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Opinion from a Libertarian ViewPoint

Posts Tagged ‘Federal Reserve’

SchiffGold.com | Peter Schiff: Negative Interest Rates Are Boneheaded

Posted by M. C. on September 16, 2019

https://schiffgold.com/peters-podcast/peter-schiff-by-his-own-definition-trump-is-the-bonehead/

by

Donald Trump has been badgering Federal Reserve Chairman Jerome Powell for months, begging for lower interest rates. Yesterday, he took things to another level, saying that the “boneheads” at the Fed need to push rates into negative territory.

In his podcast, Peter Schiff said negative interest rates are boneheaded.

Trump used a pair of tweets to push for negative interest rates…

Trump is basically saying negative rates would allow the federal government to refinance its debt. It could roll over short-term debt into longer termed bonds and lock up the low rates. But as Peter pointed out, interest rates are already near historic lows…

The bottom line is that Trump could do what he says he wants to do right now. The “boneheads” at the Fed aren’t stopping him…

Peter said Trump is a complete hypocrite trying to pretend it’s the boneheads at the Fed.

He’s kind of like rehearsing now for the election because he wants to blame everything that has gone wrong on the Federal Reserve rather than accepting responsibility himself.”…

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Negative Interest Rates and Financial Repression | Mises Wire

Posted by M. C. on September 14, 2019

https://mises.org/wire/negative-interest-rates-and-financial-repression

We are repeatedly told that the unprecedented monetary stimulus by the Federal Reserve and other central banks is necessary to stimulate the economy, create jobs, and generate economic growth. The truth is that this scheme is designed to stealthily steal from the productive classes in order to enrich the unproductive financial class and the counterproductive political classes. It is a con game.

Financial Repression

With politicians and central bankers seemingly gone mad with their obsession for money printing and ultra low interest rates, it is nice to know that academic economists have a term (i.e., financial repression) for the policies that have created our current economic conditions.

However, it is not a new term. Its use dates back to at least 1973 when two Stanford University economists, Edward Shaw and Ronald McKinnon, used the term in separate publications. The phrase was initially meant to criticize various policies that reduced economic growth in undeveloped countries, rather than as an indictment of the world’s leading modern economies.

Financial repression is a revolving set of policies where the government insidiously takes wealth from the private sector, and more specifically makes it easier for government to finance its debt. In today’s environment this includes:

  1. ZIRP or “zero interest rate policy” where many of the world’s central banks keep their lending rates to banks at or near zero. Naturally, this makes the interest rate on government debt lower than it otherwise would be.
  2. QE or “quantitative easing” is the central bank policy of buying up government debt from banks. This increased demand increases the price of government bonds and reduces the interest rates on those bonds.

These are the two major policies of financial repression currently in use. The combination of the two policies has allowed governments to borrow money, both short- and long-term bonds, at extremely low interest rates. This, in turn, has kept the government’s interest payments on the national debt relatively low.

Other signs of financial repression in the United States include requiring banks to hold government bonds for their capital requirements, which the Basil III accords increased; high reserve requirements, which paying interest on excess reserves effectively accomplishes; and capital controls that restrict or tax the exportation of wealth. And then there is the “War on Cash.”

All these policies also come under the rubric of “macroprudential policy” under which government bureaucrats hyper-regulate and oversee the entire financial industry. Macroprudential policy provides another aspect of financial repression: government control or outright ownership of banks and financial institutions while simultaneously providing banks with barriers to competition. It is difficult to precisely define macroprudential policy, but it would seem to mean a group of imprudent policies that only make sense if you are trying to maintain the macro mess we find ourselves in.

Negative Interest Rates?

When you combine financial repression with bail-in provisions for banks and unstable currencies you end up with the nearly unfathomable phenomenon of negative nominal interest rates on government bonds. Several European countries have already sold two-year bonds for more than their face value, so that bond buyers are paying more than 1,000 euros for which they will only receive 1,000 euros in two years time.

Why would anyone accept that deal if you could just hold the 1,000 euros in cash? Well, there is the natural inclination to keep your money safe in a bank. So people with vast sums of money do not want to keep several million euros in cash. They would rather keep it in a bank and earn interest.

The problem with that approach is that banks are not paying interest and, more importantly, some governments have established bail-in provisions for systemically important big banks, similar to what happened during the financial crisis in Cyprus. These provisions mean that depositors in failed banks will receive “haircuts” for any uninsured deposits. A “haircut” means depositors would lose some percentage of their uninsured deposits. Alternatively, uninsured bank deposits and bonds could be exchanged for equity shares in the bank…

Across the room is the mirror image of bad government. It is based on cruelty, deceit, fraud, rage, division, war, greed, arrogance, and excessive pride. The effects of bad government are depicted with the city in ruins, demolished houses, and no commerce except for the making of armor and weapons. The city streets are deserted and out in the country two armies are poised for war.

On the side of good government sits an image of justice on a throne. Across the room, an image of tyranny sits on the throne. The panorama of the frescos is breathtaking and all too accurate, and financial repression is merely the latest contribution of the modern state to the concept of bad government.

[Originally published June 2015.]

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The Ron Paul Institute for Peace and Prosperity : Bill Dudley’s Noble Lie

Posted by M. C. on September 10, 2019

http://ronpaulinstitute.org/archives/featured-articles/2019/september/09/bill-dudley-s-noble-lie/

Written by Ron Paul

Former Federal Reserve official Bill Dudley’s recent op-ed calling for the Federal Reserve to implement policies that will damage President Trump’s reelection campaign states that such action would be unprecedented. Dudley claims the Federal Reserve bases its policies solely on an objective evaluation of economic conditions. This is an example of a so-called noble lie — a fiction told by elites to the masses supposedly for the people’s own good, but really designed to maintain popular support for policies that benefit the elites. Dudley’s noble lie is designed to bolster a rapidly (and deservedly) eroding trust in the Federal Reserve. The truth is the Federal Reserve has always been influenced by, and has always tried to influence, politics.

President George H.W. Bush and other members of his administration blamed his 1992 defeat on then-Federal Reserve Chairman Alan Greenspan’s refusal to reduce interest rates. Greenspan was more cooperative with Bush’s successor, Bill Clinton. Lloyd Bentsen, Clinton’s first Treasury secretary, wrote in his autobiography that the Clinton administration and the Federal Reserve had a “gentleman’s agreement” regarding support for each other’s policies. Greenspan also boosted President George W. Bush’s “ownership society” agenda by lowering interest rates after 9-11 and the collapse of the tech bubble, thus creating a housing bubble.

Ben Bernanke, Greenspan’s successor, facilitated both Bush W. Bush and Barack Obama’s bailouts, “stimulus” spending, and massive welfare-warfare spending with record-low interest rates and quantitative easing. Speculation that the Fed was keeping interest rates low during the 2016 presidential campaign in order to help Hillary Clinton was fueled by the revelation that a Federal Reserve governor donated to Clinton’s campaign.

Presidents have always tried to influence the Fed — usually pushing for lower rates to (temporally) boost the economy. President Richard Nixon was recorded joking with then-Fed Chair Arthur Burns about Fed independence. President Lyndon Johnson shoved Fed Chair William Martin against a wall after an interest rate increase. Johnson’s frustration may have been because he realized that the success or failure of his guns and butter policies was largely out of Johnson’s control. The success or failure of presidents’ agendas is often determined by a secretive central bank’s manipulations of the money supply. No wonder presidents spend so much time trying to influence the Fed.

The Fed’s history of influencing, and being influenced by, presidents is one more reason why Congress should pass the Audit the Fed bill. Auditing the Fed is supported by almost 75 percent of Americans across the political spectrum, including such leading progressives as Bernie Sanders and Tulsi Gabbard.

My Campaign for Liberty is leading a major push to get a majority of Congress members to cosponsor Audit the Fed in order to pressure House and Senate leadership to hold a vote on the bill. The American people have had enough of noble lies about the Federal Reserve. It is time for truth; it is time to audit the Fed.

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Forget the Russians: It’s the Federal Reserve Seeking to Meddle in Our Elections

Posted by M. C. on September 3, 2019

Fed President Bill Dudley. Dudley wrote that, “Trump’s re-election arguably presents a threat to the United States’ and global economy, and if the goal of monetary policy is to achieve the best long-term economic outcome, the Fed’s officials should consider how their decisions would affect the political outcome of 2020.”

http://ronpaulinstitute.org/archives/featured-articles/2019/september/02/forget-the-russians-it-s-the-federal-reserve-seeking-to-meddle-in-our-elections/

Written by Ron Paul

The US Constitution never granted the federal government authority to create a central bank. The Founders, having lived through hyperinflation themselves, understood that government should never have a printing press at its disposal. But from the very beginning of America’s founding, the desire for a crony central bank was strong.
In fact, two attempts were made at creating a permanent central bank in America prior to the creation of the Fed. Fortunately, the charter for The First Bank was allowed to expire in 1811, and President Andrew Jackson closed down the Second Bank in 1833.

But, unfortunately, a third attempt was successful and the Federal Reserve was unconstitutionally created by Congress in 1913. Americans have been living under a corrupt and immoral monetary system ever since. The Federal Reserve is the printing press that has financed the creation of the largest government to ever exist. Endless welfare and endless military spending are both made possible by the Federal Reserve. The Fed can just print the money for whatever the US establishment wants, so those of us who long for a Constitutional and limited government have few tools at our disposal.

Despite all the propaganda claiming “independence,” the Fed has always been a deeply political institution. Because the Fed is a government-created monopoly with key government-appointed employees, its so-called “independence” is a mere fiction. However, the US Congress created the Fed with legislation; it can also abolish the Fed with legislation.

Last week, the facade of Federal Reserve “independence” was dealt a severe blow. Ironically, the person who broadcast to the world that the Fed is anything but “independent” was ex-New York Fed President Bill Dudley. Dudley wrote that, “Trump’s re-election arguably presents a threat to the United States’ and global economy, and if the goal of monetary policy is to achieve the best long-term economic outcome, the Fed’s officials should consider how their decisions would affect the political outcome of 2020.”

The timing of Dudley’s threats to use Fed monetary policy to affect the outcome of a US election couldn’t come at a more striking time. After all, for more than two solid years Americans have been bombarded with fabricated stories about Russians rigging our elections. And yet here is a Federal Reserve official threatening to do the same exact thing – but this time for real!

Whether it’s the mainstream media, the CIA, the FBI, or now the Federal Reserve, more and more Americans are waking up to the fact that there is a Deep State in America and its interests have nothing to do with American liberty. In fact, our liberty is what the Deep State wants to abolish.

When it comes to the Federal Reserve, I stand firmly by my conviction that it needs to be audited and then ended as soon as possible.

America’s Founders were not perfect. They were human beings just as capable of error as we are. But they had a remarkable understanding of the ideas of liberty. They understood that liberty cannot exist with a government that has access to a printing press. Sound money and liberty go hand-in-hand. If we want to enjoy the blessings of Liberty, we must audit and then end the Federal Reserve!

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That close

I lowered the interest rate by this much…

 

 

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What a Nobel Peace Prize, the Federal Reserve, and endless war have in common | The Daily Bell

Posted by M. C. on August 22, 2019

War funding is the main reason the government needs this hidden tax power.

With the help of the Federal Reserve, about $8 trillion of the $22 trillion national debt was spent on the wars in the middle east since 2001.

https://www.thedailybell.com/all-articles/news-analysis/what-a-nobel-peace-prize-the-federal-reserve-and-endless-war-have-in-common/

By Joe Jarvis

It was ten years ago that Congressman Ron Paul released his book, End the Fed.

It immediately shot to number six on the New York Times Bestsellers list.

Paul’s message was that the Federal Reserve was created to bail out banks. It privatized profits for them and socialized losses for the rest of us.

He said the system works against us by killing competition among banks and hiding taxes through inflation.

He’s right. The Federal Reserve can create money out of thin air, and lend it to the government to spend. But increasing the supply of money– when it’s not backed by anything– leads to inflation.

That’s because there are more dollars chasing the same amount of goods in the economy. So every dollar is worth less.

But the government benefits from the value stolen from each existing dollar… because it makes each dollar of government debt worth less in the future. Therefore inflation is just a hidden tax.

War funding is the main reason the government needs this hidden tax power.

In 2009, nominations for the Nobel Peace Prize closed just 11 days after President Obama took office.

Later that year, The Nobel Committee selected Obama to receive the Nobel Peace Prize.

Somehow, they knew that Obama– the new Commander-in-Chief of a nation embroiled in two wars– was truly a peaceful man.

At the same time, the Federal Reserve went to work on “quantitative easing”– a.k.a printing money. Ostensibly to save the country from a recession, the Fed conjured up trillions of new dollars.

But as you know, the wars continued…then they expanded.

The US gave air support to Libyan rebels in 2011, ousting Ghadaffi. Ghadaffi was no angel, but at least the country was stable under his regime. Today Libya is lawless and serves as a breeding ground for terrorism. Open public slave-markets have returned to Libya after being virtually non-existent during Ghadaffi’s four-decade rule.

The same year, America’s Nobel-peace-prize-winning President escalated drone bombings in Yemen which continue to this day, causing countless civilian casualties.

And then the US started bombing Syria, siding with rebels in the fight against Bashir al-Assad. Again, not a great guy. Yet the opposition forces, which the US funneled weapons to, included ISIS…

By 2015, Obama had sent in US ground forces to stop ISIS from gaining a foothold in the country which the US destabilized.

With the help of the Federal Reserve, about $8 trillion of the $22 trillion national debt was spent on the wars in the middle east since 2001.

But it hasn’t helped.

Today, the US is still bombing Yemen, is still at war with Afghanistan, still has troops in Iraq and in Syria, where the civil war continues.

And now you can hear the war drums beating once again, this time for Iran.

The wars have not ended, and neither has the Fed.

Today, the same banks that got us into the 2008-2009 recession exist, because the Federal Reserve helped bail them out.

They engage in the same behavior that got us into the last recession– essentially betting customers’ deposits on toxic investments, without enough reserves to back even a fraction of the potential catastrophic losses.

The US isn’t going to voluntarily end the Fed any more than it will pull out of all its wars and overseas interventions.

But the inflation needed for the war (and created by the Fed) threatens both the perpetual warfare system and the Federal Reserve…

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Commodity Money | Pronk Palisades

 

 

 

 

 

 

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We’re All Currency Manipulators Now – LewRockwell

Posted by M. C. on August 9, 2019

https://www.lewrockwell.com/2019/08/david-stockman/the-donald-means-maba-the-great-fiscal-miscreant-will-make-america-broke-again/

By

David Stockman’s Contra Corner

Call it the monetary theater of the absurd. After all, here is what a determined currency manipulator did between September 2002 and July 2008.

To wit, it pumped about $200 billion of new dollar liabilities into the world financial system, thereby expanding the Fed’s balance sheet by 26%. Clearly, global traders and US trading partners didn’t welcome that flood of freshly minted fiat currency because during the same period, the traded-weighted dollar exchange rate plunged by 25%.

Moreover, there can be little doubt that the severe slump in the US dollar shown below was deliberate. During much of that period, the Fed conducted an aggressive campaign to slash interest rates, goose domestic growth and perk-up the inflation rate. The last objective in particular was the brain child of newly appointed Fedhead Ben Bernanke, who falsely warned Greenspan & Co. about the dangers of an imminent “deflation” that never remotely happened.

Needless to say, the impolite word for a policy of suppressing domestic interest rates and goosing inflation is trashing your own currency. All things being equal, foreigners will lighten their dollar holdings and trade the dollar down when authorities promise to reduce its purchasing power and to push yields lower relative to alternatives abroad.

The truth is, the U.S. Federal Reserve is the all-time champion of currency manipulation, and has been ever since Nixon severed the dollar’s tie to gold in August 1971.

That’s because in a fiat currency world, domestic monetary policy is inherently an exercise in currency manipulation: The effects of Fed policy changes (or those of any other significant central bank) are transmitted instantly into external FX and related global financial markets – once the protective moat of a fixed exchange rate is removed

If we deem China a currency manipulator, what about the other 729 rate cuts in the past 10 years? What about our central bank taking rates down to 0% for 8 years and printing $4-5 trillion?

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Big Brother Libertarians: Cato Institute Sells Out for the Cashless Society – Liberty Conservative News

Posted by M. C. on May 27, 2019

The analysts confusingly claim that digital paper money would “foster true price stability” while admitting that a cashless system would allow the central bank to inflate currency instruments limitlessly.

The CATO Institute is less than a shell of what it used to be.

“Digital cash would facilitate the systematic and transparent conduct of monetary policy, thereby facilitating the effectiveness of the monetary transmission mechanism and enhancing the central bank’s accountability to elected officials and the public.”

Better to spy on you my dear…less so elected officials.

https://libertyconservativenews.com/big-brother-libertarians-cato-institute-sells-out-for-the-cashless-society/

The Cato Institute, a Washington D.C. think-tank funded in part by globalist oligarchs David and Charles Koch, has formally endorsed the notion of a cashless society that would enable centralized government control over the entire economy on an unforeseen scale.

Economics professors Michael D. Bordo and Andrew T. Levin wrote a white paper for the Cato Journal titled, “Improving the Monetary Regime: The Case for U.S. Digital Cash.” They argue that digital cash is necessary so the “Federal Reserve can provide sufficient monetary stimulus to preserve price stability.”

“Our analysis indicates that the Federal Reserve should take active steps to establish digital cash as the fulcrum of the U.S. monetary system,” the Cato analysts wrote.

Although they do not propose explicit banning the use of paper cash, they admit that their proposal would phase it out and eventually lead to a digital-only system where paper currency becomes a thing of the past…

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Capitalism Isn’t the Problem Here – LewRockwell

Posted by M. C. on April 15, 2019

If a company is creating value, it is rewarded with profits. If it is destroying value, it is punished by losses.

The Federal Reserve and its manipulation of the monetary system short-circuits this process. You end up with a misallocation of recourses and all kinds of asset bubbles — not to mention piles of debt.

The only joy I would receive from the War Street Journal was in the comments section after Janet Yellen would repeat the state of the economy address (which was always the same as the last). The Journal would bloviate on what a great job Yellen was doing. The commenters would mostly all agree she didn’t have a clue and was worthless.

It made me wonder why all these commenters read the journal to begin with.

https://www.lewrockwell.com/2019/04/no_author/peter-schiff-capitalism-isnt-the-problem-here/

SchiffGold.com

How are all of these unprofitable companies staying afloat and even making big splashes with media-hyped IPOs?

Peter Schiff addressed this question, along with the supposed “failure” of capitalism in his most recent podcast.

The rideshare company Lyft had its lowest close since going public yesterday (April 9). In fact, the company has only closed above its IPO price twice – the day it went public and last Friday. This probably shouldn’t shock anybody, given that the company has never turned a profit. The

Meanwhile, social media company Pinterest is gearing up for its IPO with a lot of media hype. The company has been around since 2010. It’s never made any money either.

Peter asked a poignant question. What makes people think these companies will ever make any money?

[Pinterest] has been around for 10 years. If they haven’t figured out how to make a profit yet, are they ever going to do it? Because at least in the frenzy of the dot-com mania, people were saying, ‘Look, the company hasn’t made a profit yet because it’s only been around for a year. But don’t worry because it’s got all of this explosive growth.’ You know, ‘We’re grabbing eyeballs,’ or whatever it was. But people were willing to bet the companies would eventually be profitable, and they didn’t have a lot of data to go on because the companies hadn’t even been in existence for very long before they were going public. It was a rush to the market. But now that you’ve got these companies that have been going on for 10 years — I mean, they’ve had 10 years at Pinterest to try to figure out how to make a profit and they haven’t done it.”

But as Peter pointed out, because of the easy-money policies of the Federal Reserve and the resulting availability of cheap capital, companies have been able to continue to operate even though they don’t make any money.

A lot of companies are able to attract funding and stay in business that under a normal free market system – a capitalist system – they would have gone bankrupt.”

This is one of the unseen impacts of central bank monetary policy. It distorts the market.

Consider Pinterest. The company has a lot of employees. It consumes a lot of resources to operate its website – land, labor and capital. These are resources that could be put to some other use if they weren’t being consumed by Pinterest. So, how do you know whether these resources being put to their best use? In a capitalist system, profits provide that information. Profits signal that resources are being well-used. The lack of a profit tells us these resources are not being put to good use. If the lack of profit persists, the company goes under and frees up those resources for better uses.

As Peter put it, if a company can combine resources to produce a product and then sell it at a higher price then the resources that it consumed, it is adding value to the economy. The consumer gets more enjoyment out of that product then the resources consumed in producing it.

You see, resources are scarce, but demand is unlimited. And the idea behind an economy is how to satisfy unlimited demand with limited resources. And resources that are utilized for one purpose are not available for another purpose. And if a company though is losing money, then the market is basically saying, ‘Hey, you’re destroying value. You’re creating products, but your customers don’t even value those products as much as the resources were worth that you used to make them.’”

If a company is creating value, it is rewarded with profits. If it is destroying value, it is punished by losses.

The Federal Reserve and its manipulation of the monetary system short-circuits this process. You end up with a misallocation of recourses and all kinds of asset bubbles — not to mention piles of debt

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EconomicPolicyJournal.com: New York Magazine Headline: “Trump Nominates Famous Idiot Stephen Moore to Federal Reserve Board”

Posted by M. C. on March 26, 2019

https://www.economicpolicyjournal.com/2019/03/new-york-magazine-headline-trump.html

From the accompanying article by Jonathan Chait:

Stephen Moore’s career as an economic analyst has been a decades-long continuous procession of error and hackery. It is not despite but precisely because of these errors that Moore now finds himself in the astonishing position of having been offered a position on the Federal Reserve board by President Trump…

Since Donald Trump moved into the White House, the Republican Party has reversed its views on both fiscal and monetary policy. Whereas it had previously deemed deficits and inflation a mortal threat, and called stimulus and lower interest rates counterproductive, the party line now demands both.

Moore has naturally ridden along with this reversal, but what has set him apart is the fervency with which he has embraced the volte-face. He has insisted on television that the economy is experiencing deflation, and when corrected by panelist Catherine Rampell on this unambiguous error of fact, refused to give ground. He has called for firing the Federal Reserve chairman as well as firing the entire Federal Reserve board.

Mooore’s current ultra-dovish stance is hardly anywhere near as ridiculous as his previous ultra-hawkish stance. The problem is that he has no grasp of the policy, and simply follows whatever line helps the Republican Party. While the internal workings of his mind remain a matter of speculation, I doubt he is consciously venal enough to tailor his thinking explicitly to partisan goals. Rather, Moore has extremely strong partisan instincts and extremely limited analytical skills. The combination results inevitably in the latter giving way to the former. He should not be permitted any position of serious responsibility, in government or anything else.

In other words, he sounds pretty much like every mainstream Keynesian economist, except that other mainstream economists don’t like him.

He is bad but so is everyone sitting on the Fed board today.

RW

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Ending Independent Federal Agencies

Posted by M. C. on December 30, 2018

independent regulatory agencies are intended to make laws without Congress, enforce laws without the president, and judge compliance with those laws without federal courts.  Most Americans have no idea just how much power has been transferred to these agencies.

https://www.americanthinker.com/articles/2018/12/ending_independent_federal_agencies.html

By Bruce Walker

The threat by President Trump to fire the Federal Reserve chairman is an example of how our entire federal system has grown into a monstrosity that is overwhelmingly unconstitutional – and almost everyone, not just President Trump, is to blame.

The Federal Reserve System is an independent regulatory agency, that murky and unaccountable fourth branch of government.  As such, its members, once nominated by the president and confirmed by the Senate, serve whatever term is provided for in the statute creating the independent agency.

Just as the Senate cannot undo its confirmation, the president cannot undo his nomination (or the nomination of his predecessor if the appointment was made before his term began).  The purpose of these agencies is to provide a federal creature that makes laws (regulations) without congressional approval and that executes laws without presidential approval.

Most of these agencies are not only “quasi-legislative” and “quasi-executive,” but also “quasi-judicial,” which destroys the separation of powers in a system not anywhere provided for in the Constitution.  There are some safeguards – the findings of an agency can be overturned by a federal court, although the findings of an independent agency have a presumption of being right…

The purpose of independent federal regulatory agencies is to remove decisions on important federal actions from political control.  Read the rest of this entry »

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