“Despite having the most powerful economy on earth, the United States too often reaches for the gun instead of the purse,” contend CFR Senior Fellows Robert D. Blackwill and Jennifer M. Harrisin War by Other Means: Geoeconomics and Statecraft. They argue that the United States should strategically integrate economic and financial instruments into its foreign policy—what they define as geoeconomics—or risk losing ground as a world power. Read more and order a copy »
I BET WITH YOU 100USD – THAT EVERY KID ON THE STREET WAS SEEING THAT HOUSING-BUBBLE OF 2008 COMING.
So if Bernanke (FED) says “he did not see it coming” – it is either a lie – or it means the finance-sector and politicians are soooo arrogant and deteched from the rest 99% and blind-eyed on every eye. This is very unlikely – so i go for the first (it is a lie) with a little mix of massive arrogance and miss-management. But let us remember – the FED was FOUNDED (largely a JP Morgan production) in order to AVOID FURTHER FINANCIAL CRISIS – that probably was also a lie.
to me this seems like a scheme… banks generate money when giving a loan e.g. for a mortgage for housing… they even lend money between banks to generate more checkbook-money… after a collapse you can go on shopping tour… and buy things cheap and wait for it to gain value again. it is basically a massive nation or even world-wide fraud.
“8 Million jobs lost by 2008 subprime housing bubble crisis” … “good job” FED for “stabilizing” the financial system… massive failure i would say. “Small businesses are not seeking or qualifying for credit”
It is very funny that the ECB is doing the EXCATLY same thing as the FED does. 1:1 copy. Bernanke was not Goldman Sachs – Mario Draghi (ECB) was.
Do Central Bankers Know a Bubble When They See One?
Between 2000 and 2008, two of the largest financial bubbles in history — in technology stocks and housing, respectively — suffered spectacular collapses. Opinions vary, but some market commentators believe at the peak of the tech bubble, total stock market capitalization exceeded 180% of US GDP. To put this in perspective, the tech stock bubble was over twice the size of the 1920s stock bubble!1 As large as the bubble in tech stocks was, it was child’s play compared to the housing bubble. When the US housing bubble collapsed, the credit losses were so large the entire worldwide banking system was considered to be in mortal danger.
One of the primary justifications behind the 1913 founding of the Fed was to prevent financial crises. Logic then dictates if a major motivation behind forming a central bank is the prevention of a financial crisis, then a financial crisis that breaks out under the nose of a central bank must be due — at least in part — to mistakes of that bank. The Fed’s mistakes and its subsequent leading role in causing the housing bubble will be seen by reviewing speeches given by Alan Greenspan and Ben Bernanke that praised the housing bubble era Fed. In addition, a review of statements made in the wake of the tech bubble’s collapse will reveal senior Fed officials taking positions diametrically opposed to positions Alan Greenspan claimed formed the basis for the Fed’s policy toward bubbles, namely, allowing bubbles to burst and dealing with the consequences later.
From its March 2000 peak to its October 2002 bottom the NASDAQ declined 80%. Throughout the 1990s no one cheered on the “new economy” more than the “maestro,” Alan Greenspan. After the bubble collapsed, Greenspan recognized a need to explain his and the Fed’s actions while the tech bubble grew. In August 2002 Greenspan gave a speech at the Fed’s conference in Jackson Hole. In this speech, which Jim Grant called “self-exculpating revisionism,”2 Greenspan offered this rationale for the Fed’s actions during the late 1990s:
The struggle to understand developments in the economy and financial markets since the mid-1990s has been particularly challenging for monetary policymakers. … We at the Federal Reserve considered a number of issues related to asset bubbles — that is, surges in prices of assets to unsustainable levels. As events evolved, we recognized that, despite our suspicions, it was very difficult to definitively identify a bubble until after the fact — that is, when it’s bursting confirmed its existence.
Less than two years later, in January 2004, Greenspan would congratulate himself on the apparent success of the Fed’s strategy. In doing so he would expose the Fed’s role in creating the far more ruinous housing bubble.
There appears to be enough evidence, at least tentatively, to conclude that our strategy of addressing the bubble’s consequences rather than the bubble itself has been successful. … As I discuss later, much of the ability of the U.S. economy to absorb these sequences of shocks resulted from notably improved structural flexibility. But highly aggressive monetary ease was doubtless also a significant contributor to stability.3
The “monetary ease” — slashing interest rates — Greenspan was taking credit for here was not helping the economy heal. Instead it was fueling an enormous bubble in housing whose negative consequences can best be described as world-altering.
The irony in giving this speechat this time should not be lost.
Bernanke’s speech, like Greenspan’s, betrays a total ignorance of the enormous housing bubble that was only a few weeks from peaking.
(Homeownership peaked in April 2004!) With just these two speeches, the criminal incompetence of the Greenspan/Bernanke and the leading causal role the Fed played in the housing bubble are demonstrated.
The Fed’s bubble befuddlement was not limited to a few speeches. For years on end Fed officials would take positions in contradiction to those established by Greenspan in his Jackson Hole, Wyoming, speech. For example, in July 2005 and in his capacity as head of the president’s council of economic advisors, Ben Bernanke was asked on CNBC if there was a housing bubble. He does not answer by saying bubbles can’t be seen until after they burst. Instead he says the following:
Well, I guess I don’t buy your premise. It’s a pretty unlikely possibility. We’ve never had a decline in housing prices on a nationwide basis, so what I think is more likely is house prices will slow, maybe stabilize, might slow consumption spending a bit. I don’t think it will drive the economy from its full employment path.
Later in October 2005, other Fed officials would also contradict Greenspan’s Jackson Hole speech. By then, homeownership had already peaked and the bubble had started to collapse. Amazingly, two Fed economists investigated if there was a housing bubble. They — erroneously, of course — concluded home prices are “high but not out of line.”4Obviously, if Fed officials were investigating to see if a housing bubble existed, then they believed it could be observed without first having to collapse.
Often, the most damning indictments of the bubble-era Fed come from other Fed officials. The most loquacious of these officials is current St. Louis Fed president James Bullard. Among the truths Bullard accidently exposed was the one concerning the obvious nature of the recent stock and housing bubbles. In a September 2013 interview Bullard said, “The bubbles we had in the past were gigantic and obvious.”5Later, in a November 2013 interview, he said the housing and tech bubbles were “blindingly obvious.”6
Amazingly, Alan Greenspan would eventually completely contradict Greenspan! Here is “Mr. Chairman,” as CNBC lovingly refers to him, discussing the Lehman Brothers failure in October 2013, “We missed the timing badly on September 15th, 2008 [the day Lehman Brothers went bankrupt]. All of us knew there was a bubble.”7 So which is it Mr. Chairman? Can bubbles be “obvious” or something “everyone knew” to exist before they pop — as you indicate here — or do you have to wait until after they pop to confirm their existence as you said in Jackson Hole?
Our brief review here demonstrates both the leading role the Fed played in creating the housing bubble — the January and February 2004 speeches — and the many mutually exclusive positions the Fed took on bubbles. In spite of being exposed in what is either a self-exculpating lie (the claim that bubbles can only be seen after they burst) or a sign of gross incompetence (the failure to see two of the largest financial bubbles in history), no Fed official has ever been asked to explain or rationalize the Fed’s contradictory positions on bubbles. Whether anyone from the Fed is ever forced to do so or not, it is obvious the Fed has much to answer for concerning all the economic hardships their bubble befuddlement has caused.
And I believe that totalitarianism, if not fought against, could triumph again.
Mankind and the individuals that comprise it, conscious of it or not, are in a constant pursuit of something: happiness, perfection, wealth, or popularity. Yet there is something, a more worthy, substantial pursuit that is common amongst many others: the relentless pursuit of what he believes to be a certain TRUTH that exists. Perhaps one of the most dedicated of these people in his attempts to seek out and expose the truth is writer Eric Arthur Blair, (Nom de plume: George Orwell) particularly in his novel 1984. In order to understand Orwell’s political opinions, platforms and his desire to unveil the truth about certain governments, we must analyse his past: his experience in Burma, Spain, and England. It was through these experiences that involved propaganda and totalitarian regimes that Orwell came to develop his views on sovereignties which he later compiled in his satirical novel 1984. Though this allegorical story has an interesting “surface” tale, it must be analysed on a deeper level in order to fully understand the author’s purpose. It is through a more intense investigation of the novel that the reader comes to recognize 1984’s verisimilitude. It has become apparent that 1984 is not an anachronistic representation of a past totalitarian society; it has becomes a timeless book whose characters, lessons, and themes can be seen in the year 1996.
Orwell was born in India in 1903, his father working for the Civil Service at a time when England’s imperialism was peaking. At the age of fourteen Orwell entered Eton School in England. It was at Eton that Orwell first became exposed to totalitarian leadership under the watchful eyes of his schoolmasters who “used kicks and caresses to keep the boys in line.” Once graduated from Eton, Orwell decided to work for the British Government in Burma as a member of the Imperial Police. There Orwell was exposed to many executions and other developments that resulted under imperial rule. It was at this points that Orwell “had already made up his mind that imperialism was an evil thing.” Therefore Burma was seen as a point of change for Orwell: in Burma Orwell established a hatred for the superimposition of the British Government upon the Burmese. Yet while this developed Orwell’s opinion of such governments, his experience in Burma was only the beginning of what would come to be an extensive political resumé of experience.
Following his work in Burma, Orwell felt “obligated to expose the truth,” as he had fully come to recognize that “totalitarianism was a basic evil.” His further experience strengthened his opinions. After returning from Burma, Orwell wasted away as a poor beggar for several years and then went to Spain to fight in the Spanish Civil War. In part, it is believed that this was done because Orwell felt indebted to the world for his actions in Burma. To “equal” himself with others, he felt it necessary to “reduce” himself on a social level. Moreover, Orwell wished for an experience where he was considered to be a commoner, since the class system in England was far too restrictive for this to happen. Orwell himself said: “the class system- it hit you like a stone wall.” In Spain Orwell fought with the Republicans and there recognized that it was “impossible to fight for any side without recognizing it as an unjustifiable tyranny.” While Orwell had originally thought that Spain would be a rejuvenating experience, he quickly came to learn that even the side he was fighting for was in arms with itself. That is, the Americans, British, and Communists fighting Fascism were themselves in dispute. It was as a result of Orwell’s dissatisfaction in this incident that he almost came to be slain by a group of Communists. In Spain Orwell suffered injuries and later returned to England where he worked for the BBC. Concurrently the Second World War was under way, and Orwell familiarised himself with the Russian situation. Having just felt the frustration of the Spanish War, Orwell was once again outraged that the Russians as a people and the rest of the World were not truly recognising Stalin’s oppressive ruling. He took the stage and pointed out the truth. The fact was that little was known about Russian life behind the iron curtain: information was limited to government agency reports that only published the good news while inside sources mysteriously contradicted one another. It was as a result of these experiences that Orwell came to develop his views as expressed in the novel 1984 and Animal Farm.
Through his political experience, Orwell was not only inspired to write, but he made his goal in writing to reveal the faults of a totalitarian system:
“Every line of serious work that I have written since 1936 has been written, directly or indirectly, against totalitarianism and for socialism, as I understand it.”
And so, the world was given 1984 and Animal Farm where Orwell criticized the totalitarian governments of the world for their platforms. Collectively, his works came to reject the governments which sought a utopia that Orwell had, at an early age, recognised to be impossible to achieve. It was through his writing that this ultimate prophesy was established. Orwell matured as an experienced man whose young and adult exposure had opened his eyes to multitude of political clashes. It was through these trials in Burma, Russia, and Spain that Orwell began to develop a disapproval for totalitarian ruling forces and an admiration for socialism. Moreover, through leaders such as Russia’s Stalin, identified as “the greatest,” Orwell found many flaws. Consequently Orwell set on a mission to expose the truth to the world; to save it’s countries from futile attempts to create utopian states far too idealistic to be reality. In his life and work, Orwell was truly dedicated to being a beacon of light in the totalitarian night!
One thing that muddies this discussion on “ownership” is the issuance of stock by the regional Fed banks to the member banks. This stock pays a fixed 6% dividend and gives the banks a claim on the Fed’s annual profits. But let’s keep this in the right perspective. Last year the Fed earned $90.5B. Of this, $1.6B was paid out in dividends. The remaining $88B was remitted back to the US Treasury. While the US Treasury doesn’t technically own shares in the Federal Reserve the Fed is required to remit its profits at the end of the year back to the Federal Government. As you can see, remittance often dwarfs any dividends paid back to the banks. In other words, the US Treasury is the recipient of most of the Fed’s profits.