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Guest Post: The Merger Of State And Commerce | Zero Hedge

Guest Post: The Merger Of State And Commerce | Zero Hedge.

Submitted by Stephen Merrill, editor of the Alaska Freedom News. He served in the Navy Judge Advocate General’s Corps and as a Navy Reserve Intelligence Officer

The Merger of State and Commerce

The Leviathan’s Thumb

Many observers of the US economy have come to the realization there are now few truly free markets left within 21st Century Western capitalism.

It seems all investments today are controlled to unfair advantage in some large way by the governments and financial firms operating the markets, especially the market in money itself.  The newly-invented powers of the central banks to buy anything, to fund any bailout, can reach into any area of the economy, either to grant large favors or to inflict great pain, typically with the cooperation of the too-big-to-jail banks that own the Federal Reserve and its policies.

The precious metals market is a good example of the Fed and its henchmen inflicting pain.  The Western paper gold market has been the long-used tool of Leviathan to bludgeon the world’s only true money.

In one of the Fed’s generous ways the second US housing bubble has been inflated from a river of counterfeit money and a wet-blanket of negative interest rates.  The QE Forever giveaway to the Fed’s banker friends through buying toxic mortgages at full price charges on.

A Swinging Pendulum

It is nothing at all new for a nation to defy the basic economic principle that allows for ever increasing wealth benefiting all layers of society.  In a word it is liberty.

The underlying concepts of capitalism were best set out by British author Adam Smith.  Smith postulated it is the magic of the invisible hand of a free market that best distributes economic resources and best energizes the people and industry and innovation.   Smith’s signature work The Wealth of Nations was written well over two hundred years ago.

The magic of Smith’s free market proved to be the model for the first sustained, rapid economic growth in global history, since at least the early Roman Empire.  It seems, whatever its academic merit in Ivy League halls, general economic liberty has clearly proven to be the best way to serve all society, given how humans themselves are created, as individuals each seeking a good life and secure family.

European medieval economics between the Romans and  the 18th Century Industrial Revolution showed how the vulture practices of monarchs and nobility eliminated even the hope for economic growth or of ever fostering a middle-class, while stifling innovation at every turn.  The private institutions empowered by law in that time were the lesser nobility and the Catholic Church.

With the Enlightenment period led by writers like Adam Smith, John Locke and Edmund Burke, the grip of elitism in commerce in Britain and France and beyond began to be replaced by private enterprise and capital quite completely.   Individual rewards for productivity and innovation and risk-taking became the driving force for economic decision-making, no longer centered on the whim of the lord or his knights as things have largely returned to in today’s fascist economy.   It was the belief in bottom-up capitalism in its rawest form.

The Europeans had suddenly become a juggernaut of innovation and growth after many centuries of stagnation.  The United States later in the cycle became the signal success of free-market capitalism.

In the wake of this revolution in society, the 19th Century saw the fastest economic growth in human history, all fueled by economic liberty.  For the first time a large prosperous middle-class of workers came into existence in many countries, no longer just the rulers lording over the peasants.

The same economic revolution is happening across most of Asia during our 20th and 21st Centuries.  Just one example, tiny city-state Singapore has proven once again the amazing achievements for all citizens from unbridled capitalism.  Singapore has risen from post-WWII devastation to the top of the world economic ladder without ever asking for or accepting foreign aid from any nation.  Singapore is the heir of Ancient Athens, the first free city, the founder of monetary silver.

Adam Smith’s Lassie Faire capitalism has become though the ancient, barbaric relic in our modern fiat money Western world economy, especially in America.  No living American has experienced an economic system that can be fairly described as general capitalism.

The US has now what is called a “mixed economy” involving many “public-private partnerships” and “professional self-regulation” and “social programs”.  These are modern phrases that explain the slow return to feudal ways.

Monopolies of political power or of markets yield huge profits for the few over generations without much having to change a thing.  Monopoly power is a distant mirror of feudal nobility.  It operates in both the public and the private sector and so often in direct combination with each other.  Power not only corrupts: power wins, power stagnates, power destroys.

The Money-Changers Above the Law

Then there are the market traders in a fiat, debt-fueled world.

Whenever free markets can be conned, fixed or disrupted there is a lot of money to be made in the process. There always has been short-term gain for those insiders who manage to fleece the public by harming the secure, uninterrupted flow of goods and services and finance and information.

Most economic transactions, at their base, rely on a large element of trust.  Deceit punishes trust to self-advantage.  Deceit harms the economic market itself, beyond the impact of the con-jobs in play.  A marketplace chocked with deceit is a fraud itself, the absence of the rule of law.  Only the law can fully deal with deceit in order to allow a free marketplace to even exist.

The more hidden processes used by modern bankers and traders to obtain unearned wealth is little different in its societal effects than robbing a convenience store is, or robbing hundreds of thousands of convenience stores actually, given the numbers typically involved in white collar crime at the highest levels.

The counterfeiting of the private-public central banks, that strangles the middle class to further enrich the wealthy, is daily theft on the grandest scale.  Counterfeiting by central banks now affects almost every investment decision.

In the end, it is little different than the peasants always giving a one-third share of their crops to the royal duke just because the King says so.

The Rule of the Cartels on Main Street

This collectivist syndrome in the United States is far from limited to the Congress-buying Wall Street cartel and the subject of finance.  The same general form of corruption permeates an increasing number of professions and businesses.  Even tattoo artists and legal process servers have earned their guild status by law in many states, hoping to, like others do, choke off low-price competition in their field.

The national health-care industry seems to have become almost a single cartel empowered by federal spending.  The Obamacare spending bonanza is designed to pay off every big healthcare interest in sight and the health-insurance industry to boot.

The provision of education in the United States has long been the fiefdom of rigged markets and systems.

The socialism model rules primary and secondary education almost alone.  Even 40-years of abject failure in effectively educating students has failed to dent the nationwide taxpayer spending spree for this state-imposed monopoly rule in the most crucial work there is for society.  Alaskans today pay over $18,000 per student for K-12 education.  Test scores are well below those of students from some third-world countries.

A mix of public and private institutions rule US higher education as a single-minded oligarchy.  This cartel is primarily empowered by federal spending in the form of student loans.  The younger generations are saddled now with a trillion dollar in debt to repay college tuition and fees that no longer deliver a good job.

The lawyer guild has controlled its market for professional services in every state in the union for generations.  Market-fixing remains one of the central goals of bar association rules:  ditto for the physician guild.

Part private business organization, part government institution, part professional guild, part bank regulator, entirely self-interested, the creature from Jekyll Island, the Federal Reserve, has become the go to mechanism for replacing free markets with aristocratic privilege.  He who issues the money controls the nation the phrase goes.

The Unifying Force

But the ultimate overarching rigged system in the US is the effective monopoly by two private political cartels sharing the same basic agenda, the Democratic Party and the Republican Party.  As a consequence of these two faces of modern fascism, the nation and its liberty has been for sale for more than two generations now.

This welfare-warfare party, one bent on ever expanding centralized power, has owned the Congress and most of the Presidents going back to WWI and the founding of the Federal Reserve.  The success in keeping the “two-party system” in place has had far more to do with the special privileges granted by law to Democratic and Republican candidates than to any good reason for a lack of meaningful political competition.

What is the fundamental error of governance made in all of this modern injustice?

It is the practice of the government surrendering open elections and free markets to officially anointed regulatory systems that then form an unchallengeable oligopoly within their bailiwick.

In the case of public regulation rather than a guild system, the regulated industry invariably become the effective master of the industry regulators, like Democrats and Republicans have for instance in US politics.  Within any regulated business, the temptation of well-heeled collegiality from industry always wins over government regulators eventually or, more often, the people that appoint the regulators.

With professional guilds in power its officials take over entirely for the government in controlling the business and its participants.  Professional guilds as a rule disconnect their own disciplinary code and market-rigging from the courts as much as possible, the place where everyone else is required to go for such matters.

Self-regulation for a profession invariably becomes mostly a program for less competition for guild members.  It freezes the present elite in their power and position, a never ending goal of humanity it seems.

In a wider sense, the officially anointed protector of the public safety, whether it is the state bureaucrat or a private guild official, over time becomes an enabler of reduced accountability for wrongdoing, a way to keep standards low for the industry or service by locking out competition and even the law, to the extent possible.

The US economy has regressed to feudal ways like these in such force that a variety of private guilds, cartels, unions and oligopolies exercise, officially or in practice, many of the powers of government itself, especially those powers assumed by but never granted by a constitution to the government.  It has all become a part of the “the law”.

The Revolution Looms Anew

Today’s economic model was best summed up by dictator Benito Mussolini in one short sentence: “Fascism … is the perfect merger of power between the corporations and the state”.

But tyranny also has its life-cycle within the balance between the past and the future.  Once the past becomes far too much of a millstone for the future generations to carry any longer, governments fall and debt and servitude recede.

Empires can fall largely without violence and allow a new, freer system to emerge, as most of the satellite states of the Soviet Union achieved.   Or the legacy of fallen empire becomes violent chaos followed by renewed oppression, like the French Revolution.

This bottom-up style revolution is happening to nations across our 21st Century.  The future lies in the balance.  The bell tolls for all Western nations, too.

So, in the United States, it seems, liberty will have its chance again before too long.

Paul Singer’s “Vision” Of The Coming “Riot Point” And The Fed’s “Formula For Destruction” | Zero Hedge

Paul Singer’s “Vision” Of The Coming “Riot Point” And The Fed’s “Formula For Destruction” | Zero Hedge.

We sympathize with traditional stock and bond investors, who are faced with extremely poor choices today. QE has distorted the prices of all traditional asset classes to such an extent that none currently promises a fair return with modest risk…. Because the dominant force in securities-price movements today is government policy, particularly the governmental buying of bonds and stocks, there is a vulnerability to all trading and investing prospects that cannot be assessed or measured with confidence… Since there is no history of Americans losing confidence in the basic soundness of their currency and their government, and since monetary policy today is so manipulative and large, it will be hard to parse the reasons for any particular market moves in 2014.

      – Paul Singer, Elliott Management

As always, perhaps the best periodic commentary on the state of the “markets” (even if such a thing has not existed for the past 5 years) and global economy comes from the person whose opinion has not been swayed by fly-by-night screechers and book-peddling pundits who fit in CNBC’s octobox and who come fast and are forgotten even faster, and whose 37 year track record at Elliott Management, whose assets he has grown from $1.3 million to $23 billion, speaks for itself: Paul Singer.

 

 

Below are the key excerpts from his January letter.

VISION

Imagine how mainstream experts would have reacted to the following set of predictions in 2006: “In two years Lehman will be bankrupt; Merrill and Bear will be acquired in distressed takeunders; Citicorp, AIG, Chrysler, GM, Delphi, Fannie and Freddie will be taken over by the government facing possibly hundreds of billions of dollars of losses; and only 13 global megabanks will survive.”

The 2008 crisis had a lasting and profound impact on virtually the entire developed world. The financial system was brought to the brink of collapse; conditions were created for the radical monetary policy of the past five years and a severely distorted recovery; the plans and dreams of hundreds of millions of people were disrupted, in some cases catastrophically; and societal values were significantly twisted away from individual responsibility toward dependency. In fact, the consequences of the bubble, the bust and the policy aftermath are not yet in full historical view. Despite all the pain, policymakers
refuse to take responsibility for the bubble, the distortions of the bubble years, the ensuing failure to lay the groundwork for strong post-bust growth, the continued riskiness and fragility of the major financial institutions, the lack of appropriate policies to deal with the bust, or their total inability to deal with competitive and technological challenges in the labor market.

It is not that the path toward destruction was impossible to see. On the contrary, a number of people saw the disaster coming, even if they did not all see the timing or the shape of it. The strangest part of the whole series of events is that only a few large professional investors noticed the smoke and shouted “fire.” Policymakers, particularly at the Fed and including (importantly) Janet Yellen, paid some small lip service to the building risks, but they were wedded to their primitive “models” and had a completely inadequate grasp of modern financial instruments, leverage and the interconnectivity of financial institutions. Not only did policymakers fail to understand what was happening and how to deal with the crisis and its aftermath, but also many of those same policymakers, and ALL of the structures and assumptions that prevailed pre-crash, are still in place today. No apologies have been issued. There has been a great deal of partisan back-and-forth and successful lobbying, but sadly the financial system is still not sound. This may be impossible to prove until the next crisis, but you could have said the same about conditions leading up to the last one.

Policymakers were and remain asleep at the wheel. The lack of introspection at the Treasury, the Fed, Congress, the White House and other regulatory bodies is astounding. Instead of taking reasonable and conservative steps to strengthen the financial system and to reach consensus on what is necessary to generate growth, there has been a series of cronyist, ideological, punitive steps that have neither catalyzed the growth that this country needs nor made financial institutions safe. At the same time, the Administration has allowed (and encouraged) the Fed to carry the ball all by itself, heaping praise on it for saving the world at the very time that the White House is shirking its own responsibilities. The Fed’s “dual mandate” (to promote “maximum employment” as well as “price stability”) is bunk in today’s context. It seems as if the entire world is acting as if the Fed actually has a “total mandate” and the rest of the federal government gets to stand around and applaud its heroic efforts. In fact, what we have now is a lopsided recovery, gigantic price risk in financial markets because of QE, and unknown but potentially massive risks of inflation and the ultimate loss of confidence in the major paper currencies, all because the federal government is more interested in ideology than in getting the country back on track, and the Europeans are more interested in preserving the euro than promoting the prosperity of the sovereign nations of Europe.

* * *

For private investment firms like hedge funds, leverage in the modern world is a matter of semi-volition. True, it is much more readily available than in the past, but there are credit departments and initial margins limiting the size of positions. The big financial institutions, on the other hand, found themselves in an  environment starting a couple of dozen years ago in which leverage was entirely voluntary, subject to no real constraint because they were not required to post initial margins with each other. Since many of their positions were “hedges” in similar securities, they risk-underwrote those trades using models that projected very little possibility of generating losses. As a result, the entire system has become super-leveraged, super-interconnected and very brittle. Given the benefits of hindsight, we do not have to prove the proposition that the limits of leverage were exceeded in the recent past and that the system was improperly risk-managed by governments and by the managements of financial institutions. It is frustrating, therefore, that no meaningful de-risking of the financial system has occurred since the crisis. You will see a system primed for a rerun of 2008, perhaps even faster and more intense this time.

***

MONETARY POLICY GOING FORWARD

QE has created asset price booms, but historically high excess bank reserves are still generally not being lent, and monetary velocity remains relatively low. But last spring, we witnessed the first tangible sign that the Fed may be trapped in its current posture. The Fed cannot retreat due to excessive debt in the system, the fragility of major financial institutions (still opaque and overleveraged) and the prospect that a collapse of bond prices could lead to a quick, deep recession. This situation may be the early stages of a phase in which the Fed is afraid to act because it has the “tiger by the tail,” and perhaps is beginning to realize that the current situation carries significant risks. QE has not generated a sharp upsurge of sustaining and self-reinforcing growth thus far. What it has done is lift stock and asset prices and exacerbate inequality. If investors lose confidence in paper money, as evidenced by either a hard sell-off in one of the major currencies or a sharp fall in bond prices, the Fed and other major central bankers will be in a pickle. If they stop QE and/or raise short-term rates to deal with the loss of confidence, it could throw global markets into a tailspin and the worldwide economy into a severe new recession. However, if they try to deal with the loss of confidence by stepping up QE or keeping interest rates at zero, there could be an explosion in commodity and other asset prices and a sharp acceleration in inflation. What would be the “exit” from extraordinary Fed policy at that point? The current, benign-looking environment (low inflation and
stable economies) is by no means ordained to be the permanent state of things. At the moment, “tapering” is expected to get underway, but that prospect represents a tentative, slight diminution of bond-buying. It contains no real promise of normalizing monetary conditions. If the economy does not light up, the impact of another year of full-bore QE is impossible to predict. Five years and $4 trillion have created economic and moral distortions but very little sustainable value. Maybe the sixth year will produce the “riot point.” Nobody knows, including the Fed.

 

As we and others have said, the Fed is overly reliant upon models that do not account for real-world elements of instruments, markets and traders in the derivatives age. Models cannot possibly take into account unpredictable interactions among huge positions and traders in new and very complicated instruments. Thus, the Fed should be careful, humble and conservative. Instead, it is just blithely plowing ahead as if it knows exactly what is going on. Intelligent captains sail uncharted waters with extra caution and high alert; only fools think that each mile they sail without sinking the vessel further demonstrates that they are wise and the naysayers were fools. This is a formula for destruction. The crash of 2008 should have been smoking-gun evidence of the folly of this approach, but every mistake leading up to the crash, especially excessive and “invisible” leverage and interest rates that were too low, has been doubled down upon in the years since.

Why This Harvard Economist Is Pulling All His Money From Bank Of America | Zero Hedge

Why This Harvard Economist Is Pulling All His Money From Bank Of America | Zero Hedge.

A classicial economist… and Harvard professor… preaching to the world that one’s money is not safe in the US banking system due to Ben Bernanke’s actions? And putting his withdrawal slip where his mouth is and pulling $1 million out of Bank America? Say it isn’t so…

From Terry Burnham, former Harvard economics professor, author of “Mean Genes” and “Mean Markets and Lizard Brains,” provocative poster on this page and long-time critic of the Federal Reserve, argues that the Fed’s efforts to strengthen America’s banks have perversely weakened them. First posted in PBS.

Is your money safe at the bank? An economist says ‘no’ and withdraws his

Last week I had over $1,000,000 in a checking account at Bank of America. Next week, I will have $10,000.

 

Why am I getting in line to take my money out of Bank of America? Because of Ben Bernanke and Janet Yellen, who officially begins her term as chairwoman on Feb. 1.

Before I explain, let me disclose that I have been a stopped clock of criticism of the Federal Reserve for half a decade. That’s because I believe that when the Fed intervenes in markets, it has two effects — both negative. First, it decreases overall wealth by distorting markets and causing bad investment decisions. Second, the members of the Fed become reverse Robin Hoods as they take from the poor (and unsophisticated) investors and give to the rich (and politically connected). These effects have been noticed; a Gallup poll taken in the last few days reports that only the richest Americans support the Fed. (See the table.)

Gallup poll

Why do I risk starting a run on Bank of America by withdrawing my money and presuming that many fellow depositors will read this and rush to withdraw too? Because they pay me zero interest. Thus, even an infinitesimal chance Bank of America will not repay me in full, whenever I ask, switches the cost-benefit conclusion from stay to flee.

Let me explain: Currently, I receive zero dollars in interest on my $1,000,000. The reason I had the money in Bank of America was to keep it safe. However, the potential cost to keeping my money in Bank of America is that the bank may be unwilling or unable to return my money.

They will not be able to return my money if:

  • Many other depositors like you get in line before me. Banks today promise everyone that they can have their money back instantaneously, but the bank does not actually have enough money to pay everyone at once because they have lent most of it out to other people — 90 percent or more. Thus, banks are always at risk for runs where the depositors at the front of the line get their money back, but the depositors at the back of the line do not. Consider this image from a fully insured U.S. bank, IndyMac in California, just five years ago.
  • Some of the investments of Bank of America go bust. Because Bank of America has loaned out the vast majority of depositors’ money, if even a small percentage of its loans go bust, the firm is at risk for bankruptcy. Leverage, combined with some bad investments, caused the failure of Lehman Brothers in 2008 and would have caused the failure of Bank of America, AIG, Goldman Sachs, Morgan Stanley, Merrill Lynch, Bear Stearns, and many more institutions in 2008 had the government not bailed them out.

In recent days, the chances for trouble at Bank of America have become more salient because of woes in the emerging markets, particularly Argentina, Turkey, Russia and China. The emerging market fears caused the Dow Jones Industrial Average to lose more than 500 points over the last week.

Returning to my money now entrusted to Bank of America, market turmoil reminded me that this particular trustee is simply not safe. Or not safe enough, given the fact that safety is the reason I put the money there at all. The market turmoil could threaten “BofA” with bankruptcy today as it did in 2008, and as banks have experienced again and again over time.

If the chance that Bank of America will not return my money is, say, a mere 1 percent, then the expected cost to me is 1 percent of my million, or $10,000. That far exceeds the interest I receive, which, I hardly need remind depositors out there, is a cool $0. Even a 0.1 percent chance of loss has an expected cost to me of $1,000. Bank of America pays me the zero interest rate because the Federal Reserve has set interest rates to zero. Thus my incentive to leave at the first whiff of instability.

Surely, you say, the federal government is going to keep its promises, at least on insured deposits. Yes, the Federal Government (via the FDIC) insures deposits in most institutions up to $250,000. But there is a problem with this insurance. The FDIC currently has far less money in its fund than it has insured deposits: as of Sept. 1, about $41 billion in reserve against $6 trillion in insured deposits. (There are over $9 trillion on deposit at U.S. banks, by the way, so more than $3 trillion in deposits is completely uninsured.)

It’s true, of course, that when the FDIC fund risks running dry, as it did in 2009, it can go back to other parts of the federal government for help. I expect those other parts will make the utmost efforts to oblige. But consider the possibility that they may be in crisis at the very same time, for the very same reasons, or that it might take some time to get approval. Remember that Congress voted against the TARP bailout in 2008 before it relented and finally voted for the bailout.

Thus, even insured depositors risk loss and/or delay in recovering their funds. In most time periods, these risks are balanced against the reward of getting interest. Not so long ago, Bank of America would have paid me $1,000 a week in interest on my million dollars. If I were getting $1,000 a week, I might bear the risks of delay and default. However, today I am receiving $0.

So my cash is leaving Bank of America.

But if Bank of America is not safe, you must be wondering, where can you and I put our money? No path is without risk, but here are a few options.

  1. Keep some cash at home, though admittedly this runs the risk of loss or setting yourself up as a target for criminals.
  2. Put some cash in a safety box. There is an urban myth that this is illegal; my understanding is that cash in a safety box is legal. However, I can imagine scenarios where capital controls are placed on safety deposit box withdrawals. And suppose the bank is shut down and you can’t get to the box?
  3. Pay your debts. You don’t need to be Suze Orman to know that you need liquidity, so do not use all your cash to pay debts. However, you can use some surplus, should you have any.
  4. Prepay your taxes and some other obligations. Subject to the same caveat about liquidity, pay ahead. Make sure you only pay safe entities. Your local government is not going away, even in a depression, so, for example, you can prepay property taxes. (I would check with a tax accountant on the implications, however.)
  5. Find a safer bank. Some local, smaller banks are much safer than the “too-big-to-fail banks.” After its mistake of letting Lehman fail, the government has learned that it must try to save giant institutions. However, the government may not be able to save all failing institutions immediately and simultaneously in a crisis. Thus, depositors in big banks face delays and defaults in the event of a true crisis. (It is important to find the right small bank; I believe all big banks are fragile, while some small banks are robust.)

Someone should start a bank (or maybe someone has) that charges (rather than pays) interest and does not make loans. Such a bank would be a good example of how Fed actions create unintended outcomes that defeat their goals. The Fed wants to stimulate lending, but an anti-lending bank could be quite successful. I would be a customer.

(Interestingly, there was a famous anti-lending bank and it was also a “BofA” — the Bank of Amsterdam, founded in 1609. The Dutch BofA charged customers for safe-keeping, did not make loans and did not allow depositors to get their money out immediately. Adam Smith discusses this BofA favorably in his “Wealth of Nations,” published in 1776. Unfortunately — and unbeknownst to Smith — the Bank of Amsterdam had starting secretly making risky loans to ventures in the East Indies and other areas, just like any other bank. When these risky ventures failed, so did the BofA.)

My point is that the Federal Reserve’s actions have myriad, unanticipated, negative consequences. Over the last week, we saw the impact on the emerging markets. The Fed had created $3 trillion of new money in the last five-plus years — three times more than in its entire prior history. A big chunk of that $3 trillion found its way, via private investors and institutions, into risky, emerging markets.

Now that the Fed is reducing (“tapering”) its new money creation (now down to $65 billion a month, or $780 billion a year, as of Wednesday’s announcement), investments are flowing out of risky areas. Some of these countries are facing absolute crises, with Argentina’s currency plummeting by more than 20 percent in under one month. That means investments in Argentina are worth 20 percent less in dollar terms than they were a month ago, even if they held their price in Pesos.

The Fed did not plan to impoverish investors by inducing them to buy overpriced Argentinian investments, of course, but that is one of the costly consequences of its actions. If you lost money in emerging markets over the last week, at one level, it is your responsibility. However, it is not crazy for you to blame the Fed for creating volatile prices that made investing more difficult.

Similarly, if you bought gold at the peak of almost $2,000 per ounce, you have lost one-third of your money; you share the blame for your golden losses with Alan Greenspan, Ben Bernanke and Janet Yellen. They removed the opportunities for safe investments and forced those with liquid assets to scramble for what safety they thought they could find. Furthermore, the uncertainty caused by the Fed has caused many assets to swing wildly in value, creating winners and losers.

The Fed played a role in the recent emerging markets turmoil. Next week, they will cause another crisis somewhere else. Eventually, the absurd effort to create wealth through monetary policy will unravel in the U.S. as it has every other time it has been tried from Weimar Germany to Robert Mugabe’s Zimbabwe.

Even after the Fed created the housing problems, we would have been better of with a small 2009 depression rather than the larger depression that lies ahead. See my Making Sen$e posts “The Stockholm Syndrome and Printing Money” and “Ben Bernanke as Easter Bunny: Why the Fed Can’t Prevent the Coming Crash” for the details of my argument.

Ever since Alan Greenspan intervened to save the stock market on Oct. 20, 1987, the Fed has sought to cushion every financial blow by adding liquidity. The trouble with trying to make the world safe for stupidity is that it creates fragility.

Bank of America and other big banks are fragile — and vulnerable to bank runs — because the Fed has set interest rates to zero. If a run gathers momentum, the government will take steps to stem it. But I am convinced they have limited ammunition and unlimited problems.

What is the solution? For you, save yourself and your family. For the system, revamp the Federal Reserve. The simplest first step would be to end the dual mandate of price stability and full employment. Price stability is enough. I favor rules over intervention. We don’t need a maestro conducting monetary policy; we need a system that promotes stability and allows people (not printing presses) to make us richer.

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