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Time Magizine: Will the Federal Reserve Cause a Civil War?
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Author:  Rynar [ Thu Oct 21, 2010 6:10 pm ]
Post subject:  Time Magizine: Will the Federal Reserve Cause a Civil War?

http://curiouscapitalist.blogs.time.com/2010/10/19/will-the-federal-reserves-next-meeting-lead-to-civil-war/

Quote:
What is the most likely cause today of civil unrest? Immigration. Gay Marriage. Abortion. The Results of Election Day. The Mosque at Ground Zero. Nope.

Try the Federal Reserve. November 3rd is when the Federal Reserve's next policy committee meeting ends, and if you thought this was just another boring money meeting you would be wrong. It could be the most important meeting in Fed history, maybe. The US central bank is expected to announce its next move to boost the faltering economic recovery. To say there has been considerable debate and anxiety among Fed watchers about what the central bank should do would be an understatement. Chairman Ben Bernanke has indicated in recent speeches that the central bank plans to try to drive down already low-interest rates by buying up long-term bonds. A number of people both inside the Fed and out believe this is the wrong move. But one website seems to believe that Ben's plan might actually lead to armed conflict. Last week, the blog, Zerohedge wrote, paraphrasing a top economic forecaster David Rosenberg, that it believed the Fed's plan is not only moronic, but "positions US society one step closer to civil war if not worse." (See photos inside the world of Ben Bernanke)

I'm not sure what "if not worse," is supposed to mean. But, with the Tea Party gaining followers, the idea of civil war over economic issues doesn't seem that far-fetched these days. And Ron Paul definitely thinks the Fed should be ended. In TIME's recent cover story on the militia movement many said these groups are powder kegs looking for a catalyst. So why not a Fed policy committee meeting. Still, I'm not convinced we are headed for Fedamageddon. That being said, the Fed's early November meeting is an important one. Here's why:

Usually, there is generally a consensus about what the Federal Reserve should do. When the economy is weak, the Fed cuts short-term interest rates to spur borrowing and economic activity. When the economy is strong and inflation is rising, it does the opposite. But nearly two years after the Fed cut short-term interest rates to basically zero, more and more economists are questioning whether the US central bank is making the right moves. The economy is still very weak and unemployment seems stubbornly stuck near 10%.

The problem is the Fed only directly sets short-term interest rates. And they are already about as close to zero as you can go. That's why Ben Bernanke has been recently talking about something called "quantitative easing." That's when the Fed basically creates money to buy the long-term bonds that it doesn't directly control, and drive down those interest rates as well. That should further reduce the cost of borrowing for large companies and homeowners. Some people are calling this "QE2" because the Fed made a similar move during the height of the financial crisis when it bought mortgage bonds. (See photos of the Tea Party movement)

Not everyone agrees this is a good move. In fact, a number of presidents of regional Fed banks, not all of which get to vote at Fed policy meetings, have recently come out against Bernanke's plans. Some say it sets bad policy. Others think it will stoke inflation, which might be the point. Few, though, have warned of armed conflict. Here's how Zerohedge justifies its prediction of why the Fed's Nov. 3rd meeting will lead to violence:

In a very real sense, Bernanke is throwing Granny and Grandpa down the stairs - on purpose. He is literally threatening those at the lower end of the economic strata, along with all who are retired, with starvation and death, and in a just nation where the rule of law controlled instead of being abused by the kleptocrats he would be facing charges of Seditious Conspiracy, as his policies will inevitably lead to the destruction of our republic.

OK. The idea that Bernanke might kill large swaths of low-income neighborhoods or Florida by his plan to further lower interest rates is a little ridiculous. But there is a point in Zerohedge's crazy. Lower rates do tend to favor borrowers over savers. And the largest borrowers in the country are banks, speculators and large corporations. The largest spenders in our country though tend to be individuals. Consumer spending makes up 70% of the economy. And the vast majority of consumers are on the low-end of the income scale. So I think it is a valid question to ask whether the Fed's desire to drive down interest rates at all costs policy is working. Companies are already borrowing at low rates. They are just not spending. (Read a special report on the financial crisis blame game)

That being said, civil war, probably not. "It is a gross exaggeration," says Allan Meltzer, who is a top Fed historian at Carnegie Mellon. "I cannot recall ever learning about riots or civil war even when the Fed made other mistakes." When I called, David Rosenberg was traveling and couldn't talk, but he did send me a quick e-mail to stress that he has never, ever suggested that any moves the Fed makes will lead to a militia uprising.

Some smart people, though, including Meltzer, it appears, and Rosenberg do think the path of quantitative easing that the Fed looks likely to embark on is the wrong move. John Taylor, a top Fed scholar at Stanford, says eventually you will have to pull the support out, and when you do a year from now when the economy is recovering he thinks it could be quite disruptive. So even if you don't double dip now, you might double dip then. And even if you don't it would make for a slow recovery. Others, such as Raghuram Rajan, who has became famous for warning about the possibility of a financial crisis back in 2005, believe low-interest rates could be creating new bubbles in say gold or commodities.

So it seems clear what the Fed is likely to do. How the economy, the militias and the rest of us react is up in the air. The count down is on. T minus 15 days to Fedamageddon. See you there, hopefully.

Author:  Rorinthas [ Thu Oct 21, 2010 6:28 pm ]
Post subject:  Time Magizine: Will the Federal Reserve Cause a Civil War?

Spin much?

Author:  Kaffis Mark V [ Thu Oct 21, 2010 10:35 pm ]
Post subject: 

Not to mention, absent other people talking about civil war, for an opinion piece this is pretty silly -- "this could happen. But I don't think it will." Uh, so why did you bring it up? It's not like this is common gossip on everybody's tongues, and I don't see any links to people who are saying they DO think it will.

Hedging alarmist editorials? I think that's a new one.

Author:  Lex Luthor [ Fri Oct 22, 2010 12:06 am ]
Post subject:  Re: Time Magizine: Will the Federal Reserve Cause a Civil Wa

Nobody really cares about this stuff except finance geeks and old people with too much time on their hands. There won't be a civil war or even protests. 10% unemployment isn't the end of the world, whether it gets better or not.

Author:  Taskiss [ Fri Oct 22, 2010 5:46 am ]
Post subject:  Re: Time Magizine: Will the Federal Reserve Cause a Civil Wa

Lex Luthor wrote:
10% unemployment isn't the end of the world, whether it gets better or not.

Folks without jobs that have mouths to feed might disagree.

Author:  Hopwin [ Fri Oct 22, 2010 6:37 am ]
Post subject: 

I can totally picture "militia" groups sitting around with baited breath, fingers on the trigger, just waiting for next announcement from the Fed that they are going to buy up more long-term debt.

Viva la revolucion!

Author:  Diamondeye [ Fri Oct 22, 2010 9:53 am ]
Post subject:  Re: Time Magizine: Will the Federal Reserve Cause a Civil Wa

Taskiss wrote:
Lex Luthor wrote:
10% unemployment isn't the end of the world, whether it gets better or not.

Folks without jobs that have mouths to feed might disagree.


Perhaps, but those folks also probably realize it is a lot easier to get a job in areas that are not war zones.

Author:  Khross [ Fri Oct 22, 2010 9:56 am ]
Post subject:  Re: Time Magizine: Will the Federal Reserve Cause a Civil Wa

I guess it's a good think that real unemployment is closer to 28% then, right, Lex?

Author:  Arathain Kelvar [ Mon Oct 25, 2010 11:33 am ]
Post subject: 

The article is laughable.

Author:  Hannibal [ Mon Oct 25, 2010 11:48 am ]
Post subject: 

I'd say a majority of the country have a vested interest in #$#$# not goin all Thunderdome.

Author:  Khross [ Mon Oct 25, 2010 12:40 pm ]
Post subject:  Re:

Arathain Kelvar wrote:
The article is laughable.
Apparently, not so much ...

Author:  Arathain Kelvar [ Mon Oct 25, 2010 2:16 pm ]
Post subject:  Re: Re:

Khross wrote:
Arathain Kelvar wrote:
The article is laughable.
Apparently, not so much ...


That really doesn't make the original article better.

Author:  Khross [ Mon Oct 25, 2010 2:26 pm ]
Post subject:  Re: Re:

Arathain Kelvar wrote:
Khross wrote:
Arathain Kelvar wrote:
The article is laughable.
Apparently, not so much ...
That really doesn't make the original article better.
Well, that depends ...

Despite the rhetoric of the original article, the argument is pretty straightforward. The Fed will systematically marginalize material gains vis-a-vis monetary by demand shifting future debt into the present while using inflation as a mechanism to obfuscate that reality. And, since the current Liberal Economist Par Excellence--Paul Krugman--has flatly stated that money is debt, we've already got talking heads advocating monetary policy by which individuals are divorced from the economic power of their labor to a degree hitherto unseen in this country.

It seems to me that the OP argues the following: if anything is going to cause a second civil war, it's the continued insistence of our government that we can spend our way out of debt. And my link demonstrates that our government is attempting precisely that policy.

Author:  Hannibal [ Mon Oct 25, 2010 2:28 pm ]
Post subject: 

Eh screw it let em riot or whatever passes as civil unrest here in the USA. Need to clean out the dead branches anyway.

Author:  Elmarnieh [ Mon Oct 25, 2010 2:36 pm ]
Post subject: 

So Khross you think Krugman is going to take up the debate challenge?

Author:  Arathain Kelvar [ Mon Oct 25, 2010 3:20 pm ]
Post subject:  Re: Re:

Khross wrote:
Despite the rhetoric of the original article,


You can't "despite" away the laughable qualities of the article, and then say it's not laughable. I call shenanigans.

Author:  Vindicarre [ Mon Oct 25, 2010 5:39 pm ]
Post subject:  Re: Re:

Khross wrote:
Arathain Kelvar wrote:
The article is laughable.
Apparently, not so much ...


As if on cue, the Gov't sells TIPS bonds today at a negative yield for the first time ever.

edit:cue, not cure

Author:  Khross [ Mon Oct 25, 2010 6:03 pm ]
Post subject:  Re: Time Magizine: Will the Federal Reserve Cause a Civil Wa

Yup, yup ...

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