Skip to comments.Let's be Competitive — Free the Fed!
Posted on 05/30/2007 9:47:17 AM PDT by Tolerance Sucks Rocks
Today's Financial Times headline ("Spitzer to Streamline Rules for Wall Street") is an example of government allowing good old Yankee free enterprise to become more competitive with other international challengers.
The Financial Times also contains additional evidence of increasing inflationary pressures and of interest rates around the world, particularly in the European Union (E.U).
Meanwhile, in face of growing inflationary evidence and increasing interest rates among our key competitors, our Fed has kept our rates on hold.
While it warns of inflation as its main concern, our Fed appears "frightened" to compete either against inflation or with the rising interest rates of other competing currencies, most notably the Euro, against which it has depreciated by 12.24% in under a year and by about a third in the past two years.
There is a legislative reason why our Fed understandably feels "frightened" and seemingly unwilling to do more that utter warnings of inflation.
In the old days, our country was the undisputed master of the world's economy and our mighty dollar was keenly held, often in preference to gold, as the crucial reserve of other competing nations.
From this dominant position, our past Congress was tempted to give our Fed not just the single mandate, of its competing international central banks, of controlling inflation, but a second (often competing contra) mandate of encouraging economic growth.
This government action made our Fed and thereby our currency, inherently uncompetitive, over the long term. The problem was not evident when our economy remained not just highly competitive but overridingly dominant around the world.
America was so dominant then that it is now hard to relate to in today's world.
When I worked as an investment banker at Morgan Stanley & Co (in the late 1960"s), the market capitalization of just one major U.S. company (IBM) was greater then the total capitalization of all the European Stock exchanges (excluding London) added together!
Today, after a series of Democrat Presidents and the luxurious, almost hedonistic, spread of liberalism in the U.S., the situation is very, very different.
The end of World War II allowed the countries of Europe to compete with the U.S.
The end of the Cold War opened free competition to some 3 billion hard working, tough and hungry people around the world.
Meanwhile, our Congress felt it could carry on in the same hedonistic, high-spending, liberal manner.
The countries of Europe got together, sacrificing much of their individual cultures and sovereignty to compete, on equal terms, in the form of the European Union.
The E.U. is an increasingly competitive threat to the U.S. Today, its stock and government bond markets are larger that those of America, and its currency, the euro, has more units in circulation than the U.S. dollars.
This past January, Germany alone (facing high interest rates and a greatly appreciated currency) knocked us into second place as the world's largest exporter. A month later, China pushed us into third place.
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Yesterday's New York Times ran an article asserting that the E.U. had recently displaced the U.S. as the "economic engine" of the world economy.
Worse still, the Euro has increasingly displaced the U.S. dollar as the "reserve currency" of the world's central banks.
The fact that our dollar was the world's "reserve currency" was of great strategic and economic advantage to our country. Worldwide demand for U.S. dollars allowed the U.S. to have relatively lower interest rates than our main economic competitors. This helped our economic growth, to a crucial degree.
In the "oil shock" of 1973, our Secretary of State Henry Kissinger was able to pull off a major strategic coup by persuading OPEC to take U.S. dollars as the exclusive payment for their oil. This allowed America to inflate with impunity without doing serious damage to our dollar in the foreign exchange markets.
Despite this vastly changed world, our Congress continues to "interfere" and even to threaten far greater "controls" over our free enterprise system.
Worst of all, in the face of a plunging dollar (threatening its credibility as a currency, not just as a reserve currency) and the growing evidence of inflation (despite the "cooked" CPI figures), our Congress continues to leave our Fed in a fettered and highly uncooperative position.
Last week we witnessed the galling experience of delegations of our government facing two of our biggest strategic competitors (China and Iran). The saddest thing of all was to see our negotiators with no "Royal" cards in their hands.
As we said last week, we believe our government must quit bleating and start competing, by freeing up good some old Yankee free enterprise competition (Sarbanes-Oxley, etc).
One place it could start and have immediate effect upon our entire economy would be to free our Fed from its second debilitating mandate to encourage economic growth.
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Free of its government imposed second mandate, our Fed would be put on a level playing field with its competing central banks.
Our dollar would be allowed to compete and so allow American business to compete, not just on price (the downward slope to long term failure) but on the essential long-term success determents of the "Product Marketing Mix", just as Germany and Switzerland have done so successfully for years.
Of course, it will be tough, particularly as interest rates will rise, and our government will have to face their financial realty of the liberal profligate policies by actually paying a market rate for their debt and their social security promises.
We believe that, in order to become truly competitive, our government must face international realty by freeing our Fed. Thus allowing us, the people, to compete.
Regardless of Congressional inaction, we note that at long last, the long bond market is beginning to signal increased interest rates as the yield curve steepens slowly to become more normal and in our view more realistic!
In light of this, we continue to urge our readers to remain averse to accepting the great risks we see as inherent in the price of long bonds.
If the Fed fights inflation, long term rates will fall.
That’s what refinancing is for. :-)
The Fed can’t fight inflation until it figures out what causes inflation.
Too much money. Don’t tell the goldbugs.
It's because we saved their asses and took care of most of their defense since then that they've been able to compete with us, and they still hate us.
Just because other central banks are doing something stupid doesn't mean our own Fed should compete with them for the title of dumbest central bank.
What's wrong with that? If the Fed ended the credit cycle and kept rates steady and in line with the yield curve, then we could have economic growth without inflation. Of course, we would also need the government to behave itself.
This is too funny. You do realize that the Federal Reserve is no more Federal than Federal Express and it is owned by a private banking cartel whose majority stakeholder seems to be the Rockefeller banking group followed by a bunch of Euro banking families such as the Rothschilds???? Private bankers are going to do whatever is best for private bankers, not what’s best for the American people.
And that always seems to happen when the government doesn't have enough to pay its bills, usually because of its own misdeeds.
The Federal Reserve is a partnership between the government and private banks, but the government dominates that relationship by far.
I thought the Fed fights inflation by raising interest rates and therefore reducing the amount people borrow, and resulting in constricting the money supply. Therefore they avoid deflating the value of the dollar, so you can buy more for a dollar.
If the Fed fights inflation, interest rates are going to go up.
You have a list of the owners and how many shares they own?
How much money do they make every year on their shares?
Inflation is caused when the money supply grows faster than the economy. The Fed could lower rates while also lowering money supply growth.
If the Fed fights inflation, interest rates are going to go up.
The Fed "controls" short term rates. If they raise those rates, long term rates could drop.
Federal Express has to report annually on its activities to the Speaker of the House of Representatives? Federal Express was created by an act of Congress?
Oh my, yes they have to answer some soft-ball questions every once in awhile. There has never been an audit of the Federal Reserve system. And lets talk about that act of Congress, undertaken just prior to the Christmas break when many of the members of Congress had already gone home, it was 1913, no 777’s to jet back and forth on. Signed by Woodrow Wilson who later said, “I have unwittingly ruined my country”. It all sounds so on the up and up.
Well the IRS collects about $1 trillion dollars a year that we pay them to service the debt that we now owe them.
Bwaahaaahaaahaa, have you taken a look at the “national debt” figures lately???? We owe the Federal Reserve close to $9 trillion dollars. Who is the monkey on whose back???? Keep fooling yourself.
And if the Federal Reserve was a partnership with the Government don’t you think that that information should be made public???? You will never truly know who owns precisely how much. Doesn’t that tell you something about the system???? Aren’t we supposed to have transparency if they are conducting business on our behalf????
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