Monetary Stalinism in WashingtonBy Hossein Askari and Noureddine Krichene
Amongst the worst tragedies of Soviet collectivization was the Ukraine famine of 1932-33, which took six million lives as Joseph Stalin practiced forced appropriation of crops and imposed very low prices for agricultural products in favor of industrialization. Interference with the pricing mechanism and Stalinism in the form of very low prices for agricultural products also caused famines in India in 1965 and in China in 1969, with a human death toll well into the millions.
Monetary policy as practiced by the US Federal Reserve for the past decade is but a form of financial Stalinism, forcing ridiculously low or negative real interest rates, with catastrophic results that are now plaguing the world. Fed policy has disabled the price mechanism in capital markets and set off uncontrolled credit expansion at the expense of capital productivity and creditworthiness, pushing housing, food, and energy prices to prohibitive levels, and triggering food and energy riots in vulnerable countries. It has undermined the dollar and made the US highly dependent on foreign financing.
The dramatic consequences of Fed policy are unfolding before our very eyes. The financial crisis that broke out in August 2007 has recently taken a turn for the worse. After claiming international and well-established banks and investment banks, it has now reduced the financial savings of ordinary Americans (in retirement accounts) by over 30%.
The fiscal bill for past, ongoing and future bailouts by Fed chairman Ben Bernanke and Treasury Secretary Henry Paulson will be staggering; the US fiscal deficit will be blown up to unthinkable proportions, public debt will be pushed to unprecedented levels, and most public resources will be destined to absorb financial losses at the expense of social and economic programs.
Last, but not least, the long-term inflationary consequences may turn out to be even more dramatic. All these consequences are real and were in part predictable.
So far Bernanke and Paulson have failed miserably in stemming the financial crisis and have brought the US economy to a standstill, in part because Bernanke does not have a feel for the free-market mechanism and in part because he is not a prudent central banker.
It would appear that Bernanke has read a great deal about the Great Depression of 1929-1933 and perhaps very little, or nothing, about the German hyperinflation of 1920-1923. His view is that the Fed was liquidationist of banking institutions during 1929-33. In his view, if the Fed had injected sufficient liquidity during 1929-1932, it would have precluded thousands of bank failures. Therefore, Bernanke is determined not to let that mistake happen again. Consequently, his response to the financial crisis has been a blind and aggressive monetary policy in form of negative interest rates, massive liquidity injection, and massive bailouts. ......(more)
The complete piece is at:
http://www.atimes.com/atimes/Global_Economy/JJ11Dj03.html
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