Credit is an amazing economic instrument.
Credit is the primary vehicle through which we communicate and translate economic values across times. An individual who has an excess of resources today can use them to either pay back expenses made in the past or to support other businesses who will pay them back in the future. Time can be traded just like any other goods or services.This is astounding.
It is astounding because, given credit and perfect rationality, the amount of economic activity at any given time should be always focused on the present. When this does not happen we have an economic crisis, be it depression, recession, or inflation.
So, if today I know that I have an excess of resources I should be able to pretty easily pay back past obligations and sustain the excess of resources for the future, via credit. My natural inclination would be to be in a perfect balance today as I know that, if current conditions persist, I can sustain the balance going forward.
If I make $1,000 this week and need to pay for my past loans $200 and save for future growth $200 then the $600 left over should be sufficient for living. If I save even more than $200 then I will have even less resources today but this implies that I am optimistic about the future.
Bring the government into this equation and we will see how they take away any and all incentives to save for the future while trying to decrease the value of my past loan obligations.
Now, -if I have the same job- I still make $1,000 this week and government (via the central bank) decides that the value of credit should be less than it used to be (using quantitative easing, for instance).
So, I used to owe $200 for past loans and now they are worth $150 while the value of saving for the future also decreases by $50. So, I have $700 left to spend. What should I do with the extra $100? Well, if cost of living went up and state and local taxes went up I may end up with nothing more than I used to have before. All the federal government did was to make private businesses and sate/local governments charge more for the same goods and services. The net effect is 0 (at the very best). There are other cases where the net effect of the government actions is at most 0 and very few where the effects are greater than 0.
We are slaves to the central bank's actions and they have a very thin hit zone of success.
Another outcome to consider is listed below.
If I do not pay my $200 loan at all this will enable me to have more resources today but this also signals that the degree of risk in the economy is not well quantified. Higher risks imply higher returns and higher values of the credit costs. Contrary to expectations and economic theory, this has not happened at all. If I save more then I am not rational as the interest rates are too low.
So, I can either invest the money or spend it all.
The central bank is practically forcing us to take actions against or best individual interests. Think about it for a second. A government body not elected by us is telling us what is best for us... At least economically. If there are no economic freedoms then we have no other kinds of freedoms.
Credit is an amazing instrument until the government dilutes its value to almost nothing.
Showing posts with label Federal Reserve is an exogovernment. Show all posts
Showing posts with label Federal Reserve is an exogovernment. Show all posts
Sunday, December 16, 2012
Thursday, December 13, 2012
The Fed is the Most Powerful Branch of the US Government
As we all know so well, we have 3 basic constitutional powers: legislative, executive, and judiciary. Only 2 of them, legislative and executive (within limits), can affect the economy in very direct ways.
Regulations, national budget, taxes, incentives, subsidies, exemptions, and foreign policy are but a few of the ways the government affects us in very tangible ways.
The judiciary power cannot do too much about the economy as the courts are simple post facto arbiters.
The poor state of our economy is causing ripple effects in our lives, from employment opportunities, healthcare decisions, housing, and transportation to political choices and wealth distribution.
As of now, we cannot make decisions on next year's budget as we are not sure what the tax rates are going to be and we do not know that because 2 branches of our government have failed to perform their constitutional duties. It is bizarre that even though there are so many uncertain components in economic planning the ones we need to worry the most about elate to the government actions (or lack thereof).
The legislative and executive branches of our government have failed to perform their jobs and have been failing persistently over the past several years. The leaders of these government branches cannot agree whether they should say 'Hi' or 'Hello' when they meet and we pay the consequences.
Under the massive clouds of uncertainty on the functioning of the legislative and executive branches, one branch of the government, not even sanctioned by the US Constitution, has emerged more powerful than ever.
That branch is the Federal Reserve System (The Fed). The Fed is the most powerful branch of the US government and without Fed's actions over the past 5 years the US would have literally sunk into an extraordinarily deep recession and, quite possibly, into a depression. Is this branch controlled by the people? No. Is it accountable to the people? Very indirectly and ineffectively.
The Fed has the full power and capability to create economic crises, to favor political specific parties over other parties, to massively influence credit availability and size (the blood of capitalism), and the ability to affect international trade via currency and exchange rates manipulation.
The Fed is a government within the government. It has control over the health of the banking system (legislative power), controls the monetary mass and credit (executive), and recommends sanctions when banks do not do what they are expected to do (judicial).
The actual processes the Fed uses to perform its actions are semi-occult and based on questionable science that imply that governments 'live forever' and, consequently, the money supply can be infinite under some specific conditions.
Regulations, national budget, taxes, incentives, subsidies, exemptions, and foreign policy are but a few of the ways the government affects us in very tangible ways.
The judiciary power cannot do too much about the economy as the courts are simple post facto arbiters.
The poor state of our economy is causing ripple effects in our lives, from employment opportunities, healthcare decisions, housing, and transportation to political choices and wealth distribution.
As of now, we cannot make decisions on next year's budget as we are not sure what the tax rates are going to be and we do not know that because 2 branches of our government have failed to perform their constitutional duties. It is bizarre that even though there are so many uncertain components in economic planning the ones we need to worry the most about elate to the government actions (or lack thereof).
The legislative and executive branches of our government have failed to perform their jobs and have been failing persistently over the past several years. The leaders of these government branches cannot agree whether they should say 'Hi' or 'Hello' when they meet and we pay the consequences.
Under the massive clouds of uncertainty on the functioning of the legislative and executive branches, one branch of the government, not even sanctioned by the US Constitution, has emerged more powerful than ever.
That branch is the Federal Reserve System (The Fed). The Fed is the most powerful branch of the US government and without Fed's actions over the past 5 years the US would have literally sunk into an extraordinarily deep recession and, quite possibly, into a depression. Is this branch controlled by the people? No. Is it accountable to the people? Very indirectly and ineffectively.
The Fed has the full power and capability to create economic crises, to favor political specific parties over other parties, to massively influence credit availability and size (the blood of capitalism), and the ability to affect international trade via currency and exchange rates manipulation.
The Fed is a government within the government. It has control over the health of the banking system (legislative power), controls the monetary mass and credit (executive), and recommends sanctions when banks do not do what they are expected to do (judicial).
The actual processes the Fed uses to perform its actions are semi-occult and based on questionable science that imply that governments 'live forever' and, consequently, the money supply can be infinite under some specific conditions.
Sunday, December 9, 2012
The nature of credit (I)
The nature of credit is such that people who save money (by not spending more than what they make) make it available to people who need it for starting or running a business and to people who are impatient and want to own 'stuff' beyond their means.
It is pretty simple: you have extra money and deposit it at a bank. You trust the bank to use your money wisely. If the bank grants loans to people/companies that pay it back on time, plus interest, then all is dandy and good. If banks cannot get their money back from borrowers -and this is persistent- then we have a problem.
When banks and individuals collude on asset perception and think simultaneously that the assets' values they endorse are 'stable' at unrealistic levels then everybody suffers the consequences. All banks lose money at the same time and this cannot be sustained over long periods of time.
When you bring the government and the central bank into this equation then entire nations and even the world economy suffer. The central banks interject in the value of credit equations by totally arbitrarily asserting that the magnitude of risk components in credit is almost zero. How can risks decrease when asset prices decline? Yet central banks want us to believe that the cost of credit should actually be very low as the risks are very low and/or returns should be very constant (i.e. low). Really?
The stock market and individuals' earnings disagree. Wages are expected to grow as companies are expected to make profits at some historical rates greater than 3-8%. So, how can the Fed rationalize holding the interest rates at 0.25%/year? It makes no sense, as the ratio of bad performing credit to performing is about 10%.
Under these conflicting conditions, credit cannot be cheap when uncertainty on taxation is at historical levels. The consequence is that the economy remains paralyzed. Business, individuals, and asset traders are not sure about who is right in this economy. The central bank cannot be right as they have a poor record. Private banks and financial institutions have had a poor record too. The government has had a very poor record as well.
Individuals cannot all be wrong in insular cases but they can be wrong in groups.
Credit should be expensive and tax rates should be high and neither is true. How can this be conducive to real economic growth? We are in a check-mate situation, with the government and central bankers holding most of the high value cards. Individuals and business need to chip away at getting out of the current state on their own. The government and the banking system cannot be trusted and the value of credit has been usurped. I will get back to this topic, no doubt.
It is pretty simple: you have extra money and deposit it at a bank. You trust the bank to use your money wisely. If the bank grants loans to people/companies that pay it back on time, plus interest, then all is dandy and good. If banks cannot get their money back from borrowers -and this is persistent- then we have a problem.
When banks and individuals collude on asset perception and think simultaneously that the assets' values they endorse are 'stable' at unrealistic levels then everybody suffers the consequences. All banks lose money at the same time and this cannot be sustained over long periods of time.
When you bring the government and the central bank into this equation then entire nations and even the world economy suffer. The central banks interject in the value of credit equations by totally arbitrarily asserting that the magnitude of risk components in credit is almost zero. How can risks decrease when asset prices decline? Yet central banks want us to believe that the cost of credit should actually be very low as the risks are very low and/or returns should be very constant (i.e. low). Really?
The stock market and individuals' earnings disagree. Wages are expected to grow as companies are expected to make profits at some historical rates greater than 3-8%. So, how can the Fed rationalize holding the interest rates at 0.25%/year? It makes no sense, as the ratio of bad performing credit to performing is about 10%.
Under these conflicting conditions, credit cannot be cheap when uncertainty on taxation is at historical levels. The consequence is that the economy remains paralyzed. Business, individuals, and asset traders are not sure about who is right in this economy. The central bank cannot be right as they have a poor record. Private banks and financial institutions have had a poor record too. The government has had a very poor record as well.
Individuals cannot all be wrong in insular cases but they can be wrong in groups.
Credit should be expensive and tax rates should be high and neither is true. How can this be conducive to real economic growth? We are in a check-mate situation, with the government and central bankers holding most of the high value cards. Individuals and business need to chip away at getting out of the current state on their own. The government and the banking system cannot be trusted and the value of credit has been usurped. I will get back to this topic, no doubt.
Monday, July 30, 2012
Stop the Fed 's Hegemony (Political Moral Hazard)
The Federal Reserve continues to believe that low interest rates will make people behave as if the 2007 Crisis and its aftermath have never happened. How can it be that individuals want a 'time-out' and the Fed wants people to not have any 'time-outs'?
Time-outs are perfectly rational and what the Fed is doing is totally irrational. The Fed seems to think that people have lost their way in this economy while it is just the opposite: the Fed has lost their compass.
The Fed's stock of credibility is at stake and should the Fed continue to think that under severe economic uncertainty people should spend more than they have then the Fed should surely reward them for the 'uncertainty' risk and not punish them for being savers. This punishing attitude of the Fed will haunt the Federal Reserve for a very long time and people will not believe that the Fed has savers' interests at heart. The Fed is interested in big things and not 'unary' individuals. Apparently, we, as individuals, do not exist for the Federal Reserve.
Whatever the Fed does is to protect the financial sector and to protect itself from the government. Hence, the Fed is just like the Federal government but without true political constraints/consequences. The Federal Reserve can 'spend' as much as it wants for as long as it chooses as long as the financial markets believe them. Financial markets have been wrong many times in the past and should the markets be wrong again a game of chicken will quickly ensue.
The Fed behaves like a hegemony and demands that people act according to some economic models that do not exist. They are a government within the government and should people refuse to obey their 'orders' to spend then rational individuals are doomed and will continue to be punished. Why?
The Fed seems to not be able to comprehend that economic agents have lost faith in institutions. People cannot afford to take on debts at institutions that will always be backed up by the government while individuals will be left 'holding the bag' after the fact. People will be punished through 3 diverse mechanisms: inflation, taxation, and misrepresentation.
The money that the Fed is printing will have to show up, at some point, in higher inflation. History does not lie about that.
The government is borrowing money at very low costs and at some point the US government will have to pay the money back. Where do you think the money will come from? Economic growth? If economic growth alone could pay off all the government debt then the 2007 Crisis would not have happened.
Misrepresentation happens when we elect people to, say, cut taxes, and they cannot possibly do that. Misrepresentation has many causes, but the Fed is one of the most important accessories to misrepresentation by 'quantitative easing' and pursuing a policy of cheap money.
Consequently, by promoting -and perhaps praying for- inflation, taxation, and misrepresentation the Fed is political, in spite of the fact that they pretend otherwise. We are past the fifth grade on how the Fed operates.
Mr. Bernanke, take down this charade and pay the true savers their fair share. Make the economy depend on individual capital and not 'quantitative' easing. For how long are you going to be able to borrow money from future growth? 3 years? 10 years? By that time the Fed will be holding more Treasury bonds than any other government or financial institution in the world. We are in the 5th year of the 2007 Crisis and the end of the crisis is nowhere in sight. The degree of economic uncertainty has not decreased by much since 2007.
So, then, what will happen should the US government enter bankruptcy?
Time-outs are perfectly rational and what the Fed is doing is totally irrational. The Fed seems to think that people have lost their way in this economy while it is just the opposite: the Fed has lost their compass.
The Fed's stock of credibility is at stake and should the Fed continue to think that under severe economic uncertainty people should spend more than they have then the Fed should surely reward them for the 'uncertainty' risk and not punish them for being savers. This punishing attitude of the Fed will haunt the Federal Reserve for a very long time and people will not believe that the Fed has savers' interests at heart. The Fed is interested in big things and not 'unary' individuals. Apparently, we, as individuals, do not exist for the Federal Reserve.
Whatever the Fed does is to protect the financial sector and to protect itself from the government. Hence, the Fed is just like the Federal government but without true political constraints/consequences. The Federal Reserve can 'spend' as much as it wants for as long as it chooses as long as the financial markets believe them. Financial markets have been wrong many times in the past and should the markets be wrong again a game of chicken will quickly ensue.
The Fed behaves like a hegemony and demands that people act according to some economic models that do not exist. They are a government within the government and should people refuse to obey their 'orders' to spend then rational individuals are doomed and will continue to be punished. Why?
The Fed seems to not be able to comprehend that economic agents have lost faith in institutions. People cannot afford to take on debts at institutions that will always be backed up by the government while individuals will be left 'holding the bag' after the fact. People will be punished through 3 diverse mechanisms: inflation, taxation, and misrepresentation.
The money that the Fed is printing will have to show up, at some point, in higher inflation. History does not lie about that.
The government is borrowing money at very low costs and at some point the US government will have to pay the money back. Where do you think the money will come from? Economic growth? If economic growth alone could pay off all the government debt then the 2007 Crisis would not have happened.
Misrepresentation happens when we elect people to, say, cut taxes, and they cannot possibly do that. Misrepresentation has many causes, but the Fed is one of the most important accessories to misrepresentation by 'quantitative easing' and pursuing a policy of cheap money.
Consequently, by promoting -and perhaps praying for- inflation, taxation, and misrepresentation the Fed is political, in spite of the fact that they pretend otherwise. We are past the fifth grade on how the Fed operates.
Mr. Bernanke, take down this charade and pay the true savers their fair share. Make the economy depend on individual capital and not 'quantitative' easing. For how long are you going to be able to borrow money from future growth? 3 years? 10 years? By that time the Fed will be holding more Treasury bonds than any other government or financial institution in the world. We are in the 5th year of the 2007 Crisis and the end of the crisis is nowhere in sight. The degree of economic uncertainty has not decreased by much since 2007.
So, then, what will happen should the US government enter bankruptcy?
Thursday, June 21, 2012
The Fed: Policy, Credibility, Collusion, and Absolution Deficiencies
Yesterday, the Federal Reserve System chairman announced that he is 'open to more QE' to drive/keep long term interest rates down. Long term interest rates have been really low for the past 4 years or so and the economy has not improved too much.
The current Fed's policies suffer from four major deficiencies: policy, credibility, collusion, and absolution. All these deficiencies are deliberate and are aimed at preserving the Fed's current role of the fourth power of the government.
Policy
Interest rates are one of the most important signaling mechanism of any financially open economy. When the economy is expected to grow the interest rates tend to be high and when the economy is in recession the interest rates tend to be relatively low.
Credibility
When the Fed, in a totally deliberate manner, wants and promotes low interest rates then it is basically saying that it expects low economic growth for a very long time. Bernanke is a liar when he is saying that low interest rates will spur growth since the current economic conditions are almost identical to the ones we have experiencing since 2008.
What the current economic crisis shows -unequivocally- is that it has strong psychological undertones related to the complete lack of trust in the banking and financial systems. No matter how low the interest rates are people will not engage in financial transactions with institutions they do not trust. The Fed's credibility is close to the long term interest rates.
Collusion
The current interest rate policy followed by the Fed favors only financial and banking institutions. Why should we believe that the Fed is trying to help the economy when the Fed seems to be primarily interested in protecting the financial system and not protecting rational economic choices?
If we take rational decisions and save money the Fed is telling us that we are fools. We should be spending the money and we should do this as quickly as possibly, 'to spur economic growth'. Our interests, as savers, conflict with the Fed's chairman interests.
The Fed should increase interest rates to promote economic optimism and prove that it values rational economic choices. Due to its massive borrowing needs, the government is another massive beneficiary of the Fed's drive to lower long term interest rates but nobody seems to care about savers.
Absolution
Almost everybody in the current leadership economic circles is willing to sacrifice rational economic behaviors in favor of the 'spend more than you have' doctrines. One of the proofs lie in the fact that the US Treasury owes most of its debt to the Fed. How will the Fed pay its debt to the US Treasury if not by printing money?
Policy, credibility, collusion, and absolution deficiencies undermine the strength of the US economy and support the very existence of an institution -the Fed- that should be brought under much more public control than it is now.
I am amazed that people get worked up and angry by the individual mandate of the new health care law but do not flinch an eye at the sight of the Fed destroying the fragile beauty and strength of the banal interest rate.
What can we do to protect ourselves from the Fed's rapacious appetite to economically destroy all those of us who are savers?
The current Fed's policies suffer from four major deficiencies: policy, credibility, collusion, and absolution. All these deficiencies are deliberate and are aimed at preserving the Fed's current role of the fourth power of the government.
Policy
Interest rates are one of the most important signaling mechanism of any financially open economy. When the economy is expected to grow the interest rates tend to be high and when the economy is in recession the interest rates tend to be relatively low.
Credibility
When the Fed, in a totally deliberate manner, wants and promotes low interest rates then it is basically saying that it expects low economic growth for a very long time. Bernanke is a liar when he is saying that low interest rates will spur growth since the current economic conditions are almost identical to the ones we have experiencing since 2008.
What the current economic crisis shows -unequivocally- is that it has strong psychological undertones related to the complete lack of trust in the banking and financial systems. No matter how low the interest rates are people will not engage in financial transactions with institutions they do not trust. The Fed's credibility is close to the long term interest rates.
Collusion
The current interest rate policy followed by the Fed favors only financial and banking institutions. Why should we believe that the Fed is trying to help the economy when the Fed seems to be primarily interested in protecting the financial system and not protecting rational economic choices?
If we take rational decisions and save money the Fed is telling us that we are fools. We should be spending the money and we should do this as quickly as possibly, 'to spur economic growth'. Our interests, as savers, conflict with the Fed's chairman interests.
The Fed should increase interest rates to promote economic optimism and prove that it values rational economic choices. Due to its massive borrowing needs, the government is another massive beneficiary of the Fed's drive to lower long term interest rates but nobody seems to care about savers.
Absolution
Almost everybody in the current leadership economic circles is willing to sacrifice rational economic behaviors in favor of the 'spend more than you have' doctrines. One of the proofs lie in the fact that the US Treasury owes most of its debt to the Fed. How will the Fed pay its debt to the US Treasury if not by printing money?
Policy, credibility, collusion, and absolution deficiencies undermine the strength of the US economy and support the very existence of an institution -the Fed- that should be brought under much more public control than it is now.
I am amazed that people get worked up and angry by the individual mandate of the new health care law but do not flinch an eye at the sight of the Fed destroying the fragile beauty and strength of the banal interest rate.
What can we do to protect ourselves from the Fed's rapacious appetite to economically destroy all those of us who are savers?
Saturday, August 20, 2011
The Federal Reserve is a form of exogovernment
Many creatures have exoskeletons. Turtles and crabs are typical examples of creatures with exoskeletons. These creatures need exoskeletons because the outside skeletons are part of their bodies and they have no other way to 'preserve' their shape. Certainly, creatures with endoskeletons (mammals and birds, for example) do not need an exoskeleton in addition to their endoskeleton. This happen to be so for several obvious reasons related to evolutionary pressures, energy conservation, and -most of all- mobility.
As it turns out, the US (and -as far as I know- all other nations) has an exoskeleton too in addition to its endoskeleton. The extra exoskeleton which I call exogovernment is destroying our chances of economic growth. It is slowing down our ability to react to economic evolutionary pressures. Let me explain why I think this is happening.
The US government is the natural and organic internal skeleton of the American nation. It represents its people's freely elected choices and it has deep historical connotations and roots, in addition to unbeatable practicality. As a nation, we could not live for a very long time without our government. The question is: can we live with a paralyzed government while we use an external skeleton? I fail to see how.
As we stand right now and as I see it as clearly as daylight, the endoskeleton has delegated its fundamental economic and regulatory functions to an external body that functions as an exoskeleton. This external skeletal body is the Federal Reserve.
Our economic problems are as deep as they get: impossible to manage public debt levels, lack of a robust manufacturing base, ultra high dependence on consumption in the formation of GDP, unstable financial markets, regulatory confusion, the most expensive health care system in the world, wealth disparity worthy of a banana republic, severe educational inconsistencies, the dominance of financial markets over real economic development, and the list goes on and on.
The endoskeleton (read the US government) cannot seem to be able to address any of the economic problems above and has delegated their resolution to the Federal Reserve. As an exogovernment, the Federal Reserve is not elected and not fully accountable to anyone. The Fed has a very vague mandate that cannot be regulated and fully ascertained. For instance, it can, and it does -based on very new developments called 'quantitative easing'- , 'buy' bonds issued by the USG and prints money at will in exchange for those bonds. What will the Fed do if the USG cannot pay off the bonds? Nothing. Nada. Zilch. And the Fed knows that very fact extremely well and it knows that the value of the currency is being debased deliberately and conscientiously. And we are simply treated as peons in the face of pure monetary adulterations.
Is currency debasing not the ultimate form of white collar crime? The Fed is slowly and surely replacing all the financial wealth we have with lower value dollars. In addition, it is encouraging us almost openly to invest our financial wealth in US equities. Let me recap the following facts: the Fed is stealing from us almost openly and it is screaming at us that nobody can guarantee financial stability. This is purely insane, I think.
The Fed (our exogovernment) sets the interest rates both by statute and by using a bit of fear. Right now interest rates are extremely low and by deliberately setting the rates this low the Fed is undermining the economy since interest rates are forward looking.
When economic players see interest rates near 0% they rationally think that the future is going to be a lot worse than the present. Why would anybody invest in an economy with such low future prospects? It is almost criminal for the Fed to tout that keeping interest rates low for the next 2 years 'will spur economic growth' when it knows very well that just the opposite is expected to happen. In addition, savers are being punished wile spenders are being rewarded. Why should this trade-off be allowed? And why should it be allowed to be made by an institution not truly controlled by anybody?
Problems endemic to the government must be solved by the government. External bodies cannot do the government's 'dirty' and hard work and we are being robbed by our wealth by the Fed. Why do we continue to tolerate this? We need a responsible government that eliminates the interference of the Fed in our economic processes. The Fed has poisoned the economic climate of our nation for too long and it is about time for us to stop that.
How can we stop the Fed from distorting our perceptions of the economy? Here are a few avenues, but I am sure there are many more than the ones I list below.
As it turns out, the US (and -as far as I know- all other nations) has an exoskeleton too in addition to its endoskeleton. The extra exoskeleton which I call exogovernment is destroying our chances of economic growth. It is slowing down our ability to react to economic evolutionary pressures. Let me explain why I think this is happening.
The US government is the natural and organic internal skeleton of the American nation. It represents its people's freely elected choices and it has deep historical connotations and roots, in addition to unbeatable practicality. As a nation, we could not live for a very long time without our government. The question is: can we live with a paralyzed government while we use an external skeleton? I fail to see how.
As we stand right now and as I see it as clearly as daylight, the endoskeleton has delegated its fundamental economic and regulatory functions to an external body that functions as an exoskeleton. This external skeletal body is the Federal Reserve.
Our economic problems are as deep as they get: impossible to manage public debt levels, lack of a robust manufacturing base, ultra high dependence on consumption in the formation of GDP, unstable financial markets, regulatory confusion, the most expensive health care system in the world, wealth disparity worthy of a banana republic, severe educational inconsistencies, the dominance of financial markets over real economic development, and the list goes on and on.
The endoskeleton (read the US government) cannot seem to be able to address any of the economic problems above and has delegated their resolution to the Federal Reserve. As an exogovernment, the Federal Reserve is not elected and not fully accountable to anyone. The Fed has a very vague mandate that cannot be regulated and fully ascertained. For instance, it can, and it does -based on very new developments called 'quantitative easing'- , 'buy' bonds issued by the USG and prints money at will in exchange for those bonds. What will the Fed do if the USG cannot pay off the bonds? Nothing. Nada. Zilch. And the Fed knows that very fact extremely well and it knows that the value of the currency is being debased deliberately and conscientiously. And we are simply treated as peons in the face of pure monetary adulterations.
Is currency debasing not the ultimate form of white collar crime? The Fed is slowly and surely replacing all the financial wealth we have with lower value dollars. In addition, it is encouraging us almost openly to invest our financial wealth in US equities. Let me recap the following facts: the Fed is stealing from us almost openly and it is screaming at us that nobody can guarantee financial stability. This is purely insane, I think.
The Fed (our exogovernment) sets the interest rates both by statute and by using a bit of fear. Right now interest rates are extremely low and by deliberately setting the rates this low the Fed is undermining the economy since interest rates are forward looking.
When economic players see interest rates near 0% they rationally think that the future is going to be a lot worse than the present. Why would anybody invest in an economy with such low future prospects? It is almost criminal for the Fed to tout that keeping interest rates low for the next 2 years 'will spur economic growth' when it knows very well that just the opposite is expected to happen. In addition, savers are being punished wile spenders are being rewarded. Why should this trade-off be allowed? And why should it be allowed to be made by an institution not truly controlled by anybody?
Problems endemic to the government must be solved by the government. External bodies cannot do the government's 'dirty' and hard work and we are being robbed by our wealth by the Fed. Why do we continue to tolerate this? We need a responsible government that eliminates the interference of the Fed in our economic processes. The Fed has poisoned the economic climate of our nation for too long and it is about time for us to stop that.
How can we stop the Fed from distorting our perceptions of the economy? Here are a few avenues, but I am sure there are many more than the ones I list below.
- Strong legislative action by the US Congress;
- The US Attorney General should open up an investigation in the Fed's decisions;
- The Fed should have much better defined and restricted roles using 1 above;
- The USG should solve our economic problems so that the Fed has no opportunity to be an exogovernment agency;
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