Sunday, February 28, 2010

How Limousine Liberals Support the Rich

I just sent this letter to the editor of my local newspaper, the Olive Press. I have been writing to them each month:

A number of Olive residents have questioned my claim that limousine liberals favor the wealthy, i.e., themselves. The financial elite has often been called the military industrial complex (MIC) but is more accurately a nexus of real estate, Wall Street and commercial banking with the MIC and so I will refer to it as the banking elite.

Gabriel Kolko in his Triumph of Conservatism shows that the establishment of the Federal Reserve Bank was part of a larger movement, Progressivism, that reflected the banking elite's interests. This followed three decades of cumulative politicization of the economy by the Mugwumps and Populists of the 1880s and 1890s. One fruit of these movements, the 1890 Sherman Anti-trust Act, supported increasing concentration of industry. Martin J. Sklar provides detailed documentation in his Corporate Reconstruction of American Capitalism 1890-1916. The Federal Reserve Act in 1913 further enhanced the banking elite's domination, which was accelerated in 1932 when Franklin D. Roosevelt abolished the gold standard and confiscated all privately held gold.

The way that the Federal Reserve Bank helps the banking elite at the expense of the average American is that it increases the number of dollars in circulation, distributing them to the banking system. The banking system takes the reserves that the Fed gives it and expands the reserves further through fractional reserve banking. Briefly, when the fractional reserve banking system receives a Federal Reserve deposit (created out of thin air) of one dollar, it can expand the number of dollars by ten. Thus, the Federal Reserve Bank, which the banking system legally owns, can create deposits (reserves) out of thin air and then the banks can lend up to ten times the reserves also out of thin air. In other words, the Fed and the banking system cheapen the dollars that you own.

Economists, who are on the banking elite's payroll through consultancies, endowed chairs, and appointments to the Federal Reserve Bank staff, serve as an important propaganda source. They claim that the reserves are distributed evenly throughout the economy. Of course, this claim is absurd. Limousine liberals like William Greider (author of Secrets of the Temple) claim: (a) the Federal Reserve Bank helps the middle class but (b) the Federal Reserve Bank gives hundreds of billions of dollars to Bunker Hunt, Wall Street speculators and recipients of foreign investment. Limousine liberals never question how it might be possible to give hundreds of billions to Wall Street banks and at the same time help the average American.

Thus, at the foundation of big government is big subsidy to the banking elite. But that's the least of big government's subsidy to limousine liberals. A bigger way is the Fed's bloating of the stock market. The way the Fed's monetary expansion bloats the stock market is by reducing interest rates. Low interest rates mean higher stock prices. The present value of future dividend payments are higher at a lower interest rate. Since stocks are present value indicators of a firm's future profits, lower interest rates reduce the discount factor and raise stock prices.

The income inequality about which limousine liberals shed crocodile tears is due to the system which they put in place: by keeping interest rates low, stock prices are buoyed and wealthy limousine liberals like George Soros and Warren Buffett become richer. The way that interest rates are kept low is by the Fed's and the banking system's increasing the amount of money. The increasing amount of money leads to higher prices (inflation). Higher prices mean the average American becomes poorer. Thus, the inflation adjusted wages of workers are reduced while stock prices are increased and the wealthy become wealthier. No source has advocated this system more aggressively or for longer than the New York Times.

The period of the Fed's greatest power began in 1971 and continues today. During this 39 year history, American workers' wages began to stagnate in the early to mid 1970s. They continue to stagnate today. American workers today earn per hour what they earned in 1971. Prior to 1971, real hourly wages increased 2% per year. The post 1971 period saw massive increases in stock prices and increasing income inequality. All of this is due to the policies of limousine liberals, beginning with Franklin D. Roosevelt, who abolished the gold standard, and Richard M. Nixon, who declared "We are all Keynesians now."


Mitchell Langbert

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