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THE
ECONOMIC REFORMATION COMING TO AMERICA
Part 2: Politics of Inflation and the FED Role
by Richard
Brawn
December 8, 2005
An assessment of
what the Federal Reserve must do to meet the challenges facing America.
The assessment is in three parts.
Reformation.
To return to an original form. To remake in a different form. To
rediscover lost truths.
Part
2 - The Politics of Inflation
Expect revolutionary
change from the FED
Dr,
Bernanke will have to guide the nation’s economy through some extreme
economic conditions. That includes figuring out how to manage the
borrowing demands from all levels of government, private enterprise, and
still keep foreign holders of US debt content about dollar exchange
risks. At the same time the FED must protect the banking system. Again,
this is strictly ‘government business’, not looking after the
people. Remember, the interests of the people were addressed when the
money was spent. The FED is a creation of government for government. The
political imperative for all who aspire to government is to remain in
office. The FED’s job is to support that wish. The FED will try to act
in ways that avoid whatever political fallout may occur. There are a ton
of tricks that can be used. They vary from the classic shell game, to
bait-and-switch, to ‘mistakes were made, now lets move on” to
creation of ‘emergencies’, to use of secrecy and obfuscation. The
tricks are endless. So, again, the FED’s primary job is to make sure
the government does not run out of money-power.
Science or religion
We
smile at the idea of anyone doing a ‘rain dance’. Dancing does not
bring rain. Yet all of us do a ‘rain dance’ when we take seriously
the ridiculous incantations by our high priests in the FED. Whoever
becomes FED Chairman must be able to speak with technical authority
underwritten by the gobbledygook and economic incantations. To be
believed, the phrases must sound eminently “good.” If anything goes
wrong, the “science” of economics will be the cloak behind which the
elected politicians will seek shelter. Dr. Bernanke’s job will be to
hold that cloak properly. Confirmation will be an indication that the
Senators think Dr. Bernanke will adequately fulfill that cloak-holding
role.
We
now have a good idea of the name for that cloak. The protective cloak
will be called “inflation targeting.” Finding the Holy Grail in
inflation targeting will be a major part of the economic reformation.
For you mathematics techies, here is what the International Monetary
Fund has been putting out.
Nowhere
within inflation targeting is the term ‘inflation’ defined by the
UN. If an inflation rate is the target, then it means some sort
of mathematical a ratio must be used. Nowhere is that mathematical ratio
precisely identified. Various high priests of economics have very
different ideas about inflation: what it is, how it arises, how to stop
it. So clearly whatever the source is used, the numerator and
denominator will probably be complex formulas with data coming from
government statistics. The formulation of those statistics will change
over time and in response to changing political circumstances. It is
important appreciate that the data will be subject to change as the
political imperatives shift. Even the formulas will not be fixed. This
is an economic off-take on the political shell game. Because they will
be math formulas, they will give the appearance of being written in
stone. The reality will be that instead of stone, simple reprogramming
of a computer to spew out different numbers is all it will take to
change the numbers.
In
reality inflation forecasting is opaque to the point of being a black
hole. While Dr. Bernanke is saying he wants transparency of FED
operations, the basis for transparency will be something that is opaque
and highly political. So, it would appear that “Transparency” would
be just a euphemism for more incantations by the high priests of the
FED.
Dictatorial Power to
the FED
Dr
Bernanke is extremely bright. Beyond doubt, he will do an excellent job
in his assigned role. He will be as difficult to pin down as liquid
mercury. One can be quite certain that policy will be derived from a
series of decisions rather than the decisions being based on the
previously announced policies. Emergencies will become the source of
authority to act. Bear in mind that what makes law more than a political
statement is the enforcement of the law. Who enforces the law that is
broken by the enforcers? Remember, too, the FED is sovereign in the USA.
We
have been given our warning.
In
our search for indications of whether or not events make a trend or
where events will take us, we should take note of the disparity between
the amount of terrorism in the US versus how it has been used to justify
war in Iraq and the ‘Patriot Act’. We should not delude ourselves
that the word ‘emergency’ means anything less that that the Congress
and President take unto themselves whatever powers they think are needed
and the judiciary will acquiesce. True, the Constitution states: “all
other powers are reserved for the people alone,” but the Constitution
provides for no enforcement mechanism.
Today
we have an ‘Elevated Threat Level’ that can escalate to higher
levels. These emergency levels are loaded and ready to go. Congress,
Judicial Branch, and Presidency have all agreed that seizure of these
freedoms from the people is appropriate so where will complaints be
heard? The reality is that an “emergency” occurs only when one is
declared. It is a euphemism for suspension of rights. The approaching
economic changes can be expected to create severe economic disruption
for some groups. Some will resort to riots and the government will
conveniently use this for new declarations of ‘emergency.’
In
the past, the termination of an “emergency” never returned things to
the way they were. Declarations of emergency; leaves residual
restrictions on the rights of the people. Each ‘emergency’ lays the
groundwork for seizure of rights in the future. Emergencies establish
judicial precedents. As a rule, government regulations etc, do not
address any conditions set by judicial precedent. The precedents set by
President Lincoln to deal with the succession of the Confederate states
remains in force even today. Internment of people of Japanese origin
created its own precedent that remains with us today. A more recent
example is that the Transportation Security Agency (TSA) is working on
policies whereby one will be able to buy (that is right, purchase) the
right to bypass security at an airport. For one person to actually buy
their way out of restrictions creates a right that people will be able
to ‘purchase’. If a minor emergency turns equality of all people on
its head, what can a serious emergency do? Taking an established
precedent like that one back to the Supreme Court to re-evaluate is a
lifelong journey. It is an impossible one in an ‘emergency’. During
an emergency, the courts will not consider the situation sufficiently
“mature” to warrant consideration. The case can be easily rendered
moot by just the slightest change in the offending government policy. A
Constitution is meaningless in the face of bad will.
Use of dictatorial
power
In
order that the government retains the power of money, Dr Bernanke will
be responsible to deliver the economic basis for judicial precedents
that will re-allocate whatever is of value in the economy. The courts
have repeatedly shown they are ready to do their part. Not lost on the
judiciary is that without money-power, courts would also be deprived of
power. Retaining money-power is so critical that the Supreme Court ruled
that seizure of private property for economic benefit to the community
is allowed under our constitution. The House of Representatives built on
that precedent. The House created a very handy clarification without
calling it that. The House bill says that any level of government can
seize whatever it wants, but that if any state allows that to happen,
that state would be denied federal funds. Please note that the House of
Representatives bill does not prevent such seizures. Instead it
clarifies that act as legal. The denial of Federal funds is a cover
story. The House will then negate the denial of federal funds provision
in the next appropriations bill. This is how government maneuvers and is
setting up to take “property” rights. Whether or not we like this
situation is totally irrelevant. What is relevant is that it exists and
it is the reality with which we must deal.
Again,
these are only indicators that a progression of steps is underway taking
us somewhere. Looking back from some future time, 20/20 hindsight will
let us see that the indicators we see today were really part of a
progression of events that ultimately delivered us to some end
situation. . Everyone will have his or her own personal sense of denial
about how that progression will end. Denial is perhaps the most
effective means by which we are blind to the obvious. Because of denial,
the future will never be clear to any of us. The worst-case scenario
does not have to happen if timely action is taken. But, we do need to be
aware of the worst-case scenario. So, Part III provides some possible
circumstances that may clear away some of the fog of denial
© 2005
Richard K. Brawn
Editorial Archive
CONTACT
INFORMATION
Richard K. Brawn, CCGA, MPA
Petaluma, CA USA
Email
California Certified General Appraiser (CCGA)
Master Public
Administration (MPA)
The
opinions of FSU contributors do not necessarily reflect those of
Financial Sense.
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