April 25, 2008
Some Now Notice How the Fed Kills People
Fed Rate Cuts Kill People, I wrote in February. Silence ... BTW: The death toll is much bigger than the Iraq catastrophy we diligently try to follow on this blog.
But finally others catch on. Barry Ritholtz at The Big Picture now asks (and answers positively) Is the Fed Causing a Global Food Crisis?
Yes, the Fed does so by two mechanisms. Unfortunately Barry only points to the first. Low Fed rates lower the comparative value of the dollar and make commodities, which are mostly dealt on a dollar base, more expensive in dollar terms. Many countries have linked their currency to the dollar and their citizens now pay the higher prices.
The other mechanism is the expansion of credit.
The Fed floods the markets with too much money. More money chasing an unchanged amount of rare goods always ends up in higher prices. (Try it: Give a group of kids twenty quarters each and let them bid on a limited amount of sweets. Give them twenty $1 bills each and let them bid on the same limited amount of sweets. Observe the nominal payed price of sweets.)
M3 is a broad measurement of money and money equivalents in circulation. In 2006 the Fed stopped to make this measurement public because "costs of collecting the underlying data and publishing M3 outweigh the benefits". Sure, the Fed must take care of its "costs". Others recreated the M3 statistic for free and as the chart (scroll down) shows, M3 is rising and rising fast.
With lots of money around, institutional and private speculators can borrow very cheap and use 'leveraged' deals in commodity future markets. Spiegel International just had a good piece about DEADLY GREED -
The Role of Speculators in the Global Food Crisis. Go read.
Additionally, expectation of rising prices leads to hording. People buy today and store stuff because they expect stuff will be more expensive tomorrow. This leads to rationing which escalates the problem: Wal-Mart's Sam's Club chain limits rice purchase. A deadly spiral started: hording -> greater scarcity in the markets -> increasing prices -> increasing price expectations -> more hording.
The Fed argues that inflation is low and it can lift the economy by lowering rates and printing money. It looks at the 'core inflation rate' which excludes the 'volatile' stuff that gets more pricy day by day: food and energy.
Over the years the inflation measurement has been fudged with in various versions. Hedonic measurements, as now used, factors in 'quality improvements' in price measurement. The computer you bought for $1,000 has only cost $100 in the statistics because it is now 10 times faster than your old PC. (With that 'quality improvement' argument I would value today's cost of a single Microsoft operation system license today in the $100,000 range - this stuff is getting worse with each version.)
House prices get measured in 'owners equivalent rent'. the money that would be paid to the owener if the home were rented out, not the real costs of purchase or accrual. People now find out there is indeed a difference between these. In the inflation statistics, the housing bubble never happened.
Inflation measured today as it was measure in pre-1983 is 11.6%. Measured in the pre-1998 method it would be 7.3%. But the Fed says its only 4%, and the core rate below 2%. No need to hike rates or restrict the money flow.
In Harpers Kevin Phillips looks into the Numbers Racket. Real U.S. unemployment? 9%. Thanks to the Clinton administration the official number is 5%. Real U.S. GDP? Negative for some years already, but the official statistic would never say so. But old Europe has such a bad economy. Just look at their numbers ...
Garbage in, garbage out. The fudged statistics lead to false policies. Now these false policies have deadly consequences.
How do we stop them?
Posted by b on April 25, 2008 at 04:07 PM | Permalink
A quick housekeeping link fix: the first post you mentioned b is here. Please go ahead and delete this once you fix it above - no need to clutter the top of the thread with it.
Posted by: mats | Apr 25, 2008 3:44:25 PM | 1
Thanks mats - the link is now corrected.
Posted by: b | Apr 25, 2008 4:14:03 PM | 2
The Fed is just putting the final nails in the coffin that the IMF has been shoving the Third World into for years: putting small farmers out of business, making countries dependent on agribusiness imports and then turning these products into commodities.
Posted by: ralphieboy | Apr 25, 2008 4:57:06 PM | 4
My opinion is that the Federal Reserve wants the best for the American people and the Federal Reserve is sophisticated enough to know that the notions of profit and wealth are illusory. However that is a veil of deception under which we all willingly labor. Wealth is a notion buttressed only by force, when someone does not want to participate in the deception, violence may be used to bring those sceptics back into the fold. The illusion is maintained by the quotations from stock markets, those quotations have to be sustained at any cost including the devaluation of currency, but what is the devaluation of currency? The dollar is a piece of paper so is the euro and the rest, the price of the dollar and every currency manifests the psychological value level in which different political bodies are held. So the value of anything happens to be a political social psychological perception. The stock market is a zero sum game, the wealth that I have accumulated decays constantly but I decay constantly. Should that dollar that represents me have the same value that it had when I was twice the man that I am now?
Most everyone would think that the value of wealth should remain fixed when all around us we see decay, corruption, ruin. This is the result of the veil of deception. We have to be kept deceived and that effort may require the death of thousands, the despoliation of countries, the hunger of all.
So the Fed does what it can under the conditions of deception under which we live and that we willingly accept. In the world there is no pity, pity is a religious moral conceit that has no currency when our personnal survival is at stake.Should someone object to the idea that I am represented by my dollar I will respond that the IRS taxes my dollar not me and when that dollar goes into someone else's pocket that dollar is taxed. The dollar holding person is merely a contingency in the permanent flow of money.
Posted by: jlcg | Apr 25, 2008 6:15:20 PM | 5
How do we stop them? Nothing short a modern Bastille Day.
Posted by: mikefromtexas | Apr 25, 2008 7:32:09 PM | 6
Congratulations b on reporting all the way back in February that The Fed doesn't give a fuck if its fiscal policies help fuel the global food crisis. While some of the elements of the food crisis are perceived as natural, like the drought in Australia, others are manufactured, like ethanol. Obviously it's much more complicated. I will leave the tracking of nuances to those who have the skill (and the time).
jlcg is right. There are plenty of nefarious institutions playing active roles in propping up the deception we all operate by. Why are we surprised? The list is tiring and the results are consistent. The system is what we've got until it breaks. Completely. Until that happens people will continue to die, unnecessarily.
Posted by: Lizard | Apr 25, 2008 7:36:36 PM | 7
Without seeking to contradict any of the previous posters, one thing has become appallingly apparent during the last couple of years or so that energy prices have risen creating 'brushfires' - the sub-prime failure to food riots in Cairo. That is the Fed along with other institutions have merely gone through the motions of what the 'book' says to do in each particular set of circumstances, seemingly without any real insight into what it is they are dealing with.
That is like the last stagflation period post the '72 "energy crisis" the economic and political institutions have revealed exactly how intellectually bereft they are. Every move they do make, moves which frequently seem counter-intuitive to the bystander (eg playing with interest rates when people are hungry or corporations even more rapacious than usual), appears to have no real effect on the momentum of the problem, which to me at it's base, must be to ensure that all humans are fed in the least damaging and most sustainable way possible. Considering that to be the base of the problem need not be taken as either a moral or a philosophical position, after all a failure to sustain humanity will cause upheaval to all humans even middle class amerikans, further down the track.
Anyway it seems the economic and political institutions are going through the motions, with no real cause for faith that their strategy will eventually succeed.
The tinkering around the margins (three day working week in england, price controls and the like elsewhere, even an early plan to invade the ME from amerika.)none of the tinkering did any 'good' at all. The textbook strategies economists had developed for when things went awry did little more than annoy the populace. Sound familiar?
Eventually a couple of populist pols who saw the economic paralysis as an opportunity to win office and satisfy their masters grabbed the monetarist quick fix off the shelf where it had been languishing since John Meynard Keynes had won favour with an approach that had offered a humanist dividend for pols to offer a population tired of death and destruction after WW2.
So enter Reaganomics, Thatcherism, Milton Friedman and r'giap's mate Paul Craig Roberts. Although to be fair to Roberts his prescription;- for an economy driven by demand rather than command ,hadn't envisaged the attack on humans too unfit or unlucky to demand, which Thatcher in particular and Reagan's technocrats to a lesser extent, mounted.
This may seem like ancient history that has been trampled into a series of cliches, good for little other than more tired political slogans but there is a point to this.
When stagflation hit after the 72 energy crisis brought on by Israel's naked aggression, Friedman was ready and waiting. The rethugs in amerika and the tories in england had already greased the tracks by attempting introduction of these concepts earlier.
There was a feeling amongst voters that the mess had come at a time when 'the left' was meant to be on watch. That Roosevelt and Lyndon Johnson's policies had been dominant in amerika and Harold Wilson's policies the same in england. Therefore the conservative parties were given permission by the masses to 'fix' things. They were ready and waiting.
The prescription did seem to fix some things on the surface, after a period of hardship which appealed to the protestant communities, but really 'fixing' things meant fucking them. An increased emphasis on property rights and the individual, did mean that some of the problems attributed to labour organisations and lack of personal freedom appeared to be solved. but the real issues of living in a an unequal society, of heading towards environmental destruction, were exacerbated. The developed world, the west, white mans land whatever you want to call it ended up even more dependant on the resources of the undeveloped world, the south, un-white mans land than before.
A dam had been built by the monetarists, later neo-cons, a dam to shelter the west for a few political cycles. Of course when the dam bursts as it is now, the destruction is likely to be far worse than it would have been if some of these issues had been resolved properly in the 70's.
There is an opportunity right now. As the 2006 mid-terms showed in amerika, the populace is looking to the left (true an ersatz left but that isn't what most voters perceive) because the problems are held to have been created while the right was'on watch'.
Yet there is no Friedman equivalent standing next to the elbow of young dem wannabes, holding a 'radical solution'.
It could be argued that conservative forces through the west had been gutted and demoralised until Thatcher and Reagan. That their policies were generally lite versions of what the other side had on offer. Yet they came up with the rescue package for the rich in the 70's.
When are politicians on the left going to appear with a rescue package for the poor?
There is an opportunity now yet no one appears to be taking it.
Posted by: Debs is dead | Apr 25, 2008 9:02:00 PM | 8
Thoughtful post, Debs is dead.
A few months ago Obama commended Reagan for using the "ideas" that were lying around, which more or less entailed championing the free-market cult as a panacea for all the ills of an over-regulated marketplace, and he got jumped on. His point is that the Democrats need to find a legitimate alternative to the damaging effect of free-market strategies like privatization, but what Obama can't say is that a true leftist alternative doesn't exist in this country, and won't.
There is most definitely an opportunity here, and since the Dems have proven themselves to be pathetic lackeys of the same corporate influence that's sickened the entire amerikan political system, it would seem that opportunity is ripe for a third party path, but despite Nader's announcement of his presidential bid on Meet The Press, the MSM has completely shut him out of the action.
Again, none of this is surprising, but it is sad. And it's sad that those in my generation have such a weak understanding of the historical context that makes this volatile period in the global narrative of our species so critical. I'm afraid if we don't see how the decision process of all our leaders and institutions directly undermines the peace and security of the world population by design, then the worst scenarios, be it Orwell's or Alex Jones, will descend; makes me think of a disturbingly apt poem by the american poet Robinson Jeffers:
There is a hawk that is picking the birds out of our sky.
She killed the pigeons of peace and security,
She has taken honesty and confidence from nations and men,
She is hunting the lonely heron of liberty.
She loads the arts with nonsense, she is very cunning,
Science with dreams and the state with power to catch them at last.
Nothing will escape her at last, flying nor running.
This is the hawk that picks out the stars' eyes.
This is the only hunter that will ever catch the wild swan;
The prey she will take last is the wild white swan of the beauty of things.
Then she will be alone, pure destruction, achieved and supreme,
Empty darkness under the death-tent wings.
She will build a nest of the swan's bones and hatch a new brood,
Hang new heavens with new birds, all be renewed.
Posted by: Lizard | Apr 26, 2008 12:29:03 PM | 9
Striking how corporate media ignores the direct correlation of the fall of the dollar with the hike in gasoline and food prices. Similarly the media totally ignores the remedy; increasing interest rates and a balancing the federal budget. Too many vested interests are intent on inflating their wealth on the backs of salaried workers and pensioners.
Posted by: VietnamVet | Apr 26, 2008 5:17:38 PM | 10
We'll get a chance to eat less ourselves when the capital gains and dividend tax cuts
expire at the end of 2009, and fully priced into the markets by October of that year.
More immediately interesting will be what China does after it's Olympics fails, they
seem to have a 'save face' issue, whose dogs are they going to eat when it goes left?
Until that day arrives, we all get to watch the price of oil jump again on Monday.
The Scots are paying $10 a gallon, and there's no reason we won't end up there too:
Strike refinery shutdown complete
The Grangemouth oil refinery has been closed down
The shutdown of the Ineos oil refinery at Grangemouth in central Scotland has been completed, the company has said.
The 1,700-acre plant is being closed in preparation for a two-day strike by staff over pension changes, which is due to start on Sunday.
Oil giant BP has said that if the strike action went ahead, it would have to close the Forties oil pipeline.
Posted by: Trevor Blankenship | Apr 27, 2008 2:28:08 AM | 11
Hedge fund bandits who are making a killing (literally, as far as the landless poor of the developing world are concerned) on this are the enemies of humanity and deserve nothing less other than an old-fashioned tar-and-feather job! No decent society I know of, in my cross-cultural invesigations, has anything but violent contempt for those who accumulate fortunes on the basis of playing casino games with the very stuff of bio-social existence! Storm Greenwich CT and hang those fuckers high!
Posted by: goofaw | Apr 27, 2008 6:19:34 AM | 12