Mort Zuckerman – Hands Off the Fed!
By Staff News & Analysis - December 28, 2009

The Fed threw us a rope; we don't want Congress holding it … When the professionals at the Federal Reserve Board review the epic diary of our economy, their lament must be "How soon they forget." It has been 30 years since America was in the grip of double-digit inflation, with seemingly no hope of escape. The professionals look back with justifiable pride on the brave actions of the Fed under Chairman Paul Volcker. Memorably, it raised interest rates to nearly 20 percent. Unemployment rose. The political firestorm was more turbulent than anything since the days of Herbert Hoover and the Great Depression. But the Fed's extraordinary action broke the back of the "Great Inflation," launching us into the "Great Moderation," a 25-year period of high employment and prosperity with very limited inflation. This was an exemplary illustration of Federal Reserve independence. Imagine if Congress had called the shots. Can anyone believe it would have acted with such resolution-and in an election year? When the stock market crashed in 1987, the Fed restored confidence. It came to the rescue again after 9/11 created the financial disruption of 2001. How soon they forget! It has been only a year since our overleveraged system buckled. Fear and panic paralyzed normal market functions. We were on the verge of enduring a freeze-up of the entire financial system that would have plunged our economy into another Great Depression. What pulled us back from the chasm was the intervention of the Federal Reserve Bank. – US News and World Report

Dominant Social Theme: Don't let Congress make monetary policy.

Free-Market Analysis: Mort Zuckerman (pictured above left) owns the Daily News as well as US News and World Report, and it is a somewhat melancholy event to see this sort of opinion presented by the man himself. One would like to see a more spirited defense of the free-market that has (putatively) provided Zuckerman much of his wealth. When coupled with Time Magazine's recent naming of Ben Bernanke as the "person of the year" and George Will's spirited defense of Bernanke in which he wrote that Bernanke ought to be named "person of the year" by Time (and lo, a few days later he was), one begins to smell a promotion.

All that is needed is for Newsweek to join into this extraordinary presentation of hallelujahs – and for all we know it has. In any event, the Zuckerman piece is noteworthy for the straw arguments that it presents. The idea of course in such articles is to present the Federal Reserve as one alternative and then present other alternatives as worse. This is a variant of the Hegelian dialectic intended to direct people toward a certain kind of thinking. It is done deliberately in our opinion, but in the day and age of the Internet, it is rapidly losing its effectiveness. Here is some more from the article:

The Fed led off by cutting interest rates aggressively, bringing them close to zero. That by itself didn't do the trick. The Fed swiftly realized that the too-big-to-fail financial institutions, which account for roughly half of our banking, had seized up because their own financial assets had collapsed. The smaller banks didn't have the means to bridge the gap. Understandably, households and businesses cut their debt, so spending fell just when we needed to increase demand to prop up the economy. The Fed realized that unconventional policy tools were urgently needed to keep equity and debt capital flowing. It responded with great creativity and ingenuity through unique lending and asset purchase programs. It rebuilt confidence in the system through a series of "stress tests" that looked at which banks' policies had gotten out of whack, lending too much on the basis of inadequate capital. The unprecedented measures that the Fed took restored confidence and liquidity without provoking sharp increases in inflation. The rescue could not have happened without the Fed's credibility and independence from short-term political pressures.

In the process, the Fed has stoked public anger by bailing out, with billions of tax dollars, the same people and financial firms that got us into so much trouble in the first place. By bailing out individual firms, the Fed broke its long-standing policy of creating money completely separate from the decision of who benefited. It was necessary to do this because a general easing would not prevent the domino effect whereby one firm's collapse would lead to runs on the others, thus threatening the health of the entire financial system that lies at the core of our free-market economy.

As the chairman of the Fed, Ben Bernanke, put it, "That could have rivaled the Great Depression in length and severity." The Fed's choices were limited to allowing a major financial firm to fold, raising the possibility of a systemic risk, or supporting the firm with taxpayer money. The choice of the latter course was even braver than the Fed's assault on inflation in the 1980s.

These are but a few examples of why we must preserve the Federal Reserve's ability to foster financial stability and promote economic recovery. It could fairly be said that the Fed did not take timely steps to correct a generally unperceived structural transformation of the financial world. Money market funds emerged that undermined deposit accounts in banks; commercial paper transformed the business of short-term lending to big corporations; high-yield bonds had the same effect on lending to smaller companies.

We can see from the above an elaborate justification of the Feds actions. Its selfless public servants were willing to risk the public's wrath and Congressional disapproval to do what needed to be done. In this strange universe even the Fed's rewarding of too-big-to-fail banks will billions is presented as an act of courage.

Of note also is the way that the article refers to Fed "professionals." This is akin to the old trick of calling a certain class of individuals "experts" – as in global warming "experts." In fact, as the concepts of human action inform us, there are no experts. Every piece of mankind's knowledge is constantly subject to revision and since our minds cannot even conceive of infinity without reeling, the chances of "experts" truly getting to the bottom of things is virtually nil.

In any event, the dialectic in this article is presented and maintained by postulating two choices – the Fed as it is or the Fed under Congressional supervision. Of course, there is a third alternative, which is to get rid of the government sanctioned Fed altogether and let the market decide on the price and quantity of money. The United States was founded on free banking and honest money, and there is no reason why that monetary configuration should not again be instituted. It would be a lot better than what the US – and the world – has currently. But then again the drive towards global socialism wouldn't be such an easy journey for the power elite now would it?

Of interest, too, are some of the reactions to the article that Zuckerman, Montreal, Canada native and member of the Council on Foreign Relations (CFR), received. But even in considering this, we have to acknowledge the extraordinary spectacle of such articles to begin with. There is a concerted establishment defense of the Fed that cuts across ideological lines. George Will, Zuckerman and Time have all defended central banking in recent weeks despite the supposed differences of ideology among them. What counts? It is easy enough to follow the money trail. But will it be enough? We note on a regular basis (within these pages) that the central banking promotion has all but collapsed and the reactions to articles such as this one – the feedback – range from skeptical to downright rude. Here's one addressing Zuckerman:

Zuckerman is a fool … It's said that education without common sense is nothing but a load of books on the back of an ass. Zuckerman is a perfect example of this saying. Him and Joseph Stiglitz and George Soros and Paul Krugman need to wake up from their Keynesian dream. All of our financial problems can be traced to The Federal Reserve. For more and much better information than Zuckerman can ever give, look up "The Creature From Jekyll Island" by G. Edward Griffin. (Uncle of WA)

Our point at the Daily Bell has always been threefold. First there is a power elite that creates dominant social themes for purposes of control and wealth. And certain organs are ever at the ready to point elected and non-elected government bodies in the right (socialist) direction. Second, that the Internet itself is gradually rupturing the belief system that surrounds these carefully crafted promotions – by showing they are untrue and made up. And third, that the free-market itself provides reasonable alternatives that are much better than the authoritarian solutions (to phony problems) presented by power elite, although, unfortunately, laissez-faire by definition has traditionally been without organizational structure with which to adequately suppress the ambitions of those elitists who favor a communal One World Order.

We think that things are changing. Over the past few years the liberating aspects of the Internet have proven to be as powerful as the Gutenberg press once was and as each of the power elite's promotions fracture, free-market solutions gain a little more momentum. Free-market thinking is bouncing back! Like a punch drunk prize-fighter tired of being battered, an army of individuals with renewed confidence in their own voices are sharing their views and truths with others. The powers-that-be can continue to insist on their promotions, but if there is no belief system to support them, then they won't be much good. Already we are seeing brute force being used to ram through such promotions as the European Union and even global warming despite great controversy. The skepticism will only increase over time, along with difficulty of sustaining the promotions over time.

After Thoughts

If one goes back in time and reads articles of the 1990s one must be struck by the difference in tone as regards the key issues of the day. Every meme from peak oil to central banking and global warming (and all the others) is under sustained attack. We see the monetary elite rocked back on its heels. We won't make any predictions except to write that this trend has not exhausted itself and in fact, in our opinion, has a ways to travel. We will continue to assist with the mapping of that journey.

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