Truman lost.
I just read this account of how the Federal Reserve wrested its independence from the Treasury at the height of the Korean War and I found it absolutely riveting.
I'm sure you will, too... nah, I'm lying'. I'm not sure any of you will find it riveting. Fifty fifty anyone even reads it - no worries!
But right before Truman fired MacArthur, he was engaged in a contest of wills with the Federal Reserve - in essence, he demanded they should stand ready to print enough money to monetize the entire Federal debt, if necessary.
They refused, believing the inevitable inflationary fire would basically burn the country down.
Obviously, given this is a research publication of the Fed, their narrative might be expected to be colored - even allowing for this, it is a telling and well researched narrative.
Our own monetary and fiscal predicament is different, but the issues and arguments remain relevant, and our drama is every bit as existential.
Lewy, I was going to read it, honest.
ReplyDeleteBut when I accepted the file, the first thing it did was to ask if I wanted to add a 'gadget' to my PC to watch internet TV. I said no.
So rvrn though I would probably be quite interested in it, I don't want to add anything.
Behold the magma chart.
ReplyDeleteSee, here's the thing. This PJM article makes the point that the Fed has gotten tangled up in the whole "anti-elites" meme - which I'm more than sympathetic with and which I propagate at every opportunity.
There is certainly something to the argument that the Fed is much too unaccountable.
Congress perhaps should not have delegated its authority to regulate the currency - indeed, perhaps this delegation is unconstitutional, as claimed by many conservatives - including, but not limited to, the Ron Paul folks.
Even granting constitutional legitimacy, Congress could pass legislation changing the mandate of the Fed.
The article I've linked above narrated a situation where Truman's orders to the Fed were at odds with the Congressional mandate - the Fed governors themselves considered asking Congress to intervene, as Congress was the source of their authority. They felt that caving in to the President and printing money on his order undermined the will of the people, as expressed in the congressional mandate to the Fed that it maintain price stability. Congress can change that mandate, augment it, regulate it, or abolish it altogether, constitutional or not.
So.
I'm real clear on the whole "anti-elites" idea - our current batch has clearly failed - to be fair, some of this failure is clear only in hindsight, but the failure is so consequential that vast numbers of technocrats clearly need to go, because their credibility (and so their effectiveness) is just shot.
But I'm less clear about how Congressional control of the money supply is a solution, given that Congress is another body of elites who have grown remarkably well insulated from the will of the people!
The current Fed reminds me of some episodes of the TV show "House", where the doctor (the Fed) arrives at a series of diagnoses of the patient (the economy) which are brilliant, insightful, and wrong, and where the treatments almost kill the patient. In the TV show, the doctor (usually) figures it out before the patient dies. We should be so lucky.
The alternative is to hand the printing presses over to Congress. I cannot question the legitimacy of this recourse.
A year ago I would have vocally questioned the wisdom as well - in fact I did - but I'm very concerned the magma chart is going to suffer another eruption, and Bernanke is in effect going to kill the currency in order to save it.
Because this time around, the Fed believes that its mandate requires it to print money (to stave off de-flation), which might work... but if it fails...
DWT, it's a PDF file - ah, you probably don't have Adobe Acrobat reader installed. Is that it?
ReplyDeleteAcrobat Reader is harmless enough - just decline the other crap it wants to install. The ability to read .pdfs is pretty useful.
Or is there some other problem?
Lewy, I have been able to read other PDF's
ReplyDeleteI just don't know why it pops up with so much stuff, here, warns me it's going outside 'protected mode' etc.
DWT - I saved the document as a Google Doc... I emailed you the link... (also below).
ReplyDeletehttps://docs.google.com/fileview?id=1J0MuHJ70-rLNtNqtWuC0V52SRay-YoXynrFi3-swW1QaVEb1CUCN7XErzOCN&hl=en&authkey=CMbqnqoK
Hmm, the 'magma chart' was interesting, and the comments enlightening to some extent (of course, considering that it's 3:45 am and I should definitely be sleeping . . .).
ReplyDeleteAnyway, thanks for sending the email Lewy. I will read it tomorrow, but I am going to try to sleep a bit now. Not that I expect to have much luck at it.
happy to contribute to your insomnia DWT...
ReplyDelete...why should I be the only one? ;)
Rick Santelli attempts to make things clear.
ReplyDeleteAnother commentator offers some carefully calibrated remarks... lol...
ReplyDeleteOkay, THAT is interesting.
ReplyDeleteWow, that was a fascinating read, lewy. So much high drama! Now I have to absorb what I've read (twice!).
ReplyDeleteThe Magma Chart was interesting too.
What's your take on the Hindenburg Omen? Miekka's indicator is predicting a market meltdown for September. Is it hooey, or something we should pay attention to?
lady red - glad you enjoyed the article! Yeah, it was about as dramatic as it gets - for monetary policy.
ReplyDeleteMonetary policy should be boring, when it gets exciting, its because we're in deep doo-doo.
The flip side of "monetary policy should be controlled by the people, not the elites!" is... well alright then, let's all talk about monetary policy! (monkeyweather was always happy to oblige... haven't heard from her in a while...)
As for the Hindenburg Omen, I'll say that technical charting is the homeopathy of the investment world. Huge numbers swear it works for them, but its totally without evidence. That said, the HO is 'sposed to occur at least twice within a month or two for it to be a "true" technical sign.
Check out the Wall St Journal interview with David Rosenberg if you haven't - bearish (but not apocalyptic) view of the economy and the stock market. Also critical of Obama policiies, from a mainstream conservative Canadian perspective.
Just finished reading the Fed vs Truman Pdf. An interesting bit of history, that continues to leave me uncertain about the usefulness of the Fed.
ReplyDelete