latest from david stockman, very good on keynesianism and the fed
http://www.lewrockwell.com/2014/03/d...-enrich-the-1/
Dallas Fed President Richard Fisher has been a thoughtful dissenter all along on the lunacy of QE and the Fed’s massive bond buying spree. But now he has left nothing to the imagination, admitting that Bernanke’s objective all along was to aggressively levitate the price of financial assets and thereby confer massive windfall gains on the wealthy who own most of them. And all this was done in pursuit of some whacked-out, latter-day Keynesian version of “trickle down” economics, which, according to Bubbles Ben, was for the good of the average American—even if they didn’t appreciate it, comprehend it, demand it, or vote for it.
And that’s the heart of the problem. The average American does not need a monetary politburo comprised of 19 more or less self-selected dictators to decide what’s best for them economically. Once upon a time we had a far better decision mechanism called the free market and a wonderful financial market governor called the price of money and debt, aka market-based interest rates. Under that regime, savers got an honest reward for deferring current consumption and spending; borrowers faced the true economic cost of debt to finance their projects; speculators faced the risk of sudden, sharp changes in the cost of carry when markets got frothy; and investors discovered in the market a valid “cap rate” against which to figure the return on their investments.
At the end of the day, markets cleared. When society’s pool of economic savings out of current income, as opposed to fiat credit created by the central bank, was insufficient to meet demand for borrowed funds, interest rates rose to induce more savings. At the same time, when investment booms and demand for borrowed funds by speculators got too frisky, interest rates peaked—and even soared into high double digits in the Wall Street call money market, which was the epicenter of capitalist speculation—and thereby rationed available savings and rolled back excess demands for borrowed funds.
Stated differently, the free market of millions of savers, borrowers, investors, intermediaries and speculators was balanced out and stabilized by the mechanism of prices. It thereby had a built-in correction against booms and bubbles—and one that showed no mercy to those who got in over their ski’s when periodic liquidations of financial excesses were rung out of the markets.
The essence of honest free markets for debt, money, equity and everything else that is traded is that there are no bailouts, no moral hazards, no central bank “puts” and safety nets under the stock market, and therefore no unearned windfalls to gamblers and speculators. By contrast, the Greenspan-Bernanke-Yellen style of Keynesian central banking is all about dishonest markets where all prices in the money, debt and related securities markets are rigged, pegged, manipulated and medicated by 12 fallible people—nowadays mostly academic PhDs— who rotate thru the FOMC.
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So on the off-chance that monetary unicorns do not exist after all, and that interest rates will at some point normalize, the interest carry burden on taxpayer debt at 100 percent of GDP will soar. It’s arithmetic! And then the public sector user of the credit channel will be officially done, too. Say like Detroit.
The truth is, the 40-year Keynesian debt trick is over. The credit expansion channel of monetary transmission is exhausted and impotent. The only thing left is the “Wall Street Bubble Channel”, and that is a dangerous, destructive, inequitable and morally offensive curse on a free society. It does nothing more than provide what I have called “ZERO-COGS” or free short-term repo and similar credit for the carry trades—-a game that provides windfalls for the hedge fund invested 1% on the way-up, and devastating crashes for the slow-money and Main Street when these central bank fueled financial bubbles inexorably crash.