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HOW DID ABORTION RIGHTS COME TO THIS?  — Carol Hanisch charts how the right to an abortion began to erode shortly after the Roe v. Wade decision; Uber vs. the Cabbies: Ben Terrall reports on the threats posed by private car services; Remembering August 1914: Binoy Kampmark on the enduring legacy of World War I; Medical Marijuana: a Personal Odyssey: Doug Valentine goes in search of medicinal pot and a good vaporizer; Nostalgia for Socialism: Lee Ballinger surveys the longing in eastern Europe for the material guarantees of socialism. PLUS: Paul Krassner on his Six Dumbest Decisions; Kristin Kolb on the Cancer Ward; Jeffrey St. Clair on the Making of the First Un-War; Chris Floyd on the Children of Lies and Mike Whitney on why the war on ISIS is really a war on Syria.
What Geithner, Bernanke and All the Smart Bankers Forget

Long-Term Economic Memory Loss

by PAUL CRAIG ROBERTS

If a person lives long enough, he can watch everyone forget everything they learned.  Everyone includes Federal Reserve Chairmen, economists, Bank of America “strategists,” and even Bloomberg.com.

Federal Reserve Chairman Ben Bernanke thinks he can hold down US long-term  interest rates by purchasing mortgage bonds and US Treasuries.  Sixty years ago the Federal Reserve understood that this was an impossible feat.  After an acrimonious public dispute with the US Treasury, in 1951 the Federal Reserve forced an “Accord” on the government that eliminated the Fed’s obligation to monetize Treasury debt in order to hold down long term interest rates.

President Truman and Treasury Secretary John Snyder wanted to protect World War II bond purchasers by preventing any rise in interest rates, which would mean a decline in the price of the bonds.

The Fed understood that monetizing the debt to hold down interest rates meant loss of control over the money supply.  The policy of suppressing interest rates could only work until the financial markets anticipated rising inflation and bid down the bond prices.  If the Fed responded by buying more Treasuries, the money supply and inflation would rise faster.  

Since Fed Chairman Bernanke announced his plan to purchase $1 trillion in mortgage and Treasury bonds in order to help the housing market with low interest rates, interest rates have risen.  When will the Fed remember that printing money does not lower long-term interest rates?

According to Bloomberg (June 3), Bank of America strategists are recommending that investors buy Fannie Mae bonds because the rise in interest rates means the Fed will ramp up its purchases in order to prevent rising interest rates from adversely impacting the struggling housing market.  When will financial gurus remember that printing money does not lower interest rates?

Treasury Secretary Geithner is another economic incompetent.  He told China that he stood for a “strong dollar,” but that China should let its currency appreciate relative to the dollar, which, of course, would mean a weaker dollar.  He simultaneously told China that their investments in US Treasury bonds were safe.

His Chinese university audience, being economically literate, laughed at Geithner.  It apparently did not dawn on the US Treasury Secretary that if Chinese money is rising in value relative to the US dollar,  the value of Chinese investments in dollar-denominated US Treasury bonds is falling.

Congressional Democrats are proving themselves to be as stupid as the Republicans.  According to the Associated Press, the Democrats have reached agreement to appropriate another $100 billion to continue the wars in Iraq and Afghanistan through the end of the year.  What are the Democrats thinking?  The federal budget for this year is already 50 per cent in the red.  Why add another $100 billion to the red ink, which has to be monetized, thus causing inflation, higher interest rates, and a weaker dollar.

The red ink that Washington is generating is a far greater threat to Americans than any foreign “enemies.”

The hubris is extraordinary.  A bankrupt government that has to send its Treasury Secretary begging to China thinks it can spend limitless amounts in a futile effort to control the culture, mores, and political system of distant Afghanistan.

PAUL CRAIG ROBERTS was Assistant Secretary of the Treasury in the Reagan administration. He is coauthor of The Tyranny of Good Intentions.He can be reached at: PaulCraigRoberts@yahoo.com