Wall Street Philosopher King Bashes Fed Policy: Runaway Commodities!

03 November 2010

By Stephen Lendman 

Besides less prominent investment/economic advisors, no one does it better than Jeremy Grantham, based in Boston, not Wall Street. In 1977, he co-founded Grantham, Mayo and Van Otterloo, now known as GMO. Quarterly in letters to clients, he assesses current economic and market conditions, taking a longer view as well.  

His commentaries are reflective, refreshing, scholarly, sober and clear, although in recent ones (compared to the previous 15 years) he's been uncharacteristically upbeat. Not in his latest, however, titled, "Night of the Living Fed: Something Unbelievably Terrifying," below which, in billboard film promotion form, he lists the following: 

"Runaway Commodities! 

(Zombi) Banks Come Back to Life! 

Homes Destroyed! 

Families Evicted! 

Currency Wars! 

Starring BEN BERNANKE 

and introducing JANET YELLEN (current Fed vice chairman) 

with Guest Appearance as Chief Zombie ALAN GREENSPAN," the Maestro of Misery, responsible for today's mess before Bernanke took over in February 2006, exacerbating it with policies disgusting enough to make legitimate analysts blush, cry foul, or rage against ruinous practices on his watch. 

Credit Grantham for the latter, at his best in his Q3 report. Noting "The Ruinous Cost of Fed Manipulation of Asset Prices," he says the following: 

"If I were a benevolent dictator, I would strip the Fed of its obligation to worry about the economy (failing dismally at it)....limit(ing) its meddling to attempting to manage inflation."  

Put another way, he recommends maintaining price stability alone, what few, if any, Fed chairmen accomplished since 1913 - why nearly a century later, pre-Fed dollar value declined to less than 5 cents. Moreover, it's heading lower, given Bernanke bent on weakening it, perhaps destroying it to be replaced by a Wall Street controlled global currency. They may crave it, but not US households seeing their savings destroyed. 

Grantham: 

"I would limit (Fed) activities to making sure that the economy had a suitable amount of liquidity to function normally - a Goldilocks formula, not too hot, not too cold, just right. "I would force it to swear off manipulating asset prices through artificially low rates and asymmetric promises of help in tough times - the Greenspan/Bernanke put." 

Grantham omits how markets really work, manipulated up or down for profit by Wall Street insiders, aided and abetted by Fed governors they control. Besides reckless interest rate policy and money printing, Ronald Reagan's March 18, 1989 Executive Order 12631 created the Working Group on Financial Markets (WGFM), commonly known as the Plunge Protection Team (PPT). It operates by manipulating stock, bond, commodity, and currency markets up or down daily, small investors mindless of illegal rigging that hurts them. 

Grantham in bullet points: 

-- higher debt levels aren't "correlated with higher GDP growth rates; 

-- lowering rates to encourage more debt is useless at the second derivative level;" 

-- they do, however, cause dangerous speculation, exacerbated in the current environment; 

-- Fed governors know that "low rates and moral hazard encourage higher asset prices and increased speculation, heading, when unchecked, to bad endings, small investors and ordinary people hurt most; 

-- both Bernanke and Greenspan "expressed no concern with the later stages of investment bubbles," so did nothing to prevent them; 

-- when they break, "intense financial and economic pain" result; 

-- "housing is much more dangerous to mess with than stocks, as houses are more broadly owned, more easily borrowed against, and (irrationally) seen as a more stable asset," clearly not so today; 

-- citing other negatives, "the lesson here is: Do not mess with housing;" 

-- "lower rates always transfer wealth from retirees (debt owners) to corporations (profiteering issuers) and the financial industry," world class predators; the more retirees like now, the more pain; as a result, artificially low rates produce no benefit whatever; and 

-- quantitative easing shows desperation with little chance of success; moreover, it erodes the dollar, driving up commodity prices, notably gold as a safe haven. 

Low rates, quantitative easing, speculative investing, dangerous bubbles, and overall Fed mismanagement display "a complete refusal to learn from experience (that) has left Fed policy as a large net negative to the production of a healthy, stable economy with strong employment." Today's America is mirror opposite, assuring a later on train wreck, its timing hard to predict, but for sure it's coming, the weak economy already in crisis. 

Growth depends on: 

-- "the quality and quantity of education (what Bush/Obama aim to destroy by privatizing it); 

-- work ethic (and decent jobs for a growing population);  

-- population profile; 

-- the quality and quantity of existing plant and equipment (most offshored to cheap labor markets, destroying industrial America in the process);  

-- business organization; 

-- the quality of public leadership (absent from both major parties and the Wall Street controlled Fed; the level of corruption and mismanagement is out-of-control and beyond fixing); and  

-- the quality of existing regulations and the degree of enforcement;" instead, a virtually wild west deregulated environment exists, letting Wall Street and other corporate profiteers run amuck, the public and nation losing out; businesses, of course, can be domiciled anywhere. 

Debt's real power is "negative: it can gum up the works in a liquidity solvency crisis and freeze the economy for quite a while." Subsidized debt at manipulated rates (like today) "has a large, profound, and dangerously distorting effect on market prices" and the economy. 

Moreover, the combination of artificially low rates and overstimulation "is probably the most dangerous thing to inflict on a peacetime economy (hardly the case today) with two possible exceptions - runaway inflation and a housing bubble." Clearly, Greenspan and Bernanke have been "almost criminally inept in ignoring stock bubbles. They have also deliberately instigated them as a policy tool!" 

However, Fed induced stimulus "must always be repaid, sometimes with interest," often at times of maximum vulnerability, and always hurting ordinary people most - small investors, homeowners, and workers in a down economy. 

With a touch of humor, Grantham joked about not blaming Fed policy for climate change, then after reflecting saying, what about "the housing boom and bust and stock boom and bust." They caused epic downturn and unemployment, distracting attention away from enacting "a decent energy and climate bill," not the House alone passed cap and trade betrayal. Unrelated to environmental issues, it's a scheme to raise energy prices and give Wall Street a huge bonanza through carbon derivatives speculation, exploiting a potential multi-trillion dollar market. Grantham didn't explain. 

"So there you are," he concludes. "The Fed really is at the bottom of almost all of our problems," reason enough to nationalize or shut it down, and give Congress back its money creation power as the Constitution's Article I, Section 8 demands.  

Grantham omitted that, as well as systemic, corrosive fraud, but delivered otherwise excellent thoughts, what few knowledgeable analysts provide in an age of excess, criminal wrongdoing, economic crisis, and government under either party acting as Wall Street's handmaiden - worthy topics for detailed analysis by insiders who know best how the dirty system works. Jeremy, are you listening?

Stephen Lendman lives in Chicago and can be reached at lendmanstephen@sbcglobal.net. Also visit his blog site at sjlendman.blogspot.com and listen to cutting-edge discussions with distinguished guests on the Progressive Radio News Hour on the Progressive Radio Network Thursdays at 10AM US Central time and Saturdays and Sundays at noon. All programs are archived for easy listening. http://www.progressiveradionetwork.com/the-progressive-news-hour/.

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