Cross posted from Real Economics.
Hat tip to Zero Hedge for featuring a thirty-three minute presentation by David Stockman denouncing the September 12 decision by the Federal Reserve's Open Market Committee to begin a new round of "quantitative easing." Fed chairman Ben Bernanke announced that the FOMC will buy $40 billion of mortgage-backed securities each and every month, until the employment rate begins to improve. That is really a staggering amount of one particular type of asset class for the Fed to be buying up. Stockman declares that this will being the final death blow to the capital markets and the financial system. I don't quite agree with him, but I don't disagree either. In my three decades of watching and writing on the financial manipulations that have come to dominate the economy, I have been repeatedly surprised by inventive and ingenious gimmicks and contortions the Masters of the Universe have pulled out of their butt-holes. Not to mention the unbelievable depths of denial American officials - and the American people - will plunge to in order to avoid admitting that American capitalism is seriously flawed.
Stockman's speech is one of the best examples of this societal denial. While he is brilliant in describing the symptoms of the problem, Stockman is unwilling or unable to openly discuss the causes of the problem. The listener is left with the impression that the problem is the Federal Reserve as an agency of the national government. What you should keep in mind is that Stockman is speaking before the Mises Circle of Manhattan. In fact, the person who introduces Stockman is Llewellyn H. Rockwell, Jr., the founder of the Ludwig von Mises Institute in Auburn, Alabama. The von Mises Institute has consistently opposed the Federal Reserve since its founding Ã¢ÂÂ but the key to the charade is that the von Measles Institute has also consistently portrayed the Federal Reserve as a government entity. Von Measles acolytes insist that the Federal Reserve is "government control of the money supply," when the fact is that it is Wall Street and the nation's largest banks that outright own the Federal Reserve system. That's the fact: the Federal Reserve is is a semi-private institution wholly owned by the banksters. The Chairman and the Board of Governors are appointed by the President, but the Federal Reserve system is actually composed of twelve regional Federal Reserve banks that are private banks owned by the largest banks in each region. Literally. In his entire 33 minute talk, Stockman devotes only one minute to discussing this crucial fact, when he mentions that "Wall Street is cheek by jowel with the Fed." And as the Huffington Post revealed in October 2009, the Federal Reserve has completely corrupted the economics profession.
So it is clinically interesting to watch how Stockman carefully avoids impugning the theological belief that "gubmint is the problem" that is at the core of the von Measles philosophy. In fact, "the problem" are the very people in the room. The people listening to Stockman - Rockwell begins by boasting how some of the "best performing" hedge fund managers are in the room and helped sponsor the event - who are the cause of the problem. These are the financial traders, hedge fund managers, and other useless usurers, who make up the core of that nebulous "market" that must ever be pacified and coddled lest it plunge the nation into financial panic in a few minutes of trading. Now these same people are paying hundreds or thousands of dollars to hear David Stockman declare Bernanke the most dangerous enemy of capitalism ever. Stockman declares that "the financial system is being destroyed from the center outward." The people in the room listening to Stockman may not be at the exact epicenter of the financial system, but I can damn well guarantee you they are a lot closer to the center than you or I will ever be.
Stockman is correct: the financial system IS being destroyed from the center outward. The real cause of the destruction is that these people have been unable and unwilling to apply value judgments to their investment choices, to separate productive investments from mere speculative bets. The very idea of a hedge fund - that rich people may be allowed to "invest" their money in investment "opportunities" that the rest of Americans simply do not have access to - is fundamentally antagonistic to the idea of a republic in which all are equal before the law. The most glaring example of how hedge funds enjoy a different legal approach than the rest of us, is that hedge fund managers and investors have been given such infamously favorable tax treatment.
Stockman brilliantly describes the financial system as being completely unconnected to reality - "Our system is simply riddled with trading windfalls, arbitrage of the next move, next signal, next slight variation" - but he refuses to point the finger at the people in the room listening to him as being the very culprits who helped create this system of speculative frenzy, who profit from it, who live off it, and who demand that it be somehow preserved.
Stockman presents statistics on the steep acceleration of debt loads since Ronald Reagan became president, to our current $53 trillion. This has increased the economy's leverage from the 1.5 historical norm that held from 1870 to 1980, to today's 3.5. Stockman even manages to note that this debt is both public AND private. What he does not take time to explore is that almost all the increase in this debt is private. See here, and here.
For the past three decades, a small number of critics have been warning of the destructive nature of the shift in the U.S. economy from industrial capitalism to financial capitalism. Stockman warns that financial markets are now broken and can no longer perform their vital function of providing price signals, rendering interest rates, yield curves, and asset prices, all now meaningless. But Stockman misleads by blaming the Fed and the Fed only. It is the financialization of the economy, which opened the door to usury, speculation and rentier finance, which has destroyed the economy, causing it to be deindustrialized and decapitalized. It is this decapitalization and financialzation that has destroyed the financial system. The Federal Reserve has simply been the leading institution for this process.
Watch closely how Stockman carefully avoids attacking this crowd's theological belief in the evil of government. The closest he gets to an open assault on their beliefs is "the central issue is NOT printing too much money."
As a counterpoint to Stockman is David Leonhard's New York Times commentary on September 29, Obamanomics: A Counterhistory. Note that not once does Leonhardt single out Wall Street and the financial system themselves as the major causes for the crippled economy. Not once are the problems of usury or runaway speculation mentioned. Which is to say, that it does not matter which end of the political spectrum you turn to, the game is rigged and the real culprits are protected by simply not being considered as culprits.