Monday, October 22, 2007

Howard S. Katz's "The Guy Who Pays Is You"

Howard S. Katz has an excellent blog this week at Katz argues that the banks' plan to bail out the sub-prime lenders, M-LEC, is merely a pretext for inflation by the Federal Reserve Bank. Katz argues that the only possible reason for M-LEC is to facilitate inflationary policy by the Federal Reserve Bank, and that the history of inflation is the history of economic decline.

The problem facing America today is inflation or depreciation of the dollar, but more fundamentally, the mentality that you can get something for nothing. Jim Cramer and many on Wall Street argue for low interest rates, i.e., currency depreciation, in order to stabilize the markets. But such terminology is just pretext for "subsidizing my stock portfolio". Where do the subsidies come from? They come from consumers who pay higher prices at the supermarket checkout because of the inflation that lower interest rates create.

Thus, we have a ninety year old policy of the average American's subsidizing wealthy investors through low interest rates and inflation. We also have a ninety-year history of opportunistic academics' providing bogus justifications for low interest rates, such as "full employment", even as Fed policies have stimulated robust stock markets that encourage top managers to think in terms of moving plants overseas to maximize their executive stock option holdings.

Katz is right that monetary depreciation causes misallocation of resources and economic decline. Why has it proceeded for so long? The answer is self-indulgence on the part of America's wealthy, a self-indulgence that parallels welfare in prior decades and the something-for-nothing mentality characteristic of liberalism.

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