Friday, January 11, 2008

BERNANKE AT THE FED DESTROYS WHAT'S LEFT OF THE DOLLAR

Fed Chief Talks of 'Decisive' Action Addressing Slump, Bernanke Signals Another Rate Cut
By Neil Irwin Washington Post Staff Writer Friday, January 11, 2008; A01
Federal Reserve Chairman Ben S. Bernanke yesterday signaled that the central bank will cut interest rates aggressively to try to prevent a serious economic downturn, using unusually direct and forceful language.
In the past two weeks, new evidence has emerged that the United States is at risk of entering a recession. Just yesterday the nation's largest retail chains reported weak December sales, and credit card companies American Express and Capital One said they are seeing more unpaid bills.
In a speech in Washington, Bernanke said fed policymakers "must remain exceptionally alert and flexible, prepared to act in a decisive and timely manner and, in particular, to counter any adverse dynamics that might threaten economic or financial stability."
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Instead of 'remaining exceptionally alert,' it would serve the country better if Bernanke went to sleep and the Federal Reserve was dismantled, brick by brick.
Forcing interest rates back down to spur consumer spending and revive a moribund economy is exactly the prescription for killing off what's left of a nearly worthless dollar.
Benign terms like 'dropping the prime rate' and 'increasing liquidity' are what has
  • dropped the dollar by more than half in value,
  • encouraged more bubbles than Ivory Soap,
  • driven savings down and spending up (guess who that benefits),
  • lowered the lights behind which corporate fraud is performed,
  • made beggars of the middle class and
  • doomed the country to unending boom or bust economics.
Other than that, it's worked just fine.
Because capitalism works just fine if people and governments leave it the hell alone to function--I sell you a chicken, you sell me dental work; the chicken costs what you are willing to pay and the dentistry the same to me.
Enter the Fed (which is not government) and the government (which, unfortunately, is) and suddenly my chicken and your drilling is out of the hands of free commerce and bound by a dozen layers of manipulation. The simplicity of supply-and-demand is suddenly hostage to the simplicity of Ben Bernanke's thinking, while he tries to remain exceptionally alert and flexible enough to channel Milton Friedman for advice.
"Let me end my talk by abusing slightly my status as an official representative of the Federal Reserve. I would like to say to Milton (Friedman) and Anna: Regarding the Great Depression. You're right, we did it. We're very sorry. But thanks to you, we won't do it again."
The Fed is run by bankers for the benefit of bankers, who are currently running like hell to cover their collective ass and their collective loss, while hoping to stay out of jail long enough to quietly retire and slip off to a warm island with their collective girlfriend. No one controls the Fed but the Fed. "You boys got enough money? You 'liquid' enough, Charlie, or can I pour you another bourbon and print up some cash for you? Hey Waldo, whatta you need, babe, to stay out of jail?"
The Fed has taken us, almost singlehandedly, from $10,000 CEOs and $2,000 Chevrolets to $100 million hedge-fund managers, $100,000 Mercedes cars, 17% tax rates for the rich and 35% for the poor, a destroyed manufacturing base, a worthless dollar and an economy on the brink of meltdown--and they dare to suggest a half-point drop in the prime rate will make a difference.
How do I explain this to you, Ben? We do not have a liquidity problem. We are not suffering from excessive interest rates.
We are suffering the aftermath of a massive mortgage lender-investment bank-bond rating-hedge fund-derivative slice and dice fraud. Crimes, Ben. Criminal activity in the interests of personal greed, perpetrated against an unsuspecting (but equally greed-blind) investment community that victimized not only that community, but a broad swath of American citizenry.
Rate adjustments will not solve bank fraud--indictments may. Liquidity will not do a damned thing to prevent securities manipulation--jail terms might. Exceptional alertness might have been of some use years back, but it will not compensate international investors who have been swindled (the accurate term) out of perhaps a trillion dollars (and counting).
Indictments up and down and through the system would at least shine the light of truth on what happened and (possibly, but not absolutely) prevent its occurrence.
That's a morally correct route, Ben. It's the right thing to do instead of the convenient thing. It could put you in the history books as a savior of the economy (if not the currency). It might even keep history from dragging the Federal Reserve out behind the barn and putting a bullet in its head, which is the proper thing to do. But of course it might also put the ex-chairman of Goldman Sachs and a number of his peers behind bars.
That ex-chairman's name is Henry Paulson. You probably have his cell-phone number on speed-dial.
Unfortunately, he is the Secretary of the Treasury.