How the Fed is bribing its way to your heart

Dow plus 71 yesterday. Gold plus $15.

Everything seems okay, doesn’t it? Good, then let’s look deeper…at the story behind the story…

As we’ve been saying, elites look out for themselves. But why not? Everyone looks out for Numero Uno. No? Isn’t that what you’d expect?

Every organization has some people in control of it. Government is no exception. Often, the people with real control are not those who appear to have the reigns of power. Sometimes, the real power is hidden…behind the scenes…

Some of the most remarkable and successful societies have been ruled by slaves. No kidding. The Mamluks in Egypt and the Janissaries in the Ottoman Empire. They were captured or bought in Europe. The boys – usually Christian – were taken to special training camps. There, they were converted to Islam and learned the arts of war and administration. They became soldiers. Or bureaucrats. Generals. Governors. They ran things on a day-to-day basis…for the elite powers behind them.

Of course, sometimes, like Rome’s barbarian troops, they turned on their masters and took over completely… Then, the master became the slave…

But that is a long, long story. Even in a complex, modern democracy the government acts first and foremost on behalf of the groups that control it.

How? Part bribery. Party larceny. They take from some. They give to others. They keep a lot for themselves.

So, it was not at all surprising that in the crisis of ’07-’09 the feds immediately bailed out the banks. That was an act of larceny. The big banks have power. They used the power to enrich themselves. Simple, huh?

This treachery cost the nation trillions of dollars, but only one out of a 1,000 people really understands what is going on. The other 999 think the feds “saved the economy.” They think Ben Bernanke is a hero, not a scoundrel.

In a representative democracy, powerful elites have to pretend to act for the good of the “people.” So, they pretend that bailouts to Wall Street are necessary. And they provide handouts to the poor, too. Food stamps, for example. People who get food stamps have little real power. But they vote. Food stamps are a cheap way to bribe the electorate.

And as more and more people are caught up in the system – as either knave, enabler, or accomplice – the more the system becomes zombified. There are just fewer and fewer people left who are actually producing wealth. The system itself then begins to creak and crumble…and finally falls apart.

We’re not fool enough to think that this is what really happens. It’s just what you’d call an “artist’s conception.” It’s an idealized, simplified theory about the way things work.

Real life is always much, much more nuanced…complicated…and infinitely messy.

Still, it gives us a way of understanding, imperfectly, the drift of things…

For example…the Fed’s quantitative easing and the Obama administration’s stimulus program.

“The US stimulus robbed our grandchildren,” writes Darrell Issa, US congressman, in The Financial Times.

We were surprised. We didn’t think there was anyone in congress – except for Ron Paul – who had any idea of what was going on. Mr. Issa seems to be another exception.

He explains that the results from the 4th quarter are now in. They show that the stimulus program “has woefully failed to reach each of its self-imposed targets.”

Employment is 6.8 million short. And fourth quarter GDP is $400 billion less than promised.

“Some 47 out of 50 US states…have lost jobs since the stimulus was passed,” he reports.

And most of the jobs that were created were zombie jobs – working in the public sector.

In other words, the feds spent $814 billion. We got nothing much for it. But the bill will be handed to future generations – who are guilty of neither larceny nor complicity.

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