QUESTION: Marty, will you have any input into Warsh’s task forces that will study and give recommendations on improving the US monetary policymaking?
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COMMENT: Marty,
I watched some of Warsh’s responses in yesterday’s hearing. I was stunned by his response that he believes he can control inflation (ignorance mixed with hubris is a recipe for a horrible disaster). That said from what I saw yesterday I’d rank Warsh right up there with Yellen on the “oh my God, I can’t believe that person is chair” scale. I actually had to stop watching for a while because (to paraphrase an Adam Sandler movie) I was getting dumber for hearing it.
He clearly doesn’t seem to understand how the economy works or what the Fed can actually do to help the economy. So ignorant. He would do well to read some of your books, maybe start with “Fiat” and then the book you’re giving the attendees of the July meeting/training (I won’t be at the event, but put me on the list for when the book comes out as I want to read it).
Let’s hope his actions are far better than what he said yesterday because if not his tenure may be a stupifying shitshow. Based on Socrates projections about China taking over the mantle in a few short years maybe Warsh is just the right guy for the job. Sad to see it playing out live.
Thank you for working to educate people on how the economics of the world really works.
Regards,
Joel
REPLY: I have probably dealt with more central banks than anyone. I was the keynote speaker at the BIS Conference in Paris and sat at the head table with all the heads of the central banks in attendance. I have even had two on the phone at the same time asking if they should intervene in the middle of a financial crisis, I have even sat in a central bank when their red phone connecting then the G7 refusing to answer because it was another wanting them to buy more of their currency. I spoke at the Treasury Management Association and asked questions about what central banks were doing. The finance Minister of Nova Scotia later worked his way next to me at a party later to argue that I downplayed the importance of central banks. Later I asked my friend in the Bank of Canada why he could talk to me, but not to the Finance Minister of one of his provinces. He said (1) I was not Canadian, and (2) if he spoke to Nova Scotia 2 minutes before Newfoundland, he got in trouble.
I have stood at times even between a central bank and its political government. Not only did the commission that was creating the euro come to me because we had ended up specializing in currency from the ’70s, but as I have said on various podcasts, it was Helmut Kohl who took Germany into the euro denying the people a right to vote who also admitted he acted like a dictator and would have lost 7:3 if the German people were allowed to vote on joining the euro. The German central bank, Bundesbank, was vehemently against joining the euro for all the same reasons we are starting to see rise to the surface today. They were feeding us all the notes of what was taking place in the meetings . So, I was really square in the middle of this mess so I was getting it from both sides.
The original Keynesian theory was to control the economy following Karl Marx’s lead. When I was in school, I found it very frustrating. You went to Physics class that they told you nothing is random. Einstein said God does not play dice with the universe. Across the hall, you walked into Economics class and they said that was all wrong, there is no definitive business cycle because everything is a random walk so the government can control society and smooth out the business cycle eliminating recessions and depressions. The theory that inflation was simply an increase in the money supply meant that political governments did not create inflation, it was the central bank’s job to eliminate inflation. Thus, politicians took no responsibility and turned to the central banks arguing that they were responsible for the money supply and thus inflation. Therefore, it was allegedly their duty to control inflation irrespective of the spending of politicians. This was an inconvenient economic truth that has led us to where we are today.
The problem is that the ONLY theory central bankers have is the Keynesian Model. They really have no other theory to rely on. So they keep this braindead idea that lowering rates will stimulate demand and raising rates will decrease demand and this inflation can be controlled with such a theory. They exclude government spending and taxation from the economic reality. Just like the Silver Democrats led by William Jennings Bryan overvalued silver to deliberately create inflation as their solution to get out of the Long Depression of the 1890s.
President Grover Cleveland was a Democrat who spoke out against the recklessness of his own party. They virtually bankrupted the country forcing J.P. Morgan to arrange a gold loan to bailout the US Treasury in 1896. Today, the Democrats continue this same idea. They do not know how ro run for office without bribing the people to vote for them and they will a free lollypop and a toaster. The central bank is INCAPABLE of controlling inflation when they cannot control the fiscal side of the economy.
The central banks are now TRAPPED with no alternative. They are afraid to state the truth because that would put them in direct confrontation with the political side of this nightmare. All they have is raising or lowering interest rates, which has NEVER worked even just once. We are looking at the national debts that governments never pay off. Raise the rates and the government budgets explode and that comes back as a political disaster.
That included his commitment to bringing inflation under control and his plan to establish five task forces review factors affecting monetary policy. No, I have not been contacted about providing any input into Warsh’s task forces on improving the US monetary policymaking. I am not certain that they are ready for the truth. All they have is the Keynesian Economic Model. Before they would abandon that and listen to what I have witnessed will take a cold day in Hell, or a major financial crisis. They will NEVER listen to me to prevent such a crisis. Those in government react, they do not put their neck on the chopping block voluntarily.
Do not expect any change. Walsh had to say the standard BS because that is all they have. There is never a plan B. I am doing this July 25th Seminar to address all of this. Many people have brought their children to conferences and have asked me to do an introduction to how the world really functions. All of the economic theories are wrong because they were all formed during the Gold Standard when currency was never a variable. Today we trade currencies and capital flows around the world first because of currency. Then the second great fallacy is that all of the economic theories are domestic and never international.
No politician ever said vote for me and I will make the dollar the reserve currency. That was created by the free markets and as World Wars I & II that sent all the capital fleeing to the United States. Those wars were beyond any domestic analysis. It is time we change the way we even view the economy because we are all connected. We will be issuing a text book for this event that is included in the price for those attending.
