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Interest rates, Money, Stalled Recovery and the Fed
The response of the FOMC and the Fed Board of Governors can be heard now, "What do you expect from us, we can only respond to conditions."
Well, yes. (In retrospect again.) The chosen road at journey's start establishes momentum, only goes one way, and there are no "turnarounds."
We're trapped on the one way street and any attempt to reverse ourselves will be met with shredded tires and ruined transportation.
The Fed is caught in a trap of their own making. The ingredients are ZLB while trying to induce an artificial inflation with the misguided presumption that somehow real inflation will sneak in and put demand from bankrupted people into the markets and all will start up and the tooth fairy will have won out once again. No sir. With the two large oriental nations doing all in their power to cheapen their products, the cross border markets dissuaded from patronizing US firms fueled by high priced dollars, the "competitive instinct" which is in short supply lately - if it ever has been abundant(?) - has been pushed aside and if there is to be a recovery it will be in another nation, under different conditions than have been imposed here in the good old USoA. This stagnation will drag on for a generation or more; that much should be obvious now.
In the meantime, the dollar will go where our market competitors abroad wish, and the statisticians will earn their keep the hard way by cookin' the books to reassure the pressured - once but no more - middle and lower classes that we're on the way out, as soon as we leave the traps we've laid behind. It must be frustrating for the folks at the Fed to reap what they've sown. Fearful of aggravating the enormous debt incurred by the QEs and bail-outs, suggestions of the replacement bail-ins and teases with quarter percent increases do not lead to solid ground.
They should take a look at the larger picture. . . Money, for instance! Forget the old time vision of money's classical three functions; it has only one function now - as a score keeper! Those closest to the flow of money or its creation want no more than to keep the stream close at hand and within their control so they can dip into the stream at will and extract without providing any service in return. Thus we will not have a recovery of jobs, market prominence from production sources we no longer control and will continue to subsist by way of selling off what remains of our store of assets. We'll continue to sell until what remains is worthless.
The stock market continues to rise while demand as measured by retail sales fall. Market sales are financed by what? Old money? Are brokerages which the Fed has relabeled as banks, now with the capabilities of issuing money, busy putting new money out to pay off the traders - not investors, they are traders only! - on a daily or hourly basis. And, are the traders busy recirculating the money to stimulate a real demand, a real resuscitation, a real recovery through new markets, increased production, rising wages, in short, a healthy recovering economy? Palatial residences, yachts the size of ocean going ships, and private airplanes do not produce wealth, they absorb it; they are not marketable assets and although they consume money initially they then lie fallow contributing nothing to GDP. It is a fact and economists have noted this very visible fact.
Money! Money and Capital - the illusive economic topic. It doesn't lend itself easily to equations and theory, therefore it is dumped along the highway leading to enlightenment, no matter how essential it is to understanding our system. If we ask how much capital is needed to keep the system in self-supporting mode, what is the answer? Silence! To break the silence we get apologies: not enough data, not collected, not rendered useful, no way to unify the various unrelated ways industries employ capital. Too many variables; too much difference in time constraints; so instead of searching out answers to the puzzles - which would require many heads working together, the trade opts for other investigations where individuals could work uninterrupted by reality and gain recognition - for solving minor problems and clarifying minor mis-statements, other - easier - studies reduced to static and convenient terms which are often theoretical,. therefore not applicable to real life problems.
The Money masters have two convenient excuses: In looking back through history, we've never had anything like this happen before; and we cannot be dictated to by elected officials lacking training or experience with such complex issues with political leanings. Independence over all! And then they are suspected of turning to banks and other industries who have led us into recession after recession and ask if it's acceptable to take one or another course of action.
Meanwhile China and Japan are undermining not only our currency but our industries - with the help of our commercial wizards; the EU has political problems underlying their currency and along with industrial problems; economists are renewing questions about the relevance stock markets bear toward economies; and, the Fed is being tacitly accused of cosying up to banks and compromising their mandate to regulate and supervise. How can they not have mixed emotions at the FOMC when the subject of interest rates is brought up? Most of the problems have money issues underlying the difficulties and conflicts and that falls within the responsibility of the Fed, does it not?
The beginning of the new millennium has launched us into a new money world. We've poured batches of money - or promises of money in the form of credit - into gaping voids in the system - hoping against hope that the system absorbs the offering and rights itself. The expectation that the false inflation will not cajole the system into recovery in the aftermath has been ignored - more in the line of thought of "What's done is done and can't be undone." The loose money has passed into banks through the front door and remained there. When standard expectations are not met, Keynesianism is lauded as being acceptable (meaning fiscal debt has no limit as long as the ratio of debt to GDP remains constant) and all common sense is parked at the door. For answers to inquiries about the whereabouts of the missing funds, look to the rosters of newly minted billionaires.
In all, newly minted money must by controlled; professional money-handlers need closer supervision; fewer institutions should be authorized to issue money or issue any money substitutes remotely related to money or requiring money as collateral; and the function and role of capital should be studied and defined and the resulting data and understanding whether enforced to one standard or fifty should be positively keyed to the system to control volatility and balance. If the present staff of economists cannot provide answers or means to this end, hire some of the players who understand the nature and function of money so well they can do with it as they please. As the situation stands at this time, we have nothing but confusion surrounding the total stock of money in circulation and who has issued the largest amount to serve what purpose and how many of them are truly legitimate.
The only reason we have not attempted any of these controls? No, we don't know how to define them; but, we are not even attempting to learn! One sure source for that are the accounting sheets. All that is needed is require the industries who know full well the functions of capital from the smallest requirement to the largest to provide it to federal economists. The answers are in there for the asking, and we would be able to adjust the use of money and its substitutes to balance operating economies once and for all. But, in any call for the data, the industries would wail to high Heaven. Proprietary secrets are involved! - The authorities (especially the IRS) would learn just how any industry makes its profit; secrets of the temple that should not be released for public consumption. Or, if the secrets are already in the hands of federal authorities through tax returns, why can they not be sterilized, neutralized and rendered unidentifiable with any firm or industry and put to use to solve the volatility and recurrent imbalances as well as the nature and functions of capital to help control from that aspect?
In all likelihood, as we've restated assertions from older analyses, no one really wants stability - not banks, not entrepreneurs, not business men in charge of production facilities. Too much plain vanilla and not enough opportunity to "get ahead" or prove our competitive spirit still works. Got to acquire more tally sheets - e.g., money or vouchers of some sort which may be in fashion at the time.
Why put an end to the thrills?