For all the Ron Paul fans...

[StreetScooby 5]

Tremendous article today in the WSJ by Ron Paul:

Now we know why Ben and the boys are going to try and keep interest rates low for a long time.

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The Fed's quantitative easing programs increased the national debt by trillions of dollars. The debt is now so large that if the central bank begins to move away from its zero interest-rate policy, the rise in interest rates will result in the U.S. government having to pay hundreds of billions of dollars in additional interest on the national debt each year.

Here's the article:

Blame the Fed for the Financial Crisis
The Fed fails to grasp that an interest rate is a price, the price of time. Attempting to manipulate that price is as destructive as any other government price control.

By RON PAUL

To know what is wrong with the Federal Reserve, one must first understand the nature of money. Money is like any other good in our economy that emerges from the market to satisfy the needs and wants of consumers. Its particular usefulness is that it helps facilitate indirect exchange, making it easier for us to buy and sell goods because there is a common way of measuring their value. Money is not a government phenomenon, and it need not and should not be managed by government. When central banks like the Fed manage money they are engaging in price fixing, which leads not to prosperity but to disaster.

The Federal Reserve has caused every single boom and bust that has occurred in this country since the bank's creation in 1913. It pumps new money into the financial system to lower interest rates and spur the economy. Adding new money increases the supply of money, making the price of money over time—the interest rate—lower than the market would make it. These lower interest rates affect the allocation of resources, causing capital to be malinvested throughout the economy. So certain projects and ventures that appear profitable when funded at artificially low interest rates are not in fact the best use of those resources.

Eventually, the economic boom created by the Fed's actions is found to be unsustainable, and the bust ensues as this malinvested capital manifests itself in a surplus of capital goods, inventory overhangs, etc. Until these misdirected resources are put to a more productive use—the uses the free market actually desires—the economy stagnates.

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ronpaul
Bloomberg

Fed Chairman Ben Bernanke

The great contribution of the Austrian school of economics to economic theory was in its description of this business cycle: the process of booms and busts, and their origins in monetary intervention by the government in cooperation with the banking system. Yet policy makers at the Federal Reserve still fail to understand the causes of our most recent financial crisis. So they find themselves unable to come up with an adequate solution.

In many respects the governors of the Federal Reserve System and the members of the Federal Open Market Committee are like all other high-ranking powerful officials. Because they make decisions that profoundly affect the workings of the economy and because they have hundreds of bright economists working for them doing research and collecting data, they buy into the pretense of knowledge—the illusion that because they have all these resources at their fingertips they therefore have the ability to guide the economy as they see fit.

Nothing could be further from the truth. No attitude could be more destructive. What the Austrian economists Ludwig von Mises and Friedrich von Hayek victoriously asserted in the socialist calculation debate of the 1920s and 1930s—the notion that the marketplace, where people freely decide what they need and want to pay for, is the only effective way to allocate resources—may be obvious to many ordinary Americans. But it has not influenced government leaders today, who do not seem to see the importance of prices to the functioning of a market economy.

The manner of thinking of the Federal Reserve now is no different than that of the former Soviet Union, which employed hundreds of thousands of people to perform research and provide calculations in an attempt to mimic the price system of the West's (relatively) free markets. Despite the obvious lesson to be drawn from the Soviet collapse, the U.S. still has not fully absorbed it.

The Fed fails to grasp that an interest rate is a price—the price of time—and that attempting to manipulate that price is as destructive as any other government price control. It fails to see that the price of housing was artificially inflated through the Fed's monetary pumping during the early 2000s, and that the only way to restore soundness to the housing sector is to allow prices to return to sustainable market levels. Instead, the Fed's actions have had one aim—to keep prices elevated at bubble levels—thus ensuring that bad debt remains on the books and failing firms remain in business, albatrosses around the market's neck.

The Fed's quantitative easing programs increased the national debt by trillions of dollars. The debt is now so large that if the central bank begins to move away from its zero interest-rate policy, the rise in interest rates will result in the U.S. government having to pay hundreds of billions of dollars in additional interest on the national debt each year. Thus there is significant political pressure being placed on the Fed to keep interest rates low. The Fed has painted itself so far into a corner now that even if it wanted to raise interest rates, as a practical matter it might not be able to do so. But it will do something, we know, because the pressure to "just do something" often outweighs all other considerations.

What exactly the Fed will do is anyone's guess, and it is no surprise that markets continue to founder as anticipation mounts. If the Fed would stop intervening and distorting the market, and would allow the functioning of a truly free market that deals with profit and loss, our economy could recover. The continued existence of an organization that can create trillions of dollars out of thin air to purchase financial assets and prop up a fundamentally insolvent banking system is a black mark on an economy that professes to be free.

Mr. Paul, a congressman from Texas, is seeking the Republican presidential nomination.

We are all engines of karma

[lawrocket 3]

Ron Paul again explains something clearly.

the good thing is that Ron Paul also manages to explain that fixing it will be very difficult and will create a big mess that will cost the government extra hundreds of billions per year - which makes it so politically unpalatable to fix it

My wife is hotter than your wife.

[Andrewwhyte 1]

What happens to the profits from the Fed?

[StreetScooby 5]

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What happens to the profits from the Fed?

And indeed they are a profit center these days. Good question. I don't know.

We are all engines of karma

[winsor 236]

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What happens to the profits from the Fed?

They keep them.

A consortium of private banks, the Fed is neither federal nor a reserve.


BSBD.

Winsor

[StreetScooby 5]

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They keep them.

Wonderful. Not only is the govt trying to run the economy, they're profiting from it, also.

We are all engines of karma

[winsor 236]

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They keep them.

Wonderful. Not only is the govt trying to run the economy, they're profiting from it, also.

You missed the point - "the Fed" is not an agency of the US Government. It is a private enterprise, created specifically to do an end run around the Constitution. If the Fed was a Governmental entity, it would be patently illegal.

In order to have an unlimited credit line, the US Government gave away the store a long time ago.

When people talk about "fixes" to our fiscal plight, they completely underestimate how thoroughly fucked we are. It has taken decades of pissing away money we did not have in the first place to put us in such bad shape, and nobody has even hinted at a means by which we can halt our inexorable rush to disaster. Even if we quit spending more than we make right now, we are beyond the tipping point.

I wish I was wrong, but I am not.


BSBD,

Winsor

[StreetScooby 5]

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"the Fed" is not an agency of the US Government.

Did not know that. Thanks for posting the reply. Just learned something
I know we're in a really bad place right now, and the folks in charge have greatly exacerbated the problem. Nor do I think they're capable of getting us out of the situation. It' kind of freaks me out if I think about it too much.

We are all engines of karma

[Andrewwhyte 1]

This is a very unique situation. In most countries the currency is created by an arm of the central government; The Bank of England belongs to the crown, as does the Bank of Canada. The Euro is created by a consortium of government owned central banks. If The bank of Canada resorts to quantitative easing there is no net debt incurred by the taxpayer as the interest on the bonds payed to the BoC returns to the Ministry of Finance as a dividend.
Allowing private interests to control the currency is madness.

[Kennedy 0]

Most people assume that the Federal Reserve Bank is federal--that is, part of the united States' government. However, the Ninth Circuit Court put that issue to rest in 1982 when they adjudicated:

"Examining the organization and function of the Federal Reserve Banks, and applying the relevant factors, we conclude that the Reserve Banks are not federal instrumentalities for purposes of the FTCA, but are independent, privately-owned and locally controlled corporations." [Lewis vs. U.S., 680 F. 2d 1239, 1241]

witty subliminal message
Guard your honor, let your reputation fall where it will, and outlast the bastards.
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