Fed Ranks Among Those With 'Biggest Lies'

The central bank prints money to back the banks, which, as a consequence, hurts Americans.
By TheStreet Guest Contributor ,

For the time is coming when people will not endure sound teaching, but having itching ears they will accumulate for themselves teachers to suit their own likings, and will turn away from listening to the truth and wander into myths. -- Paul's Second Letter to Timothy (4:3,4)

NEW YORK (

TheStreet

) -- False teachings are the subject of my new book,

Pants on Fire: Cutting Through the Biggest Lies of Twenty-First Century American Plutocracy

. Its thesis is that we are governed today by a set of lies, which accounts for the reliably bad outcomes from our policy moves.

These lies are aggressively and relentlessly put forward by the people in charge, namely big money, and passively acquiesced in by everyone else. The Republican/Democrat food fight is a pointless distraction. We have today the best government money can buy, as now legalized by the U.S. Supreme Court.

The book discusses seven of the biggest lies that rule our lives. Following its publication, events call for a follow-up, which this article will address in just two areas: taxes and the Federal Reserve. There are others. For example, the Securities and Exchange Commission is now investigating systemic insider trading, many years after the problem was grotesquely obvious.

The tireless, and tedious, push to cut taxes on big money continues. On the corporate side, after-tax profits as a share of gross domestic product, now $1 for every $9 in the economy, have never been higher. And private-sector job growth has never been lower. Business earnings have peaked, in part, because taxes paid, as a share of the corporate tax rate, have never been so low. For multinationals, the U.S. today is, in fact, a tax haven. But, incredibly, the Business Roundtable gang can still claim, and does, that the U.S. corporate tax rate is high, and the way to create jobs is to cut it. Opponents of corporate welfare have been described as business haters, if not Socialists. If today's environment may be characterized as anti-business Socialism, it makes one wonder what the alternative would look like.

Using tax cuts (especially those for the top bracket), capital gains and dividend cuts as economic stimulus is just magical thinking, which keeps getting proven over and over, for three decades now. A big reason the reviled economic stimulus plan did not do more good than it did (it did a lot) was because three-eighths of it was magical-thinking tax cuts. Thirty years of trickle-down have yielded just one visible outcome, namely, the greatest concentration of wealth since the Egyptian pharaohs. Private-sector job destruction has also never been greater. It is time to get past trickle-down. Tax cuts may be just the thing, but not because they create jobs; the case should be made on other grounds.

The Fed has embarked on QE2 (quantitative easing, part II). This is just step 3 in the now 2-year-old process of shifting wealth to Wall Street. Step 1 was TARP, a pure giveaway program, unconditional handouts and bad asset guarantees. It never had anything to do with saving the economy, because none of it ever got to the economy. Step 2 was QE1, the Fed printing $1.7 trillion to buy stuff from the banks they couldn't sell. QE2 is just $600 billion more welfare for Wall Street. It will not increase lending any more than the previous moves did.

The loose money policy of the last 23 years has stimulated borrowing, at the expense of saving. Since saving is what funds business investment, easy money has stifled fixed investment and put American business into slow-motion liquidation. Dis-investment by business is the mathematical flip side of dis-saving. Banks use cheap money from the Fed, which only they can access, to lend to business to fund mergers, private-equity deals, dividends and stock repurchases, all of which in turn are paid for with layoffs.

So, more than Chinese labor or immigration or technology or free trade, the Fed's loose money has crushed U.S. job creation. The biggest irony around today is the Fed asserting that putting its tremendously destructive easy-money policy into warp drive will boost employment. The economy cannot survive much more Greenspan/Bernanke stimulus.

In November, the Fed finally came clean about what its actual mandate has been since 1987: goosing the stock market. "Higher stock prices will boost consumer wealth and help increase confidence, which can also spur spending." This, by now, is no longer just misguided magical thinking. It is instead cynical lying. Everyone knows the only real effect will be more lavish holiday parties on Wall Street.

If we know anything by now it is that when the rich get to keep more of their money -- which maybe they should but that is a value judgment -- that is what they do: They keep it. After a 30-year experiment with it, we now know the outcome -- bigger deficits, more inequality -- no spending or hiring or building new plants, just wealth redistribution upward.

The Wall Street bailout was just trickle-down applied to banks. The government and Fed channeled trillions to them, and they sat on it, lending out less than during the "crisis." The same goes for "quantitative easing" -- printing trillions of new dollars, which only inflates financial markets with no effect anywhere else.

Why should we suppose that doing more of this stuff will now have a different outcome? And yet, we know that it will all go on anyway, because the system is by now completely out of control. Or rather, it is under the control of people who are very determined, and the rest of us have decided to just accept. This will all end at a very bad place. We have seen only a foretaste.

Paul Christopherson, a native of Minneapolis, was formerly a Wall Street analyst at Kidder, Peabody & Co., and Bear Stearns. In 1992, he co-founded New Vernon Associates, an institutional equity research firm, leaving as chairman in 2008. He is also an ordained Episcopal priest.

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