How Trump Bailed Out Janet Yellen and the Federal Reserve — For Now
How Rand Paul Can Free Americans from the Fed
Ever since entering the Senate, Rand Paul has continued his father’s work in advocating for an audit of the Federal Reserve. This week, writing for the Daily Caller, Senator Paul renewed his efforts, illustrating how the recent era of unconventional monetary policy has made an audit all the more important:
In 2009, then-Fed Chairman Ben Bernanke was able to refuse to tell Congress who received over two trillion in Fed loans, and it took congressional action and a Bloomberg lawsuit to force the Fed to reveal the details of what it did in more than 21,000 transactions involving trillions of dollars during the 2008 financial crisis. A one-time audit of the Fed’s emergency lending mandated by Congress revealed even more about the extent to which the Fed put taxpayers on the hook.
When pushed to defend the lack of transparency for the Federal Reserve, officials like Janet Yellen and Treasury Secretary Steve Mnuchin point to the myth of the Fed independence — a position that requires outright ignorance of the history of America’s central bank and the executive branch. Of course it’s quite usual for the Senate to base the merits of legislation entirely off of fallacious arguments, so they have continued to be the legislative body holding up a Fed audit with little indication they are prepared to move.
While not as catchy as “End the Fed”, this piece of legislation – inspired by the work of F.A. Hayek – was perhaps Ron Paul’s most radical pieces of legislation. The idea was quite simple: eliminate legal tender laws mandating the use of US Dollars and remove the taxes Federal and State governments place on alternative currencies — such as gold and silver. While the original legislation did apply to “tokens,” an updated version should explicitly include the growing market of cryptocurrencies as a good with monetary value that should not be taxed.
What this would do is create a more even playing field between the dollar and alternative currencies, allowing an easy way for Americans to safeguard their wealth if they ever have reason to doubt the wisdom of the Federal Reserve’s policies. Just as Senator Paul advocated for the ability of Americans to be able to opt-out of the failing Obamacare system, this bill would grant Americans a lifeboat should the weaknesses inherent with the Fed’s fiat money regime expose themselves.
Unlike most examples of monetary policy reforms, which tend to be the products of ivory tower echo chambers, competition in currency would reflect active political trends. In recent years, states like Texas, Utah, and – in 2017 – Arizona have passed laws allowing the use of silver and gold for use in transactions. Meanwhile, other countries have looked to embrace the potential of cryptocurrencies for their monetary regimes. This makes this not only an idea that is good on paper, but one whose time has come.
As alluded to before, simply because a policy makes sense does not mean the Senate will act on it. That doesn’t mean the conversation and debate isn’t worth having. While it may still be on the horizon, there has been a steady drumbeat in Washington for the Federal Reserve to face some sort of reform. For two Congressional sessions in a row, the House has passed legislation explicitly calling for the Fed to embrace a “rules-based monetary system.” While this approach may sound better than today’s PhD standard, it doesn’t solve the problems inherent with central banking and fiat money.
Monetary rules such as “NGD Targeting” – which has the support of a rare coalition including the Cato Institute, Mercatus Center, Christina Romer, and Paul Krugman — should never be seen as a “reasonable compromise” for those skeptical about the Fed. Instead it’s simply another way of disguising central planning in a way to make it more palpable to the public, and therefore more difficult to stop. By putting this bill out there, Rand Paul can help frame the debate and bring a real solution to the table. Something that wouldn't force the Fed to change a single thing, only making them compete on the market like the producer of other good or service.
After all, as is the case with healthcare, or shoes, the best sort of “monetary policy” is competition on the market. Not one dictated by government.
Help Wanted: Lenders with No Experience (or Short Memories) to Make Risky Mortgages
They’re back. Subprime mortgages. And loan brokers are needed to start making them. Kirsten Grind, who, by the way, wrote a wonderful book about Washington Mutual (WaMu) entitled The Lost Bank, writes for the Wall Street Journal, “Brokers willing to learn the lost art of making risky mortgages are in demand again.”
Home values are up, flipping is back in vogue, and more than a little subprime sauce is needed to keep the party cooking. Putting a face on the subprime broker demand Ms. Grind features a former Calvin Klein salesman who admits he didn’t know much about housing finance. “‘I knew a mortgage was a loan for a house,’ said Mr. Boyd, who was recruited by his boss, Jon Maddux, after selling him a Calvin Klein suit at a local outdoor mall. ‘I came in just a blank slate.’”
Mr. Maddux now owns Drop Mortgage. But at the depths of the crash his business was “YouWalkAway.com between 2008 and 2012. The site charged homeowners on the brink of foreclosure $995 to learn how to leave their debt behind.”
Of course there’s a good market for loans to folks who don’t fit in the Dodd-Frank box and lenders can earn 6% to 10% from borrowers sporting credit scores of 660 and below. But fresh-faced originators can’t figure out how to make the loans.
“A lot of (the brokers) are timid and scared and don’t know where to start with the nonprime type loans,” Steve Arnold, who is based in West Palm Beach, Fla. told Ms. Grind. Mortgage lenders have succumbed to Stockholm Syndrome and can’t figure out how to make anything but a drop-dead lead pipe cinch conforming mortgage.
Krista Donecker, an account executive at Irving, Texas-based Caliber Home Loans Inc. tells Grind, “It’s been a hard battle” against the stigma of subprime lending. She gives presentations on originating subprime loans and remembers a broker asking her, “Are you sure this isn’t illegal?”
Ironically, subprime is making a comeback while European banks fight “the same kind of heavy-handed rules for banks’ mortgage holdings that have been adopted by their American counterparts,” reports Bloomberg.
“‘By and large, Germans pay their debts’ and are nowhere near as risky as American lenders and home-buyers have been in the past,” says Deutsche Bank AG chief John Cryan. Ouch.
This is all about measures that are “part of the completion of Basel III, effectively [to] increase the capital backing mortgages held on banks’ balance sheets to ensure that lenders can weather another economic downturn,” writes Matt Scully for Bloomberg.
In the conventional loan market, “Interest rates fell last week to the lowest level since November, and the seasonally adjusted mortgage volume jumped accordingly, up 7.1 percent, according to the Mortgage Bankers Association,” reports Diana Olick for CNBC.
"Purchase application volume increased to its highest level since May 2010. Refinance activity bumped up as well in response to moderating rates, but remained generally subdued," said Joel Kan, an MBA economist.
Rreprinted from DouglasinVegas. Douglas French is former president of the Mises Institute, author of Early Speculative Bubbles & Increases in the Money Supply , and author of Walk Away: The Rise and Fall of the Home-Ownership Myth.
How Central Bankers See Themselves
ECB Executive Board member Peter Praet recently gave a speech in Brussels. The underlying theme captures the convenient positioning of world central banks. They want to be seen as saviors of collapsing financial markets, but neither the cause of the instability nor the continued struggle for economic growth. From the speech:
Faced with a prolonged crisis, the ECB's unconventional policy measures have been essential to provide additional accommodation to the economy and prevent a self-sustaining fall in inflation — and they have been a clear success. Easier credit conditions have fed into a domestic demand-led recovery that has spread across countries and sectors. The economic outlook today is now better than it has been for many years.
And yet, as he admits, the ECB has been in crisis mode since 2008. So they want appreciation for bringing forth recovery, but want the world to look elsewhere for the reason why these economies aren't self-sustainable. He even blames the crisis in the first place, not on central bank activity from 2000–2007 but on the masses themselves!
The first [cause of the crisis] was the bout of over-optimistic expectations which took hold in several advanced economies in the pre-crisis years, reinforced in the euro area by a renewed sense of security and economic prosperity following the launch of monetary union. Despite slowing potential growth, agents in a number of economies overestimated their future income and borrowed against it, accumulating excessive debt. In some countries this over-leveraging was centred [sic] on firms, in other countries on households and in others still on the state.
Well, one might ask where this "excessive debt" came from. Does it not come from central bank policy? What Harry Browne once noted of governments equally applies to central banks: "Government is good at one thing: It knows how to break your legs, hand you a crutch, and say, 'See, if it weren't for the government, you wouldn't be able to walk.'"
One of the consequences of living in an unfree world is the aggravating subjection to condescending Official Narratives. It's not just that our Monetary Saviors get to make money supply and interest rates decisions on our behalf, it's also that we are being saved from our own over exuberant actions. We ruin the economy, and then we get pulled from our own fires. And the bureaucrats hardly get a thank you!
Now, unfortunately, the end of their blessed interventionism is not on the horizon. Praet expresses with disapproval that inflation rates are still too low:
Given the softness of underlying inflation, however, we cannot yet be sufficiently confident that inflation will converge to levels consistent with our aim in a durable manner. Inflation dynamics also remain reliant on the present, very substantial degree of monetary accommodation, so they have not yet become self-sustained.
Indeed, because what we all hope for is a sustainable trend of rising costs for goods and services. This is what keeps the central bankers up at night. Central bankers are not yet satisfied with what they've done to us. And so they march on. What would we do without them?