STAFF NEWS & ANALYSIS
Fed: From Blowing Bubbles to Popping Them?
By Staff News & Analysis - December 03, 2009

Not so long ago, Federal Reserve officials were confident they knew what to do when they saw bubbles building in prices of stocks, houses or other assets: Nothing. Now, as Fed Chairman Ben Bernanke faces a confirmation hearing Thursday on a second four-year term, he and others at the central bank are rethinking the hands-off approach they've followed over the past decade. On the heels of a burst housing-and-credit bubble, Mr. Bernanke now calls financial booms "perhaps the most difficult problem for monetary policy this decade." With Asian property prices soaring and gold prices busting records almost daily, the debate comes at a critical time. Mr. Bernanke wants to use his powers as a bank regulator to stamp out bubbles, but the Senate Banking Committee, which will grill him later this week, is considering stripping the Fed of its regulatory power. – Wall Street Journal

Dominant Social Theme: Bernanke rethinks the Big Role?

Free-Market Analysis: This is exactly the reason we think that Rupert Murdoch, who owns the Wall Street Journal and many other mainstream media providers has his work cut out for him. The thesis of this article is that the Federal Reserve is concerned about bubbles. But the Federal Reserve and other central banks MANUFACTURE BUBBLES. They print money and distribute it to banks. It is put into circulation. And since the wise men at the Fed never know how much money is too much, they continue to print too much of it.

How is Rupert Murdoch going to build serious media companies in the age of the Internet when his flagship publication continues to promote these sorts of dishonest dominant social themes? The Federal Reserve is the producer of the money that creates these bubbles. Many people in America and throughout the West now understand at least partially the mechanism behind central banking. When a long article about the basics of modern economics is produced in the most serious and powerful mainstream financial journal in the world, and when the article itself leaves out so much and explains the rest in a wrong-headed way, well how long does it take before that journal begins to bleed credibility?

We'd argue the bloodletting is ongoing and it's one of the reasons that Murdoch is twisting slowly in the wind. We keep reading about his solutions. And we've come to a conclusion offered by a Bell feedbacker of ours. The only possible way out for Murdoch and other media moguls is to buy Google and gradually try to suppress real information. But the trouble with that is too many people are already onto the game.

Of course that doesn't stop the Journal, it seems. The articles pile up, as they have for the past 100 years, each promoting the seriousness of the Federal Reserve and its mission. Quoting Ben Bernanke as if he were a serious man. But the difference is the Internet. Fewer and fewer thinking people take this stuff seriously anymore. The Fed and Bernanke are in big trouble. (We called it months ago.) The trouble is systemic, too. Replacing Bernanke won't do a damn thing to deal with the underlying problem, which is the education that the Internet has already provided to millions even tens of millions, about the shadow puppetry that is the modern economic system. Here's some more from the article:

At the same time, pending legislation in the House could leave Mr. Bernanke running a less independent institution. The House Financial Services Committee has passed a measure that would subject the Fed's interest-rate decisions to scrutiny by the Government Accountability Office, an investigative arm of Congress. Mr. Bernanke and others at the Fed fear that with Congress looking over their shoulders, any decision they make about interest rates — would be subjected to the winds of politics — making it harder to control inflation or financial bubbles. Any changes would be months off at best, and the Fed might be successful in fending them off. In the meantime, officials are moving ahead to come up with plans to avoid another crisis.

Fed officials used to think there was little they could or should do to prevent bubbles from inflating. For one thing, identifying bubbles with any certainty was deemed to be too difficult. And even if they could be accurately pinpointed, pricking them might do more harm than good. Raising interest rates to stop a bubble, for instance, could slow growth in other parts of the economy that were otherwise healthy. The Fed's main strategy instead was to mop up after a bubble burst with lower interest rates to cushion the blow to the economy and restart growth. That strategy was a key conclusion of Mr. Bernanke's writings on the subject of bubbles when he was a Princeton professor, and again when he first came to the Fed as a governor in 2002. It was an approach embraced by his predecessor Alan Greenspan.

Now, Fed officials admit the stance didn't work. They're groping for alternatives. Of the two methods to prevent bubbles – using regulations to protect the financial system from excess and changing monetary policy by raising interest rates — Mr. Bernanke falls on the side of greater regulation, an idea he has advocated in the past.

The Fed is groping for alternatives? Why didn't they start groping 100 years ago? In fact, the first thing we believe the Fed did in the 1920s is inflate the heck out of the dollar at the behest of the Bank of England which wanted to establish a pre-war currency ratio with the pound, etc. Since the pound was ruined, the American central bank set out to ruin the dollar by printing too many of them. It did so with such great abandon that it created the Roaring 20s and the subsequent depression. In fact, the Fed, it is said, printed so many dollars it entirely abrogated the relationship it was to have with gold, causing Roosevelt to declare bank holidays so that savers would not turn in their greenbacks for gold – and thus discover the gold was not there.

Honestly, we don't see how the Journal can get away with printing this stuff. Central banks create inflation. That's what they've been put in place to do. Inflation supercharges economies, leading to all sorts of beneficial effects for those at the very top. Stock markets boom. Valuations rise sky high. And when the inevitable bust comes, those who are the most powerfully solvent are in the position to pick up the pieces, thus leading to ever-greater consolidation and control.

After Thoughts

For the Journal writers and editors to present an article that doesn't deal with these basic facts – at this point in time – is once again proof positive that the mainstream media is going to have a tough go of it in the 21st century. We still await the breathtaking article in the Journal that will spell out alternatives to the current fiat-money driven Western economic system. We think it would do the credibility of the Journal a great deal of good to write about private market gold and silver standard. We will even write it for them.

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