The Fed: Dishonest or Incompetent?

[jk]

Re: The Fed: Dishonest or Incompetent?

Wouldn't the 'significant fraction' here...

"The last finding is that ... developments in the mortgage market, such as subprime lending, could account for a significant fraction of the increase in residential investment and homeownership."

...be due to the Fed's loose money?

actually i think the subprime, option arm, no doc mortgage is not a product of the low rates, but reflects an abdication of regulatory responsibility. this parallels greenspan's refusal to begin to address the stock bubble by raising margin requirements as far back as 1996. the fed is supposed to oversee, and thereby guarantee the integrity of, the banking system. there have been noises of late that the regulators are beginning to look askance at these "creative" mortgages, but it could have been cut off much earlier, and many fewer people would have been hurt.

this makes me think about the conspiracy theories running through various threads here. do we believe that the fed, or greenspan as an individual, really saw all these loans as creative products of a derivative cushioned world, and didn't want to rock the boat or get people annoyed with him while everyone seemed so happy? or did he have a "libertarian" leaning against acting as a regulator? or did he consciously choose to look away because to do otherwise would threaten the tremendous profits his friends on wall street were generating by securitizing, slicing and dicing cdo's, etc.?

[bart]

Re: The Fed: Dishonest or Incompetent?

...

this makes me think about the conspiracy theories running through various threads here. do we believe that the fed, or greenspan as an individual, really saw all these loans as creative products of a derivative cushioned world, and didn't want to rock the boat or get people annoyed with him while everyone seemed so happy? or did he have a "libertarian" leaning against acting as a regulator? or did he consciously choose to look away because to do otherwise would threaten the tremendous profits his friends on wall street were generating by securitizing, slicing and dicing cdo's, etc.?

Thanks jk, I was sort of hoping somone would bring this up.

The simple answer is - "so what?". What I mean is that it doesn't matter what the reasons were, the actions that Greenspan and the FOMC took or didn't take were incorrect as witness the actual effects.

Also compare them with, for example, Volcker or a Swiss or German central banker before roughly 1985-1990. There's also the infamous line "follow the money" as well as the issues surrounding that "evil" intentions and people do and have existed. Where does the buck actually and ever stop?


It really gets dicey in tinfoil hat land with conspiracy approaches and views, and my personal answer is to judge by what is done, not what is said.
In a more mild view, one can also look at conspiracy by an alternate defintion - "A joining or acting together, as if by sinister design: a conspiracy of wind and tide that devastated coastal areas"... although it doesn't work well for me due to my beliefs in personal responsibility and that one must be aware of long term consequences. And just in case you or anyone else might think I'm trying to place all the blame at the Fed's feet. I'm not - its nowhere near that simple.


There is another set of partial answers and of course the ones you note are all true to a greater or lesser degree.

In the housing bubble area for example, I recall a Greenspan speech in Jan or Feb 2005 wherein he described the housing market as "frothy" and frothy means "having small bubbles". And at Jackson Hole last year, he basically said in as clear a way as a central banker speaks that housing would be sacrified for the international value of the dollar.

But... the Fed's avowed purpose and objective, as stated in many laws including the Federal Reserve Act or 1913 and the Humphrey-Hawkins Act of 1978, is "economic growth in line with the economy's potential to expand; a high level of employment; stable prices (that is, stability in the purchasing power of the dollar); and moderate long-term interest rates."
Source

Talk about an abject failure, especially on stable prices...

[Finster]

Re: The Fed: Dishonest or Incompetent?

...

But... the Fed's avowed purpose and objective, as stated in many laws including the Federal Reserve Act or 1913 and the Humphrey-Hawkins Act of 1978, is "economic growth in line with the economy's potential to expand; a high level of employment; stable prices (that is, stability in the purchasing power of the dollar); and moderate long-term interest rates."
Source

Talk about an abject failure, especially on stable prices...

You got that right. That one phrase embodies as much economic ignorance as can possibly be found in a whole passel of politicians. The very idea that monetary policy could somehow achieve that package of goals is pure idiocy. Even Ben Bernanke has suggested as much in saying that the way to achieve sustainable economic growth and moderate long term interest rates is to have stable prices. In other words, there is no way that Fed policy can achieve economic growth and high employment per se, and that really the only thing the Fed can do is limit inflation and let the rest take care of itself.

The problem comes in when the Fed overlooks inflation in some prices, asset prices in particular - where inflation usually shows up first - and pursues an unduly expansionary monetary policy predicated on the false assumption that stability in other prices - consumer prices in particular - means that inflation is low. As we have just witnessed, the asset price inflation of the past ten years is now showing up in consumer prices, leaving the Fed now to deal with the consquences of inflation created years ago. This cannot be accomplished without some pain and discomfort.

[jk]

Re: The Fed: Dishonest or Incompetent?

Thanks jk, I was sort of hoping somone would bring this up.

The simple answer is - "so what?". What I mean is that it doesn't matter what the reasons were, the actions that Greenspan and the FOMC took or didn't take were incorrect as witness the actual effects.

Also compare them with, for example, Volcker or a Swiss or German central banker before roughly 1985-1990. There's also the infamous line "follow the money" as well as the issues surrounding that "evil" intentions and people do and have existed. Where does the buck actually and ever stop?


It really gets dicey in tinfoil hat land with conspiracy approaches and views, and my personal answer is to judge by what is done, not what is said.
In a more mild view, one can also look at conspiracy by an alternate defintion - "A joining or acting together, as if by sinister design: a conspiracy of wind and tide that devastated coastal areas"... although it doesn't work well for me due to my beliefs in personal responsibility and that one must be aware of long term consequences. And just in case you or anyone else might think I'm trying to place all the blame at the Fed's feet. I'm not - its nowhere near that simple.

i'm not a fan of conspiracy theories, i.e. hidden hands, when phenomena can be explained by systemic features, i.e. invisible hands.

[bart]

Re: The Fed: Dishonest or Incompetent?

i'm not a fan of conspiracy theories, i.e. hidden hands, when phenomena can be explained by systemic features, i.e. invisible hands.

I do understand, which is why I've tried very hard to avoid pounding the table with the "smoke filled room" picture even though what I think the Fed does and has done is heinous at best. I'm still in mid stream on the entire picture too.

Probably the most damning set of facts in the conspiracy area is how they manipulate the various markets, especially the stock markets (and I can prove it with their own data), and don't fess up to it as witness the hemming and hawing that Bernanke did very recently when Ron Paul asked about the PPT.

That's slicing the hidden vs. invisible hands issue exceedingly fine.
And do note that a primary definition of manipulation is "Shrewd or devious management, especially for one's own advantage."

[bart]

Re: The Fed: Dishonest or Incompetent?

As we have just witnessed, the asset price inflation of the past ten years is now showing up in consumer prices, leaving the Fed now to deal with the consquences of inflation created years ago. This cannot be accomplished without some pain and discomfort.

And most likely here we go again - basically the ka-poom theory in action. Rather than truly bite the bullet, the easy way out will most likely be taken on the intermediate term and the presses will be turned up yet again - maybe in a few weeks or months and maybe sometime next year.

And the whole stupid cycle repeats with even a wider oscillation that will likely end up with hyperinflation... *sigh*... and if this weren't a public board, I'd cuss up a storm.

[Catherine Austin Fitts]

Re: The Fed: Dishonest or Incompetent?

I'm sitting in a tiny seaside cottage (known as a "batch") outside of Wellington in New Zealand. The waves of the South Pacific are crashing against the rocks and the shore on a windy day. Winter is just about over, the smell of spring coming through.

I had finished up my work last night and decided to check the webstats at www.dunwalke.com. Hmm...a sudden increase on a weekend when they usually drop. What gives? So I check the referrals and there is a website called iTulip. I head on over. The homepage reads like I have come upon a place of sanity and critical thinking. How nice. Then I see Eric's article. Good stuff. I start to laugh. It was strenuous day. Can't believe someone has me laughing this hard. So I decide to check out the thread. Pretty soon I am laughing so hard, I am crying. Great conversation, great graphs. OK, I want to stick around. I go to register and sign up for e-mail updates.

Thanks for your clarity and intelligence. Delighted to "meet" you.

Down Under,

Catherine

[bart]

Re: The Fed: Dishonest or Incompetent?

I'm sitting in a tiny seaside cottage (known as a "batch") outside of Wellington in New Zealand. The waves of the South Pacific are crashing against the rocks and the shore on a windy day. Winter is just about over, the smell of spring coming through.

I had finished up my work last night and decided to check the webstats at www.dunwalke.com. Hmm...a sudden increase on a weekend when they usually drop. What gives? So I check the referrals and there is a website called iTulip. I head on over. The homepage reads like I have come upon a place of sanity and critical thinking. How nice. Then I see Eric's article. Good stuff. I start to laugh. It was strenuous day. Can't believe someone has me laughing this hard. So I decide to check out the thread. Pretty soon I am laughing so hard, I am crying. Great conversation, great graphs. OK, I want to stick around. I go to register and sign up for e-mail updates.

Thanks for your clarity and intelligence. Delighted to "meet" you.

Down Under,

Catherine

A hearty welcome, milady of the Foggy Bottom survived-in-spite-of-it-all set.

Your story on www.dunwalke.com was a delight and most impressive. My emotions ran quite the wide gamut while reading it, and I await your current 'how-to' project eagerly.

A doff of the chapeau & flourish of my cape in your direction for holding your position so very well:

[Jim Nickerson]

Re: The Fed: Dishonest or Incompetent?

Quote:

Originally Posted by EJ Regarding asset allocation of Ms. Fitts, post #7 above Global Non-Liquid $200k $100,000 - Gold and silver bullion in depository in Europe Global Liquid $175k $25,000 - Digital Gold and Silver

How does one here own gold and silver bullion deposited in Europe?

What is "Digital Gold and Silver"?

Catherine Fitts,

I previously asked the above questions to which there has been no satisfactory reply.

If you have time, I would appreciate your answers.

Thanks,

[Catherine Austin Fitts]

Re: The Fed: Dishonest or Incompetent?

Jim:

Delighted to try as a generalist, not an expert.

To buy physical gold and silver and have it placed in a seperate vault or safe deposit box in a depository or bank requires traveling to Europe, buying the bullion and arranging for and placing it in the box. Anything else typically involves being part of a pool, including unallocated pools. You can arrange that as an investor by phone and fax. However, I believe you are usually arranging for a "put" to a large institution that is essentially their credit as opposed to a tangible that you own and control because the probability is that the total holdings of pool precious metals owners is greater than what the institution has in the vault.

Digital gold and silver was designed to address, among other things, the illiquidity of having it in a box (and to a lesser extent in some pools) and the expense of traveling to and fro. I remember sitting in the print store in Hardeman County, Tennessee when the owner said wistfully, "wouldn't it be wonderful if someone like me could have my own offshore account" to which I replied, "You shall have it in ten minutes. Let's go to www.goldmoney.com."

Here is what wikipedia says about digital gold:

Digital Gold Currencies
http://en.wikipedia.org/wiki/Digital_gold_currencies

I use Gold Money as I know and hold in very high regard the founder James Turk as well as some of the management and investors:

Gold Money
http://www.goldmoney.com

At Gold Money, I can open an account and within a weeks time (if I want the certified rate, which of course I do) I can buy gold and silver that is deposited in a vault in the UK that I legally own and which I can use to transact digitally. Using digital allows near instant payment in quite precise, including small, amounts.

Ultimately the integrity of whether the gold or silver is there or not and whether your legal ownership is perfected often comes down to picking the people and institution that is trustworthy. I trust James and his team and the structure they have designed best of those I have seen. Again, I don't consider myself to be an expert in this area. My view of all these options is that each has their pros and cons and ultimately diversification continues to hold out the most promise.

In a balanced precious metals portfolio, there are advantages to having some in the box, some buried behind the barn, some digital and some in stocks.

We just changed the provisions for our Solari Circle partnership guidelines to allow us to treat precious metals vehicles as cash equivalents. Here is a copy of the motion to amend:

==========================================

To amend the Circle guidelines to allow investment in equity interests in a trust or other vehicle that invests soley in gold and/or silver bullion (such as Central Fund of Canada), certificates representing an interest in gold and/or silver bullion (such as Perth Certificates) or repositories of gold and/or silver bullion (such as Gold Money) to be used as alternative to cash. Such a strategy would be used to hedge against devaluations in the value of the US dollar. This means that the 10% rule in #6 of the Circles Guidelines would not apply to these investments.

==========================================

This points out the benefits of having precious metals vehicles such as Gold Money that provide liquidity. If we are holding balances in cash during inflation....well you know all about that.

If you have not read or listened to Turk, I would recommend it. He has interviews on line at http://financialsense.com. We have a precious metals audio seminar that is an interview with him and an introduction to digital gold. Also, a great one on investing in silver and gold coins with Franklin Sanders. If these are of interest to you or anyone else who has posted on this thread to date, send me an e-mail at catherine@solari.com and I will e-mail you links to access them.

Whew! That was probably more than you ever wanted to know....

Catherine

[Catherine Austin Fitts]

Re: The Fed: Dishonest or Incompetent?

Bart:

I visited your site before I signed up. It's terrific. So you have me blushing.

I am in New Zealand for six weeks. It is a way to get away to focus on redoing www.solari.com to reflect what we have learned from prototyping. What's up now is quite stale.

This involves writing introductory materials on Solari Circles -- investment clubs for people who want to shift their investment of time and money away from large governments, large banks and large corporations -- and into a more diversified portfolio and networks that help them navigate the changes underway. Our areas of focus include (i) natural resources, particularly precious metals, (ii) local private and government investment and (iii) sustainable technologies. I will also rehaul our concept for Solari Venture Funds -- its still at a very conceptual level.

I was planning on doing this last year and then put it down to write www.dunwalke.com.

If you are interested, I will post a link to the next piece for comment...should be about 2 weeks from now. Having never before participated in the transformation of a planetary investment system, I am in over my head as I believe some posters in the thread noticed. So I would be deeply grateful for any insight and comment you would be willing to share.

Sir Peter Medawar once said, "what is relevant is what solves the problem. If we had thought through real relevancies, we would be on Sirius by now."

Bushwhacking towards Sirius,

Catherine

[Jim Nickerson]

Re: The Fed: Dishonest or Incompetent?

Jim:


Whew! That was probably more than you ever wanted to know....

Catherine

Excellent, I appreciate your time and your sharing what you know. I believe a number of members and visitors will benefit from your comment.

Thank you very much, Catherine Austin Fitts.

[Finster]

Re: The Fed: Dishonest or Incompetent?

And most likely here we go again - basically the ka-poom theory in action. Rather than truly bite the bullet, the easy way out will most likely be taken on the intermediate term and the presses will be turned up yet again - maybe in a few weeks or months and maybe sometime next year.

You already know from my previous writings that my views and the KaPoom theory are quite compatible. Something resembling the 1970's - a broad and deep inflationary cycle with an embedded deflationary countertrend separating the two inflationary thrusts (see chart below).

The only quibble is with what is probably not an essential element, and that is the particulars of timing. I think we may already be at the cusp of that intermediate deflation/disinflation. On the other hand, given that the Ka-Poom chart uses the CPI as its inflation bogey, that may be more form than substance, too. As a lagging indicator, the CPI is likely - to continue to register higher inflation even after the underlying cycle has turned.

And the whole stupid cycle repeats with even a wider oscillation that will likely end up with hyperinflation... *sigh*... and if this weren't a public board, I'd cuss up a storm.

Sounds like you are describing this:



Oddly however, we can get ourselves into some semantic trouble if we don't exercise care with our terms. In a very real sense, the 1970s were hugely deflationary. That decline on yonder chart represents a collapse in the normalized volume of real credit. From the point of view of the Austrian school, that is deflation. The only reason we don't recognize it as such is the dollar was devalued so fast that it outran the pace of credit collapse.

This is very much the kind of environment we've been in for the past four years.

[Catherine Austin Fitts]

Re: The Fed: Dishonest or Incompetent?

Jim:

Just realized that you are down the road from Bill Murphy, our fearless leader of www.gata.org and www.lemetropolecafe.com. He was the fellow who put me on to Turk and many other wonderful people.

I am not sure who from iTulip will be at the New Orleans precious metals investment conference in November -- it is one of the places Murphy, Turk and the swarm from GATA of which I am a faithful and devoted member meet and greet. Great place for everyone from newcomer to advanced to learn more.

Catherine

[Charles Mackay]

Re: The Fed: Dishonest or Incompetent?

Welcome Catherine,

I just finished watching Russo's film this afternoon and noticed you were interviewed. This movie will be hard to place in mainstream theaters I imagine? Still, one has to start somewhere... it will get a great circulation on the internet and was certainly a breath of fresh air to me.

I noticed in the credits that Robert Prechter was a "special consultant" ... I always viewed him as apolitical so that surprised me. Although Harry Browne was apolitical most of his investment life also until he stumbled upon the Libertarian Party. I think Russo's final message at the end of the film is that none of us can afford to be apolitical anymore.

CM