November 23rd, 2008

Misplaced Blame to Avoid Accountability


photo credit: jesheekah

Much has been said and debated in the public arena during the last few months regarding the economy. As with any catastrophe, people are looking to point fingers in order to be able to channel frustration and demand recourse. Sadly, the majority of the public has been deceived into believing that “unrestrained capitalism” and speculative, greedy investors were the major factors behind our current economic troubles.

Make no mistake: this accusation was not accidental, nor is it in the slightest bit truthful. In this instance we see a perfect example of the art form that is the shifting of accountability. This is done by getting the public to place the blame on the wrong people, much like a third grader suspected of causing mischief in class feigns innocence, shrugs his shoulders, and suggestively points to the kid next to him.

By diverting attention from themselves, those who are truly culpable free themselves from the consequences of their own actions, thus allowing them to continue pursuing their destructive course. In this case, the Federal Reserve has repeatedly and frequently avoided the attention they justly deserve through orchestrated media campaigns designed to misplace the blame and prevent any and all discussion related to the organization’s history, mission, agenda, and policies.

This campaign to quell public interest in the matter can be easily seen by asking a random person on the street what they know about Federal Reserve. For all the noise people make about losing their life savings, high food prices, and the housing bubble, few Americans attempt to truly understand the root of the problem.

A nationwide rally was held yesterday in 39 cities to raise awareness about the Federal Reserve and support the campaign for its abolition. As I stood with my sign in front of the Salt Lake City branch building, I amused myself by watching the reactions of people in the cars that drove by. The vast majority were visibly perplexed as to what the “Fed” is, or why people might be upset about its existence.

The fact that very few individuals understand the role of the Federal Reserve illustrates its successful strategy to deflect attention and place blame for its destructive policies onto individuals, organizations, policies, and market forces outside its sphere of influence. By so misplacing blame for what the Federal Reserve does, Americans are wasting their time and energy, and further supporting policies and laws that penalize and restrict individuals and practices that did nothing to create the environment used to bring the economy to its proverbial knees.

21 Responses to “Misplaced Blame to Avoid Accountability”

  1. Haylie
    November 23, 2008 at 3:22 pm #

    so I dont understand how is the fedreal Reserve responsible? arent they the ones giving the money to bail everyone out, is that the problem? sorry if i sound dumb just trying to understand and be aware.

  2. Carborendum
    November 23, 2008 at 3:25 pm #

    Connor, while I don’t approve of the policies that provide for the existence of a Federal Reserve, much less the World Bank, I would ask you to give more detail to what you are describing.

    What I currently read is a classic “liberal style” attack of making an accusation without any details, logic, or evidence.

    Could you elaborate?

  3. Connor
    November 23, 2008 at 3:56 pm #

    Haylie,

    sorry if i sound dumb just trying to understand and be aware.

    Don’t you remember learning as a youth that there are no such things as dumb questions? :)

    The Federal Reserve is a private banking system that has been given control of the nation’s money supply. Their meetings are secret and they have never once been audited.

    For a simple explanation on the Fed, see here. For a more in-depth analysis, I recommend this book.

    In short, the Fed is responsible because they have enabled all the bad choices that have been made through artificially lowering interest rates (thus enticing people to take loans out for things they can’t afford, since it’s “cheap money”) and flooding the economy with new money (both in the form of actual currency and debt), creating massive amounts of inflation.

    People talk of speculative investors or greedy capitalists, but the reality is that these individuals would never have had the opportunity of pursuing their destructive actions had the Federal Reserve not been able to print money out of thin air, expand the money supply artificially, and keep the interest rate at a low rate to encourage borrowing.

    Those making the poor decisions (such as greedy investors) should suffer the consequences of their actions, much like the individual tempted to sin must pay the price if they choose to follow that path. But it’s important to look at who is offering the temptation, and what system is allowing them to continue encouraging and allowing Americans to make poor, destructive choices that ruin the economy in the aggregate.

    Carborendum,

    …I would ask you to give more detail to what you are describing. What I currently read is a classic “liberal style” attack of making an accusation without any details, logic, or evidence.

    The lack of details in this post is largely due to my having gone over them in other posts, and perhaps incorrectly assuming that many of my readers will recall what I’ve already said.

    Hopefully some of my comments to Haylie offer more granular arguments against the Fed to help illustrate why I believe that this institution has been the root cause of almost all of our economic troubles since its inception.

    At the root of this matter is the fact that no discussion is generated regarding the existence and mission of the Federal Reserve. The Chairman is called in to testify during times of crisis, but he is treated as a wise sage of economic integrity, rather than the counterfeiting thief that he is.

    What I’m referring to is the lack of debate regarding the role the Fed plays in the American economy. For a timely and well-written article on the subject, I recommend this headline article in this months’ The New American.

  4. Curtis
    November 23, 2008 at 5:51 pm #

    Connor,

    much like the individual tempted to sin must pay the price if they choose to follow that path. But it’s important to look at who is offering the temptation, and what system is allowing them to continue encouraging and allowing Americans to make poor, destructive choices that ruin the economy in the aggregate.

    Allow me to extrapolate on your simile here then. It is Satan that offers us the temptation to sin. However, as we all know, Satan has only as much power over us as we allow. If we choose to handcuff him completely, he would have no power at all as it will be during the millenium. It sounds like Satan is not really the one to blame since by our own choice we tangle ourselves up in sin and give him power over our lives.

    I agree that the Fed has to go. However, I think that it is indeed our greed and covetousness and our idolatry that has brought us to this point, just as it is the sinner’s own fault that he or she decided to follow the ways of Satan.

    It is important to take a look at the system that creates the atmosphere that leads to such excesses, but it is the people rather than the system that are ultimately accountable for the system and the excesses.

    I agree with the spirit of your post though. Down with the Fed.

  5. Connor
    November 23, 2008 at 5:58 pm #

    However, I think that it is indeed our greed and covetousness and our idolatry that has brought us to this point, just as it is the sinner’s own fault that he or she decided to follow the ways of Satan.

    You make a good comparison. I imagine a drug addict continually wanting a “fix”. The Fed is the drug dealer (the enabler) consistently feeding the addict’s vice. The real problem is the addiction and the individual’s desire for drugs (perhaps rooted in some other character deficiency), and it is being manifested through patronizing the drug dealer.

    So, in that case, we should expel the drug dealer and then address the problems in the person’s character that led them to choose drugs. In our case, we should abolish the Fed and then address the greed and idolatry that pervades society. I can think of no better tool than the Book of Mormon.

  6. Mark N
    November 23, 2008 at 8:32 pm #

    I wonder how much of our problem can be traced to our looking back on living conditions during our childhood. My mother never worked out of the home until after I was out of high school, and with just a single breadwinner in the home, we didn’t seem to be lacking for much. There was always plenty of food in the house, if my parents ever had to struggle to pay the mortgage, or to keep the gas and electricity flowing, I was unaware of it.

    A lot of us, I’m sure, were raised in those kinds of conditions, and we expect, perhaps unrealisitically, that (in the words of my grandparents) it should ever be thus.

    Instead, we find ourselves facing a world where in many (most?) cases, it takes two incomes just to keep up with all the bills. It’s possible that many of us have bought too many gadgets and unnecessary things and put them on credit when we shouldn’t have, technology having progressed the way it has and all.

    Still, I can’t help wondering why there seems to have been an overall decrease in the quality of living. Is my perception just completely off? Is it that we’re really far better off than we ever have been, and I just don’t realize it? Did women entering the workplace exacerbate the problem of rising prices, or was it just a response to inflation? Am I seeing problems where none really exist? Is global competition part of the problem, since workers outside of the United States produce so much while being paid so much less?

    What the heck has happened?

  7. Carborendum
    November 23, 2008 at 10:49 pm #

    Mark,

    Right now the average American makes about $45k/year. Although my profession is such that I make much more than that, I actually live off much less than that. My wife is a SAHM with 6 children. And we do quite well.

    Everyone always comments,”I don’t know how you do it.”

    It’s called living frugally. We still have the same 21″ TV that we had when we were first married. We have so few clothes that we only use about 5′ of closet rod for both of us. We rarely if ever buy pre-packaged foods. We buy at thrift stores. I could go on.

    I really don’t believe there was much of a problem unti recently. Why?

    Well, you might ask what I do with the rest of my money. I put it in mutual funds. Guess what? I don’t have much anymore. Which brings me to my next point:

    Connor,

    Again I’ll reiterate that the banking system may have presented the tools for this to happen, I believe the direct cause was government mandated socialist policies in the private banking industry.

    The House Finanacial Services Committee demanded that Fanny & Freddie hold 40% of its mortgages in the HIGH-RISK, SUB-PRIME market. (Read: people who will 99.9% of the time default on their mortgages and wonder why the bank is hounding them for payment).

    The three banks (Chase, US, & Compass) that I have been working with recently all BRAG now about how they never got involved in the sub-prime market and their stock is doing fine. They are still willing to lend to people with the same criteria as before the crisis.

    They said that when the banking industry was allowed to do this their heads said,”We might make more money for a few years, but we will eventually go out of business if we pursue this.”

    The lending officers all cursed their heads back then for depriving them of potential commissions. But now they realize they can sleep at night knowing they never sold loans to people that obviously couldn’t afford them.

  8. Connor
    November 23, 2008 at 10:58 pm #

    Again I’ll reiterate that the banking system may have presented the tools for this to happen, I believe the direct cause was government mandated socialist policies in the private banking industry.

    I don’t disagree, but it’s important to remember that such policies could never have been brought about without a fiat-based monetary system controlled by the Fed. If we were on a sound money system with a true free market, the politicians would have no recourse to require these types of loans, since the banks would have market-imposed restraints that determine what qualifications a person must have to access capital through a loan.

    But ultimately Congress is to blame for the entire mess, because they first passed the law that created the Fed, and then implemented all sorts of atrocious policies (as you detail) that further burdened the economy.

  9. ajax
    November 24, 2008 at 8:44 am #

    I don’t like the idea of the Fed as a temptress and all we had to do was resist and go about our merry way. The Fed is actually setting a real price, the interest rate. In order to do so it has to inject money into the banking system out of thin air, monies that hasn’t come from prior real saving(production), but virually out of nothing. This false signal is a real market price, which affects real market actors(all of us) and the decisions we make. It is not a temptor, but a real actor making vital decisions. It is also not like a drug dealer, waiting for buyers to volutarily buy his wares. Rather he chooses to whom the drug will be given, the banking industry, and then gives it good and hard. The banking system comes to love this drug because it is free. This is not a normal drug transaction, exchanging money for the goods, but a straight injection free of charge. The point is without the Fed, we would not be in the dire situation we are in now, no matter how greedy we are. The funds simply wouldn’t have been there.

  10. Michael L. McKee
    November 24, 2008 at 10:55 am #

    Ajax said:

    The point is without the Fed, we would not be in the dire situation we are in now, no matter how greedy we are. The funds simply wouldn’t have been there.

    You have simplistically and eloquently hit the proverbial nail on the head.

  11. Carborendum
    November 25, 2008 at 8:57 pm #

    So, I saw the video on the Fed.
    I skimmed some sections of the book at the Von Mises website.
    I’ve been part of the previous discussions on the Fed and our banking system.

    I assure you I understand all those principles and am well aware of the recent activities of the economy and the Fed.

    I still need you to connect the dots. You said:

    If we were on a sound money system with a true free market, the politicians would have no recourse to require these types of loans, since the banks would have market-imposed restraints that determine what qualifications a person must have to access capital through a loan.

    Hasn’t anyone noticed that, above all, Congress can’t do basic math? What makes you think that if we were on a sound financial system that they would in any way be inclined to let the free market restraints rule?

    From Ayn Rand I can see them giving the excuse — well, people will think of something.

  12. Connor
    November 25, 2008 at 9:35 pm #

    What makes you think that if we were on a sound financial system that they would in any way be inclined to let the free market restraints rule?

    In Rothbard’s book, he explains the relationship of gold to government expansion:

    After 1933, Federal Reserve Notes and deposits were no longer redeemable in gold coins to Americans; and after 1971, the dollar was no longer redeemable in gold bullion to foreign governments and central banks. The gold of Americans was confiscated and exchanged for Federal Reserve Notes, which became legal tender; and Americans were stuck in a regime of fiat paper issued by the government and the Federal Reserve. Over the years, all early restraints on Fed activities or its issuing of credit have been lifted; indeed, since 1980, the Federal Reserve has enjoyed the absolute power to do literally anything it wants: to buy not only U.S. government securities but any asset whatever, and to buy as many assets and to inflate credit as much as it pleases. There are no restraints left on the Federal Reserve. The Fed is the master of all it surveys.

    By allowing the federal government to create whatever money it wants, it can expand as much as is desired. This is in contrast to a system where the individual can demand specie in exchange for the money, thus restraining the amount of money that can be created, since the amount of gold/silver in possession by any given country is a limited, defined quantity.

    Rothbard further explained the ways in which a central bank allows a government to increase in size:

    The Central Bank was privately owned, at least until it was generally nationalized after the mid-twentieth century. But it has always been in close cahoots with the central government. The Central Bank has always had two major roles: (1) to help finance the government’s deficit; and (2) to cartelize the private commercial banks in the country, so as to help remove the two great market limits on their expansion of credit, on their propensity to counterfeit: a possible loss of confidence leading to bank runs; and the loss of reserves should any one bank expand its own credit. For cartels on the market, even if they are to each firm’s advantage, are very difficult to sustain unless government enforces the cartel. In the area of fractional-reserve banking, the Central Bank can assist cartelization by removing or alleviating
    these two basic free-market limits on banks’ inflationary expansion credit.

    In short, a monetary system tied to a finite amount of specie restrains the additional circulation of money, since the paper tickets used for easier exchange represent actual metal that exists and can be demanded in exchange. By removing the connection between the fiat currency and metal, the government has no further restraint in deficit spending and infusing the economy with new money.

    This is not to say that the government would never interfere in the free market economy. However, their ability to do so would largely non-existent, since the ability to create money out of thin air (as they are doing with all the bailouts going on) would be denied them. Thus, they would have to resort to other (and far less popular) methods of acquiring the desired funds.

  13. vontrapp
    November 25, 2008 at 9:38 pm #

    I’ll give it a shot. They still would have wanted to require such silly stipulations, and they probably still would have tried. But remember that Fannie and Freddie are government sponsored beasts, and without the fed, those banks (fannie and freddie) really would have had market imposed constraints called competition, and where those constraints collided with the politicians constraints, the whole thing would have simply failed. Thus, at the root it was the Fed and our unsound monetary system that made it possible for the politicians to create fannie and freddie, with bogus stipulations, and to actually have it work for a time.

  14. Carborendum
    November 25, 2008 at 9:55 pm #

    Connor,

    Either you’re missing my point or I’m missing yours.

    You’re saying things I’m already aware of. I keep hearing about how evil our banking system /the Fed is. I’m aware of this. Now you’ve added how the fiat currency feeds big government and creates a house of cards type economy.

    I’m aware.

    What I don’t hear is how that was a BIGGER impact than the sub-prime market requirements by Congress. OR why this was what gave Congress the power to declare a law that didn’t make mathematical sense.

    You could theorize that they couldn’t just print money to counter the laws of mathematics. But they were doing that before. That’s WHY we had debts to begin with. This goes all the way back to Hamilton. (Thanks, Alex).

    Look, maybe we’re picking at straws. Maybe we can come together in the following way:

    Surely the house of cards economy was something that made us weak to begin with. But I believe this sub-prime market being forced on lending institutions dealing with customers that were obviously irresponsible with money was the wind that blew that house of cards down.

    You can talk about the evil of the Fed making us vulnerable (which I agree with). But the evil of socialism is what is killing us. You’ve made a case that sounds like this monetary system is what makes socialism possible which in turn created the sub prime market which caused the failure. Sounds reasonable. But that is not the same thing as the monetary system CAUSED the failure.

    If this is what you are saying, I concur. But this “several steps removed” logic was missing the in-between steps in your article and previous posts.

  15. Carborendum
    November 25, 2008 at 10:05 pm #

    I’m still reserving judgement on whether sound money would keep socialism or socialist laws from being passed. At the least, I can admit that it would make it more difficult. But give enough idiots in congress the pen to pass a stupid law and they will do it.

  16. ajax
    November 26, 2008 at 8:19 am #

    In order for the Fed to lower interest rates, it purchases US securities from the Federal Reserve Bank in NY thus increasing the credit/reserves in the banking system. This injection of new reserves, lowers the interest rate. This cash injection coupled with shall we say “Congressional encouragement” to make loans in the housing market caused the housing bubble. Now if there was not congressional tampering and lending standards for home ownership were strict, surely a bubble would not have emerged in the housing market but also just a surely a bubble would have emerged somewhere else. Where? We don’t know. But the banks wouldn’t have just sat on these new reserves(loanable funds) and done nothing. Think of the dot.com bubble. So the Fed CAUSES malinvestment(bubbles) somewhere. At the turn of the centrury it was the dot.com’s, recently housing, in the future who knows, but this much we are sure, that boom and bust will continue as a direct result of FED actions. The housing bubble simply would not have occurred without a complicit central bank. The Fed supplied the funds. You can’t make the loans without the funds.
    “You can talk about the evil of the Fed making us vulnerable (which I agree with). But the evil of socialism is what is killing us.”
    A central bank is a key tenet of socialism/communism. The fifth plank in the Communist Manifesto is this: “Centralization of credit in the banks of the state, by means of a national bank with state capital and an exclusive monopoly.”
    The Fed is socialism.

  17. Carborendum
    November 26, 2008 at 4:23 pm #

    Ajax,

    I have difficulty arguing with what you said. I just look at it from a different perspective.

    The centralization of credit, fractional reserve, debt dependence, fiat currency, . . . all created a GINORM-O-LOSSAL-ANTUAN (copyright 2008 Carborendum) house of cards. But the wind that blew it down was the irresponsible socialist mandate for sub prime lending.

    I’m focusing on the wind that blew it over. You’re focusing on the underlying weakness making us vulnerable to the wind. A question I would pose then is can there be a wind that would blow us over without the house of cards?

    If there were no central bank, Congress can still ORDER banks to take irresponsible loans because it is “for the greater good”, “we need to be compassionate to those in need”. We would have ended up in the same pickle.

    Even if we had sound currency and no fractional reserve, Congress could still pass the law. Banks would go out of business or a lot of bank officers would go to jail, and we’d be in even worse shape.

    What is going to stop Congress from doing so? I’ve already stated that they can’t do basic math. No one seems to be challenging that assertion.

    While I do not favor the situation, a house of cards can stand for a long time. . . as long as there is no wind.

    Whereas, a socialist Congress has the power to create a wind powerful enough to blow over the rock solid gold based currency without fractional reserve.

  18. Carborendum
    November 26, 2008 at 4:29 pm #

    BTW, I’m well aware that the current fractional reserve system is eventually doomed to fail. It is a mathematical certainty. But this current crisis was not that inevitable failure.

  19. ajax
    November 26, 2008 at 10:13 pm #

    With sound money and no fractional reserves, a bank can only do so much lending….it is stictly limited by actual real savings no matter what congress says. If a bank had $100 in loanable funds, I guess congress could pass a law that said 100% of these funds must be lent to sub-prime borrowers(an extreme case indeed, more than likely congress would mandate a much lower percentage), but the exposure is only the $100. Nothing more.

    With a central bank and fractional reserves the lending becomes almost unlimited in scope and a breeding ground for social engineers. Thru the magic of fractional reserves and Fed injections to keep interest rates low, the $100 becomes literally thousands of dollars of loanable funds. Now congress can say, “continue to make all the good loans you have been making AND make loans to X,Y,Z…the funds ARE there.” The exposure is much, much greater.

    Socialism is possible under either scenario, but I would argue much, much easier with a central bank. To be able to monetize programs etc without direct taxation is a godsend to central planners everywhere. Its constant inflation and debasement of the currenty is a hidden tax which most people don’t have a clue and where blame can be easily shifted to “greedy capitalists”. With no central bank, the socialists could only get their funds in much more direct and unpopular way….direct taxation. This is obviously a more diffucult sell that most people understand and feel immediately. That’s why a central bank is sooo important to the socialist/communist/nationalist/imperialist ideologies, namely the Rebuplicans and Democrats.

    Speaking of congress and mathematics, is this what you mean? http://www.youtube.com/watch?v=Q52peCKBLLQ

  20. Josh Williams
    November 26, 2008 at 11:54 pm #

    By spotlighting the Fed, I believe you are making the error of “Misleading vividness”, or in other words, a hasty generalization.

    Connor, there is a dire need for you to take about three steps back, and look at bigger pictures. World events just aren’t that simple, period. Nor will erasing the Fed do more than put a ding in the current recession.

    There are market forces that are beyond even the Fed’s sticky influence. A few examples:
    -peaking oil production
    -inflation of the real value of commodities
    -consumer confidence

    If we want to keep hastily generalizing and rushing to conclusions, the discussion will inevitably degenerate to a contest of throwing labels around. (No, it’s the Fed! No, it’s socialism!, No, it’s the Gaddianton robbers in the lobby! No, it’s Satan!)

    I also might make the informal argument, of who actually controls the Fed? This would be partly the executive, partly the congress, and partly the banks and the financial lobby. So if they control the fed, are they the ones who really need to be held responsible?

    If we were on a sound money system with a true free market……….

    That all depends on how you define these words…..
    What’s a “free” market? Do you mean without rules and regulations, or merely without “bad” ones. Then, what makes a “good” regulation? What is “sound” money? do you mean money that maintains it’s value? Then, what is “value”? More importantly, who agrees with your answers? (I know you’ve answered these kinds of questions in previous posts…..)

    This might sound like nit-picking, but rigor needs to replace vague, arbitrary language, if you want to start solving world economic problems.

    Sadly, the majority of the public has been deceived into believing that “unrestrained capitalism” and speculative, greedy investors were the major factors behind our current economic troubles.Make no mistake: this accusation was not accidental….

    You’re implying all of this was part of a large, deliberate misinformation campaign by the Fed and/or Executive branch. (In order to hide the “scary truth?”)

    Forgive me if I’d like to see some facts to back up this claim. Not just that the fed is giving off false press, but that they are not only solely responsible, but know they’re responsible. This is by no means an off-hand accusation. I’d hope you’re not leaping to conclusions merely because assuming so supports your thesis.

    This campaign to quell public interest in the matter can be easily seen by asking a random person on the street what they know about Federal Reserve.

    An appeal to population of the worst kind! This does not constitute “evidence”!

  21. vontrapp
    November 27, 2008 at 3:00 pm #

    Carborendum, yes, congress could still pass socialist laws without the fed, if there’s enough idiots. It would be immensely more difficult for such policies and laws to succeed if it weren’t for the FED. And as has been pointed out, for all intents and purposes the FED _is_ socialism. So I can see what you mean in that you see it as us arguing that “if it weren’t for socialism (the fed) we wouldn’t have socialism (the housing fiasco).” But rather, I see it as the fed is a huge enabler of socialism and if we want to stop socialism the most effective way is to get rid of the fed first.

    True, we can point blame at those in _charge_ of the fed, and that would be appropriate, but if we do not first get rid of the fed, then the next people to come in charge of the fed will fall prey to the same corruption that the power inherent in the fed promotes. So first ,get rid of the fed, then worry about those who abused its power while it was available.

    Further more, you say the real problem was socialist policies of requiring banks to make certain kinds of loans. Again, congress didn’t require “banks” to make those loans, congress CREATED its own banks to make those loans. Those banks survived birth because of the fed. If not for the fed, congress would have had to order existing banks to make certain loans, and that is a much clearer, more direct infringement on liberty, and thus it would be immensely harder for such laws to make it.

Leave a Reply

Leave your opinion here. Please be nice. Your Email address will be kept private.