Debt Rattle Jun 4 2014: The Federal Reserve versus Hyman Minsky
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Barbara Wright Damaged Lives, Knoxville, Tenn., 1941 The Fed itself has stated many times over the past years that it intends to keep interest rates l
[See the full post at: Debt Rattle Jun 4 2014: The Federal Reserve versus Hyman Minsky]the Fed, or any central bank or government, should stay away from manipulating the free markets they so favor but which are no longer free the moment the manipulation starts
but, but, b…b…but… Markets are NEVER free! The “free market” is a construct of a particular school of economics, and has never reflected anything like reality.
At the very bottom the market needs the government (the sovereign, the king or whatever) to defend property and create (the basis for) money. Property and Money are not natural laws – they are man-made and part and parcel of a particular social order – in our current case neo-liberal capitalism.
Inherently markets are gamed. In the recent past (1945-1980) the market was gamed to provide some sense of growth for the middle class. The current game is unfortunately set up to provide opportunities for looting by the rich and politically connected.
I’m not exaggerating here. Those last two sentences point to the thing that frustrates me most about this species.
“I am certain there are people inside the Fed who have read,
and understood, Minsky’s financial instability hypothesis.
What kind of light does that shine on them, as they continue
to be accessories to current policies?”There are people who will report their colleagues for minor infractions like arriving five minutes late or phoning their spouse during work hours. People like that aren’t often liked much. An extreme case of that sort of intolerant, authoritarian mentality is witnessed in cops who put people in the hospital for small infractions like back-talk. Or worse, Presidents who send drones to murder Americans overseas, along with everybody unlucky enough to be in the vicinity at the time, as a blatant act of terrorism. Zero tolerance policies never lack for willing enforcers.
The supreme irony is that these same people will tolerate almost anything from one of their own. Cops rigorously defend fellow cops who lie to, steal from, and maim or murder defenseless innocents. It’s so widely practiced and expected that they actually have a term for it: “the blue code of silence.” It’s time-honored orthodoxy. Democrats defend dishonest Democrats, Republicans defend derelict Republicans, child molesters get a pass from the other priests and Popes.
Sure, nobody wants to pound pavement looking for another job after the criminals discover who the rat was. And sometimes a rat faces rat poison if he’s discovered. But the alternative is sitting quietly – – sitting cowardly – – while criminal gangs ravage everybody else.
There is a scene in the movie “Lonesome Dove” where Texas Rangers discover one of their colleagues has been riding with a murderous gang of marauders. The colleague, named Jake Spoon, feared he’d be killed if he didn’t ride along, and remained a non-participating member of the group while they made their way toward what was also his own geographical destination. Nonetheless, the Rangers hanged him once they captured the gang.
Gus McCrae: You know how it goes, Jake. You ride with an outlaw, you die with an outlaw. Sorry you crossed the line.
Jake Spoon: I never seen no line, Gus. I was just trying to get through the territory without gettin’ scalped.
Gus McCrae: I don’t doubt that’s true, Jake.
Jake Spoon: “Well, hell, boys, damn sight rather be hung by my friends than by a bunch of damn strangers.”
That clip from the movie was available on YouTube for years, but was removed quite some time ago. I’ve always wondered why they removed it. Maybe it’s a copyright issue, or maybe somebody objected to popularizing the Texas Ranger code of justice. If so, might that somebody have been an accessory to crimes himself?
I see things done by crooks in D.C. and N.Y.C. that should have brought long prison terms, but not only are the perpetrators still walking free, but often still committing crimes. I want to scream to everybody living within a hundred miles of those towns, “You mean it’s up to me to drop what I’m doing and travel the better part of two thousand miles across the United States to do what you people close to the matter should have done long ago?” No matter their response, they’re not worth the effort.
So I have no choice but to conclude that much of this species is totally hosed. Financially, economically, mentally and morally hosed. Criminality reigns, and cowardice is his side-kick. Except for some fancy architecture and a few clever gadgets, civilization is a mirage.
davidpetraitis,
If private property isn’t a natural law, nothing is. And that has interesting implications if I ever discover where you live, because I’ll just bet you have some nice stuff that nobody owns. Maybe even a wife or daughter that’s up for grabs (pun not intended).
The way to prevent gaming of markets is to enforce the laws. As Bill Black has pointed out so often and so convincingly, that is what’s been missing throughout this economic disaster-in-the-making – – law enforcement. And the laws were written to defend property rights.
https://www.zerohedge.com/news/2014-05-25/bill-black-robbing-banks-inside-weapon-choice-accounting
How would you propose to determine prices for goods and services absent a free market? By regal dictum?
davidpetraitis,
Upon re-reading your post, I realize you’re observing, not advocating. So I apologize for the tone of my misguided reaction. -D.S.
Diogenes,
No harm no foul.
Interesting question though – how is it that prices are REALLY determined?
Think it through.It was about 10 years ago Bernanke delivered a speech to some banker confab in Europe where he started off by saying the Fed does not consider money or credit when deciding policy. That’s monetary policy of course. (I Google occasionally to try and find this but always fail) With such a statement it is perfectly evident that common sense long ago left the scene in macro economics. I mean how can one blithely state if not brag that monetary policy is made without considering money without a trace of irony or embarrassment.
One of the terrible things about monetary matters is that money is so important to people that it has for them an almost mystical quality. A tiny fraction can even say what money is now and a tiny fraction of them really get it. Really know down to their bones that money is credit. So most just leave consideration of such things to the high priests of money. Then we have a high priest reveal that they don’t really care what money is. All that they want is for it to keep moving and/or a lot more of it. In a nutshell Bernanke said policy is all about keeping markets liquid.
Money is now more a process than a thing. As long as the processes of the financial markets work then nothing else matters to the high priests. I think they are shedding crocodile tears about the lack of volatility because it’s really a dream come true for them. It might be a damn shame about all those unemployed but only because they do have to keep in mind they need political support. Well they have that in spades from government policy makers but then the policy makers who are appointed by politicians who need votes in what passes for democracy now in the West. Anyone likely to gain political power through the vote is going to defer to the policy makers and high priests. It’s impossible to imagine 6 years out from the crisis when politicians might begin to feel a little pressure and so put pressure on the priests and their servants.
Diogenes Shrugged: Kunstler had a piece a few weeks ago for people with self doubt whether they were crazy to continue believing in collapse. As I recall, he said two things keep the system going: fraud and inertia. I think the key, really, is fraud. What turned around the markets in March 2009? The change to the FASB rule that allowed banks to mark assets to whatever value they wanted. That was the turning point. That made it all but impossible to evaluate the solvency of the banks. Combine that with Black’s analysis and I have no doubt in my mind. If you don’t punish fraud, that guarantees that people will game the system. They will game the system until there are consequences. That’s elementary human nature. If the consequence is not jail, the consequence will be collapse.
Booger, and Dio,
I don’t think there are any Either/Or’s left in our future. If you read Kunstler or McPherson, or Baker, or any thinking person then collapse is the scenario. The fraud and inertia are just features of the general landscape…rapier,
You wrote, “In a nutshell Bernanke said policy is all about keeping markets liquid.” Yes, but I wonder if the actual Fed mantra isn’t “policy is all about keeping low-level inflation intact,” which would of course generate both volatility and liquidity (and bankster bonuses). They’ve been explicitly running away from deflation from the beginning. I think every time Ilargi, et. al. says the d-word, those Fed people struggle a little with incontinence. They hear that name “Ilargi” and see a mental image of the Grim Reaper.Boogaloo and davidpetraitis,
Yep, agreed, and this is where we find rational forecasting of how collapse might be expected to transpire, and what might work as a survival plan. But even the weather is hard to predict, and sometimes comes as a complete surprise. Ilargi says, “If you’re young and feel invincible, why not down 20 shots of tequila in an hour or jump off a cliff?” I think we’ll be seeing more of both from people of all ages, including some who feel invincible, but I have to confess, I do maintain an impressive stash of tequila myself. You never know.
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