Fed dictator Bernanke needs to be toppled
Commentary: Forget Mubarak, it’s Fed reign of terror that must end-Paul B. Farrell, , MarketWatch.Com
Feb. 15, 2011, 12:01 a.m. EST
1. Commodity price inflation will soon end the Fed dictatorship
Hoenig consistently “cast his lonely ballot against the indefinite reign of easy money. Eight meetings, eight no votes … an unyielding point of view, one that has become ever more relevant now that rising commodity prices have put inflation worries back on the economic radar screen.”
In short, global commodity inflation may soon do what Hoenig could not, put an end to America’s self-destructive easy money reign of economic terror, and more importantly finally end the Fed’s 30-year “monetary dictatorship.”
2. Central bank dictatorship destroying America’s democracy
Hoenig was America’s lone voice against the Bernanke monetary dictatorship, says Drehle: “For all the headlines over the past quarter-century about the death of American manufacturing and the twilight of community banks and the vanishing farmer, those humble building blocks of a sound economy still figure significantly in Hoenig’s perspective. The way to strengthen them … is not by pumping money into a financial system that encourages megabanks to engage in high-risk speculation. You build them up by encouraging savings, which form capital for investment, which builds stronger businesses, which hire workers and pay dividends, which leads to more savings and more investment.”
3. Near-zero rates, banks richer, masses poorer, meltdown
Honenig’s opposition to Bernanke dictatorship is also clear, says Drehle: “By keeping interest rates near zero indefinitely, the Fed is asking savers to continue to subsidize borrowers. What incentive is there to save and invest?”
Earlier in his long career, Hoenig was heartsick as an “irrationally exuberant Alan Greenspan kept piling so much money onto the economic bonfire that led to the Great Recession” in 2008. Now the “time’s come to start sobering up.” Except Wall Street’s addicted to easy money, won’t sober up.
4. Easy money blowing new speculation bubble … pops soon
“This is how bubbles are formed,” warns Hoenig, whose long career as president of the Kansas City Federal Reserve Bank made him leery of the power buildup by the central banks monetary dictatorship. So again, “rocketing land and energy prices are telltale signs … too much money sloshing around. When you put this much liquidity into the system, it has to go somewhere.”
But with the Fed keeping interest rates near zero, easy money won’t go into savings. Instead, “money starts chasing assets with higher yields — like land, the once again booming stock market and energy” and “as more money joins the chase, asset prices rise and keep rising until … pop,” a new meltdown.
5. Bernanke’s narcissistic illusion of monetary power
The Fed has too much power: Hoenig “watched uncomfortably as the central bank began playing a larger and larger role in the public’s perception of the economy. Monetary policy came to be seen as the solution to more and more economic issues. It has been used to deal with one crisis after another,” stock .market crashes, recessions, the tech bubble, after the 9/11 attacks, during the Iraq war, then the 2008 meltdown.
Hoenig warns against the Fed’s power: “People came to feel that all you had to do was ease interest rates and everything would be fine. But that’s what gives us these bubbles.”
6. Easy money fueling worldwide inflation, and a new meltdown
Yes, Hoenig’s an inflation hawk: “The sequence of events that led to runaway inflation in 1979 got started back in the mid-1960s. That’s … long term.” Drehle captures the shift in Hoenig’s position: At first backing “the Fed’s dramatic actions in 2008 and 2009 to pour trillions into the staggering financial system.”
But now it is time to stop. As easy money chases higher returns across the world, in places like Brazil and China, Hoenig warns that “inflation is rising sharply. Global food prices have risen 25% in the past year, according to the U.N., and many nations are starting to hoard commodities.”
7. Fed policies favor the rich, sabotaging American Dream
In favoring Wall Street bankers, Bernanke’s monetary dictatorship is clearly feeding the conditions that, as happened in Egypt, will ignite a class war in America: “The poorest 60% of American households spend 12% of their income on energy alone, compared with the 3% spent by the richest 10% … Inflation is so unfair … it is the most regressive tax you can impose on the public … eroding the buying power of the poor and people on fixed incomes. The people who have money and are savvy come out ahead. In fact, they end up stronger than before.”
8. Unfortunately, the Fed learned nothing from the 2008 crisis
A lot more than the Fed’s toxic alliance with Wall Street bothers Hoenig: America “learned little from the crisis … government policy continues to smile on Wall Street but not on Main Street. Instead of breaking up the financial giants whose gambles crashed the economy, the government has let the biggest banks grow even bigger. Now they’re gorging on free money.”
9. Market economy? A joke, big-money lobbyists run America
Remember folks, 20 years ago in the S&L bank crisis 3,800 bankers were jailed. This time? Wall Street robbed us, got away with it, are still robbing us. Hoenig asks: “Where’s the penalty for failure? … We don’t have a market economy.” American capitalism is now “crony capitalism … who you know, how big your political donation is.”
10. America must end easy money, add new Glass-Steagall
What would Hoenig do as Fed chairman? “High savings rates, low leverage and a strong currency.” Finally, Drehle says Hoenig would bring back the Depression-era Glass-Steagall rule that barred commercial banks from taking excessive risks. He would reduce government debt and promote a manufacturing revival, but it won’t be easy, there is no painless approach.”
Unfortunately, none of this will happen until America gets hit over the head by brutal wake-up call, like 1929 and the Great Depression 2. Until then, the 30-year monetary dictatorship now headed by Bernanke will keep pushing its self-destructive easy-money policies, ignoring the warnings of Thomas Hoenig and all of the other Cassandras, Chicken Littles and Americans Crying Wolf, over and over again.