Monetary Policy

atowntommy

Many misconceptions and myths are prevalent in regards to what the term “monetary policy” means and what the mechanics behind effecting it are. Usually, this seems to be due to how economic news is reported, in thirty-second snippets. By doing some basic research, one can learn to look beyond these short reports are saying and gaining better understanding of what is being said. It is important to understand what monetary policy is and is not. Equally important is being able to identify who makes the decisions on how policy is effected and the motivations behind such changes. Identifying the risks and rewards of any policy changes and whom might benefit most from any given change, one is able to appreciate the ramifications of policy changes and developed informed opinions on future moves by the Federal Reserve Board.

What is money? In the United States, we all accept pieces of paper and coins and call it currency. This currency is one form of money. The paper and coins do not have intrinsic value in themselves but represent a medium of exchange or unit of accounting. The use of money has superceded the use of barter for efficiency and sake of convenience. Barter is the direct swap between parties such as trading quantities of tomatoes for corn or labor for grain. The idea that there is value in realized products such as food products or the human capital that makes them possible is what give consumers trust in the value of barter and money. As noted by Miller in Economics Today, “Money facilitates exchange by reducing the transaction costs associated with means-of-payment uncertainty”. Explained more fully, it reduces the time and effort required from exchanging one good (including services and labor) into another product or service. Using money instead of barter allows the parties of any transaction to have more confidence in the measure in which they assign values to goods and services relative to another. Since by definition is a subjective assessment, there is room to affect changes in how money is used and effect changes in the value of the currency itself. This is what is called “monetary policy”.

Officials who are directly elected by the citizens do not control monetary policy in the United States. This may sound shocking but it’s the case in most countries today, especially those living within the European Union, where monetary policy is set in Brussels, Belgium whether you live in France, Germany or England. This is a source of enormous philosophical debate about divisions between state and economy, nationalism vs. internationalism, states vs. multinational corporations, non-governmental organizations (NGOs) vs. other NGOs, ad nauseum. There are so many debates about various mechanics of monetary policy and the ramifications that it would take a lifetime to research and discuss. Instead, an overview on how monetary policy is a more appropriate scope of discussion.

In the United States, monetary policy is set by an institution named the Federal Reserve Board, known more informally as “the Fed”. The Federal Reserve Board is the central bank of the United States. "The seven members of the Board of Governors of the Federal Reserve System are nominated by the President of the United States and confirmed by the U.S. Senate. One term begins every two years on February 1 of even-numbered years. A member who serves a full term may not be re-appointed. A member who completes an un-expired portion of a vacated term may be re-appointed to a full fourteen-year term. All terms end on their statutory date regardless of the date on which the member is sworn into office. The Chairman and the Vice-Chairman of the Board are chosen by the President from among the sitting Governors and are confirmed by the Senate. They serve a term of four years and may be re-appointed as Chairman or Vice Chairman until their terms as Governors expire. A member's term on the Board is not affected by his or her status as Chairman or Vice Chairman. Governors can also be appointed as Chairman or Vice Chairman to a term that ends after their terms as Governor expire. Incidentally, on April 23, 2003, Alan Greenspan, current Chairman, announced that we would serve a fifth term on the Fed if re-nominated by President George W. Bush. To ensure adequate national representation on the Board, no two Governors may come from the same Federal Reserve District. There is no limit on how long a seat on the Board may remain vacant."

As of March 28, 2003, the Fed’s current policy has been to maintain relatively low interest rates for both short and long term loans. The Fed relies on three basic instruments to effect its monetary policy: the discount rate, reserve rate requirements and money creation. The Fed also relies on other indicators such as changes in Gross Domestic Product, the Consumer Price Index, housing starts, unemployment data and retail sales to gain more insight to the state of the economy before setting policy during its quarterly meetings.

All adjustments to monetary policy are post hoc, or after the fact. They are educated reactions based on observations of economic activity. There is always a significant delay in time between any given period of time observed and when the data gathered from that period can assembled and accurately analyzed to when it is considered for action. Also of important consequence is that development of legal changes in what constitutes a trade-able good. Consider the court decisions on enclosure of the intellectual property community. Two instances of this were in the late 19th and early 20th century and how copyrights were extended and the other regarding the ability to patent engineered biological material. In the past, it was simply possibly to own a cow but in light of this decision, if you’ve bred a cow to have a high resistance to disease and that grows larger than average, you’d be able to sell the rights to allow others to raise your “branded” cattle.

This sort of change has the ability to cause the marketplace to radically reconsider the relative values of goods and services available. Given the potentially mammoth changes that externalities within an economy, risk mitigation is of paramount importance to Federal Reserve Board. Most of this has been managed historically by simply making small, incremental changes in the discount rates and reserve rates requirements. One exception to this has been the period of the 1990s when reserves were reduced. This period happen to coincide with what Alan Greenspan termed “unwarranted euphoria” and defaults on loans by Russia, which were guaranteed by the Federal Reserve Bank and led to in part to today’s stalled economy. Also important to assessing current policy is taking note of the disproportionate numbers of older employees in the workforce. Other factors that should be recognized are changes in trade standing with key partners, radical changes in a commodity’s availability or politics surrounding its acquisition. One poignant and current example of this would be a change in oil prices due to a civil, regional or international war.

Still, other economists have formed an opinion contrasting with the Keynesians, which states that making changes in the money supply will have little impact on inflation rates. This laissez-faire approach may be more appropriate to monetary policy due the time lag factor mentioned above, its avoidance of political influence and its appearance of being the only way an economy will correct itself. Proponents of this approach can also make the assertion that any course of action will have unintended consequences that may be worse than the original problem as well. Also offered is the idea that making a decision on incomplete data may yield undesirable results as well. Keynesian proponents could counter this point by noting that since the political process oftentimes directly affects economics; it would be unwise to ignore these components in the real world. Judging from the apparent stability achieved in the present economy as compared to the 20th century’s Great Depression and the “stagflation” period of the 1970s, the Fed’s current approach of slow, cautious change seems to be appropriate to the times. However, if great changes in the economic matrix were to occur, a re-evaluation of current policy would be wise.

Monetary policy is generally misunderstood by the general consuming population, mostly due to being ill informed by the media. Monetary policy is an instrument of fiscal management by the Federal Government, the Federal Reserve Board and everyone who participates in the political process which ultimately determines who those board members will be. It is also important to note that opinion polls such as ones that ask, “is the president doing a good job of managing the economy?” are virtually irrelevant. In the USA, the president’s involvement in the economy is limited to tasks such as appointing Fed members and lobbying Congress for legislation that affects business and consumer activities.

Those who serve our country should be served in return.

tiger

On May 4th, 2005 the institution that is the “American Soldier” lost one of their greats. Colonel David Hackworth, USA passed away in a Mexican hospital after a long battle with bladder cancer. He was laid to rest with full military honors this past Memorial Day at Arlington National Cemetery. He served his country with a level of dignity and perseverance that is rarely spoken about, but will always be respected by those who knew his story.

It was once rumored that a soldier who wins the Distinguished Service Cross is a man who deserved the Congressional Medal of Honor, but either survived his own heroism or was not politically marketable. Not only did Col. Hackworth survive, but he won the award twice. In fact, this often outspoken man earned plenty of awards for his trouble, including (but not limited to):

• Ten Silver Stars
• Eight Bronze Stars
• Eight Purple Hearts
• The Army of Occupation Medal from World War II (Germany and Japan service included)
• Korean Service Medal (Eight Campaigns served)
• Vietnam Service Medal (Ten Campaigns served)

In addition to the documented medals, he holds three distinct honors that are equally impressive. First and foremost, he earned his commission on the battlefield. In fact, he was the youngest Captain in the Korean War. Second, he was the youngest full-bird Colonel in the Vietnam War. Third, and probably more familiar to many of you armchair soldiers, he was the inspiration behind the unshakable Colonel Kilgore in the movie Apocalypse Now.

The above was a brief synopsis of how David Hackworth served his country while in the armed forces. One item of note that is often thrown at him by his many critics in conservative politics is his 1971 assertion on national television that Vietnam is a mistake of a war and there is no way that the United States can win it. It was this assertion that forced him to retire after a 26 year career filled with moments both great and heroic.

After his retirement, he moved to Australia and did a great deal of work in the Anti-Nuclear movement. He was awarded the United Nations Medal of Peace for his efforts. In the 80’s, he moved back to the United States to work as a contributing editor for Newsweek. He had another brief brush with fame in 1996 when he challenged the Chief of Naval Operations on the validity of his combat awards. The admiral was found to be wearing unauthorized enhancements to his uniform, and he took the extreme step of suicide to avoid the embarrassment.

For the last ten years of his life, Colonel Hackworth wrote a syndicated column called “Defending America”, where he wrote from the perspective of a soldier rather than a political pundit.

With his death, a few questions should be raised regarding the circumstances, location and cause of his death. During his time in Vietnam, a defoliant known as “Agent Blue” was used in an attempt to kill the rice crops in non-friendly territory. In recent years, studies have linked the toxic agent to types of brain, liver and bladder cancer. Organizations that Colonel Hackworth was involved with are now attempting to raise awareness of the agent, and to get it the same classification as Agent Orange in order to improve the health-care options for veterans that were exposed and are suffering from the long-term effects.

Which brings me to the actual questions: Why would an American Colonel who retired with full military benefits be in Tijuana, Mexico for cancer treatment? Wouldn’t the VA hospitals have the best available treatments for common ailments of veterans? Why is Agent Blue not as well known as Agent Orange? If a man like David Hackworth had to go to a third-world country to get treatment for a post-war condition, what is going to happen to the hundreds of thousands of soldiers returning from action in Afghanistan and Iraq thirty years from now?

The final question that should be asked is this: What is being done by our government that ensures the people that come back from serving this great nation are taken care of?

Unfortunately for them, most of us already know the answer.

Are Ward Churchill's Actions Guided by Self Hatred?

atowntommy

Everyone wants to be someone they’re not. A bold assertion, perhaps, but I find examples. The hundreds or thousands of waiters and waitresses in Los Angeles who are waiting for their break into show business, children who dream of becoming professional athletes in spite of a complete lack of ability, and those who choose to adopt an image that projects some sort of lifestyle.

It’s probably within all of us to a certain degree. When the fantasy becomes too defining of a person, trouble starts. Which leads me to Ward Churchill. He has gotten a lot of attention for his writings, some of which have proven to be, to be kind, factually insubstantial. Let me be clear: I’ve never met Ward Churchill and don’t presently plan to. If he comes across my path, I’ll speak to him pleasantly in the hopes of finding some understanding of his unique and personal worldview. Having said that and having read some of the myriad commentary on him and some of his works, I have a suspicion: this is one extremely unhappy person. My reasoning is as follows: he has rejected his true identity, preferring to adopt the lifestyle of a culture he wasn’t born into and actively has asserted efforts to reject him.

On June 9, 2005, the Denver Rocky Mountain News published an article that leads to a reasonable conclusion that Churchill has no Native American ancestry. Yet for years, he has assumed the role of a Native American and championing the more radical ideals and wishes of that community. This type of disassociation from his roots is troubling. A wholesale rejection of one’s upbringing is sign of tremendous conflict, either within his family or origin or perhaps solely within himself. What other reasonable conclusions can be drawn from a man who declines to prove actual Indian ancestry. Having grown up in a time when native culture was overly romanticized, it seemed that a claim to Indian ancestry made you in a position to be either “more American” or at least provided a façade for racial tolerance, or conversely, well positioned to attack the values of America. It is obvious that Churchill decided to take the latter path. To be sure, if Churchill has been misled by an oral family history, he has unwittingly brought this tempest upon himself. If he knew the family history to be wrong and willingly propagated it, then he is a scoundrel and an opportunist.

I am sympathetic to certain philosophic ideologies, which Churchill has expressed, but not many. For example, as a libertarian, I definitely want individuals to find autonomy and liberty for themselves. His advocacy of sovereignty for the indigenous population should resonate with every American. After all, didn’t our founding fathers challenge the rule of a monarchy to establish a more egalitarian (at least in theory) society? And didn’t the Confederacy rise to challenge the idea that a central government was superior to local solutions for local problems? Many Americans have an almost innate suspicion of giving away personal sovereignty and liberty to any social construct. Many don’t, championing government as a way to bind together a community and ensure a greater common good. Churchill advocates a paradoxical take on this proposition. Indigenous culture is very communally oriented but this structure is based on a need for the community to have the freedom of self-determination that sovereignty allows.

What to make then, of this tension between the man who wants to join a collectivist society while speaking out as an individual? Is he just a tortured soul looking for an impossible ideal? Or is he a bitter man who hates America? You read his works, his critics and decide for yourself. After all, won’t those who share his criticisms of America predisposed to revel in his words anyway? Perhaps that is cynical but as we’re all well aware, politics is all talk and solutions only of the possible.