Sunday, June 7, 2009

Illiteracy in High Places? Not Forgetting (or Noticing) A Thing

Good Night Irene. We might as well lull ourselves to sleep every night to this classic as we lurch toward the next wave of bankster bailouts. It's almost too easy these days to find excellent sources of intelligently derived economic information that seem to have escaped the smarty pants (I'm looking at you, Rahm - yeah, and Tim, too) in the Obama administration (or not), so you have to admit that somehow people are not really trying to figure out what is taking place daily (in every evening's news!) affecting their future economic well being. Today's essay by Mark Crispin Miller commenting on Michael Collins' exposé of the Democratic Rethuglicans (okay, that's my title, but read it and determine where I'm going wrong) provides a very pointed case. (Emphasis marks added - Ed.)

The banks continue to take trillions from the Treasury but Congress couldn’t pass a simple bill to save the homes of 1.7 million families. They forgot to cap outrageous credit card interest rates in the so called “credit card bill of rights.” We’re getting into a new “empire” groove in Afghanistan. There’s no new 911 investigation and the election system is still out of control. It’s all one party, The Money Party. Who do they think they’re kidding? Time for truth . . . . One party created the current disaster. The other has embraced the broadest parameters of the policies that created the disasters that voters want fixed — wealth transfers to the ultra rich while the vast majority gets just about nothing plus mindless, counterproductive fantasies of empire through war.

The two parties and the elitists who look down their noses on the overwhelming majority of citizens assume that the people will simply tolerate the creation of a catastrophe by one party and the perpetuation of that grave injustice to citizens by the other. When you’re broke, you know it. When you’re out of work, you know it. When there are no jobs, you know it. And when the country continues to fight overseas but does nothing to protect economic security at home, you know it.

Ex-Reagan Treasury official Paul Craig Roberts is just about around the bend this week as he tries to wake up the populace to what is happening to the US dollar. He says he thinks there is "illiteracy in high places," but I've got my doubts. There is nothing wrong with this man's ability to perceive economic truths (now, anyway), and I really enjoyed (darkly, of course) his mentioning of Geithner's Chinese audience laughing out loud at his (Geithner's, of course) ignorance. Those Chinese. What must they be thinking of us? (Emphasis marks and some editing added - Ed.)

If a person lives long enough, he can watch everyone forget everything they learned. Everyone includes Federal Reserve Chairmen, economists, Bank of America “strategists,” and even Federal Reserve Chairman Ben Bernanke thinks he can hold down US long-term interest rates by purchasing mortgage bonds and US Treasuries. Sixty years ago the Federal Reserve understood that this was an impossible feat. After an acrimonious public dispute with the US Treasury, in 1951 the Federal Reserve forced an “Accord” on the government that eliminated the Fed’s obligation to monetize Treasury debt in order to hold down long-term interest rates. John Snyder wanted to protect World War II bond purchasers by preventing any rise in interest rates, which would mean a decline in the price of the bonds. The Fed understood that monetizing the debt to hold down interest rates meant loss of control over the money supply. The policy of suppressing interest rates could only work until the financial markets anticipated rising inflation and bid down the bond prices.

If the Fed responded by buying more Treasuries, the money supply and inflation would rise faster. Since Fed Chairman Bernanke announced his plan to purchase $1 trillion in mortgage and Treasury bonds in order to help the housing market with low interest rates, interest rates have risen. When will the Fed remember that printing money does not lower long-term interest rates? According to Bloomberg (June 3), Bank of America strategists are recommending that investors buy Fannie Mae bonds because the rise in interest rates means the Fed will ramp up its purchases in order to prevent rising interest rates from adversely impacting the struggling housing market. When will financial gurus remember that printing money does not lower interest rates? Treasury Secretary Geithner is another economic incompetent. He told China that he stood for a “strong dollar,” but that China should let its currency appreciate relative to the dollar, which, of course, would mean a weaker dollar. He simultaneously told China that their investments in US Treasury bonds were safe. His Chinese university audience, being economically literate, laughed at Geithner. It apparently did not dawn on the US Treasury Secretary that if Chinese money is rising in value relative to the US dollar, the value of Chinese investments in dollar-denominated US Treasury bonds is falling. Congressional Democrats are proving themselves to be as stupid as the Republicans. According to the Associated Press, the Democrats have reached agreement to appropriate another $100 billion to continue the wars in Iraq and Afghanistan through the end of the year. What are the Democrats thinking? The federal budget for this year is already 50% in the red. Why add another $100 billion to the red ink, which has to be monetized, thus causing inflation, higher interest rates, and a weaker dollar. The red ink that Washington is generating is a far greater threat to Americans than any foreign “enemies.” The hubris is extraordinary. A bankrupt government that has to send its Treasury Secretary begging to China thinks it can spend limitless amounts in a futile effort to control the culture, mores, and political system of distant Afghanistan.

Nope. It's really not that hard to keep up. Doing something about it, on the other hand, is tougher. But what are we waiting for? Suzan ___________________

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