Nomination of Ted Cruz Likely Would Reassure Investors

Sen. Ted Cruz (R-TX) (photo credit: Gage Skidmore)

Barron’s compiled daily client memos from Greg Valliere, a Washington-based strategist with Horizon Investments, under the headline “Will Trump and Cruz’s Fed Feud Rattle Markets?” Subhed: “The two leading GOP candidates want to curb the Federal Reserve. Could that shake up stocks?”

Valliere notes that the three living retired Fed chairmen and the current Fed chair proclaimed that the U.S. economy is not in a bubble and not close to a recession, contrary to claims that Trump-on-the-Stump recently made. He also expresses mild consternation that Mr. Trump and Sen. Cruz would favor “an audit of the Fed’s policies,” that they are aligned with Tea Party Republicans who want to curb the New York Fed’s authority, and that they would mandate conditions under which the Fed could raise or lower interest rates.

He goes on to say, “Our bottom line is that a dispute between the Fed and Trump or Cruz could worry the financial markets if either candidate is perceived as having a chance in November. Anti-Fed legislation has been stalled in Congress, largely because it would face a certain veto from Barack Obama.”

Where to begin?

First let’s set one fact straight. Anti- (or, more specifically, Audit) the Fed legislation has twice passed the House, both by large bipartisan margins. It has been stopped by Sen. Bob Corker, a member of the Senate Banking Committee, whose vote would have been essential to committee passage. Senate Banking Chairman Shelby also made clear that he was for an audit of Fed policies rather than the wide-ranging audit Bill. Continue Reading

The Federal Reserve: “A God That Has Failed”

Photo credit: Kurtis Garbutt via Flickr (CC BY 2.0)

Why does Wall Street keep recovering after recessions but the economy seemingly never does?

The reason, as I document in my book, “The Scandal of Money: Why Wall Street Recovers but the Economy Never Does” is that Washington and the Federal Reserve together have created a closed loop economy where the Fed creates money for the government and the S&P 500 and Main Street is left out.

The Fed decides what money is worth and who receives it and how much. The Fed prices it at zero interest rates, allegedly to stimulate economic growth. But whenever something is free, it’s distributed by queue, and only the privileged, connected people in the front of the line get any, not the innovators who create growth and opportunity for Main Street. Trump voters are wrong if they blame Mexico and China, but they are right about one big thing: The economy is rigged against them.

The Fed takeover of the economy has turned Main Street into Mean Street; it has gelded Silicon Valley, reducing our most creative entrepreneurs to climate cranks obsequiously petitioning in Washington.

Almost two-thirds of jobs created between 2002 and 2010 came from 23 million small businesses, according to the Small Business Administration. But venture capital investment in 2014 of $48 billion is just one-third of the 2000 total (in 2015 dollars), according to the National Venture Capital Association. There were half as many IPOs in 2015 as in 2000, and they were mostly focused on a few large deals.

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“The Scandal of Money” Interview

My book, The Scandal of Money: Why Wall Street Recovers But the Economy Never Does, launches today:

The Fed creates money for the government and for the Fortune 500 corporations and nobody else gets it. . . this has starved Main Street — turned Main Street into Mean Street; it’s kind of gelded Silicon Valley made them into petitioners in Washington and it has turned Wall Street into a kind of servant of Washington; Wall Street has been effectively nationalized by the Obama administration. So we have covert socialist coup in America accomplished through the Federal Reserve and this has to be reversed.

I appeared recently on a podcast for the Conservative Book Club to talk about the book. You can listen below:

George Gilder is a bestselling writer and author of, most recently, The Scandal of Money: Why Wall Street Recovers But the Economy Never Does. Continue Reading

Why Did Wall Street Pay Hillary $2.3 Million for Speeches in 2013?

Former Secretary of State Hillary Clinton (photo credit: iprimages via Flickr, CC BY-ND 2.0)

Wall Street, which used to invest in the American economy, is investing big time in Hillary Clinton:

Clinton’s most lucrative year was 2013, right after stepping down as secretary of state. That year, she made $2.3 million for three speeches to Goldman Sachs and individual speeches to Deutsche Bank, Morgan Stanley, Fidelity Investments, Apollo Management Holdings, UBS, Bank of America, and Golden Tree Asset Managers.

Read more here.

Maggie Gallagher is a senior fellow at the American Principles Project. Continue Reading

Huckabee’s Economic Populism

Former Arkansas Gov. Mike Huckabee (photo credit: Gage Skidmore, CC BY-SA 2.0)

Over at the National Journal, Josh Kraushaar makes the case against smartypants politically dismissing Mike Huckabee in a column tellingly called “Mike Huckabee’s Message is as Formidable as Jeb Bush’s Money”.

Kraushaar’s point: While other GOP candidates repeat well-rehearsed talking points about regulation, taxes, and energy, Huckabee is looking for ways to distinguish himself from the pack by a distinctively populist-sounding economic message.  First, he is pointedly taking Social Security privatization and/or a reduction of benefits for retirees off the table. “If Congress wants to take away someone’s retirement, let them end their own Congressional pensions—not your Social Security,” as Huckabee said during his announcement speech.  He has since defended this view elsewhere:

“I’m thinking, wait a minute, didn’t the government take that out of my check for all these years involuntarily?” Huckabee said. “But why would you punish the recipients who played by the rules that they were forced to play by?”

Secondly, as Kraushaar notes, “He slammed free trade agreements for reducing the cost of wages, saying he’d ‘like to think the U.S. government would stand up for the U.S. workers rather than let them take it in the backside.’”

Huckabee is politically smart to look for ways to distinguish himself in a crowded field, and he is also right that both the morally and politically correct response to our extended economic crisis hurting average workers is a populist economic message. The Democrats are increasingly driving working class whites into the GOP coalition, and it makes sense that someone would attempt to rise to lead this faction (Rick Santorum is also competing for this space).  Continue Reading

The Horrors of Dodd-Frank “Banking”

Photo via Wikimedia Commons (CC BY 2.5)

With “Audit the Fed” being described as the “direst threat” to the Fed since Dodd-Frank, it’s worth while noting the mounting number of horrid consequences to actual people who need to make a living, especially from the federalization of banks.

Today’s Wall Street Journal reports that J.P. Morgan Chase—which is a bank, by the way—plans to jettison $100 billion in deposits in order to comply with new federal banking regulations, devised under Dodd-Frank authority.

“Isn’t a bank,” you might muse, “in the business of receiving deposits and putting that money to productive use?”

Isn’t that how banks help the real economy grow?

Not in the brave new world of Dodd-Frank.  The Wall Street Journal predicted precisely this event in a December 9, 2014 report on new capital requirements.  The Fed and other banking regulators are, under Dodd-Frank, busily pursuing a “deleveraging” of the American banking industry, brilliantly characterized in an op-ed by Richard Farley on November 24, 2014, in—you guessed it—the Wall Street Journal.  There is simply too much risk in the banking sector for the tastes of the Fed.

So what is the response of banks to this new directive? It is to make “safe” loans to the U.S. government and corporate borrowers such as Apple, rather than to riskier, more economically productive, job-creating borrowers.

This campaign of deleverage obviously does not benefit Main Street, which remains credit starved.

The not-so-funny thing is the classic case for the “independence” of central banks is to prevent the politically powerful from manipulating money for the government’s benefit at the expense of the real economy. Continue Reading

Politico reports that Wall Street is sharpening its long knives for Rand Paul

Andrew Jackson Fighting the Bank, 1832 (photo via Wikimedia Commons)

Politico reports that:

Rand Paul traveled to Des Moines, Iowa, recently and delivered a sure-fire applause line. “Anybody here want to audit the Fed?” the Kentucky senator asked. “Anybody feel that the Fed’s out to get us?”

He followed it up with an op-ed comparing the Federal Reserve to Lehman Brothers and calling it essentially bankrupt. The bash-the-Fed routine, perfected by Paul’s father, former Texas congressman Ron Paul, is political gold with libertarian voters suspicious of all federal authority, especially a central bank with a $4.5 trillion balance sheet.

But Paul could face a significant challenge if he emerges from Iowa with a legitimate shot at the Republican nomination. … And the establishment wing of the GOP — backed by piles of Wall Street money — views Paul’s approach to the Fed as dangerous and irresponsible.

Politico is on to something.  But it’s not so much about some “libertarian” voters as it is with populist (small ‘r’) republicans.  They, as in some ways does Dr. Paul, represent a recurring political force whose roots go back at least to Thomas Jefferson and Andrew Jackson, two very successful presidents.

Jefferson mortally opposed to the Fed’s original predecessor, the First Bank of the United States, successfully pushed by Treasury Secretary Alexander Hamilton.  Jackson mortally opposed its successor, the Second Bank of the United States, and effectively closed it down. As noted in a publication by the Federal Reserve Bank of Philadelphia:

Secretary of State Thomas Jefferson…was afraid that a national bank would create a financial monopoly that would undermine state banks. 

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