Busted: Bankers and The Global Economy

January 8, 2009

How Will Obama Create a Wall Street Miracle?

obama-discusses-stimulus-2009Throughout America’s history, there have been some years that simply rolled into the next without much notice or fanfare. Then there are the years that come along once in a generation – the kind that mark a clean break from a troubled past, and set a new course for our nation. So started Barack Obama’s “stimulus speech” today. Perhaps Obama’s opening statement is somewhat understated, but certainly well placed in the realm of psychology.

The emphasis of his speech was largely inspirational in nature, but held a few small pearls where ideas are concerned. One area is of special concern:

“…it means reforming a weak and outdated regulatory system so that we can better withstand financial shocks and better protect consumers, investors, and businesses from the reckless greed and risk-taking that must never endanger our prosperity again. No longer can we allow Wall Street wrongdoers to slip through regulatory cracks. No longer can we allow special interests to put their thumbs on the economic scales. No longer can we allow the unscrupulous lending and borrowing that leads only to destructive cycles of bubble and bust.”

obama-big-brotherSafety in America is rarely a hard sell for a people obsessed with their own security. How is President Obama going to accomplish this miracle of financial national health that not a single man in existence has dared to attempt to act on? How will America create the miracle of coveted and elusive financial transparency without creating a “big brother” situation in the realm of business, privacy and the American Dream? How can a system be created that doesn’t limit freedom while making runaway theft and abuse a topic of the past on Wall Street and in financial circles. Much like Bush’s “war on terror” seemed like a good idea when the twin towers fell, a dramatic change in course including an invasion of privacy where Corporate America and Wall Street are concerned could be a slippery slope.

Unfortunately, the U.S. Federal Government is not a bastion of transparency in any regard, which leaves many Americans pausing to consider: “What will I have to give up to keep America safe from reckless greed and risk-taking that must never endanger prosperity again.” Is America preparing itself for another “war on terror” in the name of financial literacy? What new technology and control system will we use to create this mandated financial transparency or is this a resolution that will fall neatly into the hands of global finance ministers?

Nancy Pelosi and the elected lawmakers are about to make more bailout history in the hope of abating the tide of recession with the intention of avoiding economic depression. There will be no Congressional vacation without a legislative solution for bettering the economy. So far, throwing money and liquidity a la Milton Friedman has done little to help the situation. In desperation, the Feds are looking to avoid the specter of an 25% American unemployment rate and the resulting unpopularity, misery and perhaps rebellion against established authority as millions bite the economic dust in a nation ill equipped to deal with any blight. What America has now is nothing less than political panic.

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September 25, 2008

U.S. Political Infighting Threatens Bailout

rushing to "secret meeting"

rushing to secret meeting

Tempers are aflair in Washington on the eve of what authorities hoped would be the salvation of Wall Street and the U.S. economy. What Democrats declared as a breakthrough Wednesday evening seems a bust. The nation was led to believe that agreement had been reached and the Federal Reserve and the U.S. Treasury could begin the work of applying the agreement. Negotiations toward a massive bailout for Wall Street has just fallen into disarray on after Democrats said they learned in a White House meeting that presidential candidate Senator John McCain is backing a new plan differing markedly from one that has been under discussion. So much for bipartisan political agreement and cooperation that McCain advertised in the U.S. bailout.

Now, the feeling is that a new plan could be another week in the making as Republicans retired to an unknown location to plow through their ideas for the bailout. The Republican plan may involve a mortgage insurance plan as an alternative to the Bush plan, which has encountered criticism on Capitol Hill. Republicans also argued that the Treasury Department should charge premiums to holders of securities to finance the insurance.

Until Thursday’s White House meeting, Republicans had not brought up an alternative plan for the Wall Street bailout, including during previous meetings and Senate hearings. Is this political grandstanding or a far better concept? What does this mean, if anything, for the nation? If a negative catastophic reaction occurs will U.S. citizens hold Republicans responsible for the result? This portends to be a big stakes gamble for McCain which could catapult him to great heights or destroy his chances at winning the presidency. Only time will tell whether what Republicans are doing is a boon or a bust as some U.S. politicians seem to have forgotten that global confidence is more important to sustain the ailing U.S. economy than the opinions of the U.S. taxpayer. This reality isn’t opinion, but fact.

Meanwhile, the global central bankers of the G8 continue to dump dollars to encourage global dollar liquidity, thus increasing the pitch of inflation and further devaluing the dollar between the dollar and other currencies as the U.S. becomes indebted to foreign central bankers through the Federal Reserve. The dollar has less buying power and increased pressure toward inflated pricing across the board. The dollar is overheating, which will easily evolve into hyperinflation along with pressures that would force the Fed to admit the truth of that inflation. Even though central bankers are essentially holding a gun to the head of the U.S. national economy, they can’t seem to stop themselves in the name of dollar liquidity. In the end, foreign central bankers don’t want to be stuck with devalued dollars anyway. The International Society of Bankers are looking at global monetary policy and their own corporate profits.

Global reaction to a bailout is not very positive overall as the U.S. economy remains on life support. The German Finance Minister reacted, “The United States will lose its superpower status in the world financial system.” How the world reacts as the morning and day wears on in Europe and Asia remains to be seen. Ultimately, outside global and sovereign financing is what the U.S. economy is dependent on. How the world reacts is of great importance.

~ E. Manning

June 6, 2008

Stability Over the Medium Term

Ben Bernanke, during an address at Harvard University, looked longingly and lovingly at the 1970s. He tried to make the case that monetary policy failed miserably during that time. The result was high inflation in the early 80s.

Bernanke then concluded that high inflation can seriously destabilize the economy and that the central bank must take responsibility for achieving price stability over the medium term. Strangely, the Federal Reserve, as the central bank of the United States, failed then, has failed since then and has failed during this last term during mortgage bubble and bust. While publicly admitting a yearly inflation rate of 2 to 3 percent, the reality holds an average inflation rate from 1980 through 2007 of 10%. Since then, the inflation rate has shot past 20%. Naturally, the authorities that run the country have denied this truth, sticking to the popular idea of a 3% inflation rate. So much for stability over the medium term.

Comparing today’s economy with 1970 is like comparing rotten apples and rotten oranges. Both were sweet while they were ripe and ready to eat. Beyond that, there is no real comparison.

To make a short point, government profiteering, corporate legislation, banking and financial conduct as well as the commodities and futures market put these two seasons in time into very different categories.

Bernanke seemed to gloat as he stated, “I would be remiss if I failed to mention the contribution of monetary policy to the improved productivity performance. By damping business cycles and by keeping inflation under control, a sound monetary policy improves the ability of households and firms to plan and increases their willingness to undertake the investments in skills, research, and physical capital needed to support continuing gains in productivity.”

The Federal Reserve has recently stepped in and completely short-circuited any natural cycle of business or economy by infusing huge amounts of credit into the system with the intent of reducing the pain. The results of the Federal Reserve magic pill so far have only served to put the banking and financial industry into a temporary state of suspended animation in an effort to avoid the perception of total collapse. Bernanke thinks that he has succeeded.

Whether the Federal Reserve is entirely responsible or not, Bernanke seeks to hold on to that responsibility. Since that is the case, the Federal Reserve has failed dismally.

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