for more than a century before the Fed’s establishment, the purchasing power of the dollar fluctuated around an approximately horizontal trend line—that is, despite inflations and deflations usually associated with the wartime issuance of fiat money and the postwar return to specie-backed currency, the dollar more or less retained its exchange value against goods and services over the long run, whereas since the Fed’s establishment the dollar has lost more than 95 percent of its purchasing power.The Quiet Coup
Throughout my time at the IMF, I was struck by the easy access of leading financiers to the highest U.S. government officials, and the interweaving of the two career tracks. I vividly remember a meeting in early 2008—attended by top policy makers from a handful of rich countries—at which the chair casually proclaimed, to the room’s general approval, that the best preparation for becoming a central-bank governor was to work first as an investment banker. [...]Should the Fed be Audited?
Throughout the crisis, the government has taken extreme care not to upset the interests of the financial institutions, or to question the basic outlines of the system that got us here. In September 2008, Henry Paulson asked Congress for $700 billion to buy toxic assets from banks, with no strings attached and no judicial review of his purchase decisions. Many observers suspected that the purpose was to overpay for those assets and thereby take the problem off the banks’ hands—indeed, that is the only way that buying toxic assets would have helped anything. Perhaps because there was no way to make such a blatant subsidy politically acceptable, that plan was shelved.
I perceive signs of what Danny Kaufmann calls "cognitive capture" of the Fed by the banks that it regulates. That is, the Fed sees the world through the eyes of the executives at large banks. [...] The audit that I would like to see is one that examines how the Fed determined that the financial crisis should have been treated as consisting largely of an extraordinary loss of confidence, rather than consisting of mostly bad bets with excessive leverage.I tend to prefer expert management of the currency supply, but that doesn't mean that experts, captured by private interests and ideologies, aren't occasionally just as bad, if not worse, than the ignorant masses because those biases systematically undermine the legitimacy and efficacy of the system the experts purport to regulate.
Do you know why haunted houses are always Victorian houses? Because the foreclosure rate was so high in the aftermath of the Panic that people were walking away from homes left and right -- and those houses sat vacant for decades, giving rise to neighbor kid myths about the scary old house.Lovely. Thanks for an illustrative example; now I understand the whole foreclosure thing perfectly!
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But hist! I hear the thundering hooves of mounted legions of goldbugs and Ron Paul supporters, and must away.
posted by WPW at 4:54 AM on October 3, 2009 [7 favorites]