Tuesday, November 2, 2010

"Will the Federal Reserve Cause a Civil War?"

"What is the most likely cause today of civil unrest?

...November 3rd is when the Federal Reserve's next policy committee meeting ends, and if you thought this was just another boring money meeting you would be wrong.

It could be the most important meeting in Fed history, maybe.

The US central bank is expected to announce its next move to boost the faltering economic recovery. ...Chairman Ben Bernanke has indicated in recent speeches that the central bank plans to try to drive down already low-interest rates by buying up long-term bonds.

If a nation prints more money
like cutting a 16 inch pizza into 12 slices instead of 8
is each slice worth less?

A number of people both inside the Fed and out believe this is the wrong move.

What if the pizza shrinks while the number of slices rise?

...the blog, Zerohedge wrote, paraphrasing a top economic forecaster David Rosenberg, that it believed the Fed's plan is not only moronic, but "positions US society one step closer to civil war if not worse."

...with the Tea Party gaining followers, the idea of civil war over economic issues doesn't seem that far-fetched these days.

Nations are not ruined by one act of violence
but quite often, gradually, and almost imperceptibly
by the depreciation of their currency through excessive quantity

Nicolas Copernicus
Discovered Earth was not the center of the Universe

...the Fed's early November meeting is an important one. Here's why:

...Ben Bernanke has been recently talking about something called "quantitative easing." That's when the Fed basically creates money to buy the long-term bonds...

Why did the Athenians create more money
by decreasing gold and silver coin content
during the Peloponnesian war?

...the Fed made a similar move during the height of the financial crisis when it bought mortgage bonds.

Why did the Roman Empire reduce currency size and silver content
to increase the quantity of money during war against Hannibal?

...a number of presidents of regional Fed banks, not all of which get to vote at Fed policy meetings, have recently come out against Bernanke's plans. Some say it sets bad policy. Others think it will stoke inflation, which might be the point.

...Here's how Zerohedge justifies its prediction of why the Fed's Nov. 3rd meeting will lead to violence:

In a very real sense, Bernanke is throwing Granny and Grandpa down the stairs - on purpose.

He is literally threatening those at the lower end of the economic strata, along with all who are retired, with starvation and death, and in a just nation where the rule of law controlled instead of being abused by the kleptocrats he would be facing charges of Seditious Conspiracy, as his policies will inevitably lead to the destruction of our republic.

If there are at least 15,000 professional American Economists
and less than 1% foresaw the financial crisis
should many financial industry prognosticators be relied on
for economic recovery expectations?

...Lower rates do tend to favor borrowers over savers. And the largest borrowers in the country are banks, speculators and large corporations. The largest spenders in our country though tend to be individuals. Consumer spending makes up 70% of the economy. And the vast majority of consumers are on the low-end of the income scale.

Little by little, business is enlarged with easy money

With the exhaustless reservoir
of the Government of the United States furnishing easy money
the sales increase, the businesses enlarge, more new enterprises are started
the spirit of optimism pervades the community

Everyone is making money, everyone is growing rich

It goes up and up…until finally someone whose judgment was bad
someone whose capacity for business was small, breaks
and as he falls he hits the next brick in the row, and then another
… and down comes the whole structure

That is what happened to greater or less degree
before the panic of 1837, of 1857, of 1873, of 1893 and of 1907

Elihu Root
US Senator, Nobel Laureate

...Some smart people, though, including Meltzer, it appears, and Rosenberg do think the path of quantitative easing that the Fed looks likely to embark on is the wrong move. John Taylor, a top Fed scholar at Stanford, says eventually you will have to pull the support out, and when you do a year from now when the economy is recovering he thinks it could be quite disruptive. So even if you don't double dip now, you might double dip then. And even if you don't it would make for a slow recovery. Others, such as Raghuram Rajan, who has became famous for warning about the possibility of a financial crisis back in 2005, believe low-interest rates could be creating new bubbles in say gold or commodities.

No State shall… make any Thing but gold and silver Coin
a Tender in Payment of Debts

Article I, Section 10, Clause 1
The Constitution of the United States

So it seems clear what the Fed is likely to do.

How the economy, the militias and the rest of us react is up in the air.

Stephen Gandell

Have American legislators and the Federal Reserve
been abusing the dollar’s status as a reserve currency
to avoid overtly raising domestic taxation
by covertly taxing US dollar denominated assets like oil
by over-printing money?

No comments: