Capitalism without morality is a terrible sight to behold. Prudently responsible market capitalism is superior to communism because it preserves the sowing and reaping equation without governmental force. Merit deserves its reward just as demerit and ineptitude must be penalized to preserve the legitimacy of law and show the way to goodness.
Legitimacy dies when capitalism gets untethered from its moral moorings. Wall Street epitomizes that outcome as bailed banks refuse to reveal to the Associated Press how they’re spending their bailout billions. The monetization of unchecked greed in a free market system produces excess debt, investment scandals, mistrust, and a credit crisis. From financial calamity arise demands for new cycles of economic stimulus, such efforts further de-legitimizing the system through special interest dealings, preferential bailouts, and an inflation of the money supply. This is the duplicitous capitalism of the Federal Reserve and U.S. Treasury. It is leading the U.S. to near-certain ruin. From that ruin will arise democratized plutocracy.
The centerpiece of modern capitalism is centralized banking. The Federal Reserve System was created by the U.S. Congress in 1913. It is a private banking system operating with special privilege under congressional authority. In 1977 the Congress updated its directive to the Federal Reserve, providing it with instructions that in the final analysis (when key phrases are decoded) amount to a debt-based growth mandate. This mandate lacks a properly hewed moral component. Never mind that U.S. money says, “In God we Trust.” For the Fed the motto is, “In Debt and Growth we Trust.”
A debt based financial architecture can mean personal riches for top bankers. It can also mean an opportunity to shape civilization. Growth policies combined with controlled inflation, fractional banking leverage, and population growth produce a banking elite that eventually trump political leadership. Plutocrats increasingly rule through the veil of democratic institutions.
A central bank with a merely secular agenda — as contrasted with a morally enlightened mission — is well positioned to prevent the gentle, the pure in heart and the temperate from ever inheriting the earth. Such an outcome rejects the Almighty’s pleasure as expressed in Christ’s teachings and Moses’ law (Matthew 5:1-20). Debt-based economic growth is ‘anti-Christ’ because it transfers nearly unchecked power to financial elites. Elites trick the masses into servitude through debt consumerism. Ironically, while many evangelicals are on high alert for ‘the Anti-Christ,’ they vote for politicians who bail out an anti-Christ system.
Jim Jubak writing for MSN MoneyCentral recently declared that the Federal Reserve “is obsolete” and in need of “a revolutionary overhaul” (Dec. 19, 2008). According to Jubak the Fed “failed to use its power to set margin rates for stock trading in the run-up to the bursting of the 2000 bubble.” Likewise, it did not raise reserve requirements for banks in the run-up to the 2007 bubble. The Fed plays favorites, fails to innovate in regulatory matters, and blindly serves the establishment (“has become a fixture of the status quo”). In other words, the Fed is set on debt based growth. Jubak is not alone in his evaluation of Fed dangers; others like Bill Fleckenstein reach similar conclusions.
Speeches by Fed governors, like Vice Chairman Kohn’s Cato Institute speech on Nov. 19, reveal prejudice against checking asset inflation. The governors’ elite socialization tells them it is out of their purview to restrict money-grubbing in the financial sector. Consequently, nothing short of a mandate for money morality from their principals — the American electorate through the agency of the U.S. Congress — will get them to change. Then, too, U.S. Presidents must use their appointive and removal powers wisely, maintaining governors with a vision for moral capitalism.
The challenge is knowing how to benchmark and measure morality when it comes to banking. While there are no perfect answers there are possibilities. Christianity and Judaism — their ideals now contaminated by short-sightedness and hypocrisies — share the traditional aims of “justice, mercy and truth.” Ancient Hebrews believed that debt ought not to be a tool of exploitation. Jesus taught the Golden Rule: Do unto others as you would have them do unto you. Is it so difficult, in this light, to imagine a non-sectarian “public religion” that informs politics with reasonable ideals of economic justice?
The U.S. Congress needs to replace its 1977 Fed mandate (as explained by Fed Governor Mishkin) with a new mission for the Fed. The new mission ought to have two key elements: sustainable, ecologically prudent economics and the management of the economy so as to narrow the wealth gap between the top 5% and the bottom 70% (i.e., the masses). The latter goal is necessarily predicated upon an end to affirmative action and other governmental initiatives and indefensible welfare-oriented subsidies that skew the relationship between productive merit and appropriate reward.
Affirmative action served worthy purposes for awhile, opening doors, supplying reparation equivalencies, speeding integrative socialization, and building for disadvantaged groups capital resources and leadership capacity. Objective persons ought to appreciate these accomplishments. Nevertheless, objectivity demands the realization that affirmative action has evolved into a spoils system with far greater costs than benefits — morally, socially and economically. If the Fed made fair the economic playing field, it would justify an end for preferential programs. Furthermore, it would motivate companies to begin hiring and promoting on the basis of evidenced competency rather than educational credentials — the latter approach increasingly costly.
If one goal is a fairer world the other must be a sustainable world — economically, environmentally, culturally and demographically. Unsustainable policies amount to a Ponzi scheme where the early entrants enjoy out-sized benefits while the costs of the scheme get dumped on the latecomers (perhaps our grandchildren and their offspring). If Bernie Madoff’s scheme was immoral — and everyone says it was — then there is good warrant to see established economic policies in the same light, including the policies of the Fed that are making our political institutions unviable.
An end to the madness means no more money supply inflation and a halt to consumer and capital asset inflation. Leverage in speculative plays upon paper assets must be curtailed. The fruits of market volatility must be assigned to the public domain and used to build a wealth stake for productive workers. Banking must be freed from its service of elites and made instead to foster the common good. The public must be made to understand that money is a “reverse IOU” — a “UO-me.” This fact illustrates the looming dangers in settling the Madoff scandal. If the claimants are restored relative to the paper profits that accrued to them illegitimately in Madoff’s Ponzi scheme, Madoff’s fraud will make his fraternal clients even richer through counterfeit profits. The same applies to the commercial real estate developers who seek bailout money to give themselves retro-rewards for speculating in the real estate bubble in places like Manhattan Island.
The actions of the Fed and U.S. Treasury to stimulate the financial sector are providing preferred members of that sector with future claims on the assets of Americans everywhere. Central bankers may justify their interventions under the rubric of “Depression avoidance,” but in reality they are our Nazis, deceiving the nation and moving us toward the forced service of their agendas.
The policies of the Fed ought to be examined closely when Congress reconvenes. But little good comes of reforms when people don’t know where they are going or why. Nothing short of an astonishing cultural rebirth can reorient the Fed and save the nation it exploits.