Thursday, February 17, 2011

Ben Bernanke is a Dangerous Fool

Bernanke will be jailed before this is over.

When self-proclaimed experts on the Great Depression, like Ben Bernanke, say that the Federal Reserve contributed to the Depression by not expanding the monetary supply fast enough, they are completely wrong.
The Great Depression was mainly caused by the expansion of the money supply by the Federal Reserve in the 1920s that led to an unsustainable credit-driven boom. Both Friedrich Hayek and Ludwig von Mises predicted an economic collapse in early 1929. In the Austrian view it was this inflation of the money supply that led to an unsustainable boom in both asset prices (stocks and bonds) and capital goods. Ben Strong, the head of the Federal Reserve, attempted to help Britain by keeping interest rates low and the USD weak versus the pound. The artificially low interest rates led to over investment in textiles, farming and autos. In 1927 he lowered rates yet again leading to a speculative frenzy leading up to the Great Crash. The ruling elite of society were the Wall Street speculators. Only 1.5 million people out of an entire population of 127 million invested in the stock market. Margin loans increased from $3.5 billion in 1927 to $8.5 billion in 1929. Stock prices rose 40% between May 1928 and September 1929, while daily trading rose from 2 million shares to 5 million shares per day. By the time the Federal Reserve belatedly tightened in 1928, it was far too late to avoid a stock market crash and depression.

The Federal Reserve was created by bankers to benefit bankers. The Federal Reserve purchased $1.1 billion of government securities from February to July 1932, which raised its total holding to $1.8 billion. Total bank reserves only rose by $212 million, but this was because the American populace lost faith in the banking system and began hoarding more cash, a factor very much beyond the control of the central bank. The potential for a run on the banks caused local bankers to be more conservative in lending out their reserves, and was the cause of the Federal Reserve's inability to inflate. From its backroom, middle-of-the-night creation in 1913, the bank-owned Federal Reserve has sought to benefit its owners, the large Wall Street banking interests and its politician protectors in Congress. The working class has always been nothing more than people to tax and peddle debt to.

Income and wealth inequality reached a new peak in 2007, the highest level of inequality since 1929. William Domhoff details this inequality in the following terms:

In the United States, wealth is highly concentrated in a relatively few hands. As of 2007, the top 1% of households (the upper class) owned 34.6% of all privately held wealth, and the next 19% (the managerial, professional, and small business stratum) had 50.5%, which means that just 20% of the people owned a remarkable 85%, leaving only 15% of the wealth for the bottom 80% (wage and salary workers). In terms of financial wealth (total net worth minus the value of one's home), the top 1% of households had an even greater share: 42.7%.

Real median household income in the US is $49,777 today. It was $52,388 in 1999 before George Bush took office. This is a 5% decline over 10 years. Even more disturbing is the fact that the top 20% of households showed real increases in income. The bottom 50% lost income during the last 10 years, with the bottom 20% losing 8% of income over this time frame. No wonder there is so much anger among the working middle class in the country regarding the bailout for the top 1%. Sixty million households make less today than they made 10 years ago. The policies of the Federal Reserve over the last 10 years have benefited speculators and punished seniors, savers and the working middle class. Every policy, program and regulation rolled out by the Federal Reserve in the last three years has been to prop up, enrich and support their too-big-to-fail Wall Street owners. The middle class American working family is too small to matter.

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