Laurel & Hardy? No Larry & Paul

As I frequently say, I am not the sharpest knife in the drawer.  In fact I reckon I take prided in how little I actually know.  But every now and then I am able to string together a couple a few thoughts and sentences in such a manner to express what I honestly and truly believe and this is one of those rare times. When it comes to economics, I am no economist but when I read what is proposed and written by many of the “so-called’ experts in this field regarding the present economic standing of the United States, in particular Paul Krugman and Larry Summers, I always think of what Milton Friedman once said: “If you put the federal government in charge of the Sahara Desert, in 5 years there'd be a shortage of sand.”

I would not be surprised if a lot of cats consider Paul Krugman and Larry Sumner’s as overly smart and learned men. I would agree and note there are several reason for this, inclusive of their Ivy league educations and their incessant habit of speaking in technical terms employed to make them seem smarter than they are and/or to confuse the listener when they are proven wrong and/or are just guessing about what they think versus what they actually know. I suggest this because both believe economic theory is ALWAYS right which herein my problem with them is. Let us start with Krugman, who clearly has no clue or understanding of middle and lower class Americans.

If you have ever heard Paul Krugman talk or read anything he has penned to paper, one halcyon observation that can be made is that in his astigmatic perspective, he is always right and never wrong. No matter the topic, especially when the subject is rooted in macroeconomics, if you disagree or refute his propositions, you are often accused of having bad data, reconstructing history or just being plane ole illogical. This unceasing proclivity of Krugman’s to be correct in theory but incorrect based on real world standards would be amusing if it were not so dangerous. For example Krugman frequently invents or pretends to have been the economist who predicted the housing bubble. What he forgets to add is that in 2002 he wrote that the Federal Reserve and Alan Greenspan needed to “create a housing bubble to replace the NASDAQ bubble” in order to combat the recession at the time. When this was pointed out, you guessed it, he explained away the unexplainawayable.

He also has a habit of taking credit for stuff that has nothing to do with him or his words like the fact that the U.S. has yet to experience any real increase in price inflation. This although he had stated and predicted that from 2010 on, the U.S. would experience an extended period of unending “process of disinflation.” One could go on and on: the zillion times he has said the Euro would collapse or how negative interest would never ever happen. Regarding the Euro, he even went as far as to put in writing that many of the peripheral countries of Europe would be unable to remain in the Eurozone, even predicting that Greece would be out along with Spain and Italy four years ago.

I won’t just focus on Krugman, for every slap-stick comedy duo has a sidekick and partner and there is no better person I can slot for this role (casting couch aside) than the one and only Larry Summers. Summers, former Treasury Secretary during the Clinton administration and former Director of the National Economic Council for President Obama has blessed the world with the already disjointed and discredited concept of "secular stagnation." Now to provide a little background, when Barack Obama was elected in 2008, he mounted Summers as head of the National Economic Council. This even after he made remarks suggesting that women were biologically and genetically inferiorto men and more so, had not done such a great job while in the Clinton administration with respect to the dotcom bubble and his advocacy for the Commodity Futures Modernization Act of 2000. The CFMA gave us financial derivatives, credit-default swaps and other complex papers which were basically unregulated and brought about the 2008 financial collapse. Although prior to this he regarded these new changes regarding securitization on Wall Street as being positive.

But I digress, back to secular stagnation. Summers believes that the U.S. economy is engaged in a new long-time trend or new normal that he has termed "secular stagnation." In simple terms, he suggests that without the existence of bubbles in any part of the U.S. economy, it is mathematically impossible for the economy to generate enough spending to get to full employment. For him, this is because since interest rates can't go below zero (Krugmanesque) and because the "natural interest rate “has been permanently lowered into negative territory such that real rates can't go low enough to keep the economy out of a protracted slump.

This all sounds good on paper but there are more than a few things wrong with this vision of Summers. The foremost is how one calculates real rates. How do we measure real interest rates or are we measuring real interest rates? When cats like Summers say that inflation-adjusted rates have been falling, most are just subtracting expected inflation from the nominal interest rate. The concern is that the way I see it, real interest rate is entirely different from the natural interest rate, which mean a more tenable explanation other than secular stagnation and the new normal of sub two percentgrowth, could be due to an unusual prolonged business cycle.

My question is how can cats like Krugman and Summers keep getting away with being so wrong so frequently yet venerated as economic Gods by the elite east and west coast press outlets and even many of our current politicians? Until we figure this out, it will be nearly impossible to have intelligent reasoned and fact based discussions or even arguments with such individuals on the topic of economics. I understand completely what Robert Skidelsky meant when he wrote: “Today’s professional economists, by contrast, have studied almost nothing but economics. They don’t even read the classics of their own discipline. Economic history comes, if at all, from data sets. Philosophy, which could teach them about the limits of the economic method, is a closed book. Mathematics, demanding and seductive, has monopolized their mental horizons. The economists are the idiots savants of our time.” 

Read More

Not Monetary Policy, Rather the NFL and ESPN

The pulse of Black America these days appears to be controlled by several issues, none of which have any true impact on improving the present status quo of the African American community. These include Cam Newton's (seemingly innocents) comment regarding route running, the constant displeasure and anger toward President Donald Trump’s oral attacks against multi-million dollar celebrities associated with professional sports (namely Jemele Hill, LeBron James, & Colin Kaepernick)  and others who have decided to make a stand for (or knee) for whatever reason they say. Sure there is the occasional racist confederate statue and promoted albeit unsubstantiated Russian hacking of the US 2016 Presidential election, but anything that involves policy that could possibly actually assist in empowering the black community economically such as US monetary policy, not a whisper.

To be fair, maybe monetary policy or even fiscal policy are areas not to many African Americans take the time to understand, or maybe they feel it is too difficult a subject to comprehend. Whatever the case, you are more likely to see sincerely emotionally based thought-out gobbledygook on some stupid ish LeBron James said, or on how heterosexual black men are the white men of black people, or how Jemele Hill was right, than the previous. I would expect that a lot of cats know the difference between monetary and fiscal policy, but just in case they dont, I will attempt to explain the two, outline how a lack of focused attention on monetary policy is a slow death of the African American community and how can we change our attitudes such that we focus on tangible political issues instead of cosmetic subjects typical of identity politics that do nothing but aid in divide and conquering everybody.

Fiscal policy is a way a government adjusts its spending levels and tax rates to influence a nation's economy. Examples of this can be observed when the government implements tax cuts. Monetary policy is a macroeconomic policy put in place by central banks like the Federal Reserve designed to control and/or manage the money supply and interest rate. By macroeconomic, I am referring to general economic factors, such as interest rates and national productivity, which in theory can aid in dealing with consumption, inflation and even the Gross domestic product (overall productivity). Some common examples of monetary policy deals with regulating the discount rate of borrowing or lending and purchasing of government securities – all of which are ways the Federal Reserve in this instance, can control the country's money supply. Thus use of the noun money.

For all practical purposes, current US monetary policy is crushing the black community. Sure it has the stock markets at all-time highs (which for the record I benefit from) and has so far created the 2nd longest bull market run in history,  but it hasn’t resulted in any improvement in the economic capacity of the average black person in America. For us, it has yielded a period of wage stagnation even with the supposedly reduction in the national unemployment rate producing economic inequality levels we ain’t had since before the Great Depression. This is even after all the stuff Bush and Obama did based on the request of the Federal Reserve, supposedly to help Main Street (Quantitative Easing, TARP, and the bailouts of Bear Stearns, AIG, and GM). Overall, the median household before-tax incomes have fallen from near $55,000 to $53,000 presently, which means it is even worse for African Americans.

So far, Fed monetary policy has widened the employment gap for prime-age African Americans and whites. Plus, Blacks tend to slightly (if at all), participates in the financial markets, which over the past 8 years have served to mostly advantage the upper 10%. All of which is primarily determined by Federal Reserve’s monetary interventions. Although progressives like Obama and the mainstream media’s  assert that Federal Reserve policies thattarget full employment benefits African-Americans, it is not clear to how this can be the case when there is no evidence of this (albeit Obama said it was), or to support that specific unemployment for certain ethnic racial groups are considered when they formulate and implement monetary policy.

Since 2000 the African-American unemployment rate has been double the white unemployment rate with the unemployment rate of African-American teens being more than six times higher than the overall white unemployment rate.  Janet Yellen, the Federal Reserve Board Chair even said that the US central bank was basically powerless to do anything specifically to tackle high unemployment rates in the black community. 

More to this point, Former Minneapolis Fed President Narayana Kocherlakota conducted research on the minutes and transcripts of the central bank’s meetings and found no referencesto the African American unemployment. This was in 2010 and searches for 2008 and 2009 detailed a similar result – at a time when African Americans were disparately being hard hit by the foreclosures when the housing bubble burst. The mortgage crisis in concert with the 2008 economic slump devastated 47 percent of black families’ wealth, wealth which has yet to be recovered.

With 80% of Americans on average earning less than $50,000 and one in two making less than $30,000 annually, it appears that US monetary policy is either tone death or designed to serve the top 10 percent. In some places, especially urban areas and major cities, the unemployment rate is for African-American men between the ages of 18 and 37 is nearly 40 percent unemployment and near 50 percent in cities like Chicago, Baltimore and even Atlanta.

Until the Federal Reserve factor in the experience of black economic conditions when developing and implementing monetary policy, nothing will change. But this won’t change until we who suffer by foul and ineffective monetary policy become more knowledgeable of the issue and remove ourselves from the ridiculous and mundane things we claim to be the most outraged with. Sure they recovery is strong, but only for a small segment of the population, for the average African American it has mainly worsened economic inequities. So forgive me if the removal of a statue, or some millionaire paid to play a kids game is mad supposedly due to police brutality aint that important to me.  I’m mad at this too, but I’m equally upset with the 538 murders and 2,913 shootings in Chicago to date (maybe even more) than the  329 whites, 165 blacks,112 Hispanics killed by police thus far according to the Washington Post. The prior of which is more a function of economic reality of actually failed monetary policy than a rebel flag. But that is just me.

Read More

Notes on the Greenspan Culture

Most Americans are ignorant to the history and impact of central bank policy in the US on the problems we are experiencing and have experienced before regarding our economy.  The first failure came when Alexander Hamilton introduced the concept of having a Central Bank in America right after the revolutionary war. His idea was to place the US in a positon to be able to get loans or credit from lenders and be able to borrow great sums of money. To get the bank started, he proposal to fund a national debt via several bills in 1790 including the Debt-Assumption and Debt Funding Bills. With this concept would come massive speculation and fractional reserve banking. Many were against this idea. Thomas Jefferson wrote about this when his cousin Chief Justice John Marshall used the views of Hamilton to uphold the constitutionality of a national bank in his McCulloch v Maryland decision, in essence putting the nation on a dependency of credit. Jefferson noted that the constitution had not delegated to the congress to be able to incorporate a bank (10th amendment) nor to borrow or regulate commerce and that the establishment of a national bank was not necessary, merely a convenience and congress had the constitutional duty to do what was necessary only (pps. 502-574).

Failures of Federal Reserve policy since then and over the years have been too numerous to cite.  The issue is that the Federal Reserve and the concept of central banks in general act as if they are independent institutions when the truth is they are never independent. This was understood by both Andrew Jackson and FDR, and to a lesser extent Abraham Lincoln. Central banks seem to operate in a vacuum that is isolated from the public and even worse, the public angst and disdain regarding their policy efforts. 

Central banks are failing and have been failing for a long time since their most recent establishment under the Woodrow Wilson administration under the cloak of darkness. These chronic problems keep rearing their ugly head because the models that they employ are broken for they fail to connect monetary policy with the real economy (aggregate demand). This has become more problematic since the reign on Alan Greenspan. This Greenspan culture operates on constructs that don’t exist in the real world and even seems to suggest central bankers of the current batch have no idea of what is going on in the rest of the world outside of Jackson Hole. No matter what they do it always fails and never accomplishes the goals or objectives that said monetary policy was supposed to accomplish. 

Take the example of quantitative easing and keeping interest rates artificially low and constant.  This was supposed to put more loot into the coffers of business and to some extent the people and spur consumption - the assumption being that if you give folk more loot they will spend it, or at least consume more. But we see just by looking at consumption behavior, business are not spending by either investing or buying equipment and regular folks are saving instead of spending. Even with mortgage rates at 3.5 percent, people are not buying homes.  It begs the question what world are central bankers living in because all they talk about (if Janet Yellen can be taken at her word) is raising interest rates. On the one hand the public is being told the Central bank can control economic outcomes but can’t control inflation – a concept that anyone can see is not only problematic but also ridiculous.

Why would they slow the economy down by raising interest rates when it is growing at a staggering and paltry pace already? This makes no sense in particular when the average citizen is confronting real economic hardship and despair and all the evidence (weak fundamentals) indicates this. If this is the path the US central banks takes, it will only prove what many already believe, that the central bank is for the wealth plutocratic class only and it only implements policy on their behalf that presents modern capitalism as merely socialism for the rich. If this is the case then maybe, just maybe, central banks shouldn’t take on fiscal policy. In all honesty, maybe fiscal policy should be only implemented by folks the citizens vote on, or maybe we should vote for central bankers for that matter.

If I was given the authority first step I would take to destroy this Greenspan culture of hybrid fiscal/monetary policy would be to get rid of the Volcker rule in its entirety.  Maybe this way we won’t have to hear dumb azz Janet Yellen cite David Reifschneider anymore. Reifschneider for the record seems to be Yellen’s go to guy. Whatever he says she holds on to like it was the word of God. Reifschneider is a Senior Economist for the Federal Reserve Bank and posits (really guesses without evidence) that bond purchases and low-rate promises should be enough for the Fed to deal with severe recession if such were to occur. This is why I think she has not been out into the real world for she is always saying the same thing, or rather something to the effect that US GDP growth to lift labor markets. Again, an observation I don’t see even looking at BLS data, for there is no known value for potential economic output whether one is taking about labor or GDP – all of this is just speculative talk.

Simply put, central banks, in particular the US Federal Reserve should not be involved in developing, formulating or implementing fiscal policy. This should be left in the hands of the Treasury department in my opinion. One should ask what is their policy and where would we be if they couldn’t buy assets? Since 2008, the US Federal Reserve bank has amassed $2.5 trillion in Treasury securities and $1.8 trillion of mortgage-backed securities (maybe even more) through its asset-purchase programs, yet we still have deplorable growth and horrific levels of unemployment if you read between the lines. What will be next? Will we follow the lead of Japan and start to buy exchange-traded funds (ETFs), or the ECB and begin to purchase corporate debt? Or even worse follow the path of Prime Minister Modi in India and remove cash from circulation?  It is even easier to do in The US with electronic/digital money.  More so given that today, money has no real value in and of itself due to separation of them from the original sources of money – gold and silver. Used to be a time when paper money just represented how much gold and silver we had, but not anymore. Add this to the massive depreciation and devaluation of money over past decades, a cashless society could be a real manifestation. But I regress.

All I am saying is that the philosophical acceptance of Greenspan economics has shown the ineffective, foolish and disconnection from reality that Fed policy is, and that we need to move beyond the make believe boundaries of Central bank policy (guessing) before it is too late.  It is impossible to look at all economic activity in a contrived environment, under a contrived lens in which all stating points begin with full employment, inflation at 2 percent, and interest rates atnormal longer-run levels.  Honestly, like the Euro, the Federal Reserve Bank was flawed from birth.

Read More

The Federal Reserve and Income Inequality: Currency and Money Isn't The Same Thing

 

No one with the singular exception of Donald Trump has even mentioned the Federal Reserve since the start of the primaries through the general election. Sure Hillary Clinton has mentioned income inequality but one cannot have an honest discussion on income inequality without noting that the biggest contributor to wealth inequality the world and America in particular is the U.S. Federal Reserve Banking system – which for the record is no more federal than Federal Express, CVS or the GAP. Anyone who reads and has the math comprehension equal to or above a sixth grade level understands this but cats that watch television and claim to be woke do not.

The Federal Reserve Bank is frankly the biggest scam in the history of the world and by default probably the most crooked institution that has ever existed next to the Church of Scientology. First it is entirely privately owned although it wants the world to see it as or on equal footing to a governmental agency/institution and it has the right to print and issue money just like Kings did some 300 plus years ago.  But the worse thing about it outside of its money making Ponzi schemes in my opinion is that it exist as a money monopoly given it alone has the power over all the money and credit of the people in the United States and frequently beyond. Since its inception (which I hope to discuss in a bit more detail in a few paragraphs to come) what is clear is that the U.S. government had no debt when the Federal Reserve Act was passed in 1913. What may be more astonishing is that it is as I noted previously, a private entity with stock which is not traded openly and no one except the elite of the elite can own only through inheritance singularly.

Through the actions of the Federal Reserve Bank and U.S. treasury, it is no wonder they have the majority of U.S. citizens using the words “currency” and “money” interchangeably when they are not the same thing.  First, money is a store of value and has the ability to maintain its value in the form of purchasing power for a very, very long period of time.  Money is durable (meaning it never changes over time and it is fungible (meaning it is the same no matter where you are also interchangeable). Money traditionally has been some commodity such as gold, silver or land. Money is created, not printed.

On the other hand currency is simply paper. It is paper money used a tool for trading your time and labor and although it too is fungible and a medium of exchange, currency has no intrinsic value.  It is just an official monetary instrument used in commerce. Currency must be “legal tender,” which means the government will accept it in payment for taxes. Currency is NOT money, but merely represents money. And it is printed on paper or minted from metal.

What we spend is currency (base money). It is put into circulation by the Federal Reserve, with the assistance of our banking system via buying and selling of securities (mostly bonds). As the money Gods, the Federal Reserve can control the amount of loot in the U.S. economy and at the same time; give loans on money that don’t exist just by adding a few zeros to the books and boom – profit making Ponzi. It's called base money because it is the money deposited by the customer, by which money generated through fractional reserve banking is created from.

The main problem with currency is that the Federal Reserve can print more and more of it whenever they want. Each time they do, it just results in more currency flooded into circulation. Each time the want or need to do this, the more currency added into global circulation, the less value said currency has because the more of it there is the less valuable it becomes. And each time this happens, whether through selling IOUs in the form of Bonds to banks or quantitative easing, the Federal Reserve is unremittingly taking loot out of your pocket directly to the government and their pockets (banks).

Why is this you may ask, well since the Federal Reserve Act was signed by President Wilson on December 23, 1913, today, what we call money and or consider our base currency is really just a receipt – an IOU on a government created and traded bond. How can this be?  Well to begin with, when you deposit your loot in a bank, you are not putting it in an account of your own for safe keeping. Instead you are loaning the bank your currency which means they can do whatever they want with it once you do.  If the banks want to take your money and gamble with it on the stock, ETF or commodity markets, they can, or if they desire (which is more often the case), they will likely loan it out. And not just loan it out, but loan it out with interest, which is a profit for them through what they call fractional reserve lending.

Through this mechanism, banks are allowed to lend what they don’t own and even what they don’t even possess ten to twenty times over. In simple terms, Fractional reserve lending is the process whereby banks make up currency by adding zeros to computers and lend that created money that doesn’t even exist to make a profit. Fractional reserve banking is the ultimate hustle and exists to drain the common laborer of all their work without paying them for it. See, when a bank accepts your deposit, they give out loans, the loans become another deposit, which becomes another loan, and this cycle repeats itself in perpetuity. And when banks do this, they don’t ask us if they can or tell us that are going to do this. Look at it this way, if was a bank, and was required to keep only $1 of the $10 you deposited with me, and loaned the other $9 out, and charged X interest on the loan, but only have only how ca  make a profit of plus $10 when there is only 10$ that exist to start with? This is in essence “fractional-reserve” banking (for every $1 the Federal Reserve bank prints the banking system created an additional $9 out of nowhere which equals fraud.

Gone are the days of a family being able to live off of a single pay check. In the past our paper money was just a claim check.  It was just a paper representation of real money that you could take to a bank and claim for gold or silver (gold and silver being real money of intrinsic value.  The way, in which the U.S. Treasury and Federal Reserve banks operate in concert, the reality is that what they call currency today isn’t even paper money, but rather a claim check. To understand this you have to understand the way banks turn deposits into loans and understand how Federal Reserve Bank policies affect the supply of money in general. This entire scheme is called fractional reserve lending and/or banking.

The Federal Reserve Bank is the main culprit of income inequality.  Constantly the prices we pay for stuff is soaked up by the Federal Reserve like a sponge because our currency supply is forever growing and expanding. Thus the more currency the more prices will keep on going up which leads to inflation (all because the treasury and Banks swap IOUs in the form of bonds on behalf of the Federal Reserve Bank). And even worse is that this circle continues because the money they get from us in the form of taxes is used to pay interest on IOUs carried by bonds; meaning there is always more DEBT in our system than currency in circulation to pay the debt.

We need to wake up and understand the difference between currency and money and play real close attention to the practices of the Federal Reserve Bank, for they don’t serve nor care about us, we the people.

Read More