Fighting the Fed – Tea Baggers & Ditto Heads

I’d like to thank all those who commented on my last article entitled "Have You Thanked Your Federal Reserve Lately”.

The Federal Reserve under Alan Greenspan, and the then newly minted Chairman Ben Bernanke, was remiss in not policing the mortgage and credit default, fornicators who brought down our financial system in 2008.

In my previous Fed article, I expressed the position that the Fed under Bernanke has done a good job since of warding off an economic depression. I was treated to a long winded comment on the insidiousness of inflation. One reader wondered, “Who am I?”

I’m a writer who graduated with a finance major from Temple U. At Temple in the late 1980’s I argued in a banking course that the provisions in the Glass Steagel Act, that prevented banks from gambling federally insured deposits in the stock and commodity markets, should never be repealed (the so called Chinese Wall). As an experienced stock investor I was skeptical about a self regulating Wall St.

Obviously those provisions were repealed by politicians, with the urging of Wall St. and their lobbyists. This led to the collapse of AIG, Bear Stearns, and the financial panic.

Unlike Greenspan, and most economists, I never believed that financial markets should police themselves and that free markets are self purifying mechanisms.

Apparently neither does Alan Greenspan who admitted to Congress in 2009 that “I made a mistake in presuming that the self-interests of organizations, specifically banks and others, were such as that they were best capable of protecting their own shareholders and their equity in the firms. I have found a flaw. I don’t know how significant or permanent it is. But I have been very distressed by that fact.”

It’s easy to see why Alan Greenspan got it wrong. Greenspan, like Ron Paul, was a self described Libertarian. And he was a cult follower of the ill-tempered Libertarian writer, and philosopher Ayn Rand. I still have a lot of respect for Alan Greenspan. He was a brilliant economic consultant whose predictions saved his corporate clients millions of dollars - before he went to the Fed. I would pay close attention to any future predictions he makes.

Anyone who has taken a macro economics course knows how insidious inflation is. When the economy recovers, the Fed will raise interest rates and drain liquidity in an effort to curb the inflation that an easy money policy brings. And folks like Jim Cramer will cry like a baby who is rudely removed from the milk of his mother’s tit. Count on it. And markets will rumble.

Risking the inflation that Bernake's current low interest rate policies engender, is better than having the full scale depression, that a tight monetary policy and no economic stimulus would have resulted in.

I have more confidence in Ben Bernanke than in the diminutive Ron Paul who wants to end the Federal Reserve. Bernanke was a brilliant scholar and academic who came very close to scoring a perfect 1600 on his college SAT. That’s a whole lot better than I did. His academic research on the causes and sustaining of the Great Depression make him uniquely qualified for Fed Chairmanship at this time.

Again, I recommend David Wessel’s book, In Fed We Trust. Before we had a Federal Reserve, the U.S. witnessed frequent financial panics. In 1907, banker J.P. Morgan had to step in and save the U.S. financial system because there was no Federal Reserve. The shrill arguments of TEA-baggers and blind, ditto head followers of the millionaire right wing talk radio personalities, who want to get rid of the Fed, have more volume than substance.