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Smash the Presses Before Ben Bernanke Starts Printing

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50millionmarkbanknoteIn about a year it will be the 90th anniversary of the establishment of the Weimar Republic, the nickname for post-WWI Germany and a moniker forever connected with the hyper-inflationary economy of Germany. That circumstance lead directly to the democratic election of Adolph Hitler and WWII.

In 1914, the German mark was worth about 25 cents, or four to the dollar. Nine years later in 1923, Germany had printed itself enough marks to make 50 million of them worth exactly one dollar.
Fed to Make $200 Billion Available To Lenders
Bank Seeks to Loosen Credit

(Neil Irwin and David Cho, Washington Post Staff Writers, March 8, 2008)

The Federal Reserve took strong action yesterday to restore order to frazzled lending markets while a new report showing unexpected job losses underscored the toll that credit markets are taking on the economy.

The world's financial plumbing is so clogged that the central bank sees a need for new steps to clean it out to prevent severe damage. Mounting panic in the credit markets is making it harder for Americans to get mortgages and is increasing the rates they must pay on credit cards and auto loans. Even solid businesses are finding it difficult to raise money to expand.

Ben Bernanke, who is the current chairman of the Fed is hardly a plumber. One can only wish he was.

Under his tutelage, we may as well take the book from the left hand of the Statue of Liberty and replace it with a can of gasoline. A torch in one hand, gasoline in the other, the perfect metaphor for an American economy so distorted and so finance-driven, it hardly deserves the name.

"Send us your investors, your huddled capital funds"

We are no longer a capitalist society and have not been one for some years now. We are an interest-rate dependent consumer society and the sole, wheezing, smoking engine left to support that house of cards is consumer confidence. Essentially, the American dream has become a confidence-game (noun: a swindle in which you cheat at gambling or persuade a person to buy worthless property).

The immediate problem is that a massive sub-prime mortgage fraud has sucked us dry of the basic fuel necessary for staggering on--confidence. There ain’t none left. The tank is dry.

Ben Bernanke is going to fill ‘er up on money. He and George Bush and Henry Paulson have connived between them a ‘stimulus package to bolster the economy.’ If you look up ‘bolster,’ one meaning is to support and strengthen and another is to add padding. I leave it to your judgment which definition most closely defines giving each taxpayer $300 to $1,200 of his own money to goose the economy in the sole interests of the above-named public officials' personal friends.

None but the Washington Post (deprived in these days of cutbacks of any true financial writer other than Steven Pearlstein) could possibly swallow without a fit of coughing, the swindler’s excuse that ‘the world's financial plumbing is so clogged that the central bank sees a need for new steps to clean it out to prevent severe damage.’ Who on earth fed WaPo that line? Certainly it was not vetted by Steve. I don’t doubt he choked on his coffee when he saw it.
The Fed said it will make $200 billion available to financial institutions in an effort to ease a crisis of confidence that is making it harder for families and businesses to borrow money.

"They're recognizing that financial markets aren't functioning well, and that that creates risks to the real economy," said Vincent Reinhart, a resident scholar at the American Enterprise Institute and a former senior Fed official.

Where do they get these people? Can I get a job at the Fed?

Financial markets have been looted, Ben. Wake up. This is not about families and businesses, this is about pumping up the worthless investments hedge-funds created. It’s about papering-over the hole in the missing billions before their major institutional investors sue them for fraud and send the whole crop of $100 million a year criminals off to Sing Sing.

Bernanke’s $200 billion is merely the camel’s nose in the tent. He proposed to create (read that print) $100 billion a month to prop up the banks for at least a year, but essentially for as long as it takes. Another ‘surge’ in an unwinnable war--anything it takes to get George safely back at the ranch before this whole swindle collapses on his head. Every 12 months (unless it’s not enough), Bernanke proposes to add $1.2 trillion to a money supply that totals approximately $7 trillion.

And the sworn duty of the Fed is to prevent inflation. Don’t cry for me, Argentina.

The dollar this administration has contrived to devalue by approximately half during its brief term in office, is now to be further demolished by stimulating, diddling, futzing with and printing their way over the edge of the cliff. The printing press is to monetary policy as Viagra is to maintaining an erection. The one gives you a sore dick, but the other turns the United States into Argentina.

"A lot of what we've done has been mostly just to offset the tightening of credit that has arisen because of the financial situation," Fed Chairman Ben S. Bernanke said in congressional testimony last week.

Instead of simply cutting interest rates further, the Fed responded to this latest crisis yesterday with carefully targeted measures. The central bank said it will auction $100 billion to financial institutions, injecting money into the banking system by trading cash for troubled securities. The Fed will also make another $100 billion in cash available in exchange for securities issued by Fannie Mae and Freddie Mac, trying to restore confidence to the market for home mortgages.

The problems are the latest wave of a crisis in debt markets that began in August and reappeared again in November and late February. This crisis is one major factor in a pullback by consumers and businesses that has driven the economy to the brink of recession, or possibly over it.

  • Lie #1: Offsetting the tightening of credit is (for Ben) easier than tightening the handcuffs on the criminals who profited from this fraud on the taxpayer.
  • Lie #2: Measures were not carefully targeted, but recipients were. Wall Street will get its plumbing unclogged and you, dear taxpayer, will get the bill for it.(Before all this manipulation was factored in, your personal share of ‘unfunded debt,’ including tax breaks to the rich and an untaxed war, is—as of 8pm today-- $30,967.40. Family of four? Pony up $123,868.96.)
  • Lie #3: No one is injecting anything. They are not ‘trading for troubled securities,’ they are buying bad debts with your tax money. They are bailing out criminals, so that no one will call them at their game, which has been to fleece the American public and blame it on ‘market conditions.’
  • Lie #4: Bailing out Freddy Mac and Fannie Mae does nothing to restore confidence to the market for home mortgages, it merely supports fragile government backed institutions, who have been part of the game—again, with your dough. The same money you don’t have to pay child-care and health-insurance.
  • Lie #5: There was no August crisis in debt markets. In August, we had the first indications of a purposeful financial fraud, committed against investors by a consortium of co-conspirator mortgage salesmen, mortgage bankers, bond rating companies, investment banks and hedge-funds. This will probably turn out to be the largest and most damaging Wall Street fraud ever to bring down an economy—far larger than the 1929 crash.
  • Lie #6: A misnamed and lied-about ‘crisis,’ cannot possibly be a factor in anything other than the continuing cover-up of massive financial fraud.
Six lies is a lot of lies to pack into three paragraphs and 161 words. Amazingly, the WaPo failed to call a single one of them. No major newspaper in the United States has been carrying this as the widespread crime that it is. Steven Pearlstein has come the closest, which is why he no doubt spit coffee all over his office when he read the piece.

There is a cure for all this sickness and greed and fraud, but it will not be found in the halls of Congress, the meeting rooms of the Fed or within a new administration, no matter how much ‘change’ is promised.

Attempting to repair a half-century of financial malfeasance is as dreary a chore as trying to ‘fix’ communism. Just as Ronald Reagan never ‘won’ the Cold War (the wheels finally came off, while he happened to occupy the office), Bernanke, Paulson and Bush haven’t a clue about what to do. Other, that is, than run around with a torch in one hand, gasoline in the other, trying to calm crooked markets.
"The Fed has been running around putting fingers in dikes," said Diane Swonk, chief economist of Mesirow Financial. "Without that, the dike would have imploded, and water would have been spilling in."
Diane is closer to the truth than any of them. The dike will indeed implode and therein lies the only viable cure. An international crash.

The world danced around the Argentine problem, the Mexican difficulty and the Asian unpleasantness, but the financial capitals of the planet are not strong enough or flexible enough to waltz their way past an American crash.

From the ashes, we may be sufficiently humbled and perhaps even wise enough to do the things we haven’t courage enough to accomplish now;
  • Oversee the absolutely uncontrolled hedge-fund industry that triggered this mess
  • Disconnect business and industry from the IPO as a borrowing mechanism and send them back to traditional loans at traditional banks
  • Do away entirely, completely and irrevocably with leverage
  • Disabuse the investor of the charming fairy tale that uncontrolled growth is anything other than the definition of malignancy
  • Return corporate stock certificates to their intended purpose of investment, rather than speculative instruments
  • Make criminal the offer of stock options as incentives to management
  • Consider laws initiating minimum-term (3-6 month) investment requirements to reduce the volatility of markets
  • Tax capital gains as ordinary income
  • Do away with the income tax
  • Re-institute logical trade tariff policy
Those would be a few things that could be successfully accomplished following a crash. Add to those massive government investments in infrastructure, schools, public transport, alternative power sources, the de-corporatizing of agriculture and re-planning of our auto-centric and dehumanizing suburban sprawl.

Taking back control of the investment community would prevent the flight of scarce capital from the have-nots to the haves. Infrastructure investment, reorganizing agriculture, instituting tariffs and killing off the income tax are positive ways of creating good jobs at good wages. There is simply no political will to accomplish any of these goals, otherwise they would hardly have gained the half-century momentum that set us up for the current financial landslide, avalanche, tsunami or metaphor of your choice.

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http://www.jim-freeman.com

Jim Freeman's op-ed pieces and commentaries have appeared in The New York Times, Chicago Tribune, International Herald-Tribune, CNN, The New York Review, The Jon Stewart Daily Show and a number of magazines. His thirteen published books are (more...)
 
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Last month I wrote "Meet the Weimar Dollar&qu... by Michael Fox on Tuesday, Mar 11, 2008 at 10:28:30 AM
If you agree with the thoughts in this article, at... by wgadget on Tuesday, Mar 11, 2008 at 11:42:17 AM
Good article that I will mention in next editorial... by sharon kayser on Tuesday, Mar 11, 2008 at 4:36:00 PM