Short Report - Sept. 20, 2007

[FRED]

Gold $734.20 spot

Oil $83.32 spot

Euro $1.4065

Canadian dollar = US$

Bernanke had no choice: Inflate or Economic Crash

Thank your Congress + President + Greenspan the credit bubble-man

[Rajiv]

Re: Short Report - Sept. 20, 2007

One thing that is not talked about much, that has been feeding into the bubbles are the low tax rates. There was a reason why the Fed and the income tax came at the same time -- and it is not what the Fed and Tax bashers think!

[Jim Nickerson]

Re: Short Report - Sept. 20, 2007

Gold $734.20 spot

Oil $83.32 spot

Euro $1.4065

Canadian dollar = US$

Bernanke had no choice: Inflate or Economic Crash

Thank your Congress + President + Greenspan the credit bubble-man

I believe people, groups, institutions always have choices. I think Bernanke's choice was/is to let the patient be happy a bit longer before doing anything serious to ward off the pending death.

He had a choice but not the guts to make the correct one.

[rj1]

Re: Short Report - Sept. 20, 2007

Will the U.S. public wake up when they realize the Canadian dollar is worth more than the U.S. dollar?

It was only 10 years ago or so the Canadian dollar was worth $0.60 and became the butt of late-night comedians.

[Pervilis Spurius]

Re: Short Report - Sept. 20, 2007

Rajiv, I've read some interesting reasons for Fed and sixteenth coming at the same time and am interested in what you think the reasons are. Will you explain it or provide a link?

[Rajiv]

Re: Short Report - Sept. 20, 2007

My reading on this -- and I am still researching it - is as follows

1) The formation of the Fed gave a tremendous power to the bankers -- they were now able to mint money - first through the fractional reserve system, and then through the control of the money supply

2) Now potentially Bankers could rake in the big bucks!

3) I believe that the income tax laws were passed to prevent 2 from happening.

Top income tax rates have never been below 70 % other than for three periods

1925-1931 25% 1932-35 63% 1982 onwards coming down to 28% from 1988 to 1992 increasing to 39.6% 1992-2000 and down again

However these declines in income taxes lead to NO decrease in Federal Revenue! Why?

However, the personal exemptions to calculate taxable income have DECLINED since 1913 and are ALMOST UNCHANGED sinceWW II

Up until 1940, 80% of families paid almost NO income taxes

Thus tax rate declines have always led to huge income disparities

I can give you all the data sources if you wish

[Tet]

Re: Short Report - Sept. 20, 2007

My reading on this -- and I am still researching it - is as follows

1) The formation of the Fed gave a tremendous power to the bankers -- they were now able to mint money - first through the fractional reserve system, and then through the control of the money supply

2) Now potentially Bankers could rake in the big bucks!

3) I believe that the income tax laws were passed to prevent 2 from happening.

Top income tax rates have never been below 70 % other than for three periods

1925-1931 25% 1932-35 63% 1982 onwards coming down to 28% from 1988 to 1992 increasing to 39.6% 1992-2000 and down again

However these declines in income taxes lead to NO decrease in Federal Revenue! Why?

However, the personal exemptions to calculate taxable income have DECLINED since 1913 and are ALMOST UNCHANGED sinceWW II

Up until 1940, 80% of families paid almost NO income taxes

Thus tax rate declines have always led to huge income disparities

I can give you all the data sources if you wish

Always remember the govt charges the Federal Reserve for this monopoly of money creation, market crashes occur when this money is due, Fiscal year end is September. Money needs to be pulled from the market to pay for the monopoly.

[Guest]

Re: Short Report - Sept. 20, 2007

Jim -

Not sure of the merit of the argument below, but I propose it as an alternative to the "blood sucking conspiracy of Federal Banker Vampires" school of thought, which leaves me uneasy as to it's moorings in rationality.

An alternative explanation could for convenience be described as "Central Banker Deer - caught in the headlights, trapped in the legacy of a highly complex previous fiscal stupidity".

This scenario does not depend upon a fiendishly clever and highly organized financial coup, carried out by a select club of secretive central bankers. Ben Bernanke is relieved of the task of having to complete a miraculous transition from ingenuous college professor to highly cynical and rapacious head of a conspiracy engineered to fleece America.

You wrote:

< believe people, groups, institutions always have choices. I think Bernanke's choice was/is to let the patient be happy a bit longer before doing anything serious to ward off the pending death. >

There is another way to look at it.

What if we simply passed some point in the past three to five years where any reasonably well informed central bank in the US ( as would any other average central bank faced with our wormy accounts) became well aware that trying to "treat" or "apply a cure" to what ails this economy ran an unacceptably high risk of triggering a national economic cardiac arrest, and therefore they could not approach such fundamentally sound policy "cures" as valid current options?

Analogy would be a triage surgeon with a patient on the operating table knowing full well that the only real cure for this patient would be to do surgery, yet also knowing this ran an almost certain risk of merely killing the patient. So they don't do the surgery because abstaining from "cures" is the only conservative and responsible course, given the extremely limited options.

In other words, what is widely denounced as fiscal cowardice by central bankers, by people in this community (and it's a very well informed community, with many fundamentally sound arguments) simply becomes impossible for a CB to carry out, because the result would be fatal, runaway seizure of the body, i.e. something bordering on economic collapse.

The question of "blame" for current worsening inlationary palliatives is then inappropriately placed on the current FED governors or even our current Congress (although I suspect the Congress are truly more stupid and venal as they are grubbing for votes desperately while the FED are not as avidly in pursuit of that), because the problem has a cumulative root in events spanning two or three decades that passed the point of any return very silently and subtly somewhere in the past few years.

Doug Noland talks about this hidden transition, and places a "no return" point somewhere like a hidden gate, occurring somewhere since 2000. So here's the thing - if the FED had a Volker today, they'd simply have tie him up like a mad dog, because his policies are "inapplicable" to modern predicaments. His austerity today would be a poison cure.

Therefore one insight may be that the current head of the Federal Reserve is entirely aware of most or all of the bad options and even most of the fundamentals discussed in places like iTulip, and yet is playing out an entirely rational end-game refusing to do anything but stick to the most conservative of damage control scripts, because he is very aware that attempting any of the real shock treatments discussed here would simply result in another 1933, with even fewer options thereafter because the economic body would be dead.

This scenario would imply the FED is entirely aware of a good deal of what we assume they are ignorant of, but also understands when you are on a razor's edge, attempting to "do something fundamental" merely causes death - which is the worst tactical solution, because after economic death even the remaining options cease?

The above rationale of course dispenses with the need to construct elaborate conspiracies of bankers who have created highly organized and pre-planned strategies to suck the blood out of an unsuspecting US population too dumb to tie it's own shoelaces, etc.

My sense is, the complex, unresolvable knots of entropy - i.e. lots of dumb really stupid fiscal mistakes piling one on top of another - remains the most plausible explanation for the FED's current understanding, initiatives, and most important, their limited range of actions. There is no conspiracy to bilk America. These are just scared Wanker Bankers with limited strategic vision or courage to conduct genuinely all-or-nothing choices, who are now conducting a highly limited rearguard action to navigate through the banker-poop minefields of a previous two decade long roster of equally visionless Wanker Bankers.

Yes there are possibly some traces of Central Bank venality involved as well, finely balanced with the perennial subtlety struck by wanker bankers throughout the ages, as to how to derive a fat livelihood from their client community (the host body) without fatally enfeebling it.

But there is no "senior banks cunningly conspiring to take all" conspiracy in the current inflationary appeasement. Just myopia, fear, and entropy.

[Pervilis Spurius]

Re: Short Report - Sept. 20, 2007

Thanks Rajiv, that jibes reasonably well with the theory I've read that says the Income tax resulting from the sixteenth was initially a usage fee for the government granted monopoly to create and regulate the supply of money under the Federal Reserve Act.

[c1ue]

Re: Short Report - Sept. 20, 2007

But there is no "senior banks cunningly conspiring to take all" conspiracy in the current inflationary appeasement. Just myopia, fear, and entropy.

Lukester,

I agree that there is probably not a plan to foreclose on all assets through an inflationary program, but I equally DO believe that the inflationary program is a deliberate planned act - at least up until our present tipping point.

Its like those nouveau riche bankers who run out and buy a Formula I type sports car - just because you have it, doesn't mean you can control it.

Or perhaps a better analogy: the rat with the heroin lever.

At first it feels good. Even after 100 hits it feels good. Unfortunately at the end it either kills you or you go through withdrawal: a long miserable period of the shakes.

I do agree Volcker's medicine couldn't fix what we have now - but the latest action could have been to change policy and start making incremental fixes in the right direction.

Rather, we got another (double) hit of the lever.

Sad, but that's why I have been screaming 'United States of Weimar America' along with the most fanatic gold bugs.

It is not that it could not have been fixed, it is that there is not the will.

This is not a specific condemnation of B-Nank, he is just showing that he is exactly the same as 99% of bankers out there: spineless due to short sighted self interest.

[BiscayneSunrise]

Re: Short Report - Sept. 20, 2007

Lukester wrote: Therefore one insight may be that the current head of the Federal Reserve is entirely aware of most or all of the bad options and even most of the fundamentals discussed in places like iTulip, and yet is playing out an entirely rational end-game refusing to do anything but stick to the most conservative of damage control scripts, because he is very aware that attempting any of the real shock treatments discussed here would simply result in another 1933, with even fewer options thereafter because the economic body would be dead.


The historian, Barbara Tuchman, made it her speciality writing about various leaders who made well intentioned but very bad decisions. Oftentimes, these leaders knew they were sacrificing the long term for short term expediency hoping to ward off the really bad long term stuff before things got out of hand.

Her book, "The March of Folly" ticks off some of the most egregious examples:

-The Renaissance Popes provoking the Protestant secession
-British Government antagonizing the American colonists
-American Involvement in Vietnam

In each of these examples, the folly of leadership was fighting against festering problems rather than fixing them. In each case, the leadership knew the dangers but went ahead anyway thinking they were smart enough to mitigate the potential fallout.

[rabot10]

Re: Short Report - Sept. 20, 2007

Jim -

Not sure of the merit of the argument below, but I propose it as an alternative to the "blood sucking conspiracy of Federal Banker Vampires" school of thought, which leaves me uneasy as to it's moorings in rationality.

An alternative explanation could for convenience be described as "Central Banker Deer - caught in the headlights, trapped in the legacy of a highly complex previous fiscal stupidity".

This scenario does not depend upon a fiendishly clever and highly organized financial coup, carried out by a select club of secretive central bankers. Ben Bernanke is relieved of the task of having to complete a miraculous transition from ingenuous college professor to highly cynical and rapacious head of a conspiracy engineered to fleece America.

You wrote:

< believe people, groups, institutions always have choices. I think Bernanke's choice was/is to let the patient be happy a bit longer before doing anything serious to ward off the pending death. >

There is another way to look at it.

What if we simply passed some point in the past three to five years where any reasonably well informed central bank in the US ( as would any other average central bank faced with our wormy accounts) became well aware that trying to "treat" or "apply a cure" to what ails this economy ran an unacceptably high risk of triggering a national economic cardiac arrest, and therefore they could not approach such fundamentally sound policy "cures" as valid current options?

Analogy would be a triage surgeon with a patient on the operating table knowing full well that the only real cure for this patient would be to do surgery, yet also knowing this ran an almost certain risk of merely killing the patient. So they don't do the surgery because abstaining from "cures" is the only conservative and responsible course, given the extremely limited options.

In other words, what is widely denounced as fiscal cowardice by central bankers, by people in this community (and it's a very well informed community, with many fundamentally sound arguments) simply becomes impossible for a CB to carry out, because the result would be fatal, runaway seizure of the body, i.e. something bordering on economic collapse.

The question of "blame" for current worsening inlationary palliatives is then inappropriately placed on the current FED governors or even our current Congress (although I suspect the Congress are truly more stupid and venal as they are grubbing for votes desperately while the FED are not as avidly in pursuit of that), because the problem has a cumulative root in events spanning two or three decades that passed the point of any return very silently and subtly somewhere in the past few years.

Doug Noland talks about this hidden transition, and places a "no return" point somewhere like a hidden gate, occurring somewhere since 2000. So here's the thing - if the FED had a Volker today, they'd simply have tie him up like a mad dog, because his policies are "inapplicable" to modern predicaments. His austerity today would be a poison cure.

Therefore one insight may be that the current head of the Federal Reserve is entirely aware of most or all of the bad options and even most of the fundamentals discussed in places like iTulip, and yet is playing out an entirely rational end-game refusing to do anything but stick to the most conservative of damage control scripts, because he is very aware that attempting any of the real shock treatments discussed here would simply result in another 1933, with even fewer options thereafter because the economic body would be dead.

This scenario would imply the FED is entirely aware of a good deal of what we assume they are ignorant of, but also understands when you are on a razor's edge, attempting to "do something fundamental" merely causes death - which is the worst tactical solution, because after economic death even the remaining options cease?

The above rationale of course dispenses with the need to construct elaborate conspiracies of bankers who have created highly organized and pre-planned strategies to suck the blood out of an unsuspecting US population too dumb to tie it's own shoelaces, etc.

My sense is, the complex, unresolvable knots of entropy - i.e. lots of dumb really stupid fiscal mistakes piling one on top of another - remains the most plausible explanation for the FED's current understanding, initiatives, and most important, their limited range of actions. There is no conspiracy to bilk America. These are just scared Wanker Bankers with limited strategic vision or courage to conduct genuinely all-or-nothing choices, who are now conducting a highly limited rearguard action to navigate through the banker-poop minefields of a previous two decade long roster of equally visionless Wanker Bankers.

Yes there are possibly some traces of Central Bank venality involved as well, finely balanced with the perennial subtlety struck by wanker bankers throughout the ages, as to how to derive a fat livelihood from their client community (the host body) without fatally enfeebling it.

But there is no "senior banks cunningly conspiring to take all" conspiracy in the current inflationary appeasement. Just myopia, fear, and entropy.

Amen brother, nothing happens without a plan (and U can take that to the bank) this is all someone’s idea of how it should all turn out.

[Guest]

Re: Short Report - Sept. 20, 2007

Biscayne -

You've quoted one of my favorite popular historians (she is fascinating), Barbara Tuchman - and I 100% agree with your quote. There is a fundamental truth in the idea - the 'smallness of actors' busily at work attempting to alter or steer the 'large waves of history'.

In other words, as events accumulate numerous (individually resolvable) problems over time, the accumulated problems become irresolvable, and the actors, well meaning or not, are simply not up to the task of taking on fundamental policy changes and are reduced to being swept along on the tide (in this case a raging torrent of financial sewage).

I think you are right, and I think Barbara Tuchman as a historian is correct. This is the way of it, and it's been the same way for centuries.

What our current FED are facing are an accumulation of problems, tangled together into a mess they dare not do any surgery on at any fundamental level, as the stakes have become so large, that the consequences of any meaningful surgery become highly unpredictable to any Fed Chief who is trying to take steps forward that won't capsize the entire boat abruptly.

When you step back and use your own simple experience, of how changing course in life becomes increasingly complex as you get older, you can see the same principle being cast in much larger terms across history.

Barbara Tuchman is an very good reference - a historian - upholding the idea that accumulations of problems at the turning points of history by definition incorporate all the errors of many decades before them. This seems a really simple idea, but it suggests a very different point of view on what's happening with those popularly referred to as 'the big playas'.

To suppose that a Fed today can 'cure' by a fundamental policy change all the accumulated imbalances since the Reagan era is really simplistic. The massive debt overhang and accumulated maladjustments far outweigh any farsighted wisdom a Federal Reserve chief can bring to bear. The Fed Chief who came before him accumulated a series of decisions which completely trap the current Fed Chief. Events must play out regardless, until history administers a violent purge when the accumulated stresses break of their own accord.

_________________

And Rickbishop -

Rick, I do not agree with you at all and I'm reiterating exactly the same thing as above - I think the whole point is that in reality very little is really planned. I think instead, history is the real "planner" - it's the accumulation of errors and small actions of small people (even small central bankers) thinking they have master plans put in motion, yet finding out almost every time, that results don't every reliably match what they set about to do, and any mismatches compound rapidly over time to bring results totally unlike what they expected - current actors, even the very powerful, find they can only make small changes in the flow of events which are the cumulation of what's been piled up as legacy in the decades before they came to power.

History is the accumulation of all these things - It is constantly producing results which ignore all the schemes that even the most powerful try to set in motion. Unpredictable History is the master of events, NOT the plots of secretive groups of humans, who are imagined to have genius IQ's sufficient to enslave an entire population to their wishes not only in their generation, but to have the sheer genius to set up plots which can master history, survive the compounding effect of unexpected variations of outcome, and succeed in enslaving even the future generations beyond their own lifetimes.

It's just my view, but I think this notion is by definition nonsense, because history trumps man every time, with unpredictable result piled upon yet other unpredictable results at every turn. In genetics, a single changed gene transforms an entire organism over time. In history mutations of the predictable are massive, and occurring all the time - everywhere. To 'masterfully plot a future' is therefore improbable to the point of being discardable as a theory.

Unpredictable History is the real agent of the future, and it regularly writes the future in largest events through violent adjustements into new directions, after imbalances or contradictions have built up sufficiently.

It acts entirely independently of what any single President, or Pope, or Society of Masons, or Bilderberger Society, or secret cabal of Bankers, can hope to accomplish reliably. Secret societies (real or not!) and their imagined choke-hold upon future events are pathetically weak in comparison to the flux and entanglement of history, which runs according to a logic entirely it's own. History's imperatives are treacherous currents that can sweep aside the best laid plans of any "bilderberger".

If history were something humans could gain mastery of, no human would experience massive disillusion merely as a result of getting older. The fact no human ever has put the future course of events in the palm of his hand shows who is the real master.

There is no cabal, there is no vast conspiracy by Bilderbergers. There are only accumulations of errors, and in Democracies, there is very likely a trend of voters at some point learning that they can vote to themselves impossible free money from their own government, and so they collectively contribute to going broke once again.

The US is past the change of policy stage. We learned how to vote ourselves money decades ago, and we're approaching the re-set button. History will administer to us the same purge it's administered in all such cases, and we are merely along for the ride. Imagining the Fed Chief 'screwed it up' is specious, because in reality we all 'screwed it up' collectively for the past 30 years. The FED has far less power to avert this, or change it's fundamentals, than many people imagine.

Just my view. Everyone's got their own point of view.

[rabot10]

Re: Short Report - Sept. 20, 2007

Biscayne -

You've quoted one of my favorite popular historians (she is fascinating), Barbara Tuchman - and I 100% agree with your quote. There is a fundamental truth in the idea - the 'smallness of actors' busily at work attempting to alter or steer the 'large waves of history'.

In other words, as events accumulate numerous (individually resolvable) problems over time, the accumulated problems become irresolvable, and the actors, well meaning or not, are simply not up to the task of taking on fundamental policy changes and are reduced to being swept along on the tide (in this case a raging torrent of financial sewage).

I think you are right, and I think Barbara Tuchman as a historian is correct. This is the way of it, and it's been the same way for centuries.

What our current FED are facing are an accumulation of problems, tangled together into a mess they dare not do any surgery on at any fundamental level, as the stakes have become so large, that the consequences of any meaningful surgery become highly unpredictable to any Fed Chief who is trying to take steps forward that won't capsize the entire boat abruptly.

When you step back and use your own simple experience, of how changing course in life becomes increasingly complex as you get older, you can see the same principle being cast in much larger terms across history.

Barbara Tuchman is an very good reference - a historian - upholding the idea that accumulations of problems at the turning points of history by definition incorporate all the errors of many decades before them. This seems a really simple idea, but it suggests a very different point of view on what's happening with those popularly referred to as 'the big playas'.

To suppose that a Fed today can 'cure' by a fundamental policy change all the accumulated imbalances since the Reagan era is really simplistic. The massive debt overhang and accumulated maladjustments far outweigh any farsighted wisdom a Federal Reserve chief can bring to bear. The Fed Chief who came before him accumulated a series of decisions which completely trap the current Fed Chief. Events must play out regardless, until history administers a violent purge when the accumulated stresses break of their own accord.

_________________

And Rickbishop -

Rick, I do not agree with you at all and I'm reiterating exactly the same thing as above - I think the whole point is that in reality very little is really planned. I think instead, history is the real "planner" - it's the accumulation of errors and small actions of small people (even small central bankers) thinking they have master plans put in motion, yet finding out almost every time, that results don't every reliably match what they set about to do, and any mismatches compound rapidly over time to bring results totally unlike what they expected - current actors, even the very powerful, find they can only make small changes in the flow of events which are the cumulation of what's been piled up as legacy in the decades before they came to power.

History is the accumulation of all these things - It is constantly producing results which ignore all the schemes that even the most powerful try to set in motion. Unpredictable History is the master of events, NOT the plots of secretive groups of humans, who are imagined to have genius IQ's sufficient to enslave an entire population to their wishes not only in their generation, but to have the sheer genius to set up plots which can master history, survive the compounding effect of unexpected variations of outcome, and succeed in enslaving even the future generations beyond their own lifetimes.

It's just my view, but I think this notion is by definition nonsense, because history trumps man every time, with unpredictable result piled upon yet other unpredictable results at every turn. In genetics, a single changed gene transforms an entire organism over time. In history mutations of the predictable are massive, and occurring all the time - everywhere. To 'masterfully plot a future' is therefore improbable to the point of being discardable as a theory.

Unpredictable History is the real agent of the future, and it regularly writes the future in largest events through violent adjustements into new directions, after imbalances or contradictions have built up sufficiently.

It acts entirely independently of what any single President, or Pope, or Society of Masons, or Bilderberger Society, or secret cabal of Bankers, can hope to accomplish reliably. Secret societies (real or not!) and their imagined choke-hold upon future events are pathetically weak in comparison to the flux and entanglement of history, which runs according to a logic entirely it's own. History's imperatives are treacherous currents that can sweep aside the best laid plans of any "bilderberger".

If history were something humans could gain mastery of, no human would experience massive disillusion merely as a result of getting older. The fact no human ever has put the future course of events in the palm of his hand shows who is the real master.

There is no cabal, there is no vast conspiracy by Bilderbergers. There are only accumulations of errors, and in Democracies, there is very likely a trend of voters at some point learning that they can vote to themselves impossible free money from their own government, and so they collectively contribute to going broke once again.

The US is past the change of policy stage. We learned how to vote ourselves money decades ago, and we're approaching the re-set button. History will administer to us the same purge it's administered in all such cases, and we are merely along for the ride. Imagining the Fed Chief 'screwed it up' is specious, because in reality we all 'screwed it up' collectively for the past 30 years. The FED has far less power to avert this, or change it's fundamentals, than many people imagine.

Just my view. Everyone's got their own point of view.

U R wrong wrong wrong. I asked my wife and she said that I am always right, even if the Fed lower the rate by .5 when I said nothing – well the Fed screwed up OK

[BiscayneSunrise]

Re: Short Report - Sept. 20, 2007

Lukester,

Glad you liked the Tuchman reference. To piggyback on your thoughts: Historical waves WILL crash down on us; working to prevent them makes the inevitable happen that much sooner and harder. I've seen it happen time and time again. Jim Dines calls it the Law of Paradox.

I mentioned to my wife this evening that the American consumer has been subsidized by the Chinese (and others) over the last twenty years. Now for the next twenty, we will be paying off that debt.

Greg