatize profit and socialize risk. The need for this part of the plan is manifestly obvious as the assets of the five largest banks have grown to 8.7 trillion dollars since 2009. This growth has occurred despite the failure to correct serious systemic failures, including their incentive programs, which encourage bad behavior and virtually guarantee a second (worse) collapse will occur in the near future.

    A Year After Dodd-Frank, Too Big To Fail Remains Bigger Problem Than Ever

    In closing, some will claim that requiring the financial system to operate like a bank, and not like a casino, is a bad thing. They will claim that we are stripping entrepreneurs of their rewards for being innovators and risk takers. What they will carefully NOT mention is that the obverse side of reward is risk…and who assumes it. Right now the too big to fail companies and banks are reaping the rewards of having the US Taxpayer as their unwilling guarantor, underwriting their bad decisions, allowing them to privatize profit and socialize risk. The Fed is helping them in this endeavor by allowing them to borrow huge amounts of money at discounted prices. This practice causes the taxpayers to socialize the costs of the non-productive economic activity, while allowing the companies to privatize the profit. Ultimately it becomes a question of whose side the Fed is on…and it appears that it isn’t ours. We need to end this conflict of interest.

  2. #2
    Senior Member
    Joined
    Jun 2011
    Posts
    1,474
    Thanks
    0

    The problem is that the Fed is given a dual mandate which, when enacted in 1978, seemed consistent (unemployment and inflation go hand in hand in a stagflation), so The Full Employment and Balanced Growth Act of 1978 gives the Federal Reserve a dual mandate, to preserve price stability and to promote full employment.

    "Eliminate its quasi-private status. Just as a man cannot faithfully serve two masters, the Fed cannot act as an honest broker for the PEOPLE of the United States when it is bound to another interest. Decoupling the Fed from the influences of the private sector would end the de facto outsourcing of Treasury functions and place many of its monetary functions back in the realm of policy and oversight, both of which are defined as inherently governmental functions."

    Basically, we will give the dollar back to Congress. (They actually do have constitutional authority to do this by the way, this isn't a can or can't question, its a should or shouldn't question).

    So, who do you trust with the dollar? The Fed or Congress?

    Boy, that's a losing choice isn't it?

    So sayeth the debtor to the creditor, "Fuck you, creditor, I favor inflation"

    Let's give the dollar {back} to the single largest debtor in the entire world....

    What else can we expect from 'deadbeat, can't do' nation?

    --------------------------------------------------------------------

    Maybe pay our own way by using our time, labor and capital to actually PAY for the things that we consume (imagine that).....

    that idea is summarily dismissed right here:

    "This weak dollar means that consumers pay MORE for imported goods. Normally this problem would be offset by an increased demand for domestically manufactured products, but the US is singularly lacking in a domestic manufacturing base. [In other words, that would be really hard to do] While the weak dollar makes our exports more attractive, the vast majority of our economy is not based in industries which produce exportable goods."

    Banana Republic, here we ARE.....this country is a joke....

  3. #3
    Trumpaloompa Tormenter Cicero's Avatar
    Joined
    Dec 2010
    Posts
    36,825
    Thanks
    23803

    From
    Virginia
    Quote Originally Posted by cwalenta99 View Post
    The problem is that the Fed is given a dual mandate which, when enacted in 1978, seemed consistent (unemployment and inflation go hand in hand in a stagflation), so The Full Employment and Balanced Growth Act of 1978 gives the Federal Reserve a dual mandate, to preserve price stability and to promote full employment.

    "Eliminate its quasi-private status. Just as a man cannot faithfully serve two masters, the Fed cannot act as an honest broker for the PEOPLE of the United States when it is bound to another interest. Decoupling the Fed from the influences of the private sector would end the de facto outsourcing of Treasury functions and place many of its monetary functions back in the realm of policy and oversight, both of which are defined as inherently governmental functions."

    Basically, we will give the dollar back to Congress. (They actually do have constitutional authority to do this by the way, this isn't a can or can't question, its a should or shouldn't question).

    So, who do you trust with the dollar? The Fed or Congress?

    Boy, that's a losing choice isn't it?

    So sayeth the debtor to the creditor, "Fuck you, creditor, I favor inflation"

    Let's give the dollar {back} to the single largest debtor in the entire world....

    What else can we expect from 'deadbeat, can't do' nation?

    --------------------------------------------------------------------

    Maybe pay our own way by using our time, labor and capital to actually PAY for the things that we consume (imagine that).....

    that idea is summarily dismissed right here:

    "This weak dollar means that consumers pay MORE for imported goods. Normally this problem would be offset by an increased demand for domestically manufactured products, but the US is singularly lacking in a domestic manufacturing base. [In other words, that would be really hard to do] While the weak dollar makes our exports more attractive, the vast majority of our economy is not based in industries which produce exportable goods."

    Banana Republic, here we ARE.....this country is a joke....
    And yet the question of payment doesn't change with the FED in charge of monetary policy. What changes is who decides and upon what basis. As it stands now the FED's mandate is to control both unemployment and inflation, but the point is that it does so in a manner that represents the interests of the marketplace over the interests of the people. Because the FED is a quasi-private organization the underlying goal is to do so in a way that grants a financial advantage to itself in the marketplace. When we discuss which we would "trust" with monetary policy (which is an inherently governmental function) the answer SHOULD be that we trust the Treasury with this role, because it's WHY they exist. What we have done, rather than requiring the Treasury do its job, is to outsource this function to a group of people who make decisions based on the financial advantage to THEM as private sector lenders and creditors. This is what was meant when I referred to canalized thinking. It's counter-intuititive to argue that the FED will put the interests of the nation ahead of the interests of creditors and lenders when the two interests are not identical. The board members, BEING creditors and bankers can not help but frame their responses in terms of how it will affect their bottom line. They tend to be prejudiced towards policies that are marginally effective for the nation (as a whole) while being EXTREMELY advantageous to a small part of the nation (the part from which they, themselves, derive some financial benefit). Thus it is that we have a policy that favors 10% unemmployment, relatively little productive activity, low inflation, and a HUGE amount of non-productive economic activity. It's a policy that simultaneously discourages savings AND discourages investment in productive activity. Why? Because these are policies that are favorable to the FED members and their corporate peers.

Tags for this Thread


Facebook Twitter RSS Feed