Central Banks are Stealing from the Average Citizen

MSN Money ^ | 20 August 2007 | Bill Fleckenstein

[Publius]

What happens when fiscal irresponsibility gets rewarded with bailouts? You get more fiscal irresponsibility. Let's stop rescuing greedy financiers and investors.

As regular readers know, I have been a longtime critic of the Federal Reserve. Not too far back, that view was a decidedly minority one.

But as our credit bubble undergoes an ugly unwinding, it's dawning on folks that central banks lie at the epicenter of the problem. Andy Xie nailed it in Tuesday's Financial Times, which is why I've chosen to begin my column with quotes from his article "It's time for central banks to stop bailing out markets."

The bailout stops here

He writes: "The global credit bubble is bursting. This bubble is primarily leverage financing for owning risky assets. The people who were responsible for what happened played with other people's money, marketed arcane financial products with false promises of fat profits, but stuffed their own pockets with big bonuses. Neither these masters of the universe nor their greedy but naive investors deserve to be bailed out. They deserve what is coming to them.

"The central banks should focus on price stability, not financial market stability, and should provide liquidity only to contain the multiplier effect of the bubble bursting on the economy. Nor should central banks stimulate to avoid recession at any cost. Business cycles are not bad. Excesses must be followed with cleansing...

[Publius]

Surprising view from a MSM source.

[cinives]

FGS - Central Banks are complicit in CAUSING the problems. If we hadn’t had such easy credit under Greenspan we might not have this big of a mess.

Yes, idiots need to stop getting bailed out, but we need to stop enabling the idiots in the first place.

[gondramB]

The author manages a short only hedge fund. Of course he doesn’t like market stability - he’s a vulture in the worst sense.

The “stealing” he is unhappy is the fed charging half a percent less to banks for short term loan. This jerk was hoping for a financial breakdown so his betting against the economy would pay off.

[snarks_when_bored]

Fleckenstein is a perma-bear, but that’s not to say that he doesn’t sometimes make reasonable arguments.

[SierraWasp]

Keep pushing back the “frontiers of ignorance” like that and I’ll see that you get a gold star!!! (the quote is from Walter Williams, the black professor who fills in for Rush)

[dalereed]

He’s dead right, it’s past time that 3 generations learned how to be responsible with money.

The only way they will learn is the3 hard way.

[SierraWasp]

Quite right! And true, too!!!

[Redbob]

"(the quote is from Walter Williams, the black professor who fills in for Rush)"

Should note that Walter Williams is an ECONOMICS professor.

[Redbob]

"The author manages a short only hedge fund."

That does help to put his odd comments into perspective.
Thanks

[1rudeboy]

I’ve always enjoyed reading Bill Fleckenstein’s columns. He’s my favorite contrarian.

[U.S. Raptor]

Need to ditch those “Hedge Funds”....

[traviskicks]

http://www.house.gov/paul/congrec/congrec2002/cr091002b.htm

[Toddsterpatriot]

Is a gold standard feasible again? Of course. The dollar could be redefined in terms of gold.

That's funny! How would that work exactly?

[Paladin2]

Walter E. Williams. I think he gave up being a prof (in the formal sense) and is, in general, a hoot to listen to.

[Moonman62]

The author manages a short only hedge fund. Of course he doesn’t like market stability - he’s a vulture in the worst sense.

Thanks for letting us know.

[Moonman62]

FGS - Central Banks are complicit in CAUSING the problems. If we hadn’t had such easy credit under Greenspan we might not have this big of a mess.

The problem with central banks is they cycle between tight credit and easy credit for no good reason. The only way to fix it is to let the market set the funds rate.

[Oberon]

That's funny! How would that work exactly?

Well, what would happen if we passed a law tomorrow that defined the value of the dollar as 1/Xth of an ounce of gold, where X is the dollar price of gold at market close today? Just define the dollar as equal to a quantity of gold.

The trick is that the Fed would have to have enough gold in storage to represent all the dollars currently in circulation, or the new valuation would be a fiction.

[gondramB]

>>The problem with central banks is they cycle between tight credit and easy credit for no good reason. The only way to fix it is to let the market set the funds rate.<<

The Fed is imperfect but todays cycles are nothing like the panics of the Gold stadards era.

[Toddsterpatriot]

The trick is that the Fed would have to have enough gold in storage to represent all the dollars currently in circulation, or the new valuation would be a fiction.

Ding ding ding.

[Moonman62]

What I find interesting about the 1800's is that the US grew to be the largest economy in the world, yet the dollar was worth twice as much in 1900 than 1800. There were two national banks, a long era of wildcat banking, big inflation from the Civil War and a long period of deflation following.

We now live in an era dominated by inflation, which seemed to start during WWII, yet we don't have nearly the frequent depressions as there were back in the 1800's.