Monday, February 2, 2015

Money and the People Who Rule Our Lives

Money is, according to at least one proverb, "The root of all evil" and it may well be just that. Obtaining it, controlling it and wallowing in the power that it can bring is a fixation for some and a total all-consuming obsession for others. It can ruin lives and countries and it is governed by powers that we ordinary nerds don't even know exist.

We are under the impression that there are uncontrollable cycles that cause interest rates to climb, bankruptcies to bloom like a Spring meadow in Alaska and it just happens. Isn't that the way it goes? People want too much, overspend and then get all of us in hot water. Aren't they the ones responsible for the dreadful mess that hit us in 2009 and still hangs on, doggedly, right up until the present day?

 We can't possibly understand the mechanics of economics, can we? Should we try at least to think about it or just go on our merry way hoping that somehow we'll make it to retirement and beyond without living in a cardboard box on the seamy side of town? Yes, we're pawns of some supernatural monster that manipulates money and we are helpless in the face of its malevolence.

While in college, I had the good fortune to have a professor who taught a class that I was required to take. It was economics and I knew absolutely nothing about it, but once I began reading the required textbook, Paul Samuelson's "Economics," I found something I really enjoyed. I wasn't, however, destined to be an economist because it just didn't fit into my plan, but I always retained an admiration for Samuelson and that professor who was a consultant to major cities in the United States. These classes, taken quite some time ago, must have set off a small ember of interest that refused to die.

I remember reading a biography on Alan Greenspan because economics still did interest me. But, after finishing the book, I didn't hold the former Chairman of the Federal Reserve in much regard. He knew how to count nails and wallboard and heaven knows what other types of building materials in order to formulate his assessment of how the GNP was growing. But there was more that troubled me about this many of such power. I was surprised that his doctorate is an honorary one because he never completed a doctoral dissertation. How committed could he be if he didn't bother to do that?

That was fine, I guess, but he never made any particularly coherent statements in his many appearances before Congress when he was called upon to give some indication of how the economy was doing and where it was going. I'm not alone in that opinion, I know, because I've seen it referred to in many articles on money and the economy. I really don't know how he kept his job for all those years. Sorry, Alan, and I'm sure you do play a mean clarinet and are a superb dinner conversationalist. Writers have alluded to that, too.

Today, while perusing my mail I came across something that mentioned a few documentaries that were of particular interest to the sender and, even though one didn't get much mention in the body of the email, the name struck one of those responsive chords in my brain that was waiting to be rung again.

The documentary is "Princes of the Yen: Central Banks and the Transformation of the Economy." Too dry for your tastes, you say? My friend you have no idea why you should want to know more because this is like opening a door to a treasure trove that is kept as elusive and secret as where the Golden Fleece might actually be, if it exists at all. Those central bank princes and their helpers, one huge private bank, force the waves of recession and economic regulation like you've never suspected and they benefit mightily from it. The benefits come in their wished-for citizen demand for a change in the economic system, a change that will benefit them.

Take one small example and then go watch the documentary and also get some YouTube videos where Samuelson or Milton Friedman explain finance as it relates to money markets and how that, ultimately, affects whether you have a job next year or not. The take-away message, if you watch the Princes video, is that you are manipulated by banks which are, in turn, moved to action by what the central bank does. In our case it's the Federal Reserve that decides how to tinker with the economy. But the banks seem to hold sway over the Fed.

If the banks and investment houses went off the deep end, as they did in 2009, it may have been avarice on their part or a less-than-diligent Fed that allowed the money supply to be loosened to banks. Banks, in turn, do an incredible job of creating the economic equivalent of foie gras; they almost literally push money (loans) down the throats of lenders. The lenders, unfortunately, are not always able to afford these loans but they are convinced they can do it.

It's happening right now in the used car loan market where consumers, who can't afford loans for used cars, are taking loans for these cars. We all know what happens in the end. There is incredible loss of equity for home or car owners, loss of employment as businesses go under and a further division of classes with the middle class being pushed further away from the American dream.

Anyone who is old enough to remember the "buy up everything in sight in the US" fever that affected Japan in the 1980s will recall how that country used excess money. Huge cattle ranches in the Western states were bought. Rockefeller Center in New York City was added to the assets accumulated as were entertainment companies. It was a drunken binge of buying that would, eventually, led to exactly what the central bank and one major bank wanted; changes in the laws that would permit looser regulation and limited oversight of monetary policy.

After all, the man or woman on the street couldn't possibly understand the workings of the finance system, could they? Why should they be expected to if it was always stated in the most arcane language imaginable? This has the lovely effect of turning the average citizen off to ever attempting to understand monetary policy. Just listen to any of Alan Greenspan's speeches and you'll get the idea. Try to count anything concrete he has to say and I think you'll find you come up empty handed.

Central banks can, as they did in Japan and may do in Europe, bring on dire conditions because this is the petrie dish for their new government rules. You create the crisis and then you solve it by achieving your goal of government regulation change. In Japan it led to a serious number of suicides and whoever thought that a simple thing like making money available for people to buy goods and services could be so deadly?

I don't mean to be such a cynic, but I'm now going to read more articles on economics, watch more presentations by economists I respect and begin to be a more informed consumer and citizen of this great nation of ours. I think all of us owe that to ourselves and our country. You are only a good citizen if you are informed in order to participate in the decision making that our country faces in the years to come. We owe it to all those who will come after us.

http://www.drfarrell.net