Monday, January 24, 2011

EconomicsUSA: Central Bank: Federal Reserve defends against Congressman Paul

Robert Wenzel, editor, 

Mr Wenzel writes here with much disdain, but stick with him as he makes his case contra the Fed and for Congressman Ron Paul's hearings in Congress to examine the Fed.

-- EconoMix
The Federal Reserve Bank, no doubt at the suggestion of one of 
the high priced PR agents they maintain, has fired a shot at Ron Paul 
in his own backyard.

Houston Chronicle carries an op-ed by Paul Hobby, who is 
chairman of the Houston branch of the Dallas Fed.

Let's take a look at this 
commentary that is boldly titled, "Hands off 
the Fed"

Hobby makes clear right at the start this is about Ron Paul:

Defense of our central bank is imperative just now because the House Financial Services Subcommittee, which provides congressional oversight of the Federal Reserve System, has a new chair — U.S. Rep. Ron Paul, R-Lake Jackson [TX]. Paul is a frequent critic who has published a book titled End the Fed. Almost certainly, Paul will seek to make a fundamental inquiry into whether the United States will retain the ability to conduct monetary policy at all.
Then [Hobby] says:
No one who studies the global economic issues today would forfeit this nation's ability to conduct monetary policy through a central bank.
This statement is simply factually wrong. Congressman Paul has certainly 
studied the issues and has not reached that conclusion, as have many 
economists, mostly from the Austrian school of economics.

I'm hoping Hobby isn't trying to be serious when he writes:

Part of the problem in this public debate is that few of us have much personal experience with, or perspective on, monetary policy. It is simply not a visible part of most people's daily lives
The problem is that most Americans have too much experience with the 
Federal Reserve through Federal Reserve notes that buy less and less food, clothing and gasoline every year.  Read more ...

A hint to Hobby, they don't riot in Third World countries over central bank created inflation because they don't have personal experience with inflation. 
It's very personal.

Hobby then tells us that the financial system went through a "near death experience" without once discussing the role of  Austrian economists, 
before the fact, warning that such a crisis would come about because of 
Federal Reserve policies.

Ignoring the forecasters of the crisis, Hobby then tells us how the Fed 
"saved" the country despite millions losing jobs, millions losing homes 
and some losing jobs and homes. One has to ask what was left standing 
that the Fed saved? The answer is, of course, Goldman Sachs. To Hobby apparently the saving of Goldman Sachs was the saving of the economy. 
The Fed did just a wonderful job:
History will judge these events in the fullness of time. With the benefit of some hindsight, however, it seems the strategies employed by then Secretary of the Treasury Henry Paulson and Chairman of the FederalReserve Ben Bernanke were successful, and the extraordinary measures taken by the Fed are now expected to earn a profit for U.S. taxpayers
A profit for the taxpayers? Hobby writes this from of all places Houston, 
which is where the former headquarters of Enron was located, during the 
same week the Fed makes a desperate Enron type move to prepare and hide 
huge losses on its books by a new accounting scam called "negative 
liabilities". Ken Lay would have been envious.

As for the "profits" to date, put me in charge of the Fed with its money 

printing powers and I'll quickly make the former Edsel manufacturing plant profitable.

Hobby continues:

To imagine this series of events retrospectively without the existence of a central bank is quite difficult. Only the Fed could have waved a wand and calmed the water in roiled, interconnected markets that swooned towards a full–on contagion
Maybe it is difficult for Hobby to imagine but not me. Goldman Sachs would 
have collapsed, as would have Morgan Stanley and JPMorgan Chase,remaining would only have been the prudent banks that did not partake 
in the mad financial escapades of those the Fed saved.

Then things become more interesting in Hobby's column because for a minute 

he reveals the Fed is simply a confidence game:
Because the dollar is a fiat currency, confidence is the only backstop, and aggressive monetary policy provided that confidence at a decisive moment.
It's another con to say that aggressive money printing provided the confidence. Huh. This part of the con isn't over. When the Fed-printed money comes 
flying out of excess reserves, causing a trillion plus more dollars floating 
around on the planet, confidence is the last thing the global financial community will have in the dollar.

Hobby then gives us another laugher about Fed at
"Secrecy" is, of course, the match that lights the fires of populist dissent, and the Fed is trying many new strategies that increase transparency without exposing sober, deliberate long-term decisions to the daily vicissitudes of politics. 
Oh yeah, the Fed is really reaching out and doing that transparency thing. 
This is how the Reuters explained the Fed's "transparency" when it set up its Enron-like "negative liability program":
The significant shift was tucked quietly into the Fed's weekly report on its balance sheet and phrased in such technical terms that it was not even reported by financial media when originally announced on Jan. 6.
Some transparency!

Hobby should really do stand up. Here he is again, with another thigh 

If we were to abolish the construct the current Federal Reserve represents, there are several certain outcomes. Most immediately, Congress would have to replace the many billions of dollars that the Fed generates for the public till (those activities generated $78 billion turned over to the Treasury last year).
The Fed's $78 billion comes about because it prints trillions and earns the interest.There is no business the Fed runs that generates any income
Turn the powers of the Fed over to me and I'll top the Fed and give the 
Treasury $250 billion.

Hobby then tells us:

The simple reality is that there are more reasons for our nation to have a monetary function than to not have it.
Yet, at the same time, he admits that Federal Reserve notes, i.e. dollars, are nothing but a confidence game. The long con is quite simply no way to run a country's finances.

Hobby then goes on to produce a list of
central planning favorites that are 
all the rage, but have nothing to do with the Fed (other than the Fed will 
likely print the money to support them).The programs, themselves, will do 
nothing but push the economy further in the direction of socialism:
How we achieve private sector expansion is the critical issue that policymakers must face. Growth-friendly policies will necessarily include a wide array of tools: labor/immigration policy, health care policy, tax code simplification, expedited regulatory processes, etc

Why he calls this "private sector expansion" you would have to ask him. 

But he does  know that the Fed will be required to print the money to 
support it all:
 At this moment especially then, it would seem very strange to deprive ourselves of the powerful tool that a central bank provides when access to capital and the price of capital are clearly essential to that growth.

Access to capital" is code here for printing money. Hobby pretty much 
ends the attack on Ron Paul at this point, and, indeed, it is a good point to 
end on because it clearly shows that the Fed is not only the creator of inflation 
but that it is needed to support the advancing socialist state. Another good 
reason to End the Fed! 

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