Brief notes on Ben Bernanke's part 1 of 4 lecture to college students, Tuesday, March 20, 2012

If you want to watch the video and read along with my brief (by no means exhaustive observations) and perhaps write your own comment and even submit those via the DISQUS comment form below, please do. Please, no foul language or lazy, merely attack mode, comments. Thoughtful comments will be allowed and likely addressed. If you have an Ayn Rand ax to grind, I suggest you can comment provided you handle it much the way Ben Bernanke handles divergent views in the video.

Right off the bat, in Ben's first slide after his introduction, he told the students that a central bank is a governmental agency. He did not qualify that statement by saying that there are degrees of that and that the Federal Reserve, of which he is the current Chairman, is not actually a governmental agency but rather a quasi-agency at most. The Federal Reserve is a privately owned institution. It is owned and operated entirely by it's member banks and not at all by the government. The government's executive office (President) appoints the Chairman and the other members of the Board of Governors of the Federal Reserve. What it actually represents is a "self-policing" banking association where the US government appoints the board but does not oversee the institution in the normal sense of governmental oversight of executive-branch agencies. That has changed only slightly over the last several years, and there is a small but slowly growing movement to completely alter the current system to make it a real governmental agency/public utility.

The governmental portion is extremely small if one even accepts that "governmental," as in public, is apt. I consider the Federal Reserve System as highly nonpublic. The President does appoint the board, but Presidents have always deferred to the Fed itself in making choices -- hardly similar to cabinet positions for instance.

The Federal Reserve turns a statutory 6% profit.

Even the Wikipedia article on the Fed states: "The Federal Reserve System is a part of government that regulates the private banks." That is a huge stretch. In my view, it is an outright false statement. The US Treasury is part of the government. The Fed is nothing like the Treasury. I would like to see Treasury completely takeover all of the functions of the Federal Reserve and to completely overhaul and reform the entire monetary and banking system. The Populists before and at the time of the 1913 Federal Reserve Act had it much more correct than did those huge and private banking interests who literally finagled the political process to obtain their usurious objective.

By the way, contrary to private banking usage, usury means any interest on debt at all and not simply higher interest. In times past, any interest was rightly seen as inherently evil. The fact that so much of the general population has been conned into thinking otherwise is testament to the cunning of those who literally leach off the general public and in doing so, become the lords and masters living in splendor and who declare of themselves that they alone are too big to be allowed to fail.

Of course, those of us who have even bothered to look into the situation and history know full well that the banks that deliberately got themselves into trouble leading up to the crash of 2008-9 could have been easily taken over by the US government without as much as a hiccup in the general publics banking. It had been done many times before and continues right up to the present. The government knew and knows how to do it, and it should have been done across-the-board rather than what did happen, which has been that the Federal Reserve has masked the crisis and deflected and obscured the criticism. The Fed has used accounting gimmicks to postpone as long as possible exposing what really happened, which was the largest transfer of wealth from the bottom up and the largest consolidation of wealth in world history. That was the point of the deliberate crash all along. It was part of a longterm process that is part of the overall struggle between those who would be leaches and those who would be unselfish.

Ben discusses the Fed's main functions, one of which is to stimulate the economy through lowering interest rates. It's interesting that he said that by way of saying that the Fed does that by buying and selling securities. However, he mixed up setting the overnight lending rate there with expanding and contracting the general quantity of money there via buying and selling securities (mainly US Treasury securities; bonds). Perhaps that was nerves, but it's strange to me that he twisting those up a bit. Well, the Fed doesn't rise of fall on that point and I'm not interested in being petty here. So, I leave it at that.

He then came back around and mentioned the Fed Funds Rate but only in terms of avoiding overheating or inflation. I hope he doesn't really have this limited view. I should think he does not.

Ben Bernanke then goes on to discuss liquidity. This is the big area of concern in terms of what actually has happened vis-a-vis the private banks. The Fed did make loans to certain, many, banks. That was the bailout, in fact. The object in the general public's mind would have been to then allow those banks to resume lending. However, that did not happen for one because the Fed allowed those banks to then park the loan proceeds at the Fed where the Fed actually paid those banks interest on the deposits. Now that's a racket. The lending did not increase much at all, and the unemployment rate remained very high on purpose. The object there is to weaken the economic power of the classes off which the bankers (banksters in this case) do little to nothing but leach and actually harm.

Ben projects a very prosaic view. I do not believe he is not aware of all the various criticisms. My impression is that he avoids addressing those directly so as to avoid increasing the oxygen to the critics. It amounts to psychology.

In discussing banking panics, Ben mentioned demand deposits but not time deposits. Why he neglected to include time deposits could be a slight oversight or it could simply be because time deposits are not so subject to runs because of penalties for early withdrawal, etc. I mention them simply because banks lend against those deposits as well. Anyway, there is a limitation on cash-on-hand or vault money plus reserves held for the given bank by the Federal Reserve System -- hence the term reserve in the name, although the reserves are not federal, per se, but private and are largely part of the overall debt expansion of a poorly designed booming economy. We have a poorly designed system that resulted in the crash, in spite of the Federal Reserve and even on account of it.

On the various banking panics, Ben goes into no detail. He doesn't mention at all how those panics were set up and why and who benefited by them at the expense of everyone else. I am not expert in the history, but I do know that various "capitalists" were in the common practice of ruining each other to swallow up the market share that had been more decentralized or less consolidated. After all, the object of capitalism in the eyes of the more cannibalistic and predatory of the human species is to amass for self at the expense of all others. If one can game the system and is a sociopath, one games the system. If one can set up a crash and therefore no the timing of it, one may preposition oneself to buy and sell right on time to make the most of the crash. If one has lobbied hard and pumped money into the political coffers of political representatives, one can further work the system. This is why the failed bankers failed on purpose and have unrighteously reaped what other sowed by the real sweat of their brows.

He talks about the Gold Standard, which I'm glad he does. I'm waiting to see if he says that the money supply is tied to mining and refining versus just the absence of the Fed's interest-rate setting and buying and selling of securities. Also, will he mention that the ultra-rich had and have the most gold, which they certainly didn't have to share around. With the value of the paper currency and the value of gold being the same, then only the rich mining for gold could change the money supply other than generally by means of fractional reserve lending and a few other things.

Ben rightly discusses the volatility that accompanied the Gold Standard. He goes into the problems associated with the absence of the floating-exchange rate of the Gold Standard. It's good that Bernanke mentioned that if the Chinese currency is pegged to the US dollar, which is had been and still is to a large degree, then monetary policy in the US forces either a raising of or lowering of interest rates in China as well, whether that's good at the time for China or not.

Ben teaches about the 1931 run on gold at the Bank of England, which was not maintaining sufficient gold in reserves to back its bank notes (the British pound). Of course, Gold Standard advocates will call for the requirement of 100% gold reserves; but that will only increase the restrictions on the growth of the money supply to match real/productive growth needs of a growing population of humanity, etc. It's not a good idea at all.

He does go on to discuss how increases in gold mining causes monetary inflation (and thereby price inflation in that situation barring other factors). Ah, he mentions what I was hoping he would and that is that when the economy needs more money to meet real productivity demands, the finite quantity of gold causes deflation right when what is needed is a stable value of the dollar or whatever currency. This is why along with a number of other, I've called for United States Notes pegged exactly in real-time to real (main street) production that is desired from the bottom up. I've discussed this at some length on this blog site. It's not the end-all-be-all, but it is heading in the right direction to a moneyless society: the Christian Commons being the prime example of that.

Ben pays homage to the Populists by quoting and explaining William Jennings Bryon's famous line: "You shall not crucify mankind upon a cross of gold." The same Populist versus Wall Street banker divide remains. The Federal Reserve hasn't nearly eliminated or properly addressed the problems.

I must say that the way Ben addresses the concerns of Wall Street versus main street is not sufficient. Having 12 regional Federal Banks did not and does not address the issue. Larger banker's interests are larger banker's interest. They are not necessarily the interests of main street anywhere. In fact, I say that up to this point, they remain nearly completely divergent.

From 1929 to 1932, the stock market collapsed 85%. Wow! But Ben actually also uses the expression "the real economy," which is good. It appears that he really does understand the difference between finance capitalism and "industrial" (main street) capitalism. The degree to which he is beholden to the finance capitalists and large commercial banking interests remains to be seen. For whom would he fall on his sword?

Contraction in main street was about 33%. Note the difference between 85% and 33% in terms of the concept of reality (or the real economy). Raising money (and brokerage fees) via stock sales is one thing. Producing real economic growth is another.

Ben says, "Deflation is falling prices." Well, there is monetary deflation were prices can actually be going up. He shouldn't make sweeping statements without such qualifications.

Ben mentions how a crash causes price deflation while bank-loan payments remain fixed. The bankers who want to gain greater control and to increase consolidation of major corporations over small, family-owned businesses, can use that as a mechanism.

Ben Bernanke cited the 25% unemployment rate, that fell to 13% before WWII, but he didn't mention that it was non-farm employment. He also didn't mention the military Keynesianism aspect represented by full public employment vis-a-vis WWII. That aspect is nearly always overlooked or mischaracterized. If we can have full public employment fighting violent wars, we can have full public employment fighting many other things, such as environmental degradation and infrastructure collapse and on and on. Also, he didn't mention the 1937 mistake, which was Roosevelt listening to the Austrian School of Economics type thinkers at the time (pro-austerity), where in 1937, the economy started to tank again and unemployment began to re-rise. Roosevelt reversed course back to his New Deal policies, and the economy began to improve again, as did the employment rate.

This was Keynesianism and American School Economics versus laissez-faire capitalism. The same debate has been going on all through the current depression, with the likes of Paul Ryan, U.S. Representative from Wisconsin (http://en.wikipedia.org/wiki/Paul_Ryan) and other Randians (Ayn Rand disciples). It is basically Thatcherism (http://en.wikipedia.org/wiki/Thatcherism) versus Progressive-Populism. The facts speak much better of Keynesianism than of Ayn Rand's simplistic ideas. The Invisible Hand of Adam Smith is actually "self-regulating" selfishness. Nothing ultimately good as come of it or ever will.

Here though, it must be said that the issue of coerciveness arises. The anti-socialists complain about the state taxing them to redistribute wealth. What they don't discuss is the state taxing to wage wars to protect those anti-socialists against democrats and those who promote much less selfishness. The debate become semantical over terms such as "freedom" and "liberty" and such. I am for the non-coerced giving-and-sharing-all economy, but that requires that the members of the nation and world be as enlightened as Jesus Christ. Well, I say, aim as high as possible rather than falling back upon false notions of selfish human nature. We are and become what we feel, think, say, and do.

I'm wondering whether Bernanke will name names. He's mentioned a few but very selectively and nearly because they can hardly be avoided while he champions the current Federal Reserve.

Wow, Ben used the term "heartless" when describing Andrew Mellon's statement of 1931: "liquidate labor, liquidate stocks, liquidate farmers, liquidate real estate... it will purge the rottenness out of the system. High costs of living and high living will come down. People will work harder, live a more moral life. Values will be adjusted, and enterprising people will pick up from less competent people." Mellon was US Secretary of the Treasury (1921-32).

Ben Bernanke explains that going off the Gold Standard helped to increase money supply that was needed to get the economy going again. Of course, nearly all the New Deal measures helped, but as Bernanke rightly points out, many were experimental and unbalanced. I argue though that the main planks were much too small and should not have been sun-setted at all but rather built upon. The WPA was too oriented to employing private contractors. The CCC was good, but it was designed with capitalism in mind so that high-skills training and permanent public employment was kept to a minimum or not allowed at all.

What we need right now is full and permanent public employment with interest-and-debt-free United States Notes (versus interest-bearing, privately controlled Federal Reserve Notes) funded high-skills training. The interest-and-debt-free United States Notes would be pegged exactly in real-time to wanted and needed real-economy growth. There would be zero inflation/deflation issues. The real-time need would be managed by real-time computing covering the entire economy. The banking system would be the US Treasury overseen by local and federal government. Government would be completely overhauled so that local, fully informed democracy would be the basis of all government from the bottom up and across and down again.

This is a large concept to attempt to grasp, and I'm sorry more people haven't been able to see it. If done correctly and simply, it would completely eliminate all taxation and debt, both public and private. It would eliminate all human-caused poverty. It would fully fund all public projects, with the imagination being the only obstacle. It would though necessitate a change in mentality completely away from Ayn Rands evil appeal to selfishness and heartlessness, but that's the right call.

Ben lauds the FDIC. Well, the FDIC (Federal Deposit Insurance Corporation) was the "answer" to public banking or banking as a utility or the ending of Fractional Reserve Banking. It would have been better to nationalize the banking system but on a localized basis, per my suggestion above. You can see some effort being made in both Public Banking and ending Fractional Reserve Banking via both the Public Banking Institute (http://www.publicbankinginstitute.org/) and the NEED Act (http://www.govtrack.us/congress/billtext.xpd?bill=h112-2990).

I've communicated extensively with members of both groups and have pushed for consolidating the efforts. The camps are at odds a bit though over questions of banking borrowings for purposes of paying off demand depositors. I know they have been speaking passed each other. I addressed all of this at length in my Monetary Reform Series (http://www.realliberalchristianchurch.org/2011/12/25/monetary-reform-series-1.html). It was heated at times, and there were misunderstandings about openness, etc. The confusion was somewhat understandable, but I regret the lack of effort to arrive at a meeting of the minds, so to speak. Anyway, I don't regret having engaged in the debate. Of course, Dennis Kucinich (main NEED Act sponsor) has since lost his seat in Congress due to the gerrymandering efforts of those who hate Dennis's Populism-Progressivism.

Ben also lauds FDR's ending the Gold Standard. Ben does not cite the WPA or CCC or any of the other policies and practices of the New Deal. This indicates a whole in Ben's thinking or a deliberate choice not to offend the laissez-faire crowd too much or Ben's agreement with those who opposed, and still oppose, public employment on such a scale, and especially the scale I advocate.

Ben Bernanke is correct that the Fed failed in the Great Depression to ease interest rates and to lend money. However, Ben has done both while banks have parked the funds at the Fed itself and while the Fed has bought up toxic securities. That is simply a delaying tactic. The toxic securities should have been completely written off. Propping up banks that have continued foreclosing on American families has been a terribly wrong-headed policy. I said it before it started, and I still maintain it.

Where in this is Ben's discussion about the wild speculation and toxic securities? Perhaps he'll at least touch upon those in upcoming lectures.

The first question put to Ben Bernanke concerned margin rates on Wall Street. Ben sidestepped the question. He did indicate that regulation isn't bad, but he avoided discussing any particulars. He works on behalf of the bankers where the line between investment bank and commercial bank has been blurred.

Where's the discussion of the Glass–Steagall Act? Where's the discussion of Brooksley Born and the under-regulated derivative market? (http://en.wikipedia.org/wiki/Brooksley_Born#Born_and_the_OTC_Derivatives_Market)

Also, the Gramm–Leach–Bliley Act is hugely responsible for the current crisis (http://en.wikipedia.org/wiki/Gramm-Leach-Bliley_Act).

The lack of regulations concerning these issues is at the heart of the 2008 crash. Ben is focusing away from these very central issues.

With the second question on the Gold Standard, Ben came right out and said, "...there's not enough gold to meet the needs of a global Gold Standard...." He's absolutely right. His more complete answer was rather good. He pointed out that countries that went off the Gold Standard early did much better in recovering than did those who clung to the standard.

With the 3rd question, he got into the 1937 Mistake I mentioned above: Premature monetary tightening (austerity; deficit hawks; Paul Ryan, etc.). As you can no doubt tell, I'm writing this as I go along listening to the lecture and now Q&A.

Well, that's it for lecture 1. I'll try to find time for the upcoming 3 lectures in Ben Bernanke's series. He did come off as more human in this first lecture. The questions helped.

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  • Tom Usher

    About Tom Usher

    Employment: 2008 - present, website developer and writer. 2015 - present, insurance broker. Education: Arizona State University, Bachelor of Science in Political Science. City University of Seattle, graduate studies in Public Administration. Volunteerism: 2007 - present, president of the Real Liberal Christian Church and Christian Commons Project.
    This entry was posted in Libertarian Capitalism, Monetary Reform, United States Notes. Bookmark the permalink.