Saturday, January 15, 2011

The Atlantic Attacks Ron Paul, Again

Not content with the beating The Atlantic's Megan McArdle has taken with her attack on Ron Paul,  The Atlantic has sent another writer, Daniel Indiviglio, after Ron Paul. Indiviglio is The Atlantic's supposed heavy hitter. The Atlantic's bio of Indiviglio tells us that he graduated from Cornell where he triple majored in economics, philosophy and physics.  Yet, this education kung fu master, who must absorb information as though it was being delivered intravenously, didn't, as will become obvious, even read Ron Paul's book, End the Fed, before attacking Paul's belief in ending the Fed.

Yes, Daniel Indiviglio has pronounced that we do indeed need the Fed. He reached this conclusion by, uh, asking the Fed.

This brings to mind a shoeshine man in San Francisco. He's at the corner of Market St. and 3rd. He seems a nice enough guy, but to him every pair of shoes needs a shine. I once passed by him just after buying a pair of new shoes, which I had on.

As I passed by, he pointed to my shoes and said "shin'em up". I stopped and asked him if he really thought they needed a shine.  He studied the shoes carefully and indicated that they did. I told him I had just bought the shoes 10 minutes earlier. He shrugged his shoulders a little, looked at the shoes again and then gave me an expert's gaze indicating that the shoes needed a shine real bad.

As you pass through life there are certain things you need to keep in mind, never ask a shoeshine man if you need a shine, never ask a life insurance salesman if you need a more life insurance, and never ask a Fed member, former or current, if the Fed is needed.

Despite his kung fu triple belt education, Indiviglio has certainly not learned this lesson, at least, relative to the Fed. But it is clear he has heard that Ron Paul is going to be chairman of the House Domestic Monetary Policy Subcommittee, and he has heard that Ron Paul has written a book called, End the Fed.

It is not clear that Indiviglio has ever read the book, or that he even has it in his possession, since in telling us about his conclusion that we need the Fed, he does not address any of the issues raised by Congressman Paul in his book as to why the Fed should be ended. Zero.

Hey, why read a whole entire book, when you can call a couple of former Fed members and get the scoop without thinking or independently analyzing the subject?

Indiviglio starts his journey by going to the Fed web site, itself, and learning what the Fed responsibilities are. This "work" for his column must have taken all of three minutes. And after this work, he pretty much tells us he buys the propaganda. After listing four things the Fed does, he breaks the news to us:

So the first important point is that the Fed actually does a lot. You can't simply eliminate these functions.
Of course, most of what Indiviglio lists as to what the Fed does comes down to money printing. Although, it does not appear as though Indiviglio gets this.

On  his list of  responsibilities he puts down for the Fed, he lists (and I list these a bit out of the order Indiviglio has presented them, to make a bit more sense of them) as number 1:

Conducting the nation's monetary policy by influencing the monetary and credit conditions in the economy in pursuit of maximum employment, stable prices, and moderate long-term interest rates.
This is, of course, nothing more than money printing.

Number 3 is:
Maintaining the stability of the financial system and containing systemic risk that may arise in financial markets. 
The Fed does this by money printing, also. Though it's hard for me to think of what we just went through as maintaining stability.

As for the Fed's money printing, itself, Indiviglio sums up:

The U.S. needs some monetary policy. The government has chosen to allow the Fed conduct monetary policy with significant independence, directing it to achieve two objectives: price stability and full employment. This means the Fed has a fair amount of freedom to play with interest rates, purchase assets, and even conduct emergency lending activities to achieve those ends.
What needs to be realized here is that Indiviglio fails to discuss the business cycle distortions caused by the Fed's monetary policy, which are brought up in Ron Paul's book. Are we supposed to take Indiviglio's word that no discussion is required? Second, is he joking, when he claims, one of the reasons we need the Fed, is to help maintain full employment? Has he not checked? Does he not realize that despite the fact the Fed is now on QE2 that unemployment is over 9%?

Let's get back to his list of Fed responsibilities.

Number 2 is:
Supervising and regulating banking institutions to ensure the safety and soundness of the nation's banking and financial system and to protect the credit rights of consumers

While the supervisory function could easily be handled by the private sector, there are certainly enough other agencies supervising banks, from the FDIC to the Office of the Comptroller of the Currency, that the Fed in a supervisory capacity is clearly a redundancy. As for the credit rights of the consumer, that's the new role created for the Fed as a result of the Dood-Frank Act. It has resulted in the agency headed by Elizabeth Warren. The only roles the Fed has as far as the CFSB is concerned is a supervisory role without any power, and the requirement that the Fed pay CFSB's bills.

Number 4 is:

Providing financial services to depository institutions, the U.S. government, and foreign official institutions, including playing a major role in operating the nation's payments system

This could be handled by any major global bank, no need for the Fed here.

But enough of Indiviglio's own theorizing. Next, Indiviglio tells us that:

One of those former Fed officials, Richard Spillenkothen, is possibly the perfect person to explain why it's so important that the Fed is involved with supervision.
He  quotes, Spillenkothen:
Supervision is a way, not only to learn about what's going on in the financial system, what are the emerging points of systemic vulnerability, the principal emerging weaknesses, but it also gives the central bank an important role in settling financial and macroprudential policies. And all of that contributes to its broader financial stability responsibilities.

Like I said, ask a barber if a bald man needs a hair cut, ask an auto salesman if you need a new car.

But, Indiviglio interprets Spillenkothen comment as if it actually means something significant:
So not only will supervision help the central bank to be more effective, but its background will help it to be an unusually well-informed supervisor.
Please allow me to point out that Spillenkothen and Indiviglio are discussing the same Fed that specifically denied in 2004 that there was a housing bubble and has admitted that it pretty much missed the entire crisis, despite the fact that the damn thing was as obvious as the fact that Lady Gaga could do a better job managing the Fed. 

As for this "stability", LOL, the Fed brings to the system, if I want Fed-type stability, I'll just start eating my breakfast, of bacon, eggs and orange juice, on a roller coaster.

But for entertainment value, you can't beat Indiviglio, he goes for more insight about the Fed to yet another Fed member:

When trying to understand the monetary policy function of the Fed, who better to talk to than the recently retired vice chairman of the Board of Governors and 40-year Fed veteran Donald Kohn? He now works as a Senior Fellow for the Brookings Institution. He believes that an independent central bank is the best way to control money supply to achieve price stability. 
Ask a muni bond salesman if you need muni bonds in your portfolio, ask a back surgeon if you need that herniated disc operated on.

Indiviglio is writing about Fed price stability, I remind you, at a time that housing prices have collapsed and  commodity prices are soaring. If this is stability, please serve me my next Bombay Saphire tonic with an earthquake.

He then quotes Kohn taking a swipe at gold:
Periodic bank panics occurred under the gold standard; the Fed was founded to deal with those. And you're at the mercy of the supply of gold in the world, and its distribution among countries. You get situations as had occurred in the 1920s, when some countries accumulated large volumes of gold and they put downward pressure on the price levels of other countries that didn't have those large quantities of gold. It wasn't until after the U.S. went off the gold standard that we were able to begin emerging from the (Great) Depression.
The period of the 1920's was a period of major Fed money printing. There were no great surges in the supply of gold during that period.  The huge swings in the accumulation and disaccumulation of above ground gold by various central banks during that period was a direct result of mad attempts at fixing the price of gold relative to various currencies. It had nothing to do with gold, qua gold. I could create the same situation today if I wanted to. Have the Fed start buying gold at $50,000 an ounce and gold is going to flow into the Fed. Have the Fed start selling gold at $10.00 an ounce and gold will most assuredly start flowing out of the Fed. It's the price fixing of gold by the Fed under these conditions that would cause the flows, nothing inherent in gold that would cause these flows. Kohn is a con, when he tries to suggest that the gold flows in the 1920's and 30's would have occurred without central banks price fixing gold relative to their currencies.

As for the statement that the U.S. didn't come out of the Great Depression until after the U.S. went off the gold standard. The U.S. went off the gold standard, for all practical purposes, the minute the Federal Reserve started printing money. How about the U.S. would have never gotten into a Great Depression in the first place, if it wasn't for the insane manipulation of the money supply by the Fed? (See: America's Great Depression by Murray Rothbard)

Finally, Individiglio gives us a clue that he doesn't know what the hell he is talking about:
This is not meant to be an exhaustive argument proving that an independent central bank is utterly necessary.
Uh, no kidding.

He concludes with this:
And remember, quibbling over what objectives at which a central bank should aim as a part of its monetary policy philosophy isn't an argument against Fed; it's argument for reform. If you were to get rid of the central bank entirely, then you would need to find other regulators and/or mechanisms to take over its essential responsibilities. And as the sources above explain, trying to do so could get sticky.
This is further indication that Indiviglo hasn't read Ron Paul's book, since, in his book, Congressman Paul addresses the points Indiviglio makes here and explains why other regulators are not needed and the free market could handle the situation, without the crazed boom-bust cycles.

Methinks that the next time Indiviglio writes a column about whether or not we need the Fed, Indiviglio should at least read Ron Paul's book, directly answer the points Paul raises as to why we don't need the Fed, instead of just quoting from Fed regime loyalists on how the Fed is needed to maintain price stability, when housing prices have collapsed and destroyed families. Some stability.

Bottom line: Indiviglio is trying to serve us up Fed made Kool Aid in the middle of winter. Good luck with that Indiviglio, baby. At least Jim Jones had the sense to serve his Kool Aid in a tropical climate in the always humid Guyana.



  1. Megan McArdle is a socialist parasite who does not deserve to live in civil society. Only retarded brats give parasites like her their time.

  2. I'm very disappointed Judge Andrew Napolitano has recently given Megan McArdle a platform in his Freedom Watch.

    As a non-American, I hadn't even heard of this so-called "libertarian" McArdle before reading about her here in this blog, testifying to her complete inconsequentiality (by which i mean i don't even understand why EPJ bothered to give her the time of day). So it is unfortunate for me to realize she is being taken way more seriously than she should by being invited by the so-called Young Americans For Liberty (did i get that right?) and given speaking time by the awesome Judge Napolitano.

    This is the way the word "libertarian", now that it is way more in the spotlight thanks to Ron Paul, will systematically be hollowed out in the same way the word "liberal" has in the past.
    50 years from now we'll be using the phrase "classical libertarianism", thanks to libertarian doofuses giving this waste of time McArdle (and others like her) speaking time.

  3. Mr. Paul's wisdom will shine. Individiglio's B.S. shows his lack of maturity and an innate ability to be duped. A hand puppet will always be that. Brains baffles B.S. every time, carry on Mr.Paul.

  4. These banks will rob us forever. Most people, when looking at Individiglio's and EPJ's analysis will side with Individiglio's because "that's the opinion I hear on CNBC more." Most people don't think much beyond soundbites.

    "The crash was caused by a lack of regulation."

    When we go into a hyperinflationary depression, the banksters will come up with some lie to explain it (that will absolve them of responsibility) that will be uniformly repeated by all of their media puppets and that is what will get into all of the history books that aren't written by Woods or DiLorenzo.

    We might get a few years of fiscal sanity occasionally, but if the last 5000 years has taught us anything (it hasn't) is that history doesn't change much.

    I say, enjoy the moronic monetary policy, try to invest against it, and hopefully you'll find a way to keep the money away from the government (but probably not).

  5. Mr. Cannon,

    The Indians have a saying in Sanskrit (a most ancient language): "Styameva Jayate" which means "Truth alone Triumphs".

    The enemies of liberty will CONSTANTLY try to camouflage themselves as 'supporters of the great cause'. While WE in the liberty movement might recognize them; the vast majority of the lay public do not.
    A good example of this problem is Prof. Milton Friedman (and how he's percieved amongst the general public).

    So, whilst Ms. McArdle might very well be a 'phony' (or perhaps a "Beltway Libertarian" ala CATO Institute for example) - it is important that lovers of liberty interact, debate and expose these charlatans for who and what they are.

    Perhaps you are correct in pointing out that by giving such phonies air-time, we lend a credulity to their views --- but I beg to differ. By not challenging their views in public forums, we do the cause of liberty more damage than good.

    Let the whole world be witness to their ignorance. Satyameva Jayete!


  6. No, McArdle was invited by the Koch group Students for Liberty, not the Young Americans for Liberty, who would die a thousand deaths before featuring a nonentity like McArdle.

  7. Daniel Indiviglio is at best intellectually lazy, as is his editor. First, Indiviglio begins:

    "What Does the Fed Do?

    The natural place to begin is with the Fed's responsibilities. Here are its four central duties, from a document (.pdf) on its website:

    1. Conducting the nation's monetary policy by influencing the monetary and credit conditions in the economy in pursuit of maximum employment, stable prices, and moderate long-term interest rates..."

    Sounds like the Fed has three goals. Later, Indiviglio summarizes:

    "The government has chosen to allow the Fed conduct monetary policy with significant independence, directing it to achieve two objectives: price stability and full employment."

    What happened to "moderate long-term interest rates", which was quoted just a few paragraphs above? In fact, in a post-Volcker world where above-market long term rates as a *solution* to Fed-induced price instability are to be forgotten, most journalists toe the Fed line and refer to the Fed's first two objectives.

    Indiviglio has used the "dual mandate" line before, such as here:

    Further evidence David Indiviglio approached the story with a closed mind. He might have learned something, but was too blinded by his foregone conclusions.

  8. "No, McArdle was invited by the Koch group Students for Liberty, not the Young Americans for Liberty, who would die a thousand deaths before featuring a nonentity like McArdle."

    In that case i apologize to the Young Americans for Liberty. I mixed them up. I knew it was a movement of young libertarian people of some sort but forgot the exact name.

  9. @ Spook, RN

    I agree that their views should be challenged and exposed (at least as being non-libertarian in sofar as they're even considered consequential enough to care about).

    But my point was made on the grounds of libertarians such as Students for Liberty and Judge Napolitano's Freedom Watch offering people such as McArdle a platform as libertarian "authority voices", rather than for the purpose of contradicting them and exposing them for the faux-bertarians they are.

  10. Instead of Indiviglio he should change his name to Collectiviglio!

  11. There was such a child like innocence to Indiviglio writing that I could only hear it in the voice of Sid the Science Kid in my head.

    So the first important point is that the Fed actually does a lot. You can't simply eliminate these functions.

    What's up with the sky? I wanna no the reason why! I got a lot of questions and Big Ideas, I'm Daniel Indiviglio, the Fed function mangler.

  12. Collectiviglio has the mind of a 12 year old brat who demands higher allowance from his parents. This little parasitic boy just refuses to grow up and be a man - Or Indiviglio.

  13. Excellent entertaining rebuttal. I enjoyed reading. Gives me hope that there really are level headed, well informed and educated people who see the Fed and central banking for what it is; a big, purple, puss filled, cancerous boil. Like a parasite, a boil that has been festering and feeding on spirit of freedom and our economy for a very, very, very long time. I hope that someday before I meet the maker that I will have the privilege of witnessing a restoration of sound money, free markets along true liberty and justice for all. (sorry for the cliche. Couldn't think of any better way to say it).

  14. "As a non-American, I hadn't even heard of this so-called "libertarian" McArdle before reading about her here in this blog, testifying to her complete inconsequentiality"

    Uh, as an american libertarian I can say I had never heard of her either, until certain people at Reason seem to want to claim she's a "prominent libertarian blogger". Yeah. Right.

  15. She is being shoved down your throat as a Libertarian by the Establishment in order to pied piper the tea party movement back into government slavery.

  16. Megan McArdle seems to be playing the same role as Ellen Brown. Statists getting a hearing in libertarian circles. Thanks goes out to Mr Wenzel and Dr North for shedding light on what is really going on.