Jim Grant on the New Federal Reserve Governor Nominees; Economic Groupthink

Organizations, whether it be a club or a profession or a department, too often over time develop a sort of intellectual inertia, a bureaucratic mindset that tends to perpetuate and validate a certain view of the world amongst its members, particularly if they share other elements in background and world view.

This works to its advantage when they are right, and when the scope of the tasks which they must address are limited to largely operational concerns, without significant risk in the classic sense of the term.

But when the situation becomes different, the environment changes, this organizational mindset not only stifles innovation and adaptation, it can literally reach out and strangle it, well beyond its members, using the entrenched power of its tenure. We see this tendency clearly in organizations that have enjoyed long periods of organizational growth under the leadership of strong personalities, such as the FBI under Hoover, and the Federal Reserve under Greenspan.

We can see this same tendency on a micro level in our daily life on chatboards, in clubs, in our company departments, in civic organizations. It is a tribalistic instinct, that urges the adoption of a consensus view, often influenced and promoted by articulate and single minded individuals, which then musters and focuses the energy and vitality of the group in the execution of its mission.

When it is right, it brings success. But when it goes wrong, when it feeds on itself, becomes defensive and inwardly focused, when perpetuation of the group view overtakes all other considerations, when tribal loyalty and sameness is valued over results, it leads to a cult like behaviour, inbred thinking, that may be inimical to the best intentions of the group, and the sort of behavioural anomalies which we have seen in the tragedies of Watergate, the latter stage Hoover FBI, and even Jonestown.

Economics is in the grips of such a period in its development. One of the primary causes of this problem has been the rise of a few well funded think tanks, universities, and of course the Federal Reserve, that have become powerful influencers, and guardians, dogmatisers of the status quo. The petty sniping among the schools notwithstanding, the current debate of stimulus versus austerity serves to show how anemic, how self referential, how predictable the discussion has become.

The US politicians and economists are doing the same things over and over, expecting a different outcome. For the past twenty years the world has been lurching forward in a series of increasingly destructive asset bubbles, supported by the corruption of thought, and the transfer of wealth from the many to the few, as a direct result of fiscal and monetary policy fomented by relatively small number of powerful people, the monied interests. At some point this will change, and the grip of the status quo will be broken. How much energy will be released, and in what directions, only time can tell.

Janet Yellen: "...has had thirty six opportunities to vote on monetary policy at the FOMC, and she has voted 'aye,' yes, thirty six times. Thirty six for thirty six. Has the Fed been right thirty six consecutive times? No. A well credentialed, consensus hugging economist straight out of the Fed HR department. She is ideal from the point of view of the Fed bureaucracy. She will make not one ripple."

Peter Diamond and Sarah Bloom Raskin: "Diamond is a formidable academic, and Raskin is a formidable regulator, but neither is a formidable thinker about the nature of money, or about the history of money, or about how the Fed might paradoxically make things worse by doing what it does, trying to make things better, which I think is the great question. These are people who I think are unlikely to propose novel solutions to our fundamental monetary dilemma which is that the US dollar is a faith based currency of no intrinsic value that is manipulated by the Fed, and the consequences of the manipulation are often quite distinct, different from what was intended. That's the problem."

"In questions of power, then, let no more be heard of confidence in a man, but bind him down from mischief by the chains of the Constitution."

Thomas Jefferson

Gold Daily and Weekly Charts; Silver Weekly Chart; Bernanke's Bluff; Endgame

The Federal Reserve and its friends in the European central banks, the IMF, and BIS are running a bluff against the developing nations and the rest of the world, and to their shame, the majority of their own people.

They will have to engage in wider scale monetization and 'quantitative easing,' which is a polite euphemism for the debasement of the currency, to cover the collapse of their expansion of the money supply, the misprision of felony, and the subornation of perjury, to facilitate the mass transfer of wealth from the public to their friends. This is why they must operate in the dark. Ponzi schemes must always expand, and always in secret.

The increasing manipulation of gold, silver and the currency markets, and the monetization of the public debt, is a sign of the endgame for the sorcerer’s apprentices. These are the signs for our times.

In the short run things will be confusing, and difficult. In the longer term the outcome is as it has always been. You can fool some of the people all of the time, and all of the people some of the time, but you cannot fool all of the people all of the time.

Bernanke and his ilk will fail, not with a bang but a faltering failure, and a final whimper. But this will take time, and in the short term they will act with a con man's bravado, for con men they are, wielding power and using public funds unjustly, in secret, in an unconstitutional collaboration of financial institutions, the corporations that have risen around them, and the government.

"A collective tyrant, spread over the length and breadth of the land, is no more acceptable than a single tyrant ensconced on his throne."

Georges Clemenceau

The lifting of the veil from their scheme will be like the rising of the sun, as things long hidden become known. And we will look upon money and value in fresh ways.

Gold Daily Chart



Gold Weekly Chart



Silver Weekly Chart

"If the people only understood the rank injustice of our money and banking system, there would be a revolution before morning."

President Andrew Jackson, 1829

SP 500 September Futures Daily Chart

There are powerful cross currents at work in the US equities market.

A resolution, at least for the short term, should be forthcoming.

China Should Sell US Treasuries When the Market Is Strong (Like Now) and Diversify Its Reserves

If the Treasury market is robust, as it is now, China might be able to sell its Treasuries without disrupting the market, but it would also then have to sell dollars to diversify into other assets in constructing a portfolio. This might show up in the value of the dollar if not in the bonds.

I wonder how much of that BIS / IMF gold is being diverted to China in private sales in order to allow confidence to remain high in the fiat, and to not disrupt the public markets with large price fluctuations. The US banking system has a significant risk exposure to the gold and silver markets through a few of its banks who are leverage short to the hilt.

This same story prompted Max Keiser to write the following in Game Theory and Gold: Countdown to Meltup

"Soon enough, a G20 nation will announce a full or partial gold backed currency forcing every other country to either reply with their own gold backed currency – or equivalence – or risk 100% capital flight."

Reuters
China should cut U.S. Treasury holdings: economist
by Langi Chiang and Alan Wheatley
BEIJING Sun Jul 18, 2010 9:24pm EDT

(Reuters) - China should cut its holdings of U.S. Treasury securities when market demand is strong, a prominent economist said in remarks published on Monday.

Beijing reduced its Treasury holdings in May by $32.5 billion to $867.7 billion, but it actually bought a net $3 billion in long-term Treasuries and remained the largest single holder of U.S. government debt, the Treasury reported on Friday.

Yu Yongding, a former academic adviser to the central bank and now a professor with the Chinese Academy of Social Sciences, said Beijing should invest in assets denominated in other currencies as well as other financial instruments and real goods.

"Although assets in other currencies and forms are not an ideal replacement for U.S. Treasury bonds, diversification should be a basic principle," Yu wrote in the China Securities Journal.

"When demand for U.S. Treasury securities is strong, it's a rare opportunity for us to gradually pull back. That way, it will not have a big impact on prices and China will not suffer too much," he said.

Zhang Monan, a researcher with the State Information Center, a think tank under the powerful National Development and Reform Commission, told the paper that China should invest more of its $2.5 trillion of foreign exchange reserves, the world's largest stockpile, in hard assets such as gold.