[A-List] New Economy Bull
Annewilliamson at msn.com
Wed Dec 11 13:05:01 MST 2002
Henry C.K. Liu wrote:
"The Fed has traditionally never been prepared to raise interest rates
too abruptly, trying always to prevent inflation without stalling the
economy excessively, thus resulting in interest rates often trailing
Two words, Henry: Paul Volker. The Fed exists to create inflation, that
is it's very purpose. When it got out-of-hand in the late 1970s in the
worldwide inflation that going off gold caused and foreigners start pulling
their money out and quirky phenomena like French shopkeepers refusing
in dollars cropped up, thereby threatening the US global looting job,
Volker raised rates precipitously overnight- and it took 20% to entice the
back into the pool.
Henry also wrote:
"There is not much wrong with the Fed printing money, as it has been
doing since 1971 when Nixon took the dollar off the gold standard. The
question is how the money is injected into the system, and toward whom."
Let's see now, the only fly in the Fed's greasy paper scheme is "how the
is injected into the system, and towards whom." Gee, that's possibly gonna
to fix considering that the Fed is a private agency collectively and
composed of commercial bank shareholders advantaged with the
unconstitutional power of
creating "money" and a system purposely designed to inject money to
course it isn't naive to think that once they have the moral, political, and
of giving themselves all the scratch pointed out to them, they will
immediately start funneling the dough to A-listers, the poor, the righteous,
Fidel Castro, and great, milling crowds of the self-designated morally
superior. Or are you relying not upon the transcendent but upon something
like the felonious Admiral Poindexter's "Total Information Awareness" to
sort things out?
And if there's not much wrong with the Fed printing money, as it has been
doing since 1971 when Nixon took the dollar off the gold standard, then I
guess the web of debt accumulated ever since which now encircles the entire
globe won't strangle us all -- and the US can go on looting the world in the
pursuit of "peace and stability" forever, and ever, Amen. Glory hallelujah!
You have written a lot about central banking and fiat money, and how to make
it work equitably and universally favorably, but you have never addressed
the fact that your scheme requires tyranny -- and a tyranny of benevolence
at that! A most unwise speculation, Henry.
All the best,
----- Original Message -----
From: "Henry C.K. Liu" <hliu at mindspring.com>
To: <a-list at lists.econ.utah.edu>
Sent: Wednesday, December 11, 2002 2:02 PM
Subject: Re: [A-List] New Economy Bull
> The fallacy of the argument presented is that a "free market" can exist
> at all.
> As I wrote in part 3c of my series against central banking:
> The Fed has traditionally never been prepared to raise interest rates
> too abruptly, trying always to prevent inflation without stalling the
> economy excessively, thus resulting in interest rates often trailing
> rampant inflation. The market demand for new loans, or the pace for new
> lending, obviously would not be moderated by raising the price of money,
> as long as the inflation/interest gap remain profitable. Yet bank
> deregulation diluted the Fed's control of the supply of credit, leaving
> price as the only lever. Price is not always an effective lever against
> runaway demand, as Fed
> chairman Alan Greenspan was also to find out in the 1990s. Raising the
> price of money to fight inflation is by definition self-neutralizing
> because high interest cost is itself inflationary. Deregulation also
> allows the price of
> money to allocate credit, often directing credit to where the economy
> needs it least, namely the speculative arena.
> There is not much wrong with the Fed printing money, as it has been
> doing since 1971 when Nixon took the dollar off the gold standard. The
> question is how the money is injected into the system, and toward whom.
> By bailing out credit-impaired illiquid banks, the money will only go to
> fuel more speculative excess, or to keep corporate walking deads
> walking, as Japan has discovered. At least Japan has a rationale for its
> madness, which is the cultural fix of the role of national banking: to
> feed the industrial sector of the economy. The Japanese economy does not
> exist to feed the
> banks, as the US economy does. This is why bank bailouts in Japan makes
> some sense while they do not in the United States.
> Henry C.K. Liu
> Annewilliamson wrote:
> > Espousal of the Fattest
> > The Daily Reckoning
> > London, England
> > Wednesday, 11 December 2002
> > --------------------
> > The Daily Reckoning PRESENTS: Austrian school crusader,
> > Sean Corrigan, on why rate cuts won't salvage the post-bust
> > economy...on either side of the Atlantic.
> > ESPOUSAL OF THE FATTEST
> > by Sean Corrigan
> > As the matronly European Central Bank hoists up her skirts
> > to join in the mad whirligig being danced by the Fed and
> > the Bank of England, I'd like to try to show you how
> > today's easy money - with interest rates at 40 year lows -
> > might actually be causing the current problems afflicting
> > British and American business, not curing them.
> > To begin with, let me state an assumption: no business -
> > unless protected by a government-imposed monopoly - has the
> > power to set its own realized selling price. Instead, the
> > firm's customers express their own individual sets of
> > preferences by interacting on the free market. It is the
> > customers who establish what they are willing to pay for
> > what the company offers for sale.
> > In a free market, the most rarefied form of democracy
> > exists: we all get precisely one vote for each and every
> > dollar we have at our disposal. If one group of people has
> > access to more dollars than you, those people will be
> > outvoting you. They will be outbidding you and possibly
> > pricing resources out of your grasp - whether these be
> > directly or indirectly employed labor, raw materials,
> > unfinished goods, plant and equipment, office or factory
> > space.
> > If the extra dollars were earned fairly and squarely on the
> > market, that's not only your tough luck, it's absolutely
> > intrinsic to the way the free market functions to improve
> > everyone's lot in life. It's how successful businesses
> > accrue the advantages which tend to reinforce their
> > success; a success which can only be gained in the first
> > place by satisfying their customers better than all their
> > competitors could.
> > But if the extra dollars are derived from sources outside
> > the market, it's not only unfair, but it risks short-
> > circuiting the whole positive feedback loop and stultifying
> > growth in the economy. The negative effect is instantly
> > recognizable if we are talking about theft, fraud,
> > protective tariffs, or government subsidies. But what
> > people don't recognize is it also applies to people who
> > borrow newly printed money, too. Effectively 'free' money
> > turns our commercial Survival of the Fittest into a venal
> > Espousal of the Fattest.
> > During the bubble years, the people with the extra dollars
> > were the Tech and Telecom companies, the pass-the-parcel,
> > Dot.com, Pie-in-the-Sky POs and the bankers and lawyers who
> > were at the front of the queue when the money spigot was
> > opened wide. People in genuine, productive businesses were
> > losing out, except where they could redirect some of their
> > own output to serve these misjudged, misreported, or plain
> > misdealing, enterprises in their heyday.
> > That's how we ended up with 500 million miles of fiber
> > optic cable laid, but we were short of many drugs and other
> > forms of medical provision; why we spent billions on unused
> > 3G phone licenses, but ran short of refinery capacity; and
> > why new power stations proliferated to the point where
> > there is now perhaps a 30% oversupply, yet basic transport
> > is as problematic as ever.
> > When the Bubble finally collapsed under the weight of its
> > own contradictions, the overcapacity in select industries
> > was revealed and is now widely understood. But what far too
> > few people have yet worked out is that bubble era companies
> > got to 'vote' all those unearned dollars purely because of
> > a credit boom; a boom that was at best tolerated, and at
> > worst enthusiastically endorsed, by central banks with
> > their twisted view of the world. (Thank you, Chairman
> > Greenspan!)
> > What, in turn, have the central banks attempted to use as a
> > remedy for the credit boom in the months since...and why
> > hasn't it seemed to work?
> > Well, We, the People, though it has cost us dear, have
> > taken away the right of the fantasists and fraudsters to
> > vote with unearned dollars. The structure of the economy,
> > at least, is no longer so heavily overweight in these
> > capital intensive, technologically saturated companies. But
> > what has replaced them? A different batch of people voting
> > with unearned dollars: the almighty consumers!
> > Despite record levels of personal debt, the economy now
> > rests on the hope that consumer spending will be an
> > effective replacement for the lost bubble dollars...and
> > that businesses left gasping on life-support can collect
> > just enough of these extra dollars in their cash registers
> > to avoid embarrassing their anxious creditors any further
> > than they must.
> > Since everyone of us is a consumer - whereas very few of us
> > worked for, or profited from WorldCom, Enron or Boo! - this
> > doesn't seem like grand larceny so much as a little
> > innocuous fiddling with our expenses. Very few consumers,
> > however, have been taught to worry about the perils of
> > over-consumption, so the expense fiddling goes unnoticed
> > and unconsidered...but over-consumption is still
> > responsible for giving rise to damaging imbalances.
> > For proof of misplaced investment during the boom, you only
> > have to look at the gleaming corporate headquarters of
> > hubris - what a friend of ours calls the 'Edifice
> > Complex'...or Marconi's share price...or central London
> > property vacancy rates.
> > Today, consumers voting with unearned dollars is just as
> > surely rigging the auction: distorting price-cost
> > relationships everywhere; driving a wedge between
> > consumption and production; swamping the honest demand
> > which can only arise from our taking part in valuable
> > production; and throwing demand in general so out of kilter
> > with supply that it sets the economy at war with itself.
> > Worse, while there remains hope that bubble companies may
> > accidentally end up justifying their existence, bubble
> > consumers are like spoilt five-year-olds whose doting
> > parents keep giving them treats today in return for dubious
> > promises of better behavior tomorrow. The Tech and Telecom
> > bubble may have burst, but we consumers are just as surely
> > putting resources out of the reach of many businesses by
> > bidding them up beyond the point where they can reasonably
> > expect to make a profit.
> > No expectation of profit means no investment and no
> > expansion into the gaps left by the failed bubble companies
> > - despite the flood of easy money. That means less income
> > for workers, suppliers and shareholders. That means we all
> > become ever more reliant on accessing credit - this time to
> > maintain the pretence that our material standard of living
> > hasn't been jeopardized by the boom years.
> > The demand for credit becomes more and more insistent even
> > as our creditworthiness spirals lower and lower. And the
> > hullabaloo we raise about our discomfort? It induces the
> > central bank to seek novel ways of adding ever more
> > unearned dollars to the system - even though they were the
> > root of all the problems.
> > That's why Easy Money equates to Hard Times...and why we
> > shouldn't keep mindlessly bleating for the Fed, the Bank of
> > England or the European Central Bank to continue reducing
> > rates to ever more artificially depressed levels.
> > Regards,
> > Sean Corrigan,
> > for The Daily Reckoning
> > P.S. That crafty old pirate William Paterson, inspiration
> > behind the founding of the Bank of England, came to
> > understand only too well that being 'the man' who
> > controlled the creation of the unearned dollars meant he
> > could reap more benefits for himself than he ever could in
> > the days when the Jolly Roger flew from his flagstaff. But,
> > even canny old Cap'n Paterson might not have fully
> > appreciated that the creation of easy money also does just
> > as much to disrupt the patterns of honest trade and that
> > such disturbances leave everybody poorer as a result.
> > Editor's note: Sean Corrigan is the founder of Capital
> > Insight, a London-based consultancy firm which provides key
> > technical analysis of stock, bond and commodities markets
> > to major US, UK and European banks. Corrigan is a graduate
> > of Cambridge University and a veteran bond and derivatives
> > trader from the City. Corrigan serves with distinction as
> > The Daily Reckoning's 'man-on-the-scene' in London's
> > financial district.
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