Morality101.net

by Murray N. Rothbard published at Lew Rockwell

Originally published in Dissent on Keynes: A Critical Appraisal of Keynesian Economics, edited by Mark Skousen. New York: Praeger (1992). Pp. 171–198.

John Maynard Keynes, the man – his character, his writings, and his actions throughout life – was composed of three guiding and interacting elements. The first was his overweening egotism, which assured him that he could handle all intellectual problems quickly and accurately and led him to scorn any general principles that might curb his unbridled ego. The second was his strong sense that he was born into, and destined to be a leader of, Great Britain’s ruling elite.

Both of these traits led Keynes to deal with people as well as nations from a self-perceived position of power and dominance. The third element was his deep hatred and contempt for the values and virtues of the bourgeoisie, for conventional morality, for savings and thrift, and for the basic institutions of family life.

Born to the Purple

Keynes was born under special circumstances, an heir to the ruling circles not only of Britain but of the British economics profession as well. His father, John Neville Keynes, was a close friend and former student of Alfred Marshall, Cambridge professor and unchallenged lion of British economics for half a century. Neville Keynes had disappointed Marshall by failing to live up to his early scholarly promise, producing only a bland treatise on the methodology of economics, a subject disdained as profoundly "un-English" (J. N. Keynes [1891] 1955).

The classic refuge for a failed academic has long been university administration, and so Neville happily buried himself in the controllership and other powerful positions in Cambridge University administration. Marshall’s psyche compelled him to feel a moral obligation toward Neville that went beyond the pure loyalty of friendship, and that sense of obligation was carried over to Neville’s beloved son Maynard. Consequently, when Maynard eventually decided to pursue a career as an economist at Cambridge, two extremely powerful figures at that university – his father and Alfred Marshall – were more than ready to lend him a helping hand.

This is a long and thorough article – read the entire article

The young Keynes displayed no interest whatsoever in economics; his dominant interest was philosophy. In fact, he completed an undergraduate degree at Cambridge without taking a single economics course. Not only did he never take a degree in the subject, but the only economics course Keynes ever took was a single-term graduate course under Alfred Marshall.

Ever wondered why there aren’t more “criminals” in this whole mortgage mess? Why there aren’t more mortgage broker perp walks? After all, they were predatory lenders, right? And where are the World-wide manhunts for the Wall Street iBankers escaping extradition? What they did to Iceland was against the law… right? Right?

For those who want the truth, rather than the evasion and excuses.
This is a MUST READ!

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The first rescue package of $700 billion passed by the Bush Administration was supposed to buy back this bad paper. Instead the government … gave half of it to banks with no strings attached instead of designating it for security redemption. The banks did not use the money to redeem the bad paper certificates…

Starts out off-track pointing at speculation, but gets it pretty much right overall. It’s really worth the read.

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But when central banks, through their manipulation of the money supply, artificially lower the interest rate, then the signals get distorted; investors are led to act as though consumers have a lower time-preference than they actually do. Thus investors are led to invest in longer-term projects that are unsustainable,

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at Yahoo! Answers: Question in regards to the Federal Reserve?
The Federal Reserve was established in 1913 and is, therefore, a creature of Congress. The President of the United States nominates members of the Board of Governors of the Federal Reserve, subject to confirmation by the Senate. However, the Federal Reserve is basically free to pursue monetary policy independent of Congress or the President. Should the Federal Reserve remain independent of the President and Congress or should the President and Congress control monetary policy? Why?

I wrote this answer, but by the time I’d finished the Q had been withdrawn.  No problem, I’d rather have it here on morality101 anyway.

Our problems with the Federal Reserve stem from, perhaps from it’s very existence, but certainly from it’s freedom to manipulate the money supply at will.

Over the last couple of years prior, in an effort to slow down inflation, the Fed caused interest rates to rise.  Among other effects, those naive souls who had taken Adjustable Rate Mortgages found their payments rising beyond their means, which caused foreclosures to increase perhaps six-fold, which resulted in mortgage bankers losing liquidity (e.g. Bear-Sterns, there will be more), which resulted in too many homes on the market, which resulted in falling home prices and the virtual shutdown of the construction industry.  All these were factors in resulting in yet another recession.

So during 2008, the Fed switched gears and lowered the discount rate several times, which bailed out illiquid mortgage bankers, which increased available mortgage money, which is enabling home buyers to purchase homes (foreclosed or otherwise) at better prices with lower loan rates again.

The whole game is predictable.  One needs understand only the very basics of economics (supply and demand applies) in order to predict the future maneuvers of the Fed.  I

In due course, the Fed will cycle us back to even greater inflation.  Inflation WILL be greater because of the rapidly increasing national debt, caused by the politicians voting for war, socialist schemes, subsidies, “stimulus” etc etc ad nauseum.  All are  passed by our politicians despite not having the money to pay for them.  Thus the congress routinely raises the national debt limit so they can borrow the funds, the Fed makes the bookkeeping entries creating more “money” (federal reserve NOTES), and like magic, it’s all a done deal.  Reason enough not to give politicians control of monetary policy, right?

Nothing in all this should be construed as my justifying the continuing existence of the Fed.  If, for the time being at least,  the Fed continues, then congress must cause the Fed to cease  manipulation of the money supply and forbid expansion of the money supply in beyond indexes of population, income, GDP and/or such other indexes as may are appropriate.  Perhaps we will rediscover that applied economics actually has some value in our world for this indexing chore.  Natural market forces will provide the monetary stability which has been absent from the beginning of the Fed.

There are many proponents for going back to the gold standard, but I’m not convinced that is necessary.  You may want to check out as a free-market alternative to the dollar – the Valun.

Up thru most of 1972 I built custom homes for $15 per SqFt, decent homes with redwood exteriors, turnkey with appliances and carpeting for a small family cost about $17,500.  30 years later, you know it, that same house cost $120,000 or more.  You bought your house from a tract builder, and paid $200,000 with a lot,

Okay, you took an adjustable rate mortgage because you couldn’t afford fixed-rate.  Then a couple of things went sour, your ARM shot up and now the bank owns your house.  C’mon, you were in over your head when you signed that mortgage!.  So now you’re crying to the government to help your sorry ass because you screwed up?  Get a grip, people, it’s not my fault and I won’t pay taxes to support you!

But maybe the government will pass a welfare bill for you anyway, because I really have nothing to say about it, do I?  It’s called taxation without representation – today that’s supposedly okay, but I will disagree with that immoral bullfeathers to the day I die.

Well let’s look at what may have REALLY happened here.

The Fed opined that the economy had heated up a too much, so they tightened money.  Things slowed down, so maybe you lost your job?  For sure, when your lender saw interest rates rising, he caught you by the ARM and raised interest/payments over your head.  Happened to many folks, so don’t feel like the Lone Ranger. So there were a bunch of foreclosures on homes bought at inflated prices.

So the bankers start whining about their Owned-Real-Estate portfolios growing out of control, and the banks had lost their liquidity.  They couldn’t resell the foreclosed homes and they didn’t have $$ to make new loans, awwwwwwwww.  Bear-Stearns then became the first of many on the brink of disaster, so the Fed quickly gave them a huge loan guarantee which saved B-S’s butt while it was sold to someone else.  But then, realizing the foreclosures were continuing, the Fed acted to make more money available by dropping the discount rate, not once, but several times, down to record low rates!  This enabled the bankers to come to the Fed window and borrow needed liquidity.  By this the bankers were temporarily saved, but you?  You aren’t allowed in the line to the Fed window, that’s a banker’s-only club.

So all this manipulation by the Fed, plus the mushrooming national debt, have weakened our dollar to the brink of collapse.  So what should we expect the Fed to do next?  They’ll soon enough be tightening money again, in a misguided attempt to strengthen the dollar.  When that happens, I suppose we’ll see some more foreclosures, but we will also start seeing the bankers tumble, and that could be domino-time.  There’s really nothing much else to be done, it’s about over, folks.  It won’t matter one whit who wins the next election.

The Federal Reserve seems a difficult critter to envision. It began back in 1913, created by the government as the bank to head all banks, yet not part of the government, but assigned to control the dollar and and the money supply. This puts “the Fed” even more difficult to control.

So among the biggies of the Federal Reserve is it’s job of controlling the money supply. It’s game is messing with supply and demand. That game has been going on long before Adam Smith made his statement. We are learning “don’t mess with Mother Nature” but somehow the mystics believe one might mess with the economy despite generations of experience to the contrary.

If the Fed feels demand is faltering, it may increase the money supply — increasing inflation. If the Fed feels that the economy is “heating up” it would do the opposite — a recessionary move. Either is usually accomplished by adjusting key interest rates. Again, the-privateer.com provides a chart of the Fed’s activity since 1990. I haven’t checked it, but it’s reasonable to assume one could see boom and bust cycles by tracking the economic conditions against the chart.

Lower interest rates result in more demand for dollars. That’s not a problem for the Fed, as they control the printing presses — the only control apparent is Congressional approval of a raised debt limit.  As we moved into the computer age, the printing presses were less needed, so the new money becomes largely a blip on a spreadsheet, again controlled by the Fed, where the bankers flock to get new money to lend.

Most of us have learned “Don’t mess with Mother Nature”.  Clearly the Fed is not the best possible scheme, given it’s stupendous power and autonomy.  I am not convinced that a return to the gold standard is either necessary or possible.  I am convinced that the manipulation must end.  We cannot have a stable economy without inflation unless we also have an absolutely stable money supply which cannot change the rules of the game at every hand.