Ordinarily when we critique someone or something on this
blog, we send an e-mail first to the people concerned, especially if we’re
saying something that disagrees with someone’s position. We figure it’s only fair, after all. We don’t like people talking about us behind
our backs, so it’s only right that we not talk about others behind their backs.
Nevertheless, there are the people who make statements with which we may agree or disagree, but for whom we cannot locate contact information. This is by far the most common occurrence and reason for our not letting people know ahead of time that we’re going to say something about them or their thoughts, words, or deeds. — but only if they published their thoughts, words, or deeds in a public forum.
When that is the case, they obviously intended to let the
public in on whatever it was they were letting the public in on, and by not
publishing contact information indicated they had no wish to be informed of
what others might say or not say about what they published. They are fair game for any commentary by
anyone, and can’t complain, unless what is said is untrue, the opinion(s) are
stated in a way as to unjustly defame someone’s character, or the commentator
had no right to reveal the truths revealed (which doesn’t apply if the original
author is the one who revealed them).
Anyway, the reason for raising this is to be able to
criticize — and criticize harshly — Robert Samuelson’s column in yesterday’s Washington Post, “Wall St.’s Mixed
Signals” (06/17/14, A15). We can’t
locate any contact information for Samuelson, so we couldn’t alert him that we
found some problems with what he said.
After claiming that the financial crisis and what is
euphemistically termed “the Great Recession” are, so far as anybody alive today
is concerned, “unique events,” Samuelson declares, “That’s why the economy
remains an enigma.” What bothers
Samuelson is the fact that interest rates remain low in spite of the fact that
all indications are that they should be rising.
On the contrary, it is perfectly understandable why interest
rates remain low, especially if we confine our analysis to the past savings
paradigm.
Given the assumption that the only source of financing for
new capital formation is existing accumulations of savings, no one will lend
out of savings unless the expected return is greater than the next best
alternative. As Samuelson pointed out,
the stock market is booming — and in a rather scary manner. S&P up 30%? Double-digit gains in other indices? Where is the growth in the primary market to
support these “gains” in the secondary market?
People with money — and that includes banks with the repeal
of Glass-Steagall — are not lending to businesses to finance new capital
formation and economic growth. They are
pouring cash into the stock market, driving up the prices of shares in a frenzy
of speculation and gambling.
Interest is, in a sense, the price of money lent to
businesses. Consistent with the law of
supply and demand, when a thing is in abundant supply and there is low demand
for it, the price will be low. Banks are
not lending to businesses because they can make more money gambling on Wall
Street . . . until the bubble bursts as a result of not being backed by real
economic growth in the primary market.
The immediate solution?
Return to the requirement that commercial banks stick to their last:
lending money for business, not stock market speculation, home mortgages,
consumer spending, or anything else not directly related to their core
business.
The mid-term solution?
Stop the Federal Reserve’s open market operations in government
securities, except for what is required to divest themselves of current
holdings. Replace Federal Reserve
holdings of government securities with private sector mortgages on existing
inventories of marketable goods and services and bills of exchange representing
the present value of future increases in production of marketable goods and
services. Implement immediate commercial
bank rediscounting of all qualified loans to establish and maintain 100%
reserves in the form of vault cash and demand deposits at the Federal Reserve.
The long-term solution?
Immediate enactment of a Capital Homestead Act.
#30#