Fed Transcripts 2008

The Federal Reserve recently released transcripts from its meetings in 2008.  Given the significant financial events that occurred in that year, it seems worthwhile to go through the transcripts in some detail. 

As I work through the entire set of transcripts, in addition to a blog post I will post my comments in a new tab, entitled “Federal Reserve Transcripts 2008.”  I will do the same thing for each new post – likely covering one meeting at a time.

First, a quick recap: how did 2007 end at the Fed?  From my post on the released 2007 transcripts:

The Washington Post chimes in:

It was December 2007, and officials at the Federal Reserve were torn between two visions of what was in store for the nation’s economy: a mild slowdown or outright recession.

A staff presentation described a highly unlikely, worst-case scenario that included a 10 percent drop in the stock market.

The New York Daily News:

“I do not expect insolvency or near insolvency among major financial institutions,” Bernanke said at the Fed’s December 2007 meeting, as the economy was already starting to spiral into the Great Recession.

To summarize the Fed’s views at year-end 2007:

·        “a mild slowdown or outright recession,” but no mention of the possibility of the greatest financial calamity to hit the United States and much of the world since the Great Depression;

·        “a highly unlikely, worst-case scenario that included a 10 percent drop in the stock market,” missing the mark by just a wee bit as the S&P 500 fell by more than 50%;

·        Bernanke did “not expect insolvency or near insolvency among major financial institutions,” well Lehman went belly up in the largest bankruptcy in history and the entire lot of them would have followed along had not the Fed and Treasury intervened.

With that, let’s see how 2008 unfolded through the eyes of the official Federal Reserve transcripts.

Conference Call of the Federal Open Market Committee on January 9, 2008

While reading the transcripts, keep in mind the for-public-consumption mandate of the Fed:

The Congress established the statutory objectives for monetary policy--maximum employment, stable prices, and moderate long-term interest rates--in the Federal Reserve Act.  

So how does the Fed start the meeting?  Bernanke opens the floor to Mr. Dudley:

Market function has improved somewhat since the December FOMC meeting. This can be seen most notably in the term funding, foreign-exchange swap, and asset-backed commercial paper markets. In addition, some of the risks of contagion—for example, from troubled SIVs and from financial guarantors to money market mutual funds or the municipal securities market—appear to have lessened slightly.

Nothing referencing the objectives of the mandate.  But I can give the Fed the benefit of the doubt – efficient functioning of markets is buried somewhere in the Fed’s job description; given the risks to the financial system that had to be obvious even to the oblivious, it is at least arguable that Bernanke should start here.

As can be seen on the first page of the handout in exhibits 1, 2, and 3, term funding spreads have fallen sharply for dollar, euro and sterling rates. For example, the one-month LIBOR–OIS spread is now 31 basis points, down from a peak of more than 100 basis points in December.

The use of LIBOR as a measure of financial market health has been exposed as less than valuable – it seems the Fed may have known something about the manipulation of this self-reported rate as early as 2007:

The Federal Reserve Bank of New York may have known as early as August 2007 that the setting of global benchmark interest rates was flawed.

Dudley goes on to report improvements in various financial markets.  All is not rosy, however:

Despite these positive developments in terms of market function, financial conditions have tightened as balance sheet pressures on commercial and investment banks remain intense and as the macroeconomic outlook has deteriorated. This can be seen in a number of respects.

First, large writedowns and larger loan-loss provisions are cutting into bank and thrift capital and pushing down equity prices.

Second, corporate credit spreads and credit default indexes have widened sharply in the past few months, with a significant rise registered since year-end.

Third, equity markets are under pressure. For example, as illustrated in exhibit 11, the S&P 500 index declined in the fourth quarter and, up through yesterday, has fallen about 5 percent so far this year. Moreover, the equity market weakness has broadened out beyond the financial sector. For example, as of yesterday’s close, the Nasdaq index, which has little weight in financials, had fallen 8 percent this year. Global stock market indexes have also generally weakened.

Equity prices are at issue in two of the three comments he makes.

The US Greenlights Militaristic Japan

From an article at LRC, by John Pilger; in this article, he comments on a book by Bruce Cumings, “The Korean War: A History.”

Like most Koreans, the farmers and fishing families protested the senseless division of their nation between north and south in 1945 – a line drawn along the 38th Parallel by an American official, Dean Rusk, who had “consulted a map around midnight on the day after we obliterated Nagasaki with an atomic bomb,” wrote Cumings.

In fact, Korea, north and south, has a remarkable people’s history of resistance to feudalism and foreign occupation, notably Japan’s in the 20th century. When the Americans defeated Japan in 1945, they occupied Korea and often branded those who had resisted the Japanese as “commies”.

Wasn’t resisting Japan what the Americans were doing for almost four years?  Does this make the Americans “commies” as well?  Perhaps we could ask America’s greatest ally during the war what he thinks.  But I digress.

Cumings exposes as propaganda the notion that Kim IL Sung, leader of the “bad” Korea, was a stooge of Moscow. In contrast, the regime that Washington invented in the south, the “good” Korea, was run largely by those who had collaborated with Japan and America. (emphasis added)

The United States defeated Japan in World War II, mercilessly bombing countless civilians in the process, and then immediately used Japanese connections to control South Korea – an artificial creation of an American giddy with nuclear success.  This statement regarding Koreans who had collaborated with Japan and America is actually a nice bow tied around a gift that was first purchased forty years earlier – in 1905.

What was the gift?

The Imperial Cruise: A Secret History of Empire and War, by James Bradley

This “gift” is described well in this book by Bradley:

In the summer of 1905, President Theodore Roosevelt – known as Teddy to the public – dispatched the largest diplomatic delegation to Asia in U.S. history: Teddy sent his secretary of war, seven senators, twenty-three congressman, various military and civilian officials, and his daughter on an ocean liner from San Francisco to Hawaii, Japan, the Philippines, China, Korea, then back to San Francisco. (P. 1)

Roosevelt was confident that the future of the United States would be determined more by its position facing China than in its position facing Europe.  Certainly, the position in Europe already had a strong foothold, via the Anglo-American empire and America’s emerging role in it.

Roosevelt’s held a superior view of the great Anglo race – emerging from the Caucasus, moving through central Europe (the Germanic tribes), on to England then the eastern fringe of North America.  From there, an entire continent was conquered.  Roosevelt saw the next steps to the west, meaning the entire Pacific, even unto China.

And for this, he sent the delegation, led by William Howard Taft.  Their purpose was to secure the continuation of this tribal wandering to the west. 

What is the tie to this statement, referenced above, by Pilger?

…behind [Roosevelt’s] Asian whispers that critical summer of 1905 was a very big stick – the bruises from which would catalyze World War II in the Pacific, the Chinese Communist Revolution, the Korean War, and an array of tensions that inform our lives today.  The twentieth-century American experience in Asia would follow in the diplomatic wake first churned by Theodore Roosevelt. (P. 4)

To gain a foothold in Asia, Roosevelt felt it necessary to gain an ally in the region – one to do the heavy lifting.  His problem – there was no Anglo presence capable of the task, unlike the migrating tribes that ended up reaching the Pacific coast of the New World.  Japan was to play the part of “Anglo” – don’t ask, I will come to this later.

The American Sport That Sucks

Poor Dutch speed skating coach Jillert Anema; he just doesn’t get the point.

Apparently, the Dutch have won several medals in Olympic speed skating, while the US has been shut-out.  (I wouldn’t know; I haven’t watched a minute of any of the events).

Mr. Anema believes the reason is simple:

"You have a lot of attention for foolish sport, like American football," Anema told CNBC on Friday. "You waste a lot of talent, athletic talent, in a sport where it's meant to kill each other, to injure each other.”

I believe Mr. Anema would understand this better if he appreciated the psychological and emotional conditioning brought on by sports in general in the United States – but most particularly American football.

Before the game, military aircraft fly overhead; 60,000 people rise in joyous adulation.  This is followed by the singing of the national hymn of worship.  The words were written during America’s first war of foreign conquest – the war of 1812.  The intent was to conquer Canada.  The Americans failed; hence the war is instead known in the US as the second war for independence (or, more often, ignored).

The national hymn of worship is accompanied by a military color guard, or on special occasions, an entire military band.  The lyrics include bombs and rockets, but most of all the flag – the colorful rag that artificially separates man from man.

Next comes a veteran of the war in Afghanistan, complete with his congressional medal of honor.  He marches onto the field.  The crowd turns silent – all 60,000 people.  Not a sound.  The crowd is told of his various accomplishments, meaning how many people he killed.  Even more than for the military aircraft and the national hymn of worship, the crowd’s enthusiasm in uncontainable.

The game hasn’t even started, but the crowd is now in an almost uncontained frenzy – emotionally charged by national symbols of faith; reminded of the good in America through its brave military.

The crowd is in a fever pitch – symbols and singing all associated with death and destruction have brought them to this point (along with decades of conditioning by public schooling and mainstream media). 

Now on to the game, and a reminder of Mr. Anema’s comments: “You waste a lot of talent, athletic talent, in a sport where it's meant to kill each other, to injure each other.”

The crowd is rightly prepared for a sport in which men will be injured. But the moment holds deeper meaning, yet the connection is so obvious; the analogy is too easy.  His statement is equally applicable to the “sport,” if you will, of overseas conquest – the sport of the heroes who moments before flew overhead or marched onto the field.

"... (The U.S.) is so narrow-minded, and you waste a lot of good talent in a sport that sucks."

Mr. Anema is correct.  Sadly, he is applying his words to the wrong sport.

More Milquetoast

Another day, another suck-the-joy-of-liberty-out-of-the-joy-of-liberty article.  This one, from Reason, is entitled “Time for a Guaranteed Income?”  And sadly, it isn’t followed by a simple one-word, two-letter response. 

The author is Veronique de Rugy, a senior research fellow at the Mercatus Center at George Mason University.  Get any clues from this position and title?  I will give you another clue, in case you still haven’t caught on: The subtitle of the article is “The pros and cons of a welfare idea championed by liberals and libertarians alike.”

Raise your hands if you already know where this is headed.

OK, for the rest of you….

Switzerland will soon hold a nationwide referendum on granting a guaranteed and unconditional minimum monthly income of $2,800 for each Swiss adult. In America, where Lyndon Johnson's War on Poverty just celebrated its 50th anniversary of failing to achieve victory, liberals jumped on the Swiss news to reconsider the un-American-sounding idea of a universal basic income.

Surprisingly to some, they were joined by many libertarians. The list of intellectuals who have made cases for a guaranteed minimum income over the years includes such laissez-faire luminaries as Milton Friedman, Friedrich Hayek, and Charles Murray.

Let’s see, who are these libertarians?  A Chicago School Keynesian monetarist central planner (but I repeat myself), an Austrian economist who, unfortunately, supported many interventions in the market, and a fellow at the American Enterprise Institute.  Hear no libertarianism; see no libertarianism; speak no libertarianism.

And what libertarian cred do these three bring to the discussion?

Friedman favored a negative income tax (NIT), in which taxpayers who earn less than the established minimum taxable income level would receive a subsidy equal to some fraction of that difference. (A watered-down version of this became the Earned Income Tax Credit.) Hayek defended a minimum income floor, in which the government provides a conditional income to each adult. Murray's 2006 book In Our Hands argued for an unconditional $10,000 annual cash payment to all adult Americans, coupled with a repeal of all other welfare transfer programs.

A negative income tax…a minimum income floor…and $10,000 cash on the barrel-head.

Paid for by whom?  Enforced how?  Wait, sorry.  I am getting a bit too extreme in my libertarian thinking.

A Conversation With Jeff Deist

A wonderful interview of a gentleman who is a great addition to the Mises Institute. 

JD: Quasi-utilitarian arguments flourished in the economics mainstream, ceding the intellectual high ground in favor of arguments that free markets merely “worked” better.

[Rothbard] literally laid out the ethics of liberty, explaining the legal and political conclusions necessarily flowing from self-ownership, the natural rights tradition, and the principle of nonaggression. He made the clear case for property rights as the foundation of a free society, applying the same standards to government and private actors.

BM: Sadly, too many pseudo-libertarian institutions today swim in the world of utilitarian arguments.  Rothbard made countless contributions to the advancement of Austrian economics, revisionist history, and libertarian thought.  In my opinion, his most valuable contribution was in building an ethical foundation for liberty.

Utilitarian arguments build no foundation.  Utilitarian arguments are for politicians (and those who want to curry favor with politicians) – and are subject to the same word and logic twisting that causes many of us to despise many of them. 

People want to believe in something.  “What works best” is go guideline; it is quicksand – and such a utilitarian approach delivers the battlefield to the enemy.

Thankfully, in Mr. Deist, the Mises Institute makes clear it will continue in its tradition of holding to the principled, ethical path.

Shallow Thinking from Simon Black

Sometimes shallow, sometimes callous (this one is still stunning to read).

This time the subject is the Middle Ages, and Mr. Black’s ignorance on the topic.  Yes, yes, I know – not such a big deal in the grand scheme of things.  But, as regular readers know, a rather important topic for me.

He dreams of time travel:

Time travel is an almost universal fantasy. And if I could snap my fingers and turn the pages of time, I’d be seriously curious to check out the thousand-year period between the decline of the Western Roman Empire and the rise of the Renaissance.

Absent certain modern inconveniences, it would be an interesting time to visit.

Now, for the first fallacy:

They used to refer to this period as ‘the Dark Ages’ (though historians have since given up that moniker), a time when the entire European continent was practically at an intellectual standstill.

It is true that historians have stopped using the term.  If he knows this much, one would hope he also knows the reason why.  Alas, it is not to be.

There is a reason for giving up this moniker – the age wasn’t “dark.”  Mr. Black’s characterization of an entire continent “practically at an intellectual standstill” for 1,000 years (can you imagine) is drastically incorrect.  Consider the significant advancements in industrialization: all forms of mechanization, mills, advances in mining, the mechanical clock, irrigation practices, the development of the codex…and technically, movable type. 

Now another fallacy:

The Church became THE authority on everything– Science. Technology. Medicine. Education. And they kept the most vital information out of the hands of the people… instead simply telling everyone what to believe.

Interpreting facts and observations for yourself was heresy, and anyone who formed original thought and challenged the authority of church and state was burned at the stake.

Villard de Honnecourt was in every way a da Vinci 250 years before the famous da Vinci.  For all of his work in science and related fields, he wasn’t burned at the stake.

And the world was round as early as the thirteenth century, according to Brunetto Latini.  Latini was afforded a burial in a most holy place in the church.  This in contrast to the treatment of Galileo during the enlightening period of the renaissance, where he was denounced a heretic and lived under house arrest until his death in 1642.

Witch burning was almost unknown during this thousand year period – it only gained prominence at the end of the period and the beginning of the Renaissance.  The church was rather tolerant of science; women owned businesses and held office; yes, there was serfdom, but slavery was almost eliminated (and a serf, whatever he was, was no slave – and he had many rights to which we, today, would be jealous); many other examples of a liberal society – far more liberal than the Rome that preceded it or the Renaissance that followed – are in evidence.

The change seems to have begun in the late 13^th century and culminating in the mid- to-late- 14^th century – driven by several events: the Condemnation of 1277 (yes, church driven); a devastating famine in 1315 – 1317; the Hundred Years’ War began in 1337 (a war between the by now centralized kingdoms of England and France – and not involving the still relatively decentralized central and eastern European lands); and the Black Death, from 1347 – 1350.

Of course, this corresponds with the beginning of the end of the decentralized society of the Middle Ages, and a return to the centralizing influences of Roman law.  A very unfortunate occurrence.

I have no grandiose summary – after what Mr. Black has written about the nuclear bombing of Japan, his failures such as this one regarding the Middle Ages are minor. 

Hopefully he researches his international and investment advice better than he did this topic.

The White Man’s Burden

Of course, this refers to Rudyard Kipling’s famous poem.

Did you know the complete title is "The White Man's Burden: The United States and The Philippine Islands"?  I didn’t.

It was originally published in the popular magazine McClure's in 1899, with the subtitle The United States and the Philippine Islands.  The poem was originally written for Queen Victoria's Diamond Jubilee, but exchanged for "Recessional"; Kipling changed the text of "Burden" to reflect the subject of American colonization of the Philippines, recently won from Spain in the Spanish-American War.

There are different interpretations of the poem, ranging from a racist call for the white man to rule the dark skinned all the way to satire – an interpretation I would greatly prefer; unfortunately Kipling’s actions surrounding the poem, his interactions with Teddy Roosevelt, and the events in the Philippines kind of get in the way:

In September 1898 Kipling wrote to Roosevelt, stating 'Now go in and put all the weight of your influence into hanging on permanently to the whole Philippines. America has gone and stuck a pickaxe into the foundations of a rotten house and she is morally bound to build the house over again from the foundations or have it fall about her ears'.  He forwarded the poem to Roosevelt in November of the same year, just after Roosevelt was elected Governor of New York.

Teddy Roosevelt?  Why would he write to Roosevelt in September 1898?  Why send the poem on this subject to him in November of the same year?  During this time, Roosevelt had no office that would make such a communication relevant:

·        He was Assistant Secretary of the Navy from April 19, 1897 – May 10, 1898

·        He was Governor of New York from January 1, 1899 – December 31, 1900

·        He was Vice-President of the United States from March 4, 1901 – September 14, 1901

·        He was President of the United States from September 14, 1901 – March 4, 1909 – succeeding William McKinley, who left office due to a combination of an inconvenient bullet and perhaps a less-than-capable physician.

In the fall of 1898, Roosevelt had no official office – yet Kipling sent the poem to him.  Not to McKinley, who was President at the time; not to John D. Long, who was Secretary of the Navy.

No, he sent it to Roosevelt.

I have written before about the assassination of McKinley – the assassination that began the century of war.  Citing Schultze-Rhonhof:

Until McKinley’s presidency, the relations of the USA with the German Reich were always friendly and balanced.  The English-American relationship, on the other hand, up to then is still burdened by the former British Colonial rule and England’s colonial wars in America.

With the assassination of McKinley in 1901 and the change to the presidency of Theodore Roosevelt a new kind of thinking arises in the USA.  (Page 32)

What difference was there between McKinley and Roosevelt, I wondered – both progressive, both taking steps toward empire?  I searched for clues.

Stalin Prepares for War

The Chief Culprit: Stalin’s Grand Design to Start World War II, by Viktor Suvorov

An offensive, not a defensive, war.  But I am getting ahead of myself.

I have previously offered a summary of Suvorov’s book, and have since updated my “Timeline to War” to reflect information found therein.

With this post, I begin my review of the details in the book.  This will take a few posts.

The narrative – peddled both by the Soviets during and after the Second World War, as well as by many in the west – is that the Red Army was totally unprepared for war.  Hitler overwhelmed a clearly inferior Soviet army with his surprise attack on June 22, 1941.

The narrative is convenient for all parties except, perhaps, the Germans.  It ensures blame resides solely on Germany for the attack (technically correct, but ignores several inconvenient facts); it hides the intent behind Stalin’s plans for aggression; it creates the myth that the Soviets were innocent victims of a tyrant – Hitler; it aids the story of US support for Stalin and against Hitler.

The Soviet military buildup prior to the war is ignored.  The capability of Soviet military equipment is greatly downplayed – instead we get peasants fighting with brooms and picks.  Suvorov sheds light on these deceptions.  Following are some of the key points made by the author.

Tanks

If I had known that the Russians really possessed such a number of tanks…I think I would not have started this war.

Adolf Hitler, August 4, 1941 (P. 50)

It wasn’t just the number of tanks, but also the capability of the tanks.  Suvorov examines both points.

On January 1, 1939, the Red Army was equipped with 21,000 battle-ready tanks.  In 1939, Hitler started World War II with 3,195 tanks, the same number that Soviet factories produced per year in peace time. (P.50)

Of course, in 1939 Stalin and Hitler were allies – of a sort.  What of the start of the war between these two?

By June 22, 1941, Hitler had on the eastern front 180 tanks in the under-six-ton category [out of 3,350 tanks of all types].  Not one of them was amphibious and not one of them could compete with the Soviet light tanks.  Stalin, on the other hand, had more than 4,000 tanks in this weight category.  All of them were amphibious. (P. 56)

Pay attention to the dates of some of these events – Stalin was preparing for war up to a decade or more before Hitler attacked, at a time when the Germans were held down at least to some extent by Versailles.

In 1933, the Red Army adopted the T-28 tank.  A variant of this model was designed in 1937 – the T-28 PKh…. Tests showed that if necessary, all series of T-28s could be converted to cross water barriers underwater, at a depth of up to 4.5 meters and width of up to one kilometer with a stream speed of up to one m/s (meter per second).  Not a single German, British, American, French, or Japanese tank from the 1930s could compete with the T-28 in terms of weapons, armor, or engine power. (P. 41)

Amphibious; able to cross on or under water.

One Less Brick in the Wall

Of all of the dastardly deeds imposed upon us by the elite, two stand at the top of the heap: central banking and public funding of education.  This post is about the latter.

I have written before about this topic – perhaps not often enough given its importance.  I cite from an earlier post:

[Gatto] quotes H.L. Mencken: “The aim [of public education] is simply to reduce as many individuals as possible to the same safe level, to breed and train a standardized citizenry, to put down dissent and originality”

Professor Arthur Calhoun wrote that the fondest wish of utopian thinkers was coming true: children were passing from blood families “into the custody of community experts.”

R. J. Rushdoony: “They have tithed their children to the State, and then they complain against how much the government is costing them.”

The state will educate your children.  These words should be poison to every thinking and caring parent.

A few factors will slowly, but certainly, move society from a model of structured schooling to a model of open education.

First is the demonstrable failure of the public schooling model.  I’m not merely referring to the failure to properly educate – meaning the success of indoctrination into the politically-acceptable narratives; sadly, most parents have no concern about this – state-approved brainwashing is acceptable to many, it seems.  I mean the failure to teach the basics – reading, writing, and arithmetic. 

Second is the slow but sure drumbeat of failing government finances.  Where will the resources come from to continue to advance a failed model such as public schools?  Note, I write “resources,” not “money.”  They can print the money.  They can’t create the resources.  And eventually, the ratio of dependent to independent will grow too large…and topple.

Third is the power of the internet.  Again, not just in the fact that it unleashes all sorts of information to counter the politically-acceptable narratives.  The internet offers solutions to the two factors above: the failure of the public schooling model, and the failure of government finances.