The Emperor is Buck Naked…
The Brookings Institution is a nonprofit public policy organization
based in Washington, DC. Our mission is to conduct high-quality, independent
research and, based on that research, to provide innovative, practical
recommendations that advance three broad goals:
- Strengthen American democracy;
- Foster the economic and social welfare, security and opportunity of all Americans; and
- Secure a more open, safe, prosperous and cooperative international system.
- Mission of the Brookings Institution
By J.M. Hamilton 6-12-2015
Wage
and wealth inequality have become hot button issues for both political parties,
leading up to the 2016 race. Aside from
free trade agreements, and trickle down tax policies, trickle down monetary
policy (i.e. flooding the markets with highly inexpensive debt/liquidity) –
from Reagan/Greenspan forward – has become one of the largest single contributors to rising U.S. wage and wealth inequality. To such extent that the former Fed Chairman,
Mr. Bernanke, felt compelled to write about it, w/in his Brookings Institute blog. The former Chairman notes:
The claim that Fed
policy has worsened inequality usually begins with the (correct) observation
that monetary easing works in part by raising asset prices, like stock prices.
As the rich own more assets than the poor and middle class, the reasoning goes, the Fed's policies
are increasing the already large disparities of wealth in the United States.
From there, however, Mr.
Bernanke goes onto disassemble, rationalize, and provide excuses for the
continuation the very monetary policies that have helped crush the middle
class, led to divergent economies (Wall Street uber alles, at the expense
of Main Street and manufacturing), and has stolen from middle class and retirees savings accounts – and transferred interest income to those least in
need, the Wall Street banks, shadow banking, and private equity robber barons. But don’t take my word for it… Fed officials have gone so far as to engage in charity work, out of recognition that Federal Reserve policy has magnified and amplified inequality.
In the end, Mr. Bernanke says
further study on monetary policy’s impact on inequality is needed, and, either
way, Fed monetary policy should not be influenced by inequality.
Monetary policy is a blunt tool which certainly affects the
distribution of income and wealth, although whether the net effect is to
increase or reduce inequality is not clear. More research will be needed to
untangle and measure the many channels through which these effects are
transmitted. But the (uncertain) distributional impact of monetary policy
should not prevent the Fed from pursuing its mandate to achieve maximum
employment and price stability, thereby providing broad benefits to the
economy.
Written like a man in the pay
of two hedge funds, and on the Wall Street speaking circuit.
There is perhaps limited, or
little, doubt that monetary policy that magnifies wealth inequality, and wage
inequality, is a direct threat to one half of the Fed’s, alleged, mandate:
Maximum Employment.
The reality is the Fed’s true mandate is to be a highly useful tool for
Wall Street profits, and the speculative/moneyed class.
The Feds easy money policies
have fueled financial engineering, M&A, Wall Street speculation, private
equity chop shops, and formation of monopolies and cartels: All well known for their employment killing
capabilities. Nothing quite makes a
stock analyst drool like M&A activity, and the words “synergy,” and “cost
savings.” Synergy and cost savings at
the expense of labor and a living wage, crushes the American Dream for the 99%. Synergy and cost savings (i.e. job cuts) are financed by a fire hose of Fed liquidity.
That Mr. Bernanke’s monetary
policies, by his own admission, work at cross-purposes with the Brooking
Institute’s mission… well, surely, the
irony is lost on no one. In addition, growing wealth inequality, thanks to Fed largesse, is often used to subvert our democracy.
J.M. Hamilton has absolutely
nothing against wealth or striving to do better. It’s the American way. The manner in
which wealth is accumulated is another story.
If wealth is obtained by inventing, say a lifesaving drug, than more
power to you and the millions, perhaps billions, that follow. But if billions are accumulated through: monopoly
power afforded by the government; a rigged taxed code; monetary policy run amok
– leading to massive financial engineering and layoffs; withholding supply on a
drug/product with inelastic demand (so as to jack up the price); obtaining free trade agreement advantages behind closed doors; and regulatory capture – in
short, the crony economy (aka rent seeking behavior/aka strategies employed by
the elite and Big Pharma on a daily basis) – well, there are very few citizens
in favor of this path to financial success.
Unfortunately, financial engineering, M&A, and consolidation/combination within entire industries – fueled
by the Fed’s/Central bankster’s easy money policies – have become the easiest
means by which to obtain wealth (for an elite few). All at the expense of Main Street, the middle
and poorer classes, and United States’ fiscal health.
But let’s give the devil his
due: Congratulations, Mr. Bernanke, you
just completed Step One of the Twelve-Step program, admitting the Federal
Reserve has a problem. Only eleven more
steps to go.
Our Corporate run news media
is replete with stories where the wealthy have “done well,” and donated large sums to charities and educational
institutions that are often, already wealthy beyond measure.
One gets the feeling from
these news stories/puff pieces that we are to acknowledge and show our gratitude to the robber barons for their generosity.
But at what price to society,
our nation, and our children, comes such generosity?
One recent notable gift was from
Hedge Fund operator, Mr. John Paulson. The same Mr. Paulson, who donated $400 million to Harvard, and the same Mr. Paulson who was caught up in a scam with Goldman
$achs, during the heart of the financial crisis. In a deal known as ABACUS , Mr. Paulson
rigged the deck, or a cache of CDOs/MBS at the residential market peak, and
shorted same through a synthetic derivative product created by Goldman. The deal is said to have netted Mr. Paulson a
cool billion, and cost the unwitting counterparties same. Goldman $achs later paid a half billion
dollar fine for its role in the matter… just another cost of doing business (backstopped by the American taxpayer).
Mr. Warren Buffet was
recently in the news for donating billions to the Bill and Melinda Gates Foundation; Mr. Buffet, of course, is known for running Berkshire Hathaway, and
is one of the wealthiest men in America.
He also has come out against a minimum wage increase, at a time when we
have a considerable number of working poor in America (who are so underpaid
that they are dependent upon the state in order to exist).
Now, Mr. Buffet’s refusal,
along with other major business owners and management teams, to pay a living
wage means that Berkshire’s bottom line, or profits, receives a direct subsidy
from our government, every time state and federal authorities step in and provide
assistance to the working poor (i.e. underpaid workers). But the subsidy to Mr. Buffett’s profits
doesn’t stop there, because many of Berkshire’s businesses, perhaps all, pay at
a tax rate (if any taxes are paid at all) considerably well below what Mr. and
Mrs. John Q. Middleamerica pay. That is
to say, the remnants of the middle class - Mr. Buffet is busy shorting - often
pay at a considerably higher tax rate in order to make up for the revenue shortfall
that Berkshire Hathaway, and other elites, dodge paying.
The government in turn, is
overburdened with the working poor, and Berkshire’s, et al., refusal to pay
taxes at an equitable rate. Meanwhile,
Berkshire becomes exceptionally wealthy, via: M&A; the formation of monopolies, oligopolies, and cartels, within its portfolio; and through
gambling in derivatives and swaps products (much of this financed by the Fed’s
easy money policies, and a derivatives and swaps market backstopped by the
government). As a result, Berkshire’s
economic, and therefore political, power grows exponentially. The 99% often live from paycheck to paycheck,
and the 1% take home nearly all the nation’s income and accumulate the nation’s
wealth, disproportionately.
When Mr. Buffett, or other
plutocrats, donate to charities (or purchase the Magna Carta), from
profits raised on the backs of the working poor, or by exploiting the tax
system, or via monopolistic pricing power (all at the expense of the nation)….
We are supposed to applaud, and yell out enthusiastically, “Three Cheers!”
Meanwhile, nearly one in four
American children are born into poverty.
The former Fed Chair says monetary
policy is a blunt tool. Au contraire… J.M.H., while acknowledging
the bluntness of the instrument for the 99%, has also come to believe monetary
policy is a very surgical tool, that enriches less than one percent of the
population with finite precision.
The Brookings Institute should
be appalled.
P.S.
Two out of four branches of government,
possibly the branches with the greatest amount of power, The Federal Reserve
and SCOTUS, are run by politicians, who are not democratically elected. For the sake of America and her economy, it’s
time to bring democracy/pluralism to the Fed and SCOTUS.
Copyright
JM Hamilton Publishing 2015
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