Commercial banks can't even gain access to the rediscount power of "their" bank unless the federal government deems them too incompetent to survive on their own without massive infusions of money backed by government debt for which the taxpayer eventually picks up the tab. The Federal Reserve doesn't even bother any more to pay lip service to its ostensible purpose: to provide an "elastic currency" sufficient to meet the demands of the private sector by discounting and rediscounting qualified industrial, commercial, and agricultural paper, supplemented with limited open market operations in private securities.
Unfortunately, that's just the tip of the iceberg. The economy could actually function adequately (after a fashion) if bankers (astonished gasp!) would actually adhere to the tenets of the "Banking School of Finance." (Another gasp!!) Instead, although designed and intended to operate in conformity with Say's Law of Markets and the real bills doctrine, today's financial system is used as if the disproved principles of the "Currency School of Finance" were somehow valid. The bottom line is that we have bankers who don't understand banking. (A final gasp!!! and we expire from lack of oxygen.)
Case in point. In today's Wall Street Journal, we are informed, "The huge force of deleveraging central banks must overcome in their quest to reflate economies has fueled expectations of more spectacular monetary pyrotechnics." ("Heard on the Street: Gold Price Goes on a Print Run," WSJ, 10/06/10, C16.)
Not to worry. The translation follows. I think.
In the U.S., the Fed's usual method for stoking demand and inflation, cutting rates to encourage more borrowing, is failing because rates near zero can't be pushed lower. So much debt has been taken on relative to income that consumers have to pay it down, or have it written off, before they take on more. (Ibid.)Now that I understand. The economy is currently in a Keynesian "liquidity trap." People aren't borrowing no matter how low the rates go because they don't think they can pay it back out of insufficient labor income.
There are two ways to deal with this situation under Crypt Keeper Bernanke. One, consumers have to repay their debt, or, two, declare bankruptcy. Either will clear the decks for more borrowing that they have to repay (no, no, no — that reduces consumption!) or have forgiven, and the cycle begins all over again.
Within the Keynesian Crypt, inflation is the only answer. Prices must be kept up, and consumers must continue to borrow at ever-increasing rates in order to fuel the economy, even though they can't possibly pay back the debt out of inadequate labor income, a situation that wouldn't happen if capital ownership were widespread throughout the economy. In the Keynesian Crypt, capital income must not be spent on consumption, but reinvested in more capital in a futile effort to keep the economy barely alive. (Cf. the Pro-Life economic agenda in Supporting Life.)
The new capital then produces even more goods and services that require yet more consumer debt to clear at inflated prices. Consumers stop buying because they can't borrow any more, the companies start to fail, and the government steps in and bails them out, keeping prices up and reanimating the economy's corpse. Consumers declare bankruptcy, enabling them to borrow more money, . . . .
Stop me if you've heard this . . . or if it makes any sense.
Why don't we try something truly radical . . . like not killing the consumer with debt only to try and pump artificial life back into him? Why not stop using the Federal Reserve to finance government deficits and carry out incomprehensible monetary policies that don't make sense even within the unintelligible Keynesian paradigm? Why not (gasp!!!!) implement Capital Homesteading, vest ownership of the Federal Reserve in each and every citizen, and restore Say's Law of Markets and the real bills doctrine so that people can produce by means of their labor and their capital, and other people can buy the marketable goods and services that are produced?