Rep. Ron Paul, the Texas Republican who has called for an end to the Federal Reserve, said legislation he introduced to audit monetary policy has been "gutted" while moving toward a possible vote in the Democratic-controlled House.
– Bloomberg News, Oct. 30, 2009
There is always a fraudulent aspect to democratic government. There are things the electorate does not want to hear, so any candidate who hopes to win their support quickly learns to avoid subjecting the voters to uncomfortable truths. Once safely in office, it seldom serves the interests of the elected official to tell the people whose interest he nominally represents anything that will highlight the divergence between what is good for the legislator and what is good for those who will be subjected to the legislation he helps create.
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It is usually easy for government leaders to do whatever they want without the interference of the public. So long as their actions do not too greatly disturb the status quo or tread too clumsily upon the toes of the most powerful interest groups, the people are unlikely to trouble themselves overmuch with the deeds and decisions of the ruling class. However, in times of crisis, the people tend to find themselves belatedly inclined to begin paying attention, and occasionally a sufficient number of them will even realize that it is the past actions of their leaders that have brought them to their present, imperiled state.
This is what has begun happening in the United States. For generations, Americans have stood passively by as their financial authorities have slowly and methodically destroyed the value of their money in the process of erecting a prison of debt from which neither they, nor their children, nor their children's children can reasonably hope to escape. But now, as the system threatens to break down and collapse under the weight of the very debt it created, Americans increasingly find themselves beginning to wonder why the nation's fourth central bank should not go the way of its three hapless predecessors. The popularity of Ron Paul's bill to audit the Fed, with its 308 House co-sponsors and a powerful mass of public support, testifies to the significant change in American attitudes toward their present financial system.
Because the system is intrinsically unstable, with $14 trillion in annual economic activity now attempting to support $53 trillion in total debt, there can be no reasonable doubt that the status quo is bound to change because it is fast approaching the point at which it ceases functioning. No amount of extend-and-pretend, of subsidizing new loans or postponing fair value accounting is going to change the observation that the assets on corporate balance sheets are only worth around half what they are reported to be. Sweeping the worthless assets under the Fed's copious rugs at Maiden Lane accomplishes nothing but to delay the inevitable. To inflate or deleverage, those are the options.
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It is unsurprising, though deeply unfortunate, that Barney Frank and other Democratic congressmen have elected to attempt trying to fool the American people into thinking they are taking bold steps to change the disastrous status quo when, in fact, they are attempting to defend it by preventing any substantive changes. But their attempts will fail, not due to any political groundswell of outrage, but because, to paraphrase Warren Buffett, the tide is going out and it will soon be readily apparent who has been swimming naked.
Sham and deception has become the order of the day. As congressional mandarins boldly rush to the barricades of Wall Street to defend the banks again, the administration careens wildly from one absurd public statement to the next; no sooner had it claimed to have created 640,329 jobs by spending $159 billion in stimulus money than it was asserting it had only spent $92,000 per job, not the $250,000 simple division would indicate. The federal government has reached a truly bizarre state of consciousness when it is attacking basic mathematics as "calculator abuse." And this Associated Press account of the administration's defense of nonsense serves as an amusingly apt metaphor for the way in which both the legislative and executive branches are desperately attempting to preserve the present financial system.
"[The White House] aggressively defended an earlier, faulty count that overstated by thousands the jobs created or saved so far."
The strategy of the political and monetary authorities is very clear. Buy time. Extend, pretend and defend. Exert the power of positive thinking, engage in happy talk and attempt to lift the public's animal spirits until the prophecy of economic recovery becomes self-fulfilling and rising asset prices return bankrupt balance sheets to solvency. It is not a good strategy. It will not be a successful strategy. But it is at least a coherent one. The problem is that they are fast running out of time. They simply refuse to understand that the real danger to the Federal Reserve system is not a political one due to the understandable fury of the American people or even an accounting one stemming from uneviscerated audit legislation, it is an economic one based on the simple fact that a fundamentally flawed system is once again approaching its inescapable reckoning.