US Stocks in a Pivotal ‘Decision Square’ – the Fed as Outlaw
Posted Café Américain 27 May 2011
THE STORY OF THESE MARKETS IS A SLUMPING ECONOMY and a debilitated middle class versus currency debasement and excess liquidity, selectively spread amongst friends. And also an undercurrent of manipulation of prices and information, to extract wealth and shape perceptions. The management of perception is a facet of government, always. To think otherwise is to naively ignore history and the practicalities of leadership.
But when that management becomes a more powerful and self-serving impulse than the written law, than the public good and the very fabric that binds people together into a society, then it becomes an end unto itself, an extra-legal excess, literally outside the law, that invalidates the legitimacy of what had been an otherwise legitimate organization.
This phenomenon is most often seen in organizations with a long standing individual leadership by strong personalities, and an embedded bureaucracy that is excluded from effective oversight and the customary balances of power. One example of this is the late stage Hoover administration of the FBI, which began to turn in on itself and its own ends, and use its control of private information to control and subvert the political process.
“Men, it has been well said, think in herds; it will be seen that they go mad in herds, while they only recover their senses slowly, and one by one.”– Charles Mackay
Of course these herds of the misguided often have a thought leader whose own perspective, and sometimes even delusions, become an almost unshakable set of core assumptions expressed as slogans and tenets of fundamental belief, the center of the whole, the familiar and comforting orthodoxy, and trusted filters of knowledge for a profession.
In the case of the Fed, it is based on similar principles as the efficient market hypothesis and of dogmatic deregulation, which are the natural goodness and incorruptibility of a highly educated and privileged elite, not subject to transparency and oversight, public checks and balances. These fatally flawed assumptions have been the cause of much misery in the last 30 years.
Power indeed corrupts all, and their thinking, even in the well intentioned.
And this is what I fear the Federal Reserve is becoming, or more likely, has already become. And so I would not necessarily argue that an independent central bank is a bad idea per se, although such an argument can certainly be made.
But I would propose that the Greenspan-Bernanke Fed itself has outlived its lifespan as an effective organization, and is in dire need of reform and refocusing, and it must come from outside the group think of their bureaucracy. And the Congress and the Executive seem insufficient to the task having been severely compromised over the years through participation in the Fed’s decisions and its control of money flows.
So the question of reform is problematic. The current government, both Republicans and Democrats, seem to be up to their elbows in the muck, beholden to a powerful elite and their vested interests that operate behind the scenes, and too often outside the law.
Terrible thoughts in their implications, and so most cannot bear to even think them. In times of the big changes people may desperately cling to the familiar, even if it is a rotting corpse of what it had once been. Reform is hard and often tedious work, never easy, and it has it own dangers. The cure may be as dangerous as the disease, and so it bears much thought and careful action. But action is required, it must be done.
Transparency and disclosure are always a first step, if not a prerequisite, to expose the true dimensions of a problem and the impediments to its resolution, and the flaws and conflicting priorities, and too often corruption and coverup, that always seem to underlie such systemic failures. ‘Let justice be done though the heavens may fall’ is a principle not in favor amongst those embroiled in a corrupted system. And so they rush to push out ineffective and superficial solutions in order to control the impulse to reforms and control the subjects of the debate in their own favor.
And this is what is paralyzing an effective response to the financial crisis in the US today.
“The control of information is something the elite always does, particularly in a despotic form of government. Information, knowledge, is power. If you can control information, you can control people.” – Tom Clancy
Let’s see which way the market breaks, perhaps before the long American holiday weekend.