Supercapitalism And The Rate Cut

(Conspiracy Nation, 09/16/07) -- “Federal” Reserve chief Ben Bernanke tosses and turns in his sleep. This Tuesday is the Moment of Truth: Will the rates be lowered? By how much?

“It's easy to imagine Federal Reserve Chairman Ben Bernanke suffering through bursts of fitful sleep, agonizing over the 25 basis points so many want him to shave off the fed-funds rate,” writes Lisa Scherzer. “With a devil on one shoulder pushing him to ease the target on the rate banks charge each other for overnight loans, and an angel on the other pleading with him to leave it alone, it certainly must be a difficult spot for Big Ben.” (“Fed Rate Cut Would Encourage Inflation, More Risk,” September 13, 2007. smartmoney.com)

Alan Greenspan sat in his bathtub, writing a book. He was glad to have an underwater pen. If the pages got wet, the ink didn't smudge. Reportedly, the “Maestro” is to appear tonight on “60 Minutes.” (See also, “Greenspan Enters Saturday Box,” http://www.shout.net/~bigred/SaturdayBox.html)

Also out with a new book is Robert Reich, the Labor Secretary under Bill Clinton. Reich calls the book “Supercapitalism.” It is, in other words, Capitalism with a big “C.” Conspiracy Nation has previously noticed this grotesquerie of real capitalism, where Big Government colludes with Big Business. According to one review, Reich complains of government regulation which “protects competitors from each other.” Corporate lobbyists overwhelm the vox populi. A “diseased body politic” is the result. (“Robert Reich: Don't blame Wal-Mart, we're getting what we ask for,” by Tom Abate. San Francisco Chronicle, September 9, 2007)

The debate now is whether the “Fed” will cut rates by a quarter or by a half. The possibility the “Fed” will stand pat and leave rates unchanged this Tuesday has been “dropped from consideration,” writes Conrad de Aenlle in the New York Times (“Should Fed Tread Lightly On Rates?” September 16, 2007). A cursory search by Conspiracy Nation can find no one predicting the “Fed” will stand pat.

Josh Hendrickson, an economics instructor at Wayne State University in Detroit and author of the blog The Everyday Economist, does say the best course of action would be to leave rates unchanged. But even he does not consider it likely that this will happen. (Scherzer, op. cit.)

So it would be a big shock to the prognosticators if, come Tuesday, the “Federal” Reserve were to leave rates alone.

On the horizon, there is talk lately that rate cuts will not help. “The problem isn't that it's gotten too expensive to borrow - something a rate cut would help - but that lenders are afraid to lend, and investors afraid to invest,” argues Kevin G. Hall. (“Would Fed rate cut help?” Mcclatchy-tribune, September 15, 2007)

Suppose rates head down. This happened in Japan, where their central bank lowered rates to zero percent! The result was the Yen Carry Trade. For example, a trader borrows 1,000 yen from a Japanese bank, converts the funds into U.S. dollars and buys a bond for the equivalent amount. Assuming the bond pays 4.5% and the Japanese interest rate is set at 0%, the trader stands to make a profit of 4.5% (i.e. 4.5% - 0%), as long as the exchange rate between the countries does not change (Wikipedia). If the “Federal” Reserve lowers rates, the “liquidity” might swim overseas to Europe, thereby defeating the purpose.

And anyway, as already noted, lenders are “afraid to lend.” Also, potential borrowers are “Maxed Out” (the title also of a recent book and documentary by James D. Scurlock).

Article I, Section 8 of the U.S. Constitution provides, in part, that “only Congress shall have the power to coin money, regulate the value thereof, and of foreign coin, and fix the standard of weights and measures.” The “Federal” Reserve therefore, privately owned, is apparently unconstitutional.

The “Federal” Reserve was designed partly to resist public pressure. Foreseen was the situation where Government would yield to demands for more “money” to be created. Not foreseen was the situation where the “Fed” would yield to demands from Wall Street, its hired experts, and its financial press.

Wall Street and its hired guns dearly loved Alan Greenspan. They called him “Maestro.” But maybe Greenspan was really just a wimp, who did not stand up to Wall Street's pressure. This Tuesday, as noted, is the Moment Of Truth for Ben Bernanke. He is a Sagittarian. Conspiracy Nation concludes Bernanke is made of sterner stuff than was Greenspan. Defying expert opinion, yet not assuming responsibility for anyone's investments, Conspiracy Nation predicts the “Fed” will stand pat for now.

Conspiracy Nation

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