How Is The Fed Going To Grow The Pie?

Most people have never heard the words monetary policy, and that is unfortunate. Monetary policy is hardly something that is taught in schools at the lower levels. As a result, monetary policy is something that is reserved for people like Ben S. Bernanke and others charged with the responsibility to conduct our nation's monetary policy.

For the last week or so I have been thinking about monetary policy and whether it might make sense to raise interest rates. The Fed has kept interest rates low for the banks that borrow by keeping the discount rate at next to zero. This then has kept Fed Funds low and has provided banks with low cost reserves so that they can be in compliance with reserve requirements set by the Fed. This is all very good for the banks as they can borrow at a very low cost and lend to consumers at a very high cost and make a nice spread on their money.

But, what about consumers that are savers? Savings account pay next to nothing and as a result, it is calculated that savers lose out on about $350 billion a year in lost income from savings. Perhaps if the credit card companies had lowered their interest rates in the face of the recession, as the Fed has lowered theirs, the consumer may have been more able to bring the economy out of the recession.

The major problem, the decline in housing, has affected so many facets of our domestic economy that raising interest rates seems like the last thing the Fed should do. But, the game is appearing for me more like the banks are the casino and more money is going to the house and less and less money is getting back into the hands of the consumers. The problem as I see it is that the banks are now doing fine, but the consumer with the capital markets down and savings earning next to zero, and the banks not lending, but holding onto their money, then where is growth and consumption going to come from? And, how is the Fed going to grow the pie?

Stay tuned.

Saturday Is For Art: 2 Paintings From My Early Period

I started painting in 1987-88, and I was then working in oil paint and enamel paint on masonite. I was also working with larger pieces then, but as I continued to paint, the size of my paintings got smaller. Where in the hell do you put this stuff if no one buys it? Now I paint in acrylic as I like the ease of cleaning up and washing my brushes. Perhaps some day I might go back and do a few pieces in oil as I have a couple of pieces in mind from the time I worked on a Norwegian freighter in the summer of 1964. This week as I was cleaning up my t-shirt room (where I keep plastic containers filled with t-shirts and other items for my t-shirt business), I decided to hang these 2 early paintings downstairs and get them off the floor. So, now they hang on the first floor until some one comes along and buys them.

I am not sure why I used enamel paint for the flags on these two pieces. All I can think of now is I was trying to get the flags to pop off the canvas. The top painting: American Flag Makes The Scene was painted in 1987-88. The bottom painting: Untitled For Now was painted in 1991.

Bad Eggs, Bad Mortgages,Bad Oil & Bad Government

When I was in the US Army 45 years ago, the NCOs told me that there were two things you did not mess with. The two things were a soldier's pay and his food.

With the recall of billions of eggs, where do we go? Over a hundred years ago the Federal Government passed a law creating the Food & Drug Administration, and yet, over a hundred years later the FDA is ineffective insofar as a government agency to protect the food supply of this nation.

Liar loans and bad mortgages are synonymous. Now the housing market is in the tank. Interest rates are low and no one is buying, and as a result the economy is hurting because of all those items that go into a home are not being purchased. The securitization of mortgages was once a fantastic tool to finance the housing industry in the USA, but because of liar loans and bogus triple-A mortgage-backed bonds, the market had a meltdown and now it has dried up.

We continue to import huge quantities of oil from outside the United States, and while oil is priced in US dollars, the drain on our financial resources as a nation has been felt during this recession. But what about the oil drilling disaster in the gulf and the 11 lives that were lost, a few years ago in Houston lives lost in a refinery fire, and over 20 years ago the big spill in Alaska? Where is the enforcement of regulations to protect the environment and oil workers' lives?

And finally, where is our federal government? Bought and paid for by corporate America to permit corporations to cut corners when it comes to the environment and the lives of ordinary Americans. Can we be surprised that so many people are upset, angry, discouraged and numb.

The Level Playing Field is out there. The problem, as I see it, is that the Level Playing Field has been thrown out the window. What will it take to bring the Level Playing Field back inside? Fines do not seem to stop the abuses. Perhaps we should take a closer look at stoning those that have such a disregard for the health and well being of our people and our country.

Stay tuned.

LEVEL PLAYING FIELD OUT THE WINDOW by F.D. Zigler, acrylic on paper envelope.

For Whose Benefit Is Monetary Policy Set?

http://dealbook.blogs.nytimes.com/2010/08/23/morgenson-debts-deadly-grip/?scp=2&sq=morgenson&st=Search

Read this article: Debt's Deadly Grip by Gretchen Morgenson from Sunday Business (8/22) in The New York Times. At the end of the article she talks about Todd E. Petzel's view on where the Fed is keeping interest rates and how savers are losing out on perhaps $350 billion in lost income. I may have missed it, but I don't believe the use of the words MONETARY POLICY is used in the article. The Fed's policy to keep interest rates low for the purpose of helping the banks make more money for their bottom line is what this monetary policy is all about. I have asked the question many many times in MONEYTHOUGHTS, "for whose benefit is monetary policy set?" Does not monetary policy have more than an obligation to the banks?

Washington and The Fed get away with a lot of shit because people don't understand what the hell is going on. As a result, citizens are mad, angry and upset. But, this stuff is not that hard to understand. Monetary policy is set by the Fed for the banks, but monetary policy should not be set solely for the benefit of the banks. What about all the rest of us that are a part of our monetary system? Are we, as my mother would say, "chopped liver?"

People can't afford to save money in an interest rate environment that pays next to nothing on savings. As a result, savers are forced into becoming investors. People are looking for ways to hedge themselves against the possible loss of purchasing power by holding cash. Washington sets the rules for the Wall Street casinos and people are literally forced to play in the capital markets to try and maintain the purchasing power of their savings. But inflation is way down says the CPI (Consumer Price Index) for the last several years, so the Fed thinks it can rebuild the profitability of the banks on the backs of the poor guys saving their money in saving accounts and bank CDs.

While the Fed keeps borrowing costs for banks low, the banks that issue credit cards have maintained their high interest rates, hence the wide spread between what they pay to borrow and the price they charge the consumer to borrow. Again I ask, for whose benefit is monetary policy set?

Stay tuned.

Saturday Is For Art: 4 Paintings For The Show

This coming week I will submit 4 paintings for the Clifton Art Show. Thank goodness there will be real judges for this juried exhibit because if it was up to the Limousine Liberals in Clifton to decide, I would be out. There are some fine people that live in Clifton. In fact, I once lived there myself for many years. But, the perception that everyone that lives in Clifton is Liberal or Progressive in their thinking is way wide of the mark. Wish me luck, and perhaps I will get at least one or two paintings in the show. Here are the 4 I have decided to enter.

Savings, Investing & Inflation: The Holy Trinity?

A 2% annual inflation rate over a period of 50 years would be twice as good as the actual inflation rate since 1960 to 2010. For those that started saving in 1960, their savings for each dollar saved in 1960, would have to have grown to $7.37 because the annualized inflation rate over that 50 year period, calculated by the Bureau of Labor Statistics and based on the Consumer Price Index (CPI) was 4.07%. Over the last 5 years, 2005-2010, $1.12 would maintain the purchasing power of $1.00 in 2005. A little less than 1/8 of a dollar to make up for. But as you trace our inflation back to 1960, the spread widens. 2000-2010 $1.27; 1990-2010 $1.67; 1980-2010 $2.65; 1970-2010 $5.62 and 1960-2010 $7.37!

I am not advocating for deflation, nor am I advocating for zero inflation, but inflation eats away at savings and is a deterrent from saving money. Many people realize, as do large pension funds, foundations, endowments and other large pools of money, that savings accounts over a long period of time will not maintain the purchasing power of the dollar to meet their obligations. As a result, these large pools of cash turn to the capital markets to invest. So far so good.

But, I have a problem with the game after those dollars are put to work in the capital markets. The SEC has been weakened to the point that abuses of the laws governing the investment industry become all to common. Madoff was just one example of a system that needs repair badly. Personally, I don't understand why the public pension funds around the country have not put more pressure upon Congress and the SEC to level the playing field as millions of people's pensions are affected by the crimes that are committed on Wall Street.

Stay tuned.

Monetary Policy & 2% Inflation: For Whose Benefit?

Monetary policy is controlled by the Federal Reserve Bank. Our central bank, The Fed, has a number of tools in its tool box to either control or influence the growth of the money supply. (Just forget about monetary base, M1, M2 and M3.)

Yesterday on a TV news show, I heard someone say that The Fed fears deflation and would like to see 2% annual INFLATION in the United States. Now, I would like everyone to read that sentence again. The Fed would like to avoid deflation, and at the same time, The Fed would like us to experience 2% inflation in the coming year. Why? Because they fear a slowing in the economic recovery.

My question is: What if you are a wage earner and you don't care to use leverage (borrow money), but would like to live in a country with, say 1/10th of 1% inflation every 5 years. At that low rate of inflation, it would make sense to save your money in a savings account because the purchasing power of the dollar would remain intact. Think about a monetary policy that would be geared to the needs of the savers rather than the needs of the borrowers.

In such a monetary environment, investing in the capital markets, the stock market, would be a choice, not a necessity. As a result, large pension funds would find a level playing field in order to attract their funds for equity investments.

The bankers and corporations would not like this kind of monetary policy. Half of the fun of using leverage is to be able to pay off your debt with inflated dollars.

Now, perhaps, those of you who have been reading MONEYTHOUGHTS over the last few years will understand why I do not like the way our Federal Reserve Bank runs monetary policy. I fully understand that The Fed is charged with helping the growth of our Gross Domestic Product (GDP), but should it be at the expense of all those people that work as wage earners and see their savings erode over the years from inflation?

A 2% annual inflation rate calculated over 50 years means that saving your money for retirement is pointless. You and everyone else in this boat are literally forced by the reality of our monetary policy to invest in the capital markets if you are going to have anything for your retirement.

If investing for ones retirement is the only sane game in town, then should it not follow that the investor, public pension funds and individuals, have a level playing field. Should not the SEC protect the investor against unethical brokers, dealers, underwriters and credit rating agencies?

Stay tuned.

Credit Ratings & The Political-Economy 2010

We are having a heat wave in Cincinnati, and my brain is just about fried. Temperatures range from the mid 70s (night) to the high 90s (day) and are expected to hang on for several days. I have been working on getting 4 paintings ready for the juried art show at the Clifton Art Center. I must submit the actual works next week. No photographs this time, I must deliver the artwork with labels for the judges to examine. The 4 paintings are all in acrylic paint, with one from The Envelope Collection - Level Playing Field Out The Window.

Over the last 2 plus years, I have written about the political-economy and my belief in the need for a level playing field in order for our economy to run efficiently. In our economic system, the movement or flow of capital to those that wish to borrow from those that have funds to invest, permits the economy to grow and flourish. Whether it is a person buying a car or a corporation issuing a corporate bond issue, it is important that capital can flow to those that need or want to borrow. Credit ratings are a devise that permits the lender to assess the quality of the loan. Securitization permits many small loans, like mortgages, car loans and credit card debt to be bundled and sold in the capital markets to an assortment of investors. Pension funds, endowments, foundations, insurance companies and mutual funds can invest in securitized loans, and these bonds can then be bought and sold around the world. BUT, without credit ratings that have integrity, the movement of capital from lender to borrower is stymied.

All I have been writing about, is our need to have a credit rating system that has no conflict of interest between the underwriters and the credit rating agencies. It can't be any simpler. The thing, in my opinion, that is holding back the growth of our economy and putting people back to work in the private sector, is the problem of confidence in the system of credit in our country. Our bond market is the world's bond market and while there is money out there looking for fixed income instruments to invest, no one wants to buy a pig in a poke.

Stay tuned.

Level Playing Field Out The Window, acrylic on paper envelope, by: F.D. Zigler.

August: Too Hot To Argue About The Political-Economy

This is August. A time in Cincinnati when it is almost too hot to think, and certainly too hot to argue about the political-economy. I am working on a few paintings, and having fun in the knowledge that I don't know what I am doing, but boy is it fun trying. There is a juried art show coming up towards the end of the month that I can enter 4 paintings for $25. As they said on Central Avenue in the late 40's, "such a deal." Entering and having one or more of your paintings accepted are two different things. What the painter thinks is good, the judge(s) may not agree. I am going to enter 4 paintings that I would place in the political satire genre. What if the judge(s) does not think paintings should deal with politics in the 21st century? What if the judge is a Minimalist. If that be the case, I guess I might not be in this show. On the other hand, if the judge(s) sees a connection between my work and the history of icons and images from an earlier period in western art, then perhaps if my execution isn't too bad, I might find a painting or two accepted for the show. So, if I am not writing something on my blog, then perhaps I am painting or playing golf or selling my Ski Cincinnati t-shirts, the sponsor of this blog. Fall and cooler weather is just around the corner, and then before you know it, it will be time for my 50th high school reunion.

Stay tuned.

Saturday Is For Art: 2 Paintings In Progress

Here are 2 paintings in progress. That means they aren't finished. I have more to do. The first painting is political satire and I am calling it Washington, D.C. - Its All Politics. The second painting is of sunflowers from the side of my house, with a piece of the house in the background. Both of these paintings are on half inch MDO plywood that I cut on my table saw. Then I nailed them into the window frame and gave them a coat or two of gesso front and back. I like to recycle old windows and use the wood frames for my paintings.

You Don't Have To Be President Einstein to See That

Unfortunately for President Obama and the nation, he is listening to the wrong people when it comes to economic advice. Larry Summers should leave not Christina Romer. Tim Geithner ain't much better. The old boys' club is hard to beat. Change comes hard especially when it means that the protected few might not be able to call all the shots. Well, it is Washington, D.C. and D.C. means politics. Girls will have to get tougher if they want their points of view heard and listened to.

Unfortunately, President Obama is listening to Wall Street types too much. I know he gets plenty of campaign funds from Wall Street, but there is more to this nation's economy than Wall Street. The same men that got us into this bind are now the same men that are trying to lead us out of this recession. These guys look out for themselves, not the nation. You don't have to be President Einstein to see that President Obama.

Stay tuned.

Santa Monica Pier, CA

Dick Cheney hanging out at Santa Monica Pier photo No. 1. Batman protecting the people at Santa Monica Beach from Darth Vader.