The Matrix
by Dr. James Glenn | September 12, 2008
Print"The first panacea for a mismanaged nation is inflation of the currency; the second is war. Both bring a temporary prosperity; both bring a permanent ruin. Both are the refuge of political and economic opportunists." - Ernest Hemingway-
This is truly priceless friends. Watching CNBC over my shredded wheat this morning, I heard one of their breathless announcers moan into the microphone that, “inflation has hit a 27 year high, leaving the Fed, the nations chief inflation fighter (LOL), in a quandary as to how to maneuver monetary policy in the near term. Bravo! Even the Philistines at CNBC seem to be finally getting the picture, at least half of it anyway. The poor, poor Fed you see is caught in an economic bear trap of it’s own design. Lower interest rates, due to a collapsing economy, and the dollar collapses even more, exacerbating the worst inflation since the seventies, and sending all commodities, which are all priced in dollars, soaring ever higher. Raise rates, which would be the correct policy response, and the over leveraged housing market, hedge funds, and corporate and middle America, et. al, spiral downward into that black empty vortex called a depression.
What a choice. The Fed caught on the proverbial horns of a dilemma! How did we get here? Again? For the 20th time since the Feds founding under the cloak of darkness, and a Congressional holiday, in 1913? Is this some Fellini movie we are doomed to repeat ad nauseaum, or more like Sisyphus, are we to continually push that economy up hill into a boom, only to suffer the ultimate bust? Allow me to answer my own question.
When I hear trite platitudes like “all things are cyclical”, from the under informed, and often guilty parties who have perpetuated this latest fraud on the American people (housing bubble) in the name of “growth” or the “wealth effect”, on CNBC or elsewhere, I’d like to remind them that they are only “cyclical” because we have a privately owned, and operated central bank called the “Federal Reserve” which is not Federal, and holds no reserves, other than those assets on it’s own balance sheet, which are owned by the founding families of that dismal, and disingenuous institution, the Warburg's, Rockefellers, Rothschild’s, Morgan’s, Vanderbilt’s etc. This is all in the public record for any of my dear readers who may doubt the veracity of what I write…..but I digress.
The “Fed” as it is affectionately called, is privately owned and operated, and charged with “maintaining stable prices” and “full employment”, while “maximizing economic output.” The Fed is the bankers bank, providing it’s member banks (40% of all banks nationwide) reserves when needed so that they can expand credit via the system which we call a “fractional reserve system,” which is akin to turning water into wine, or straw into gold. Under such a system you see, member banks can loan out much more money than they have in reserves (deposits), the amount required by the Fed that they hold on their balance sheets. For each dollar in reserves for example, they can now loan out another nine. How can they do that you ask? Very simply, because of an illegal, and unconstitutional charter granted to them in 1913 I answer. So far, so good.
The Fed also of course maintains a convenient quid pro quo, with the government that created it. This Frankenstein of our own making, the Fed, conveniently loans our own government money they create out of thin air via electronic credits, whenever it needs funds it cannot borrow from its own citizens, or foreigners. That sum owed, and borrowed to date, ostensibly on the taxpayers behalf, is somewhere in the neighborhood of 3 trillion dollars. You and I pay this illegal institution interest on this money, which the Fed conveniently created out of thin air! That sum, including what we owe foreihners, totals about 9.6 Trillion at latest count, on which we pay 430 billion in interest per a year…that’s with a “B” friends. That’s the 4th largest item (interest) in a whopping 3.1 Trillion dollar budget. What a sweet, sweet deal you exclaim! You betcha! For the Fed anyway. The politicians love it of course because they get money as needed (for Iraq for example) without having to raise taxes, and the Fed laughs all the way to the bank (pun intended) charging you and I interest daily…..
The Fed is a cartel in other words, and like any cartel, its sole aim is to maximize profits, for itself, and its member banks, via a monopoly position on creating money and credit. When you think of the Fed in these terms, which few Americans do, because they don’t understand their own banking system, then the “boom-bust” cycle endemic to our economy all begins to make sense. Who is the first and foremost beneficiary of any credit expansion? The banks!, we all shout in unison……How do they expand credit? “By pumping liquidity into the system, many, many times faster than the economy is growing,” we all shout in unison! If the economy (GDP) is growing at 2% and they grow money and credit at 20% a year, where does the extra 18% go? I ask……. “It goes into the asset class du juor,” we all shout in unison! Either stocks, bonds, real estate, collectibles, imports, goods and services……………in other words……it always results in inflation, either in assets, imports, or goods and services. All that extra money (that in excess needed to lubricate growth/commerce-2% in this example) MUST go somewhere, and does. The Fed facilitates the bubble, but cannot control where the money goes after it’s “created”. The primary beneficiaries are the member banks who make more loans, and all other financial intermediaries in the food chain. In the latest bubble, the real estate bubble, these included the big money center banks and brokers we hear about daily now because they are hemorrhaging capital, Merrill, Morgan, Lehman, Goldman Sachs etc. In addition of course there were the mortgage brokers, real estate lenders, appraisers, and speculators all who made trillions by pumping up real estate values far above realistic, or sustainable levels, and to keep the Ponzi scheme going longer, went so far as to create a whole new class of borrower called the “sub prime” borrower. These were individuals who were unqualified to own a home to begin with, but were given loans to keep the bubble going just long enough for the “smart” money to get out in 2005/2006. The ignorant, and the poorest among us, unfortunately, as always, were the ones left holding the bag………they bought late. The Fed who is also responsible for enforcing underwriting guidelines, along with the Office of Thrift Supervision, was out to lunch. Anything resembling a regulatory watchdog had been intentionally eviscerated during these bubble years, and consequently, there was no adult supervision during the entire housing fiasco. Sound familiar, kind of like the SEC in the late 90s, eh?
This bubble, like every one before it (bond/stock/collectibles/commodities), was created quiet deliberately, simply by maintaining interest rates at far below free market, or “equilibrium” levels for too long, and by turning on the monetary spigots so that anyone with a heartbeat could get a loan to buy that over priced piece of real estate called the American Dream. Inflation is always a monetary phenomenon friends. It’s your dollar depreciating that causes higher gas and food prices, not the other way around friends.
Greenspan, the culprit, and at whose feet all these bubbles since 1985 must be laid, went so far as to dub this entire process of asset pumping by the Fed, “The Wealth Effect”, and will freely admit (and has in congressional testimony) that these bubbles were deliberately created so that people would feel wealthier, and thus spend, and borrow more, imperative in our Brave New World, because we have now created an economy solely dependent on consumption, financial services, and debt, rather than investment, saving and manufacturing, where real wealth is created. You can’t really blame Greenspan, he was merely minding his masters, being a shill for the financial services complex, now rivaling the military industrial complex for hegemony over what many have dubbed the new fascist economy.
Some of you are probably saying so what! Who cares? Why should I care? I’ll tell you why you should care. Rampant and unregulated monetary/credit growth always leads to inflation. The Fed claiming to be “vigilant” about inflation is like a Madam at a church social claiming to be “vigilant” about prostitution. The Fed creates the inflation it claims to be fighting. This abomination, and its member banks, Wall Street, and other financial intermediaries benefit enormously from the resulting asset bubbles, as do members of society capable of getting a loan, or smart enough to be speculating in the right markets at the right time. Ultimately however, the bust comes when the debt load can no longer expand, and whereas only a few benefit on the way up, we are all are punished on the way down. Bringing the financial system to the brink of financial apocalypse is the latest and greatest example. The asset inflation created is also highly regressive, hurting the weakest among us the most (is this Christian, or compassionate conservatism?) leaving those who cannot benefit (the middle and lower classes) far behind, while those at the top end, just get richer…….This is inherently socially destabilizing, and can only lead to the huge income inequalities we are now witnessing, inequalities now exceeding even those of the Robber Baron years of industrializing America. Unless you prefer living behind razor wire, and only going downtown with an armed escort, you had better be concerned about this. The gain made by the person whose home has doubled in four years, is the loss for those who must try and buy it at ever inflated levels. Those left behind with no opportunity, and nothing to lose, will have no qualms about taking whatever they can from the “haves”, including their lives.
Economically our economy, has been hijacked by the Reaganonomists, free marketers, deregulators, corporatists, and the financial services and banking industries. We have foolishly allowed our politicians to use esoteric, untried, untested, and often fraudulent economic theories to further shift the tax burden from those that can most afford them (the wealthiest 5% and corporations) to those that can least afford them, the middle and lower classes. The Fed, has aided and abetted this process, particularly during Greenspan’s tenure, by always favoring capital over labor. They “target” wage growth as being the inflation bugaboo for example, but let asset, import, and goods and services inflation run rampant, the consequences of which we are now witnessing (inflation just hit a 27 year high). This is just plain unethical, mean spirited, and untenable, socially, or morally. Wall Street, and Corporate America have benefited enormously from these “tax cuts” but the country’s infrastructure is crumbling, its educational system declining, and it’s middle class, its backbone, being destroyed. Our manufacturing base, once the envy of the world, has been eviscerated in the name of higher corporate profits and cheaper labor, while our savings rate has been negative for years. Thanks to our Republican friends who are so adept at creating the illusion of prosperity on a mountain of debt (80% of the 10 trillion owed was created under Reagan/Bush/Bush) but like to claim the mantle of “fiscal rectitude” (is this the ultimate laugh and hypocrisy) we are now the worlds largest debtor. The largest debtor in history. This, along with disastrous trade policies, a feckless Fed, and a casino mentality pervasive throughout our country, perpetuated by a corrupt central bank, has proven to be unequivocally, undeniably, absololutely disastrous for our country.
The Fed, hardly an objective non partisan entity, has chosen to side with capital and corporatist (surprise) whole heatedly, always and unequivocally, and all these disastrous fiscal, monetary, and trade policies that have led us to where we are today as a nation. All the more reason to insist that we nationalize the Federal Reserve immediately friends. Write your congressman and insist that this become a national priority. Write them now.
Good night friends.
Copyright © 2008 Dr. James Glenn
Editorial Archive
Hello: My name is James Glenn and I am delighted to be working with you all. I grew up in Washington DC, and attended American University where I obtained a BSBA in Finance with a minor in marketing. I have thirty years broad based experience in business development, brokerage, banking, commercial lending/underwriting, credit analysis, management, public relations, relationship selling, valuation and investment consulting and most recently, teaching. I have developed over the years exceptional researching, and writing ability, and superior spreadsheet and computer skills, and hope to bring some of these skill sets to bear in this course.
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