The Queen of Inequality - And Other Federal Reserve Horror Tales

The Queen of Inequality  - And Other Federal Reserve Horror Tales

“Prophet!” said I, “thing of evil!—prophet still, if bird or devil!

By that Heaven that bends above us—by that God we both adore—

Tell this soul with sorrow laden if, within the distant Aidenn, 

It shall clasp a sainted maiden whom the angels name Lenore—

Clasp a rare and radiant maiden whom the angels name Lenore.”

-       The Raven, by Edgar Allen Poe, Circa 1845

By J.M. Hamilton 10-31-14        

The Raven, nearly 170 years old, still has the power to evoke dread, by tapping into basic human fears.   Fears based upon death, abandonment, whether there is an afterlife, loneliness, and depression, Poe hits all the chords.  He nails human existence and concerns about mortality, and all the anxiety these issues conjure up, since the dawn of man to the present day (in a single piece).  It’s probably why The Raven is timeless.  The poem provokes in some, melancholy, for not only the strange visitor that the protagonist must endure; but more creepily still because the villain crushes out all light and future dreams, with a single word. 

The fugue builds upon itself in a series of questions, until all hope is stomped out, like the dying of embers.

Still, Mr. Poe is a little too Goth for my tastes.  For me, nothing strikes horror like my perception of modern day reality.  As noted in my piece, Heart of Darkness, I read very little fiction.  When I do indulge my taste for horror or thrillers, Stanley Kubrick and David Lynch fit the bill.  These gentlemen specialized in what Dr. Freud called the “uncanny.”   Uncanny is taking the familiar and turning it on its head, so that the everyday becomes unrecognizable, perhaps alien.  All your assumptions, your bearings on reality, the very things you take for granted (friends, family and creature comforts), are often yanked out from under your feet by these two directors/writers.  Reality, as I ‘ve grown older, all too often does this, and is capable of turning 180 degrees (e.g. Being raised in the belief that America is the land of the free, only to discover we live in a police/surveillance state).

Some say the truth is stranger than fiction, and there’s not an author or writer that I know of, who can imitate the complete strangeness/volatility that is life.  The uncanny ultimately, leads to the duality of man, the inability to predict what men and women will ultimately do (e.g. Discovering the Republican Party is really a group of socialists, who transfer wealth from the 99% to the 1%, via Fed policy, tax cuts, government contracts, government & regulatory capture, and government privatization, etc…. basically privatizing profits while socializing the costs of many a private venture). Capable of great good, and great evil, humans have infinite capacity for either extreme, but generally veer towards multifoliate shades of moral grey.

For many it seems, nothing strikes fear like the random, the irrational, and many of us, “don’t do crazy,” or respond well to mental illness exhibited in others.  Mental illness may strike some, as freaking emotional and mental cancer, the devil, or even an unpleasant reminder of human frailty, mortality, or that we are not entirely in control.  Call me a coward, but I feel trepidation for the illogical and those who exhibit a disregard for reason.  It’s probably why, after God herself, next in line, I worship truth, clarity, and sanity.

And yet, we are surrounded by the surreal and irrational on a daily basis.  It’s the human condition.  It’s what caused me to abandon the GOP, once and for all.  The working and living knowledge that markets are not self-correcting, are not rational, and do not contain perfect knowledge.  Quite the opposite, markets are driven, as one author noted (Mr. Charles MacKay), by Extraordinary Popular Delusions and the Madness of Crowds (i.e. by fear, paranoia, and greed).  The Laffer curve and tax cuts for the rich, do not lead to greater resources for our government or budget surpluses.  And yet, the curve remains, one of the greatest fallacies still touted by the GOP to this day.

Rather, supply side economics/trickle down feeds inequality, an ever -widening gap between the rich and the poor, and it absolutely kills top line growth for business.  The U.S., per Bloomberg, now has the third-highest level of income disparity among 28 countries in the developed world.  Meanwhile, our public debt has never been higher, eclipsing our annual GDP.  Another Kafkaesque dream tale we have been told by SCOTUS is money equals freedom of speech.  No, Mr. & Mrs. Justices, money subverts our democracy and buys off the Congress, so that the plutocracy owns our government.

Our collective economic and political lives, as a nation, are riddled with lies, fiction and irrational behavior that defies logic, reason and facts.  However, because the fresh water school of economics, or some think tank eminento, or politician, has been paid to produce a piece maintaining the charade – we are supposed to continue to buy into our national economic nightmare: a stagnating economy, suppressed wages, government redistribution to the wealthy, monopolies & cartels run amok, financial engineering in the board rooms and executive suites to goose financial statements and returns for the plutocracy, and a Banking cartel that it vertically integrated throughout the economy.  And a Congress that fails to act.

There’s your horror story, this Halloween!

But most frightening of all, there’s no greater example of the uncanny, than the Federal Reserve.  And yes, it’s terrible to pick on our current Chairperson, Mrs. Janet Yellin, since she’s only the most recent of a long line of Fed Chairman, who are responsible for what I’m about to describe.  What’s so striking about Chairperson Yellin, is the recent string of articles stating she’s concerned about income and wealth inequality, but doesn’t know what exactly to do about it, nor does she even acknowledge the Fed’s significant role in creating economic and wealth inequality.

It’s like we’ve landed in some bizarre universe, where the Queen of Inequality suddenly must deal with her guilt and remorse.   Here then, without further ado, is JMH’s attempt to weigh in with a list of evidence on how the Federal Reserve not only is responsible for severe income and wealth inequality, but simultaneously, like the Raven in Mr. Poe’s poem, dashes out all hope.

·      The primary reason given by The Treasury and The Fed for their extraordinary actions (quantitative easing - QE, interest rate suppression, and an alphabet soup of bank bailout programs authorized by the Congress – beginning with TARP) was, allegedly, to prevent the Great Depressions reoccurrence.

·      However, if we look at the actual results, the Fed’s actions have been highly detrimental to the 99%, serving to increase economic and political polarity throughout the economy and nation.

·      Despite the Fed’s preternatural exertions, the poor and the remnants of the middle-class have suffered from: underemployment/unemployment; wage stagnation (with no relief in minimum wage); low housing prices/valuations – the primary storehouse of wealth for most Americans; and higher headline inflation – food, tuition, and fuel costs (– all of which are conveniently omitted from Core CPI).

·      Meanwhile, the gangsters and recidivist on the Street, who brought you the 2008 financial meltdown, have profited immensely from the Fed’s largess.  At the end of the day, the Fed’s policies did not prevent the Great Recession for most Americans, but rather, Fed policies were aimed at bailing out the plutocracy and preserving the status quo.  The result:  The banking cartel only grew more concentrated and more powerful.  Fed policy increased the divide between the wolves and their prey.

·      In a normal bankruptcy, bondholders will often accept pennies on the dollar, and stockholders are wiped out.  Instead, the Fed and the Treasury not only bailed out the banks and the oligarchs, dollar for dollar, but at values that were not marked to market.  No such bailout was afforded to homeowners, millions of whom are underwater to this day.  The value of their homes was written down by the market, but banks – bailed out by the taxpayer – afforded no bailouts or relief to their debtors.  And we wonder why the so-called “nascent recovery” is tepid at best.

·      With the Wall Street banking cartel bailed out by the Fed’s policies, without caveats or conditions, this allowed the Street to resume their role as taxpayer funded/insured hedge funds.  Fed funding fueled gambling, speculation, collusion, HFT, a rally in the stock market, commodities and bonds, which served as yet another bailout for the banks, the oligarchs, and the wealthy.  Meanwhile, the once burned – twice shy, middle-class sat on the sidelines fearful that they would be taken again, or were too close to retirement to risk their meager savings.   Hence, Fed policies, once again, further aggravated the economic class divide.

·      Thanks to the Fed’s interest rate suppression, the majority of Americans placed their money, post crisis, in savings accounts, money market funds, or conservative bond funds, which yielded little.  This was yet another back door bailout to the banks, who had yet another source of free money.  In fact the banks, in some cases, had so much free money that at one point, they began to reject new customer deposits.  Thank the Fed.

·      Fed sponsored QE was the high fructose corn syrup of M&A, private equity, and highly inexpensive corporate debt.   Last I checked junk bond yields were below five percent for a five-year window.  Inexpensive debt allows the Robber Barons to saddle healthy companies with debt, front load profits for an elite few, and layoff human capital to pay for said debt.   There are now said to be more than 3,000 private equity firms operating in the U.S., and like a swarm of locust, they have stripped companies to the bone, outsourced labor, and embraced globalization, so that the market for labor is an employer’s market.  In short, low demand for workers means lower wages, stagnating wages, and a revolution in technology aggravates the situation more.   Score another one for the economic elite, at the expense of the 99%, courtesy of the Fed.  To think the Fed’s mandate includes maximum employment.

·      With top line growth down for most companies, (in some measure caused by Fed policies, and a recession enhanced by same), many CEOs turned to financial engineering – once again fueled by the Fed – to goose returns for stockholders, executive suites, and board rooms.  In brief, these financially engineered profits were not generated by normal means (top line growth, investment in human capital and CAPEX, and R&D).  But rather, Fed policies fueled financial engineering: stock buybacks with cheap debt to boost ROE, a fugue of layoffs to cut income statement expense, and corporates often turned tax avoidance into an art form (with many U.S. companies – who were the beneficiaries of the FED’s policies and taxpayer largess – relocating offshore).  In effect, corporations, beholding to the U.S. taxpayer, renounced U.S. citizenship to dodge paying taxes.  Score another one for the plutocrats, with financial engineering handed to them on a silver tray by Bernanke and Co.

·      Because many U.S. companies cannot be bothered to pay U.S. taxes… paying taxes is for poor peasants (like myself)… our Federal government leans on the upper middle-class and the middle-class, at artificially high tax rates.  Higher tax rates on American consumers means LOWER: consumer spending, discretionary spending, top line growth, and opportunity throughout the economy.  We can also blame the Congress, owned by the plutocracy, for our tax debacle. 

·      The Fed’s easy money policies allow our Congress to continue to act in a brazen manner, w/out any regard for America or Americans, and the Congress is held accountable by no one but the plutocracy.  Congress has effectively delegated fiscal and tax policies to the Fed’s printing presses.  Neither tax or fiscal policy needs be addressed by the legislative branch, since the Fed has been buying up government debt, in amounts that at there peak – when combined with MBS purchases – were north of $80 billion a month.  Tough policy decisions on taxes, government spending, military and surveillance cuts, and political reform, go unanswered because the Fed’s printing presses smoke.

·      Thanks to the Fed’s support of financial engineering, the private sector does not have to worry about top line growth, or its employees.  In many instances, it would take a minor increase in the cost of products and services – passed onto the consumer - to pay workers a living wage; and a living wage would alleviate demand from the working poor for government services and support.  News story after news story points this out, but due to Fed policies, and the desire to squeeze out every penny of profit for themselves, the elite look the other way.  

·      I could fill pages more, with example after example, of how Fed policies have caused gross distortions in our economy, strengthened the banking cartel's monopoly and monopsony powers, and have had global and foreign policy impact and import.

The rebuttal to all of this is ‘yes, but another Great Depression would have been worse.’   But that’s entirely false, because what the Fed provided instead, or will have, is a lost economic decade or more – like that which occurred in Japan, based upon a rehash of the same failed bank bailout measures.  Over in Europe, where there too, banks and the oligarchy were bailed out at the expense of the people, many banks are still operating in a zombie state, six years and running, post-crisis.  (Meanwhile, the bailed out elite demand austerity for the citizenry, over alleged “moral hazard” concerns.)  Had the government stood aside and let the banks bottom out in ’08, what would have occurred (?):  there would have been massive equity and bond haircuts applied to the wealthy and the elite, who brought this crisis upon us all (and the playing field would have been leveled); you’d see the banking elite in prison stripes, instead of pin stripes; Glass-Steagall would have returned with a vengeance; regional banks would have filled the crater left by Wall Street, w/out skipping a beat.  And our private sector and government elite would have been forced to deal with the key structural issues crushing our economy and government: monopolies, cartels, LBOs and M&A, money in politics, and our crony government/economy.

At the end of the day, it is Mrs. Yellen, not Ozzy, who’s driving this crazy train.  Ironically, Dems, correctly, renounce trickle down economics and tax policies, but don’t bat an eye at trickle down monetary policy.  If the Fed had just cut out the middleman – the Wall Street cartel (which is “socialism” defined), and loaned directly, to the people, homeowners, the 99%, and students, at record low interest rates, the economy might have fully recovered.  Instead, the Street – bailed out by the Fed ad nauseam - continues to eat our young and our future. 

For a visual, see our national debt.

So on this Hallowed Eve a few concluding questions:

Will the Fed, and central banks, ever swear off boom bust cycles that enrich the elite at the expense of the 99%?

Will the Fed stop sponsoring welfare for the plutocracy, in the form of QE and interest rate suppression, at the expense of the taxpayers, savers, and the 99%?

Will the Fed stop providing a smoke screen for the plutocracy, CEOs, and our politicians, so real reforms and debate about this nation’s future can begin in earnest?

And will the Fed stop printing money so as to force our Congress to actually govern?

Quoth the Raven, “Nevermore.”


P.S.  

Looks like Central Banks, globally, are coordinating monetary policy.  One Central Bank, the Fed, kicks the opiate of the markets, free money, and another Central Bank, BOJ, injects a new dose of liquidity to keep the stock market from jonesing.

Copyright JM Hamilton Publishing 2014