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Moral Hazards and the Fed

In their conversation this week with Bill Moyers, economic journalist Robert Kuttner and former SEC chairman William H. Donaldson questioned the wisdom of Federal Reserve heads Alan Greenspan and Ben Bernanke’s interest rate cuts in times of economic crisis - most recently the half-point cut on September 18 in response to the sub-prime mortgage collapse.

Robert Kuttner suggests that the resulting flow of cheap money is a quick-fix that obscures the root causes of economic woes and, perhaps, makes them worse:

The Fed cheapens money and bails the economy out and then invites the next round of speculative excess…The risk is that every time we repeat this cycle, we get bigger and riskier bubbles. And with the dollar being in the tank, it’s not a costless kind of bailout… We’re going to see inflationary pressures as a result of the cheap dollar.

“The sub-prime crisis was the result of the Fed’s failure to enforce lending standards…On the one hand, [Alan Greenspan] did not use a lot of the regulatory power that he had. On the other hand, every time there was a credit crunch he would race to the rescue…It seems to me if you’re going to bail out problems after the fact, you have an obligation to prevent some of them before they start.”

William H. Donaldson argues that rate cuts can lead to a “moral hazard,” in which the presumption of a Federal Reserve bailout might actually encourage some to make irresponsible and/or ill-considered investment decisions:

The Federal Reserve, the central bank, has an ability to reverse a downturn, but at great cost… Insofar as they do, we run into a moral hazard, i.e. we bail out the people who made bad or devious – whatever you want to call them – investment decisions. So you sort of are saying “Go ahead and do whatever you want, and you can count on the good old Fed to bail you out."

Between widespread controversy over Chairman Bernanke’s recent interest rate cut, Alan Greenspan’s recent best-selling book, and criticism of the Federal Reserve on the campaign trail (including some suggestions that it be eliminated altogether), the Fed has become a hot topic.

What do you think?

  • Should the Federal Reserve act more aggressively to regulate areas of the market suspected of improprieties?
  • Should the Fed continue to respond to economic crises with interest rate cuts to encourage liquidity?
  • Will the Fed’s actions ultimately be a boon for the U.S. economy?

    Photos: Robin Holland


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    Comments

    I think the interview of these two gentlemen deserves a rebroadcast. This is the biggest I-told-you-so I've seen in my lifetime. I would love to hear what they have to say about the current "bailout" plan.

    The fed is a private bank, a corporation run for profit. The only way we can rescue our economy, is to go back to a valued currency, backed by gold and silver. Until then, we are all pawns to be manipulated by the bankers.

    Do let us remember that the Fed is a private, profit making institution, which means 'caveat emptor' and BOHICA for everyone else... they have no interest in the well-being of the people of this country as long as they are getting money out of us...

    Mr. Scahill you have been brilliant in your interview with Bill Moyers, but by oversight or intentional forgetfulness, you avoided the touchy topic of Israels' troops involvement (at least 6800) in the Iraqi war. Please investigate and respond.

    Bill,

    c'mon, man.
    The Fed is not even part of the Federal Government. What we need is goverment regualtion. That includes the Federal Government regulating the Fed.
    The Federal Reserve and the IRS are examples of ancient forms of Privatization and we all know how well that works...take Medicare - it's not a government program either - it's farmed out to private insurance carriers like Blue Cross and others.

    If you ask the wrong questions it doesn't matter what the answers are.

    Anyone that believes (a religious word for a religious nation) that we operate in a Freemarket economy is delusional.

    You can have regulated Freemarkets - but first you have to have a Freemarket. The US economy according to Ferdinand Lundberg has been an Insiders' Club since 1918. No matter what passifying words the Fed or the SEC vomit on the public NOTHING is going to change until the system is surgically corrected of the cancer.

    Once again, there is talk but no action.
    The Fed lowers interest rates to cheapen money, whacking the dollar and bailing out the morons who bought these CDO's and SIV's. Then you will hear about how Americans don't save enough of those ever-worthless dollars as though it's the public's fault.
    Large financial institutions know that when they pull scams like this they must be LARGE scams, because that endangers the economy and gives the government and the public a poison pill they must swallow - bail them out or suffer recession or depression. In the end, the well-off elites will not be hurt at all. They may lose some, but the general public will lose more - and the 2 ways of getting richer are acquiring more wealth, or making everyone else poorer so that you are rich in comparison.

    Thanks especially for the Kuttner- Donaldson interview. This is first class television journalism. Please consider this bitterly ironic train of recent events: Cutting the discount rate in August 2007, and later, in September 2007, the Fed Funds rate enabled the Federal Reserve to avoid a global seizing up of certain financial markets. But the same actions were deemed, even by Wall Street insiders, as directly bailing out hedge funds and other speculators. Those Wall Street insiders - some of them, with a sense of "Main Street" business ethics, quite angry at the "moral hazard" implied in the rate cuts - openly characterized those policy moves as incentivizing even more financial ineptitude and recklessness by speculators, including "the usual suspects" the hedge funds.

    So, it is now October 2007, and how have the 9000 hedge funds and other speculative operators "returned the favor" of the cheaper borrowed money the Federal Reserve has handed them? Why, by rushing like the biblical Gadarine herd to speculate further on oil - helping to run the price up to a record $88 per barrel just before winter sets in here in the Northern Hemisphere - and speculatively running up, as well, the price of other essential commodities like wheat --- enhancing presumably whatever inflationary effect the newly-relaxed monetary policy of the Fed had directly with its resultant outcome in the money markets of lowering the value of the dollar.

    Harry Elmer Barnes, a controversial but renowned and humane early-to-mid-twentieth-century scholar and publicist, who, in his prime, was a progressive advocate of the Swedish Social Democratic "Middle Way" for America, and who was also an associate of the renowned historian Charles Beard, noted in an economic history text he published in its first edition in 1934 at the depth of the Great Depression (which he blamed in large part on the culture of financialized capitalism of the 1920s) that "speculative finance profits most from instability and uncertainty, while business [today known as "the real economy"] benefits from stability and predictability," and that " speculative finance resents any reduction of financial gains, however necessary to economic stability."

    Those same truths, echoing at us from 70 years ago, may be taken as alarming admonitions, backed up by catastrophic historical facts, especially to be heeded by the self-serving (and sometimes even "self-dealing" ) political, business, and financial elites of the year 2007. Thanks again for the 10/12/2007 Moyers Journal - all the segments were interesting.

    The roundable talk with Kuttner and Donaldson was useful but frustrating. Their analysis and suggestions were good as far as they went, but they left one assumption unchallenged - that finance capitalism and "free" markets are really ok and are only in need of some regulation and tinkering.

    Let's just imagine, for a moment, that every corrective Fed regulation they proposed had been in force for the past three deades. Would we be better off, or would the increased regulation only have made the dilemma of where and how to invest all that exceess money and capital that much worse? In other words, without speculation and the invention of new financial instruments, how would the growth of housing or other industries have been financed - and indeed, would the economy have grown much at all?

    It's questions like these - which touch on the bigger, structural picture of how capitalism is constantly in need of finding solutions to its own problems - - that was so sorely missing from the Kuttner/Donaldson discussion.

    So why doesn't Bill invite on thinkers and writers who can address this - like historian Mike Davis, or philosopher/social theorist/film critic Slavoj Zizek? I issue a challenge for him to do so. We are in time desperate for new ideas and perspectives, ones that go beyond the New Deal/liberal cliches of "reform" or "regulation". I cannot think of a better, or more necessary place to hear them than on Bill's show

    Lest anyone forget, the FED is a private bank, not under the jurisdiction or scrutiny of the US Congress. It's unconsitutional because only Congress has the right to "make" money for the American people. And that "making" is the coining of precious metals - check your Constitution. Fiat money printed out of thin air decreases in value the more you print and distribute. To 'print' our way out of financial crises is ridiculous. The battle for/against a national central bank goes way back before the FED and was abandoned before - thank you, President Jackson. It's time to abandon it again. Since we know that income tax goes to pay the interest on the national debt, we know that income tax monies are going into the hands of private bankers, and not for any services to the American people. Isn't it fun to work for all the private bankers?

    If the US "made" its own money at Congress's control, would there be any interest owed to anyone? If it was coined from precious metals, would there be any inflation? Would things be run on a more sound economic policy? Probably. How about this idea - peg the dollar against the GNP so the production of the country monitors the value of our money - kind of keeps in the idea of fair exchange, doesn't it?

    I submitted the comments below to the production team. I repost them here hoping others may agree and add their voice to the task.

    What is clear from this show and the comments in this thread is there are some deeply fundamental things that are not well known or understood. Either by choice or by design.
    Either way I have read this book and find it a primer for these conversations that otherwise, while good, and certainly more honest than the general run, are still not going deep enough.

    Hello,

    A note of appreciation for the couple of in depth shows concerning the economy you have run lately.

    The recent show with Robert Kuttner and William H. Donaldson contained an interesting segment about regulation between the New Deal "and the early 70's". And then had an interesting bit about the pressure against regulation.

    It struck me that this fit perfectly w/ the thesis recently articulated by Naomi Klien in her new book The Shock Doctrine. (Link below).
    She essentially maps this statement above to the ascendancy of the ideas of Milton Freidman.

    I would strongly suggest that you get her on your show. And if you could have her in addition to someone like either of these 2 men I think it would be fantastic.

    I think so often peolple like this are not challenged in their basic awarenesses. And while these men were clear and articulate to the problems I felt they were not going deep enough.

    Someone like Naimi would add a dimension of conversation to your show that would help the conversation to go deeper.


    http://www.naomiklein.org/shock-doctrine


    Michael Beaton

    Another GREAT session, as usual. Among the expressions that struck me most was the term ''economic orthodoxy'' which, as Bill put it, is ''cut-throat capitalism'' and all its arrogant manifestations by way of mindless military 'adventurism', exploitation of the poor by big corporations through out-sourcing and globilisation etc. The conflict between 'rich and poor' will play out, as it always has, throughout mankind's history at every micro and macro level in this world. It will depend on wise and mature leadership to take precautionary steps through 'equitable sharing' of global resources and wealth of nations.
    Ha, but then, there will always be this evil emotion called G-R-E-E-D in possession of men's hearts to keep them going for more and more and more - - - if only the 'pendulum' could stop swinging and stay somewhere in the middle; federal regulation is the only way to strike some kind of balance - -

    FINALLY others, fully qualified, are waking up and speaking out about the same patterns I see repeating themselves.

    Should the Federal Reserve act more aggressively to regulate areas of the market suspected of improprieties?

    Absolutely, the US needs to restore transparency in the markets and look sensibly at the new global implications. We must take into account the lessons learned from the turn of the 20th Century so as not to needlessly repeat the same mistakes.

    The first lesson is that unfettered capitalism leads to disaster. But as the speakers pointed out, managed capitalism works for everyone. All segments of the population are important ingredients in the economic pie.

    Should the Fed continue to respond to economic crises with interest rate cuts to encourage liquidity?

    I am not qualified to say. But, they do need to stop catering to elitist politicians and market leaders and do what is best for the greater populace.

    Will the Fed’s actions ultimately be a boon for the U.S. economy?

    Not if it is on the backs of the middle class. Depending on consumers to prop up the economy with more and more spending is not sustainable All spending and no saving will not work longterm.

    There is a segment of the population now fully in their 50s that have been through a perpetual state of economic limbo most of their adult lives:

    Debilitating double-digit inflation combined with out-of-control unemployment just as they started their careers;

    Double digit interest rates on home loans just at the age they wanted to buy their first homes;

    Technological revolution that required more investment in education just as they reached their peak earning years;

    Massive layoffs when those new skills and careers became obsolete, eliminated, outsourced and or devalued. Resulting in unemployment that depleted what retirement funds they had started saving;

    Loosing massive amounts of their investments in the 90s bubble burst which cut up to 50 peresent out of their IRA values. Virtually eliminated a doubling cycle from their retirement investments.

    Loosing two out of every three dollars in their pension funds due to corporate miss conduct, mergers and reengineering leading to the dismantling of the pension system.

    Astronomical cost of higher education for their children.

    Out of control health care cost.

    Now they find themselves with little time to recover from these constant set backs. It seems just as they crawl out of the hole from one economic set-back, the next knocks them right back to the bottom.

    Now, with talk of Social Security due to go bankrupt just as they finally get to the projected eligibility date of (70), May I point out too, a system they have paid more into than any other generation, we are starting to get MAD AS HELL!

    This segment of the population has not been talked about but we are out here.

    So the powers that be need to wake up and start thinking about all segments of the society. We are sick and tired of the TRICKLE DOWN of shared wealth that is allowed through the Elitist Capitalist DAM. We want our share of the pie and not the crumbs left in the plate.

    my comments would seem to only add to the visual vomit that we've all gotten so used to seeing that we really only look right past/through it now.With that said, all I can leave with is:.."Good Grief"..."Gee Beav, I gotta' go!"...

    www.villagestreet.com has been pulled down after Ed (Eddie) passed away...He suffered more than Jesus could have survived through...(just trying to stay alive)...He was a human guinea-pig for the medical industry (who got paid well for experiements they performed on him)...It really shoulda' been the other way around, but doctors only pay for cars and houses, boats, & things that can be considered tax write-offs, etc, etc., but I truly hope all the current people suffering with crohn's and other auto-immune diseases who's research (& most likely cures) are being held up by the self-righteous that won't stand for the thought of stem-cell research, will stop for a moment and give 'Eddie' a quiet 'THANKS' for his many contributions in raising their quality of life...even if just a bit...Thanks Ed...www.villagestreet.com will be back online ASAP-WE PROMISE!

    "The Robotic Wageless Economy"

    You may think this sound like UTOPIA but it soulds like HELL to me.

    I really don't think Science Fiction is a good or realistic model on which to model a human society.

    The movie Blade Runner did not portray a world in which I want to live.

    I have come to accept that Capitalism is a sacred cow. To suggest that Capitalism needs improvement, that it may not make the world a better place, that it is not self regulating in and of itself or that it does not compliment democracy... is to then suffer the slings and arrows of most everyone I know.

    We fail our own wisdom when we refuse to see things around ourselves with as objective an eye as we are capable of using at any given moment. In failing our wisdom we also fail our imaginations that could then create a needed change and eventually we fail our neighbors and ourselves.

    I was listening to Richard Rohr the other day. He said that most destructive forces in the world started out as good and helpful things. He said the Devil was, in the beginning a Good Angel who was close to God.
    Fr. Rohr said that Capitalism is just as that once good angel but it too has fallen and is now doing destructive and even evil things around the world through us and our attempts to better ourselves, in a very selfish way. We can only see the good we are trying to do ourselves. In our attempts at perfection we will not acknowledge the evil that ripples out from our seemingly innocent self absorbed intention.

    Capitalism has become the elephant in the living room that has diarhea but all we smell, we call sweet. The elephant is filling the room and all we can do is build our platforms higher and those who don't have the materials to do the same we feel sorry for them being unblessed by God or simply inferior.

    Help us to take the plank from within our own eye.

    “You shall not press down upon the brow of labor this crown of thorns. You shall not crucify mankind upon a cross of gold.”

    How soon we forget! The Cross of Gold speech was delivered by William Jennings Bryan at the 1896 Democratic National Convention in Chicago. The speech advocated bimetallism. At the time, the Democratic Party wanted to standardize the value of the dollar to silver and opposed pegging the value of the United States dollar to a gold standard. The inflation that would result from the silver standard would make it easier for farmers and other debtors to pay off their debts by increasing their revenue dollars. It would also reverse the deflation which the U.S. experienced from 1873-1896.

    Bimetallism was a lost cause; the rich financiers of Wall Street argued against “cheapening the dollar” and declared it a moral issue. When we look back to the period from 1896 to October 1929, we see an increasing concentration of wealth in the hands of the Rockefellers, JP Morgans, etc. At the time of the crash of 1929, the monetarists (tight credit crowd) maintained tight reins on credit and gold. Bryan’s quest for bimetallism (cheap money) was squelched by the robber barons of the eastern establishment. Wages were rock bottom and the very rich squirreled away vast fortunes upon which they paid virtually no taxes until the income tax (the Sixteenth Amendment) of the United States Constitution was ratified on February 3, 1913.

    Now on the eve of the 21st century, the system that controls the distribution of wealth is being declared to be immoral by the crowd of those people who earn their bread by playing in the stock and bond market – men and women who do not live by labor who want a far greater share of the pie than is their due. Shame on the moralists! Vive the Fed that makes (at least) a feeble effort to put money into the hands of the people.


    Thank God for rabble rousers and God Bless America!

    Jerry

    Hey Bill,
    Last night (Oct 12) show (all the guests) was one of the best ever!! I am so impressed with Anouar Majid and please have him on again!! What an inspiration he is! I can't wait to read his book!

    We are constantly told that hedge fund managers deserve their high incomes because they are taking risks (even as they are usually playing with other people's money). What Kuttner and Donaldson pointed out is that the entire economy takes the risk along with hedge fund managers when they make high risk investment decisions -- heads they win, tails the economy loses. It's funny how moral hazard questions are glossed over in discussions of the stock market or other financial markets, but always trip up discussions of universal health care, etc. By the way, Donaldson seemed reluctant to look at the more serious implications of his analysis than Kuttner.

    Taken from:
    United States Government Accountability Office
    Washington, DC 20548
    December 14, 2005
    GOVERNMENT ACCOUNTABILITY OFFICE STATEMENT
    p. 28
    "The current financial reporting model does not clearly and transparently show
    the wide range of responsibilities, programs, and activities that may either
    obligate the federal government to future spending or create an expectation for
    such spending. Thus, it provides a potentially unrealistic and misleading
    picture of the federal government’s overall performance, financial condition,
    and future fiscal outlook. The federal government’s gross debt3 in the
    consolidated financial statements was about $8 trillion as
    of September 30, 2005. This number excludes such items as the gap between the
    present value of future promised and funded Social Security and Medicare
    benefits, veterans’ health care, and a range of other liabilities (e.g.,
    federal employee and veteran benefits payable), commitments, and contingencies
    that the federal government has pledged to support. Including these items, the
    federal government’s fiscal exposures now total more than $46 trillion, up from
    about $20 trillion in 2000. This translates into a burden of about $156,000 per
    American or approximately $375,000 per full-time worker, up from $72,000 and
    $165,000 respectively, in 2000. These amounts do not include future costs
    resulting from Hurricane Katrina or the conflicts in Iraq and Afghanistan.
    Continuing on this unsustainable path will gradually erode, if not suddenly
    damage, our economy, our standard of living, and ultimately our national
    security.
    Additionally, tax expenditure amounts are not required to be disclosed, nor are
    they disclosed, in agency or the U.S. government’s consolidated financial
    statements."

    The above excerpt attempts to emphasize that the Federal Government reports to Congress
    and the Senate, and therefor the public, on a "Cash" basis rather than on the
    "Accrual Method". The "Cash" method of accounting is contraindicated by both
    FAASB and GAAP.
    All public companies listed with SEC must report using the Accrual Method in
    order to ensure financial statements reflect a realistic financial picture of
    companies with shares available to the public

    Although it is widely held that the actual fiscal exposure of $46 trillion (now
    nearing $50 trillion per Mr Greenspan on PBS just recently) is beyond the
    capacity of the US to manage, it is not widely acknowledged by the MSM. or
    known by the American public.
    It is also not part of the American consciousness that the continued growth of
    the economy as bruited by ACME (American Corporate Media Establishment) is an
    illusion attributable to the fact that the Government is sustaining
    this apparent growth by borrowing $2 billion a day; --which is added to the
    National Debt without the knowledge or consent of those who will be responsible
    for it.

    The numbers in the GOA Report might seem too large, too abstract, for the
    average American breadwinner to relate to their personal, day-to-day existence.
    A thumbnail picture of what this means can be made to appear by assuming an
    interest rate of 6% applied to this debt. Maintaining the National Debt results
    in $2,038 per month, after-tax dollars, *accruing* to every full-time worker
    living legally in the US today.

    Any household's finances, like any national economy, can appear to prosper as
    long as it keeps converting credit to "cash";... and living off it. But the interest *accrues*
    nonetheless. The National Debt has long since achieved "Junk Mortgage" status.

    It would benefit the American public if PBS would distinguish itself from the feckless calumny of the ACME by raising awareness of what appears to be a story of far greater consequence than the War in Iraq.

    A very good and appreciated segment, but like Bogle two weeks ago I do not think they really want to come to grips with the essential monetary problem. A little history. When banks and joint stock cos started they were not really very different, both attempted to acquire a capital, engage in improvement projects and lend above the capital, much of which was promises in the first place. Sometimes these were just speculative "footballs" but in either case they involved pyramiding debt. We had neither banks nor joint stock cos in the US until the 1820s and 30s and their development was associated mercantilist theory and practice. At first this was tightly controlled by government, but democratic commercial efforts to liberalize incorporation and turn from substantive to contract law, led to a proliferation. Opposed to them were the largely agrarian South and West which wanted as Adam Smith and the Physiocrats, free trade and the use of gold. Bray Hammond in one of the classics of American history cites an agrarian critic of 1829 in terms that are still true today: "In Philadelphia back in 1829 a group of so-called 'working men and others opposed to the chartering of any more new banks,' had expressed in the following words the concern they felt that 'in most parts of the Union the productive labourer, with the utmost diligence and frugality, is hardly able to lay by a sufficiency against the day of distress': 'The philanthropists who have recently investigated the condition of the labouring poor have perceived that suffering and want are as severer and as widely extended in proportion to the number of inhabitants as in Europe. There must be some blight in this country upon industry of the people or this state of things could not exist. In searching for a cause for these evils, we have found it in too great extension of paper credit. Vast numbers of men in every part of the country have legislative sanction for adding to the amount of circulating medium; this is the easiest and surest mode of obtaining wealth, at the expense of productive industry and the infallible means of making those men rich at the expense of the laboring poor. The amount of paper which can advantageously circulate is not greater than the amount of silver and gold which could be used for the same purpose....To increase the quantity of paper money beyond this amount is only to raise prices; but wages do not rise so easily in price as commodities; hence much loss to mechanics and every rise in price is a reduction in wages....We are well aware that some persons suppose much of the prosperity the country at present enjoys is owning to the banks; but we can find sufficient causes for the increase of national wealth in the combined operations of capital accumulated by the preceding generations with the exertions of an increased number of labourers in a country rich in natural resources, aided by improvements in the arts and discoveries in the sciences....Those who maintain that banks enrich a country are bound to prove that speculation creates wealth. Till they establish this paradox, we shall continue to believe in the old-fashioned doctrine that wealth owes its existence to industry and economy."

    Nearly ten years later in the midst of depression John Calhoun remarked in Congressional debate according to Hammond: "the effect of banking was 'to discourage industry and to convert the whole community into stock jobbers and speculators,' but that 'its most fatal effects' bore 'on moral and intellectual development.' If the community, he said, allotted its 'honors and rewards' to 'intelligence, knowledge, wisdom, justice, firmness, courage, patriotism, and the like,' then those virtues 'are sure to be produced.' But if they were allotted where inferior qualities are required, the higher virtues would decay. 'I object,' he said, 'to banking system because it allots the honors and rewards of the community, in a very undue proportion, to a pursuit the least of all others favorable to the development of the higher mental qualities, intellectual and moral'; it worked to the disadvantage of 'the learned professions, and the more noble pursuits of science, literature, philosophy, and statesmanship, and the great and more useful pursuits of business and industry.' And he commiserated 'the youths who crowd our colleges and behold the road to honor and distinction terminating in a banking house.'"

    Hammond, who was a former assistant secretary of the Federal Reserve, himself remarks: "free banking was the American democracy's choice of a permanent policy of monetary inflation - a policy that assures plenty of funds for all who wish to borrow, prices that rise in the long run persistently, though haltingly, and a dollar that never ceases for long to shrink in value." Bank credit was joined by stocks, bonds, mortgages, installment credit, stock mkt credit, etc., until we have the huge pyramid of debt, and since debt is money, inflation of those things not amenable to mass production, and as it has proceeded it has transferred wealth from savers and producers the world over impoverishing them, and tending to increase their birthrate making the problem that much worse. This is the real problem, not global warming, which is, rather, a consequence of it.

    Swedish economist Knut Wicksell, at the turn of the last century, complained that unless people stopped mining gold and silver the money supply could never be controlled, and would no doubt have applauded the end of the Bretton Woods agreement pegging currency values to gold, but since the 1970s we have seen an explosion of inflation. Nevertheless, the agrarian argument is a throwback to monarchy and Smith was in fact more of a Tory like Hume than a Whig, and the mercantilists in starting banks were advocating a change from value as scarcity to one derived from productivity. In this they were more republican than the Physiocrats from whom Smith lifted his ideas. But with banks came speculation, and Sir James Steuart described the misuse of banks and what is now called moral hazard as well as anyone ever has. The problem is that no one has ever listened to him, or the Calhouns and Hammonds of this world. The current free-traders, such Greenspan, calling themselves efficient market-ers, if they are not outright hypocrites, make the primitivist mistake of trying to apply Physiocratic idealism to what is actually a rather nasty mercantilist world, rather like the evangelicals do in foreign policy.

    Robert Kuttner, you made some excellent points and seem to really understand what is going on. Have you heard of the economic trend that is developing gargantuan momentum that almost know even knows about ?

    It is essentially also the solution to every problem you can think of, and it is being called :

    The Robotic Wageless Economy
    http://TeamInfinity.com/RoboWagelessEconomyBM

    stop by and help make it happen sooner. please let us know what you think Robert.

    thanks!

    I'd prefer to see the Federal Reserve completely abolished. It's unconstitutional, dangerous and has powers it shouldn't have. As long as bankers control our money, the rich will get richer, the poor will get poorer and America will continue down the path to financial ruin.

    A $320 billion policy to resolve the “credit crunch” - Injecting additional liquidity
    into the economy” is nothing less than confiscation of funds deposited by all investors
    in banks and other institutions – formula use to “devalue the principal invested”
    by the use of the printing press!
    The man correctly stated, “go ahead do whatever you want, and you can
    count on the good old FED to bail out”! It is clear why there is no “Gold System
    standard” or other commodity to preserve the value of the currency. Tissue paper
    by a printing press is no substitute for real value.
    Corruption by printing press is no justification “to do whatever you want”!

    I have to admit that the Fed is one of those institutions that I have always taken for granite. An integral part of the economic system that’s been there for 95 years, how could I possibly question something that has lasted that long. I’ll be interested in hearing what chairman Donaldson has to say about the Fed on Friday night’s chapter of the Journal.

    FDR took over as president in 1933 and worked to fix an economy that was in terrible shape. There was no mention in the history books of any efforts to utilize the Fed to lift the economy out of the doldrums during that period. FDR did temporarily shut down the banks to avoid runs and that move had to involve the Fed at some point.

    However, it’s my understanding that the role of the Fed changed dramatically in 1971 when we abandoned the Gold system for an arbitrary floating value system. Without a known commodity to tie the value of our money to, the value of the dollar became a bit nebulous and subject to the whims of the economic snake oil salesmen.

    Except for a brief period during the Civil War, we never had inflation in the economy until the Fed was created in 1912. Our tax dollars have gone to the Fed ever since to print and distribute money, a function the U.S. Government once did internally. The Constitution set up our economy as a credit system, not a monetary system, and we never needed taxes until the appearance of the Fed. After the creation of the Fed, an amendment to collect an income tax was created and circulated to the states for approval. The amendment was never ratified and the collection of taxes by the IRS has essentially been illegal for 95 years.

    A comprehensive history and overview of the Fed is available in a film by the late producer/director Aaron Russo who passed away in August. The film, “America: Freedom to Fascism” is available to watch free online at various sites and can be purchased at Russo’s website for a nominal fee.

    i don't know that much about the housing bubble..

    but i do know about Social Security, and when the Chairman of the Fed tells us it represents a looming crisis, he is lying.

    There is no other word for it. There is some excuse for the press not understanding the issue. But the Fed chairman knows that the cost of "fixing" Social Security...according to the Trutees own numbers...if you do a little arithmetic... amounts to a one dollar per week rise in the payroll tax each year while the average income is going up by ten dollars per year.

    this actually covers the time from 2016 to 2036 and represents the cost to the general taxpayer to repay the Trust Fund, but it would be smarter to delay it until 2030 or so and apply it to the payroll tax, used in conjuction with the Trust Fund to extend the "solvency" of the Trust Fund while gradually raising the tax to a level that will support the longer life expectancies of people retiring after 2050 or so. The ultimate increase will amount to about 20 dollars per week on an income that has increased by 300 dollars per week over the same time.

    and you have to remember these people are paying for their own benefits. this is not money going into a government black hole. and it is not welfare coming out of the pockets of the rich.

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