The Fed’s Great Lie?
“We are a strictly nonpolitical agency,” he said in response to a question about Mr. Trump’s continuing attacks. “We’re human, we’ll make mistakes,” he added, but “we won’t make mistakes of integrity or character.”
Fed Chair Powell Weighs Whether Cut Will Be Needed as Risks Loom, NY Times
By JM Hamilton (6-29-2019)
Some lies are so egregious they can’t be passed up. They beg to be challenged. The Federal Reserve Chairman, Mr. Jerome Powell, told a whopper of a lie this week, when he stated that the bank was “nonpolitical.” It reminds one of the very same falsehood SCOTUS members spout, when the justices swear they are apolitical.
If money equals power, and money often translates into political power, Mr. Powell is guilty of either nescience, fatuous thinking, or the Fed Chair is being disingenuous at best. As we know, Mr. Powell is neither ignorant nor stupid. Therefore, one can only conclude that Jerome is the victim of myopia or has stretched the truth. Possibly, the Fed Chair is unaware of the infinite possibilities of the Fed’s incredible power, as the banker of the globe’s fiat currency.
Since the 2008 crisis, the Federal Reserve has bailed out oligarchs, Wall Street banks, shadow banking, and inflated assets – select asset classes, particularly US stocks – at an exponential rate.
The Fed has financed tax cuts for the wealthy (these tax cuts were, indeed, financed, as federal deficits predictably soared -contrary to Mr. Laffer’s failed Voodoo ideology), and it has funded credit card wars w/out end. It’s not only the banker of last resort, but the Fed has made trillion-dollar deficits and our $20 plus trillion national debt possible. Moreover, by bailing out the wealthy, after the 2008 crash, it has directly & indirectly facilitated crony government, that is to say, government capture by a privileged & wealthy aristocracy.
That’s the government side of the equation. As the national debt grows, the Fed has been forced to engage in quantitative easing and interest rate suppression that has helped the rich grow wealthier than Midas. Wage and wealth inequality are at Gilded Age proportions, and the American Dream (aka social mobility) is all but dead.
The rich grow richer because they are connected to Wall Street banks, and shadow banking (the conduit, and beneficiaries, of the Fed’s trickle-down monetary policies); and therefore, the oligarchs and multinationals are the recipients of highly inexpensive financing. This inexpensive financing, in turn, is utilized to support get rich quick schemes, such as: the formation of cartels & monopolies, financial engineering, M&A, monopsony power, and the infamous private equity loot & pillage scheme.
The Fed, and global central banks are at the center of the crony economy, and by the mere tweaking of interest rates, they can bring the whole house of cards tumbling down. No wonder Jefferson said that banks are more dangerous than standing armies; and no wonder POTUS Andrew Jackson had such a deep aversion to the creation of a US central bank. And yet, the central bank – and its extraordinary powers – rarely receives mention from the Democratic field of candidates.
The reality is central banks are power defined, and highly political. They, directly & indirectly, choose winners and losers w/in the macro economy (the current winners are finance, financial services & consolidated industries, and the losers are the American people and the West's working class), and these same banks set the moral compass of capitalism. They can keep governments afloat, as long as the currency providing a life preserver is perceived to retain its value (or the currency is seen as the leper w/ the fewest spots, because other central banks are also engaged in similar financial gymnastics w/ their currencies). Hence, the weary eye cast upon alternative-pseudo-currencies, such as Facebook’s Libra.
If that isn’t politics – the Fed Chair being the orchestra leader for our rigged economy – than what is?
It’s not all gloomy. Global debt has grown at an astronomical pace, and w/ the tsunami of debt has grown debt service loads. Debt service loads, of course, are the interest paid upon the ocean of debt, so that the only way to manage said debt is via interest rate suppression & quantitative easing (QE being shorthand for modern monetary theory or MMT). In short, central banks have cut interest rates & purchased sovereign debt to maintain governments, and to maintain select asset prices (i.e. stock valuations) for the benefit of an elite few. The result has been a global race to the bottom on government bond yields.
Per Bloomberg, some $13 trillion in global debt, including premium commercial paper, is now financed at negative-yields. Germany, Japan, and throughout Europe yields have been driven down into negative territory. So that lenders – buyers of bonds – not only don’t earn interest income, but if the bond or bund is held long enough, the principal – or bond’s value – begins to erode.
In a perverse Catch-22, US banks and shadow banking thrive off the government debt that was created bailing out these very same financial institution (circa 2008). However, and this is the good news, when rates turn negative, these same financial institutions no longer have a vested interest in perpetuating an ocean of global debt. Governments too, may no longer have a vested interest in maintaining an economy rigged by debt, as many of the banks are too big to fail.
And if the banking or financial system collapses due to a lack of interest income, no politician – or apolitical central banker - wants the responsibility of explaining another financial sector bailout to its citizens.
As stated, with negative yields, government debt – and some commercial debt - no longer produces income. This means some of the most powerful institutions on the planet – banks, shadow banking, and fixed income asset funds (who rely upon public debt for income, or as a safe haven asset) – may come around to thinking that public sector debt needs to be written down, and the Fed and global central banks need to get out the business of setting interest rates (as risk premium on debt – represented by interest rates - becomes distorted).
If public sector debt was written down, slowly over time… this means the debt scolds – politicians & the donor class – that use public debt to withhold government services from the 99% (while hypocritically using central banks to fund socialism for the wealthy, via: bank bailouts, corporate welfare, financial engineering, tax cuts for the wealthy, and credit card wars) could no longer avail themselves to that argument or excuse.
In a world of negative yields, debt may become an albatross for not all, but many of the connected, the powerful, & the exceptionally wealthy (witness how European banks struggle under a negative yield regime). And so with negative yields, the clarion call may finally begin for a public debt haircut (aka write down) or workout. In a world unshackled by public sector debt, the US government would be free, again, to finance: a Green New Deal; rebuild infrastructure; provide Medicare-for-All; and rationally, consider a UBI.
A public debt haircut combined with the deployment of MMT by central banks, means all things are possible, as long as inflation is held in check. The argument that MMT would not work, does not hold water when we consider that QE has functioned exceptionally well for the predatory class.
As best as JMH can tell, QE is MMT directed at the wealthy; whereas MMT is QE redirected at the 99%. So that a public sector debt haircut does occur then, and so that MMT can succeed on behalf of all citizens, let's hope & pray for negative yields. Debt piled upon more debt, in the service of an elite few, is a proven recipe for disaster & political instability. And this same catastrophic debt level should no longer be used as justification to deny government services, & economic freedom from a rigged economy, for the vast majority of Americans or the globe’s citizens.
Who knew the Federal Reserve was so political?
Copyright JM Hamilton Publishing 2019
