An unprecedented press conference was held in Washington on Wednesday – one that should have been convened a long time ago. And no, it wasn't the one to announce publication of Barack Obama's birth certificate, but rather the first of its kind by the US Federal Reserve. Believe it or not, the Fed has never before made itself directly answerable to the fourth estate for its monetary policy decisions. – UK Telegraph
Dominant Social Theme: Now that the Federal Reserve is more accountable, it will be better run.
Free-Market Analysis: This is an interesting article by UK Telegraph assistant editor Jeremy Warner. Entitled "Why the power of the mighty Federal Reserve is finally on the wane," it takes as its thesis the idea that modern demands have placed on the Federal Reserve modern obligations and the additional transparency of the Federal Reserve is a rational response.
Of course, from our point of view, the really rational response would be to do away with the Fed altogether. And we would make the argument, as well, that having Ben Bernanke (above left) give a press conference about Fed moves does absolutely nothing to address the fundamental issues that caused the Fed brain-trust to decide press conferences were necessary in the first place. In this article we'll take a look at those reasons and examine whether additional Fed openness will be enough to drown out the critics.
Warner is fairly sure the Fed is on the right track. "It is only right that central banks, having messed up so monumentally, are made more transparent and accountable," he writes. And he is confident as well that Ben Bernanke "gave a reasonably good account of himself." For Warner, the press conference was not so significant as what it stood for: accountability.
Warner provides us with an anecdotal history as well. As we have long pointed out in these pages, central banking is one of the power elite's fundamental dominant social themes. The idea is that the economy will not survive without the price fixing of the quantity and value of money by an outside authority. Without central banking, economies will collapse and chaos will reign. Warner gives voice to this meme fairly well.
Central banking continues to be in the forefront of what makes modern societies work. And Warner explains that in order to cement its status as a necessary element of society, the process has been imbued with a certain mystique, "an attribute its elders have cultivated to give the impression of god-like omnipotence." Here's some more from the article:
The central bank saw itself as some kind of Delphic oracle, dishing out whatever judgments and interventions it deemed necessary for the survival of the nation. Lesser mortals were invited to believe in the wisdom of these judgments, but they were not allowed to understand them.
Alan Greenspan, Fed chairman from 1987 to 2006, may have been speaking with his tongue in his cheek when he said, "if I turn out to be particularly clear, you've probably misunderstood what I've said", but it summed up the order of the day. Obfuscation was not just preferable to transparency, it was thought of as an essential part of the central banker's armoury. Now, while I'm not going to pretend that greater public scrutiny would have prevented the calamitous series of misjudgments that led to the credit crunch, it would undoubtedly have generated more scepticism.
Whenever there was a crisis, Mr. Greenspan was ready with the fire extinguisher. As one bubble deflated, he would pump up a bigger one. In time, he even began to half believe the hype himself. In the event, interest rates ended his reign roughly where they began. You have to wonder what real difference the frantic series of 87 interventions in between actually made, other than to suspend the usual disciplines of markets and give wing to the fatal delusion of never-ending prosperity.
This last statement is a good point, of course. Central banking manipulations cannot suspend the realities of the marketplace, they can only push them off for a while. It is a simplistic idea that fixing the price of money can help with long-term prosperity. It cannot. It's a fairly primitive idea. Even the tools are simplistic ones.
Central banks fix the price and volume of money by setting short-term interest rates and by telling banks how much "money" they have to hold in reserve in order to lend, among other practices. By printing money "at the push of button," central banks deprive money of the real value it would have were it backed by silver and gold. Because there is no intrinsic value to electronic digits, money in the modern era will inevitably devolve toward its real value, which is zero. Take a moment and watch today's Daily Bell video presentation of Ron Paul dissecting Bernanke's remarks: Ron Paul Address Ben Bernanke's "Fed Wants a Strong Dollar" Speech.
For Warner, this flawed methodology can be effectively counteracted by more openness. Economics, he writes, is not that complicated. And the main way to get desirable outcomes is to "question official thinking." The era of the Bernanke press conference also symbolizes something else for Warner, the eventual end of dollar hegemony.
To the Chinese and others, he writes, the Fed's ability to flood the world with cheap dollars is an increasingly dubious proposition, one that ultimately exports both price inflation and economic instability.
Warner gets part of this right in our view. A new order is on its way, and the Fed's emphasis on more openness symbolizes it.
But looked at more parochially, the Fed's openness does nothing to address the fundamental complaints that have been leveled at the institution. The Internet has combined with the economic crisis to form an atmosphere that is noxious to the Fed and to central banking in general.
In front of millions – billions – of people, central banks began to shovel trillions of dollars into the marketplace to provide "liquidity." Gradually it dawned on the average person struggling with debts and trying to make ends meet that the "system" itself was giving very wealthy people lots of money – and basically for free. These people and institutions had no more right to free money than anyone else, but they were getting it and others were not.
This is the fundamental unfairness that central banks – and the Fed – have to grapple with. The trouble is that it is hard to counteract a perception of unfairness because central banking IS unfair. It is based on a fundamentally illiterate financial presumption and providing more "openness" about the process is only going to remind people that the process is an illegitimate and fraudulent one based on "legalized" counterfitting.
Close to two years ago, we wrote several articles explaining why we thought central banking in general and the Fed in particular were going to have a tough time in the 21st century. Exposed by the Internet, the mystique of central banking no longer holds sway. People are not upset about central banking's secrecy. They are upset that central bankers have given away trillions to their already rich cronies and then attempted to justify it by maintaining that the current system would collapse had they not done so.
Apparently those behind these public relations moves do not see the rhetorical trap they are creating. To justify giveaways of US$10 trillion or more (not including short terms loans from what we can tell) by explaining that the West's economic system would otherwise have collapsed does not alleviate anger. Rather, it brings the entire financial system into question.
If people are already upset about the money giveaways, explaining that the current system demanded it does not alleviate the frustration. People are not going to accept the answer; in fact, such answers are only going to infuriate them and make them question not only central banking, but the system it is supporting.
This same flawed logic lies behind Bernanke's press conferences on Fed decisions. People are angry about the process itself and increasingly believe it to be unfair. How then does publicizing the process ameliorate the frustration? If someone is angry that something exists, holding a press conference about it will not likely make the anger go away, will it? Wouldn't it more likely increase the anger?
This solution alone, like most other Fed moves in the past two years merely increases our perception that the Fed brain trust has no real idea of how to deal with the criticisms it faces. It is the reason we think in time there will be an entirely new system created. We hope it the market itself will generate the new economic system and that it will be based on monetary competition with an emphasis on gold and silver circulating freely in the marketplace. In fact, the market is already doing that with gold hitting $1,540 and silver $50/ounce. The market values of those honest money metals reflects the decisions of individuals, reformers of sorts, who are lashing out the only way they know how – by taking control of their own financial futures by jumping off an out of control fiat money train and converting into real money. It is a natural occurrence and one we expect to continue as the Internet Reformation continues to take root.
We believe the power elites have other ideas and wish to establish a worldwide fiat system. But we question whether the elites are truly in charge of the conversation anymore. Perhaps through sheer brute economic force, they will be able to lever a new system into place and force 'Net Reformers to accept it. But it will be a tough struggle because people will likely see it as more of the same, as did the European citizenry when the Vatican and European nobility fought back against the last great communications driven reformation. The force failed then and it will likely fail now.
What we see, based on these new Fed "press conferences" is that the Anglosphere power elite still does not have any idea about how to counteract the disaffection people have with the current system and to stem the tide of the 'Net Reformation. This does not bode well for their ability to install a new system and control its acceptance. Warner is right to see the Fed's press conference as an acknowledgement that something is wrong with the system. But such press conferences are far from providing any solution. A new and evolving "Theses" is being nailed on modern day church doors / Internet screens every minute of every day by free-market thinkers. And when the price of gold blasts up in a matter of minutes some $20/ounce while Bernanke is spewing forth his gibberish – embarrasingly published live in a little box next to Ben Bernanke's face on the CNBC during his publicity stunt broadcast – we suggest that is a clear reflection of how the Reformers feel and yet another wave of consciousness that is sent out crashing over the slumbering masses. You'd think mainstream media would know better by now than to focus their cameras on the Reformer's barometer of truth while their "pope" is speaking.