Taxes, Tariffs, & Tweaks Won’t Solve The Problem!

Will reducing taxes, raising tariffs and Federal Reserve tweaking interest rates bring lasting prosperity? Unfortunately, the implied good intentions behind Make America Great Again economic plans conflict with the not-so-good intentions of those who could make it happen. Let me explain!

ZeroHedge reports Treasury Secretary Scott Bessent was very critical of the Federal Reserve:

“Bessent said there is a need for ‘deeper reforms’ in bank regulation, noting that the system has been marked by ‘regulation by reflex,’ where bank regulators tend to introduce new rules after issues have already occurred.

‘Rather than preempting crises, regulators all too often react to them after the fact. They play the role of a hazmat cleanup team instead of preventing dangerous spillovers in the first place.'”

The Heritage Foundation suggests, Time To End the Fed and Its Mismanagement of Our Economy:

“Every major economic downturn of the last 110 years bears the mark of the Federal Reserve. In fact, as long as the Fed has been around, it has swung the economy between inflation and recession….

Politicians created a fully government-run institution to bail out government and bad banks alike: the Federal Reserve.

Since its founding, the Fed has stolen 98% of the value of a dollar. It has used those profits to repetitively launch boom-bust cycles.”

ZeroHedge; quoting Mr. Bessent:

“‘Has the organization succeeded in its mission? If this was the FAA and we were having this many mistakes, we would go back and look at why has this happened.‘

On some views the tale of the tape is not flattering for the Fed.

• On financial stability they arguably played a major role in seeding the 2008 financial crisis via too-low interest rates after 9/11 and were then slow in responding once the crisis emerged (remember Bernanke saying sub-prime is “contained”?).
• On banking regulation, they seem to have missed the vulnerabilities inherent in the balance sheets of Silicon Valley Bank and others (to say nothing of Bear Stearns, Lehman etc.) which they then blew up through their conduct of monetary policy.
• On the question of monetary policy itself, many will remember the erroneous assurances that the inflation is transitory – a mistake repeated all around the world.

Bessent went on to muse over “all these PHDs over there, I don’t know what they do. This is like universal basic income for academic economists.”

Color Me Skeptical!

Wikipedia offers his bio:

“Bessent graduated from Yale College in 1984. In 1991, he was hired by Soros Fund Management, eventually becoming the head of its London office.

In this role,…he was a leading member of the group that profited by $1 billion on Black Wednesday, (shorting) the British Pound sterling crisis. He made another $1.2 billion profit for SFM in 2013 betting against the Japanese yen.”

Do I understand this correctly?

An Ivy League graduate, with a degree in political science, who made billions working for Soros by shorting currencies of over-extended governments, is going to lead us to the promised land by driving reform at the Fed???

Don’t bet on it.

ZeroHedge outlines his suggestions for a “fundamental reset” of financial regulations to ensure they are aligned with the nation’s domestic and international priorities:

“Bank regulators should review outdated capital requirements that place ‘unnecessary burdens on financial institutions’ and reduce bank lending.

…. He believes that bank regulators should consider scrapping the dual-requirement structure.

‘This dual-requirement structure did not derive from a principled calibration methodology. It was motivated simply to reverse-engineer higher and higher capital aggregates.’

Bessent noted that the framework “was at odds with capital reform as a modernization project because it would have preserved the antiquated capital requirements as the binding floor for many, perhaps most, large banks.”

…. ‘We cannot give only large banks the benefit of these reduced requirements, as actually contemplated by the last administration.‘”

Bessent talks about outdated capital requirements and unnecessary burdens on banks – and wants to loosen them? Damn! Don’t banks fail because they take too much risk, and when things go sour, they don’t have enough capital to cover the losses? Shouldn’t capital requirements be increased???

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History

A century ago, Senator Charles A. Lindbergh Sr. issued this warning:

“The financial system…. Has been turned over to the Federal Reserve Board. That board administers the finance system by the authority of…. A purely profiteering group. The system is private, conducted for the sole purpose of obtaining the greatest possible profits from the use of other people’s money.

…. From now on, depressions will be scientifically created. Like two con men working on a mark, the Fed made credit easy while establishment newspapers hyped what riches could be made in the stock market.”

The Great Depression was fueled by the Fed’s easy money, banks taking excessive risk (with other people’s money) and eventually things crumbled.

To prevent this from reoccurring, Congress passed the Glass-Steagall Act, separating commercial banking from investment banking. Wikipedia explains:

“The separation of commercial and investment banking prevented securities firms and investment banks from taking deposits and commercial Federal Reserve member banks from:

• dealing in non-governmental securities for customers;
• investing in non-investment grade securities for themselves;
• underwriting or distributing non-governmental securities;
• affiliating (or sharing employees) with companies involved in such activities.”

In layman’s terms, banks backed by the FDIC served the consumer and were closely regulated. Investment banks could take all the risk they wanted, but not with government backing. Worked like a charm for decades.

PBS outlines The Long Demise of Glass-Steagall.

The banking industry lobbied Congress to continually blur the distinction between commercial and investment banks; Glass-Steagall was repealed in 1999 under the Clinton Administration.

The industry touted spending over $300 million lobbying to bring about the repeal. Lobbying is not considered a bribe, as it is only to help “influence” government officials to rule in your favor. In today’s dollars, the banking industry spent over $½ billion “influencing” Congress to overturn the law.

DOGE’s discoveries have reinforced the public’s belief that government corruption runs rampant. Politicos love “influence.” Outrageous speaking fees paid to officials at banking boondoggles and unqualified family members given high-paying jobs within the system are commonplace. Keep the “influence” flowing….

G. Edward Griffin doesn’t mince words:

“The Federal Reserve is a cartel- it’s a banking cartel. And like all cartels, it only has one purpose – and that is to serve the benefit of the members of the cartel, period.”

The cartel is successful. Big banks are now highly profitable casino banks, taking huge risks, while being backstopped by the US taxpayer.

Shortly after the repeal we experienced the 2008 banking crisis. Taxpayers bailed out banks deemed, “Too big to fail” with trillions of dollars.

That was followed by the Dodd-Frank Act, designed to rein in risk-taking to prevent it from happening again. It included a major provision curtailing banks from using derivatives, high risk bets that are virtually unregulated.

Despite all the phony “Fed mandates,” the Federal Reserve continues its real mission, protecting the profits of its owners, the banks themselves (“profiteering group”).

Wall Street on Parade keeps tabs on the deceit:

July 2020 – Dodd-Frank is 10 years old today and the Fed is Back to Bailing out Wall Street

March 2023 – The Next Time Bomb to Go Off in the Banking Crisis Will Be Derivatives

August 2023 – Wall Street Mega Banks and Their Disgraceful Bailout charts Since the Repeal of the Glass-Steagall Act in 1999.

What happened to reining in derivatives? The law crimped bank profits, so they “lobbied” (more influence) Congress. Legislation was quietly included in an omnibus spending bill, reversing the controls.

Check out this derivative data, courtesy of US Bank Locations.com.

Last year, the Controller of the Currency, a department inside Mr. Bessent’s Treasury Department, reported:

“Cumulative trading revenue of U.S. commercial banks and savings associations was $15.6 billion in the first quarter of 2024. Trading revenue was $4.0 billion more….

As of the first quarter of 2024:

• a total of 1,208 insured U.S. national and state commercial banks and savings associations held derivatives.
• four large banks held 87.6 percent of the total banking industry notional amount of derivatives.
• derivative notional amounts increased in the first quarter of 2024…. To $206.1 trillion.
• derivative contracts remained concentrated in interest rate products, which totaled $144.4 trillion or 70.1 percent of total derivative notional amounts.”

Does “trading revenue” of over $60 billion sound like a casino bank to you?

Does the idea of taxpayers backstopping the four largest “too big to fail” banks holding 86.7% percent ($186 trillion by my count) of the derivatives sound like prudent government oversight?

While I agree with Mr. Bessent’s criticism of the Fed, loosening capital requirements and regulations will make things worse. The more risk the banking system takes, the higher the risk to the US taxpayer. It’s easy to gamble when you keep the winnings while taxpayers cover your losses.

Ron Paul preaches, “Congress should rein in the welfare-warfare state’s great enabler by auditing, then ending the Federal Reserve.” Amen to that!

Taxes, Tariffs, & Tweaks Won’t Solve The Problem – for us to have a chance of achieving real prosperity, the Fed has got to go….

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On The Lighter Side…

My beloved Cubs have gone into a funk over the last six weeks. On July 1^st, they were in first place by 2 ½ games. The second-place Milwaukee Brewers were 10 games over .500 at the time.

Since then, the Brewers have played incredible baseball. As of August 15^th, they have gone 30-7, and have a 9-game lead over the Cubs. Cubs are marking time and the Brewers are winning big.

There is a reason they are nicknamed “lovable losers.” They are in a terrible funk, something Cub fans have seen many times before.

We took the photo several years ago at “season ticket appreciation day” and we could wander all over the park. It’s one of my favorites.

Last week, Jo got her sling off and they have increased her therapy workload. She still is unable to raise her arm as high as her shoulder. Therapist says she is right where she needs to be, which is encouraging. She insists on taking back some household chores, but lifts nothing with her right arm over a pound.

Quote Of The Week…

“We do know that the Federal Reserve System must be abolished. The creature has grown large and powerful since its conception on Jekyll Island. It now roams across every continent and compels the masses to serve it, feed it, obey it, worship it. If it is not slain, it will become our eternal lord and master.

Can it be slain? Yes it can. How will it be slain? By piercing it with a million lances of truth. Who will slay it? A million crusaders with determination and courage. The crusade has already begun.” — G. Edward Griffin, The Creature from Jekyll Island

And Finally…

Friend Phil C. sent along some memories of years gone by for our enjoyment:

• We finally got a BLACK AND WHITE TV
  (Under age 40? You won’t understand.)
• You could hardly see for all the snow,
  Spread the rabbit ears as far as they go.
  Pull a chair up to the TV set,
  ‘Good Night, David.
  Good Night, Chet.’
• Our school sandwiches were wrapped in wax paper in a brown paper bag, not in ice pack coolers, but I can’t remember getting e.coli.
• Almost all of us would have rather gone swimming in the lake instead of a pristine pool (talk about boring), no beach closures then.
• The term cell phone would have conjured up a phone in a jail cell.
• We all took gym, not PE…and risked permanent injury with a pair of high-top Keds (only worn in gym) instead of having cross-training athletic shoes with air cushion soles and built-in light reflectors. I can’t recall any injuries, but they must have happened because they tell us how much safer we are now.
• Flunking gym was not an option… even for stupid kids! I guess PE must be much harder than gym.
• Speaking of school, we all said prayers and sang the national anthem, and staying in detention after school caught all sorts of negative attention.
• What an archaic health system we had then. Remember school nurses? Ours wore a hat and everything.
• I thought that I was supposed to accomplish something before I was allowed to be proud of myself.
• Not a single person I knew had ever been told that they were from a dysfunctional family.
• How could we possibly have known that we needed to get into group therapy and anger management classes?
• How did we ever survive?

And my favorite…

• Remember that life’s most simple pleasures are very often the best.

Until next time…

Dennis Miller

“Economic independence is the foundation of the only sort of freedom worth a damn.” – H. L. Mencken

 

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