"Update, 9/25 + Commentary of the Day"

Bubbles.

As for today's subject of the day: the Federal Reserve and the bubbles it creates.

Original, I know.

Ben Bernanke was renominated as Chairman of the Board of Governors of the Federal Reserve Banking System. Economists like Professor Mankiw of Harvard and other famous and well-respected leaders in the field have applauded President Obama's decision, citing his decisive tactics at the helm of the Fed as a reason for preventing an economic armageddon. The odds of Congress not confirming him are far, and frankly, it really doesn't make a difference who's managing the Federal Reserve, the tools, the job description, the undelegated authority, it's still there; all of it is retained regardless of who's hand is priming the pump. I suspect there will be some fiercer opposition coming from a few select Senators and House members than what many speculate he will receive, especially since Congressman Ron Paul is no longer the lone wolf on Capitol Hill.

The talking points, the pro's and con's on the current Chairman are the following:

Pro's:

- "The academic and financial community view his management of the Fed & the crisis with shining approval."

I would dispute that we are even out of the recession as of yet, and that he has driven us in between a sharp dagger and a waterfall. In order for the Federal Reserve to start raising interest rates, that would involve a lot of the securities that banks have in their holdings to be pulled back out. This might send financial giants back into a tail spin. However, lowering interest rates anymore is starting to get unfeasible even for Ben Bernanke and the Board of Governors, otherwise they would have went ahead and done it. They understand and are fully aware of the looming threat of the "I"-word. Lower interest rates than they are now would further add to an inflationary bubble in a not so distant horizon. This is not just a farfetch'd position being chanted by gloom & doom prophets like Marc Faber and Peter Schiff, or the lot of Austrian School economists, but by all start economists as well like Martin Feldstein who wrote on op-ed on the matter for the Huffington Post not long ago, an established, self-titled, progressive online news outlet.

- "Bernanke's academic studies into the Great Depression, gives him the intellectual ammunition in dealing with the current-day woes and maladies of the economic crisis."

His dissertation was based on three loosely linked essays that dealt with the short-run microeconomic implications of credit cycles and their macroeconomic effects on the long-run business cycle. I read through some of it, but I understood very little of the mathematical operations that were in it. In a nutshell, the core of it basically "proved" the central thesis of Milton Friedman and Anna Schwartz; that being that the Federal Reserve was indeed responsible for the Great Depression by raising interest rates precisely when they should have been lowered to allow an influx of liquidity into the economy. In plain English, the Federal Reserve's tight monetary policy brought about a massive contraction in the money supply that in turn facilitated the economic downturn by constraining the flow of money and credit, and that if only the blunt chairman at the time had lowered the money levies, all of the economic actors would have continued their projects and the whole catastrophic business cycle would have been averted. This is a decent articulation for the intellectual layman. It's also the explanation that that most misinformed right-wing "free-market" conservatives like Larry Kudlow adhere to, and the misinformed self-described political Left like Naomi Klein, Michael Moore, Noam Chomsky and Howard Zinn feel is responsible for the "free-market" zealotry that continues to mislead the American public, as to who the actual inglorious bastards, the true capitalist whores that became greedier, and then screwed the working man.

(And these are the people that are called capitalists? None of these people know what capitalism is, right?)

Con's - I'd argue there are plenty more here, but alright, we're keeping it mainstream and objective from now on.
* His approach of pumping liquidity into the economy is merely storing up inflation for the future.

Absolutely true, and although he has repeatedly stated that he isn't worried about inflation is because he follows the standard economic definition of inflation that every undergraduate student learns in his economics 101 class:

"Inflation is a rise in the general level of prices of goods and services in an economy over a period of time."

However, this definition does not provide an actual explanation as to what inflation is, it merely provides a description for some unknown phenomena, a syndrome of some sort. It's like describing a cancer patient with cancerous tumor as a mass of replicating cells. I'll quote chief economist of Mann Financial and adjunct faculty member, Frank Shostak here:

"...similarly, the essence of inflation is not a general rise in prices but an increase in the supply of money, which in turns sets in motion a general increase in the prices of goods and services..."

The implications that arise from defining inflation as the mainstream does leads to a resulting mischaracterization of what inflation actually is, and as consequence, anything that leads to a rise in prices is immediately categorized as inflationary. For example, a rise in foreign oil prices or underperfoming potential GDP. Further, it removes the central banking authority as having any direct causal relationship to inflation, when the reality is that all central banks are inflationary machines, by default.

* He has not been been transparent with 2.2. trillion of TARP funds or been held accountable for his monetization of private institutions to the US public or Congress about trillions of other dollars of Fed loans to other central banks in the form of "credit swaps". This is mainly the premise by which a bipartisan coalition to sponsor Federal Reserve transparency has cultivated itself in Congress. Sound legislation has brought ideological counterparts like Congressmen Dennis Kucinich, Ron Paul, Alan Grayson, Scott Garrett, Walter Jones in the House and by Bernie Sanders and Jim DeMint in the Senate, to work together, despite with various different intentions and coming from a variety of philosophical and economic angles. They have been met with such success that the majority of the House is now sponsoring the bill, and more than a handful of the Senate as well. Other liberty-minded organizations like C4L and Audit the Fed have been campaigning heavily in support for such bills, in spite of recent mainstream objections.

* "His role in loose monetary policies and the failure to regulate the sub-prime sector helped cause the crisis."

I'm not at liberty to position this site into a conspiratorial direction. Personally, Bernanke really didn't have anything to do with the immediate crisis at hand. I would attribute the Greater Depression of 2008-20?? to his predecessor, as do many prominent Austrian economists. Why are his present loose money policies not being questioned? Relative to Alan Greenspan, Bernanke really has lived up to his nick name, "Helicopter Ben". There's already talk in the off Wall Street, Austrian circles that a new speculative bubble is forming, the result of grossly misallocated resources. This time, its very possible the bubble is appearing in U.S. Treasury notes and the stock markets (explaining the artifical growth the DJIA has experience the last few months). There's evidence that although the artificial injection of government spending is currently in the mix and may temporarily prop up government indicators (see latest BLS statistics for instance for which the stimilus is attributed), even the all-star economists are aware of an uncertain future.

Not only that, but there is also evidence to believe that another unexpected asset class is beginning to inflate: gold. As odd as that may sound, because it certainly was a shock the first time I heard it from Dr. Murphy about a month ago, it makes a lot of logical sense. People, investors, any concerned person is reasonably conscious of the Fed's inflationary policies, despite the fact that the dollar hasn't hit rock bottom as of yet, they know the possibility of higher inflation or a Zimbabwe exists. They know that the U.S. dollar is no longer a reliable unit of savings, so what's the most reliable asset in which people can put, hard money. Silver. Gold.

A simple visualization of the Fed's role in the economy.

Its hard to be sure, but I'm starting to see the accuracy of the causal-realist approach, especially when it comes to applying it in the form of goods-based economic indicators that draw from theoretical axioms. Dr. Mark Thorton, a senior fellow at the Ludwig von Mises Institute wrote a paper on how the skyscraper index, as developed by economist Andrew Lawrence who demonstrated an empirical correlation between record breaking skyscrapers, and the economic recession that always follows it. In this paper, Dr. Thornton shows how ,"...a theoretical foundation of “Cantillon effects” for the skyscraper index is provided here showing how the basic components of skyscraper construction such as technology are related to key theoretical concepts in economics such as the structure of production. The findings, empirical and theoretical, suggest that the business cycle theory of the Austrian School of economics has much to contribute to our understanding of business cycles, particularly severe ones...", like the Great Depression and our current economic depression. The key economic significance of such an index is that an a priori methodological approach to economics can supply theory that provides tenets for empirical work attained through observable historical evidence. (Some readers may be unfamiliar with Richard Cantillon, and so I've linked a great introductory article to his name.)

Ben Bernanke actually wasn't the only Federal Reserve officials with announcements. Yesterday, the New York Federal Reserve named Denis M. Hughes and Lee C. Bollinger as the new Chairman and Deputy Chairman, respectively, were named to the Board of Directors. Denis M. Hughes is not actually a big name in the financial world or on Wall Street, he's actually the former President of the NY AFL-CIO, the largest labor union in the State of New York. Lee C. Bollinger, is also not a person that is frequently heard in Wall Street, which is what caught my eye even more when I heard about this appointment. In fact, Lee Bollinger is extremely common almost 100 blocks uptown relative to Wall Street, in Morningside Heights, on my very own university campus. Lee C. Bollinger is the President of Columbia University, and he sits as the head of University's Senate and as a member of the Board of Trustees. Mr. Hughes is a former labor activist that received some headlines when he managed to acquire millions for the reconstruction of New York City after 9/11, and the latter is a Constitutional attorney who's made his fame arguing affirmative action cases before the U.S. Supreme Court.

I'm not sure what to say about this. I'm honestly vexed, besides the obvious question: Why are you appointing a union leader and a career attorney at the helm of the largest quasi-bank in the world? I suppose the answer is, it doesn't actually matter who's running these colossal apparatuses. I do think however that the media silence with regards to this appointments, and the sketchy figures, says something about the moral fiber of the managers running the show...

Stay free America, more than just the world is watching.

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It's been three weeks since this blog was reinvigorated, and now it has music. I'm cutting back on the embedded videos because they deter from substance, but I'm starting to turn up the level of hyperlinks in the next few weeks because they will broaden horizons and really do put formal citations into the intellectual ashtray of antiquity. I'm attempting to limit the bombardment of short posts to three or four a week, and instead refocusing on putting out longer comments of meaty content. I've coined the latter, "blarticle": a portmanteau of two very obvious words; "blog" and "article", with the hopes of it becoming a neologism one day. Aside from today's comment, I'm also going to be honing in on events, people and ideas that I come into more direct contact in everyday life.

Comments, suggestions, hate-mail, I'll take it from you now.

Here's also my official mission statement for this site: "...To provide mindful objective analysis on similar free thinkers, and join their dissent in review countless items affecting the natural liberty of people...and offer free Criticism on nearly everything...and in addition serve as a humble bastion of relentless volleys against the evil & stupidity of the State, throughout the day and the years to come,..."

That took almost a good 60 seconds to draft, revise and publish. Thanks.