Let's be Competitive — Free the Fed!

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.

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.

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.

[Editor's Note:Buffett, Soros, Templeton, Rogers: Learn Their Money-Making Secrets}

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.

The Fed causes inflation.

It creates money out of thin air.

It is the US government’s charge card.

By creating and pumping dollars to banks it dilutes the value of existing dollars, in short it dilutes our savings (for those of us that still do that) and ultimately the value of our hard labor.

The Fed is behind what Ron Paul calls the inflation tax.

And it is a tax.

It’s a tax that gets added onto product pricing. This tax is called inflation.

We still have the power to shut down the Federal Reserve.

The Federal Reserve is no more ‘federal’ than Federal Express.

The federal reserve is a private banker’s cartel.

Bernanke is merely a liason between the Cartel and Congress.

When people go to get a mortgage loan or any loan, the bank does not find funds for the loan from other depositors.

The bank borrows money created from nothing from the ‘Federal’ Reserve. and it injects it into the economy, alot goes into housing.

Look at what happened to housing prices. People think they’re rich but then they look for another house and they see that prices are up all over. Those that act swiftly can make some dough on arbitrage of real estate. But most folks want to have a home and not a game of musical houses.

Who wins? The homeowner isn’t motivated to move if there is no price advantage. But when he/she gets their property tax bill in the mail and they see that their rent to their County just went through the roof because their home value went through the roof, then they know who won.

The Fed created all that.

The Counties and States and Government employees are the winners. Ask if your state has budget problems. Most states are flush with cash based on increases in property taxes. California is an exception because it is living way beyond its means.

We still have the power to shutdown the Federal Reserve.

Our Founding Fathers fought hard against allowing the establishment of a monopoly to create money out of thin air. They knew it would eventually control everything and it does.

The bankers want control and then they want more control. They can never get enough control.

Shutting down the Federal Reserve would get people out of debt, get them to save and stabilize the dollar.

Monetary functions of the Federal Reserve could easily be handled by the Treasury as it was historically.

In Amercican history the Fed was allowed to exist (1913) in return for allowing the government to impose an income tax (1913) on the very wealthy. JP Morgan was hated because he owned the town and all the stores in the town. He also determined who went to Heaven and Hell because he controlled many of the town’s churches.

The American People hated JP Morgan and his ilk.

So Morgan, Warberg and others made a deal to scam the People via a little routine bribery of Congress. The deal was simple. In return for paying an income tax of no more than 7% of income over $20,000, Morgan and others would have their money press, with US Gold as the reserve backing. With a gold reserve of 20%, Morgan and others could create 80% new money from nothing and loan it out at rates they set. The interest on those loans was much more than Morgan and others would ever pay in income tax.

And today the Fed (US Central Bank Cartel) has no gold to set a reserve, so they invent all manner of academic gobbledegook to measure however they define inflation to somehow control their money creation.

What a deal.

And now Americans are swimming in debt with a devaluing currency. But that’s not what is really scary. What is really scary involves demographics and yes the Fed had an indirect effect in causing the demographic tsunami that is on the horizon.

But that’s a whole other thread.

One last note.

Before the Fed gets shutdown, they will try and scare the bejeezus out of all Americans that think of voting for shutting them down. That will only be them trying to save themselves.

And what will America be like without the Fed? Find an American historian and ask what was America like before the ‘Fed’. Most people would be surprised that America was a wonderful place where life and living made sense.

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