The Fed’s Lacker: More Threats

The Fed’s Lacker: More Threats

Courtesy of Karl Denninger at The Market Ticker

If you’ve done nothing wrong, why are you threatening people Mr. Lacker?

Lacker criticized legislation before Congress that would rescind an exemption on government audits of monetary policy and give politicians a greater say over the appointment of Fed bank directors and presidents.

“Such moves would present very serious risks to the effectiveness of monetary policy and ultimately to economic growth and stability,” Lacker said in a speech today to the Risk Management Association in Richmond, Virginia.

In a word: Why?

If The Fed has made "policy mistakes", which Lacker acknowledges, why doesn’t he want exposed to public view why those mistakes were made, who wanted them to be made and what happened as a consequence?

While the Fed has made “policy mistakes” leading up to the financial crisis, its structure has “given us a good record over the better part of three decades.”

I challenge Mr. Lacker to prove that. 

To expose the entire structure of monetary policy decisions. 

To "bare all."

See, I think he’s lying. 

I believe that an honest examination of The Fed’s monetary policy will show that The Fed has willfully and intentionally blown asset bubbles for the last 30 years.  That it has willfully and intentionally ignored risks to the economy posed by those bubbles.  That despite more than 30 years of knowledge of the below graphs and facts (all drawn from The Fed’s own data!) the institution has chosen a path of knowing monetary ruin, and wishes to conceal not only the "who" but also the "why."

It is my believe that the displayed willful and intentional ignorance of the above chart, along with an intentionally-blind eye toward the reality of compound growth in credit beyond that of GDP, will, if examined and audited, prove that The Fed has intentionally and willfully violated its lawful mandate:

The Board of Governors of the Federal Reserve System and the Federal Open Market Committee shall maintain long run growth of the monetary and credit aggregates commensurate with the economy’s long run potential to increase production, so as to promote effectively the goals of maximum employment, stable prices, and moderate long-term interest rates.  (12 USC Ch 3, Sub 1, Sec. 225a)

It is a direct violation of the law to permit credit and monetary aggregates to grow faster than output over the long run.  Such growth will always lead to a runaway condition and subsequent crash as a consequence of fundamental mathematical principles, as the following graph proves:

This condition, which is predicated by the laws of mathematics, has led to the following result exactly as the laws of mathematics demand that it will:

The growth in credit per-unit of GDP is what has led to this bust and prevention of that credit bubble is not a mere suggestion, it is legal mandate upon which The Federal Reserve’s authority rests. 

When you screw up and violate your lawful mandate, and the above charts prove beyond a shadow of a doubt that The Fed has, the correct policy response is to perform a full forensic-level audit to figure out who, what, when, where and why, so the parties responsible are identified, their motivations discovered and to the extent possible the damage they caused can be and is reversed.

In short I believe it is trivially easy to not only prove that The Fed has willfully and intentionally violated the law but an audit will extend responsibility to the actual persons who did or did not take notice of the above facts and yet vote for policies that would cause expansion to continue anyway.  That is, an audit might lead to personal responsibility for certain former and current Federal Reserve Board members for both these actions and their consequences.

I allege and believe that The Federal Reserve has willfully, wantonly and intentionally violated its lawful mandate and continues to do so, as that mandate directs that credit and GDP levels must be brought back into balance.  To do so today would require a contraction of credit aggregates outstanding by close to fifty percent.

I further allege and believe that the purpose of these threats is to attempt to prevent the discovery of the identity of those current and former members of the FOMC who were and are responsible for this willful and wanton violation.

Mr. Lacker’s protests must not only be ignored but must serve as further impetus to pass and execute a full audit on all activities of The Federal Reserve.