Former NY FED President McDonough is worried about your $4 million

By Lucy Komisar
(This post is courtesy of thekomisarscoop.com)

I was having lunch today at the Council on Foreign Relations before a meeting with one of the national leaders in town for the UN General Assembly. At my table was William F. McDonough, president of the New York Fed from 1993 to 2003. That meant he was vice chairman and a permanent member of the Federal Open Market Committee (FOMC), which formulates U.S. monetary policy.

Earlier he spent 22 years at First Chicago Corporation and its bank, First National Bank of Chicago, retiring in 1989 as vice-chairman of the board and a director of the corporation. McDonough is a banker’s banker.

When I introduced myself to him and others at the table, I noted, only half joking, that I was a journalist and that anything they said might end up in print. Fair warning. Nobody seemed intimidated.

In the course of the lunch conversation, I mentioned that I’d heard a lecture from some new breed economists who said that the political issue of the deficit was not real because the U.S. could print as much money as it needed. The only problem might become one of inflation. But in the meantime, without sufficient government spending to deal with the economic crisis, people’s lives were being ruined because they didn’t have jobs.

McDonough’s reaction was that inflation was indeed a serious problem. Obviously more so than I realized. He explained, “If you had $4 million, inflation might reduce that to $1 million.”

To me that said everything. $4 million? Where in the world would I get $4 million? Or $1 million? And how would any struggling unemployed worker ever have seen that kind of money?

It said to me that people like McDonough care a lot about the people with $4 million (the 1%) and are relatively uninterested in the problems of the rest of us, including the long-term unemployed.

16 responses to “Former NY FED President McDonough is worried about your $4 million

  1. You might have told ole McDonough: “Well, if fiscal spending started to cause price inflation then reserve requirements on the banks could be raised to compensate. In fact, why not raise them to 100% right now? Then a huge amount of fiscal spending would be needed just to prevent deflation. How about that, huh?”

    Filthy bankers. When are the MMT folks going to get serious about eliminating banking or at least removing all government privileges for the banks?

    The issue which has swept down the centuries and which will have to be fought sooner or later is the people versus the banks. Lord Acton

    • Not sure what you mean by get serious. Why not just nationalize the banks and be done with it? They serve no good function that couldn’t be accomplished by government banks.

      • Nationalizing the banks does not destroy banking; it merely puts the government in charge of it and legitimizes the concept of usury for stolen purchasing power. And should the economy falter or inflation rise significantly the bankers will say: “See? Politicians can’t be trusted with credit. Put us in charge again and we’ll be good this time.”

        But if you’re unwilling to kill banking you should at least let it kill itself by:
        1) bailing out the population from all debt to the banks.
        2) removing all government privileges* from the banks such as:
        a) government deposit insurance.
        b) a legal tender lender of last resort.

        We don’t need banks. Surely monetarily sovereign governments don’t need banks and as for the private sector why should some, the banks and the so-called “credit-worthy”, be allowed to steal the purchasing power of their neighbours? Is that not the reason for huge wealth inequality?

        *Including implicit privileges such as the lack of a government provided risk-free fiat storage and transaction service. The banks have such a service; it’s called the Central Bank; why shouldn’t the population? Because it forces them to deal with the banking system?

      • It would definitely solve the problem of “too big to fail”. All banks (e.g. the one government bank) would by definition be too big to fail. And we’ll gain the high levels of customer service and efficiency we currently enjoy when renewing a driver’s license or auto registration.

    • Bill Mitchell is in favour of bank nationalisation.

      • Thanks y, I know that, and I’ve always felt that way because everything the banks do that is useful can be done by civil servants. And everything they do that is harmful would not be things that civil servants working for the Government would have incentives to do.

        • and I’ve always felt that way because everything the banks do that is useful can be done by civil servants. Joe Firestone (LetsGetitDone)

          Such as? Beyond a risk-free fiat storage and transaction service what else should civil servants be in charge of? Who gets credit and who doesn’t? Or if credit creation is not allowed (since it steals purchasing power) who gets loans of existing money and who doesn’t?

        • To F Beard, Joe Firestone, Thomas w , et al.
          The solution is as Soddy, Keynes, Minsky, Desoto, Mises, on and on is the seperation of private for profit banks from the government. Take away their legalized right to print currency and to lend it while charging interest. This is a simple provern solution, when dealing in liquid funds anyone can substain losses up to 100%. There could not be a bust problem .
          But it can not be done at this point because of the unpresidented amount of credit expansion.
          As Mises says, “There is no means of avoiding the final collapse of a boom brought about by credit expansion. The alternative is only whether the crisis should come sooner as a result of the voluntary abandonment of further credit expansion, or later as a final and total catastrophe of the currency system involved.”
          We are at a historical time, a time where we can change whether we wish to continue toward servitude or start again to pursue happiness and prosperity.
          As Einstein said, “Make it simple”
          NO NEW LEGISLATION IS REQUIRED.
          The Fed may declare that all banks go to 100% reserve.
          LEND them the $100 trillion needed to be 100% liquid set the rate at 2% for 36 years.
          End FDIC, it would no longer be needed. All bank dealings will be covered.
          This stops the stupid practice of guaranteeing the profit for the private for profit banks
          and turning the most powerful force in the univerce away from the banks (compound interest)
          and giving it back to the people as a most powerful stream of revenue. (income).
          This would generate an income of $5.5 trillion a year.
          PROVE IT WRONG !!
          “The Wealth of a Nation is in the Redistribution of that nations wealth”by justaluckyfool

          • Your path to 100% reserves stinks because it ignores that the banks have cheated the entire population, both debtors and non-debtors. So where’s their restitution?

            The proper path to 100% reserve lending is a ban on further credit creation plus a metered universal bailout of the entire population, including non-debtors, with new reserves until all deposits are 100% backed by reserves. The metering would be such that the total money supply (reserves + credit) remains constant or grows at a desired rate.

  2. Former NY Fed President McDonough obviously isn’t a wise investor and isn’t adequately alert to the tax loopholes. $4M will earn about $240,000 per annum. Pay tax at Romney’s rate, live well on half the remainder and invest the other half, and no one starting with $4m should ever run out of money. In a land which claimed equal opportunity why worry about your children’s inheritance. How does the child of a blue collar employee get an inheritance anywhere near the average inheritance of the 5% let alone the 1%?
    The problem of the USA is that not many people yet accept that the need to relearn the lessons of the 1930s depression and they need infrastructure jobs to provide employment just as the did with the New Deal. Roosevelt in his 1933 Inaugural Address said,
    “… “The withered leaves of industrial enterprise lie on every side.”
    “Practices of the unscrupulous money changers stand indicted in the court of public opinion, rejected by he hearts and minds of men.”
    “In our progress towards a resumption of work we require two safe guards against a return to the evils of the old order; there must be a strict supervision of all banking credits and investments; there must be an end to speculation with other people’s money and there must be provision for an adequate but sound money.”

  3. The modern incarnation of Marriner Eccles is Warren Mosler!

  4. It is not that he cares about the 1% more than everyone else. It is that he cares more about himself than anything else. Stupid Ayn Rand.

  5. There is a fine line between competitive market capitalism that benefits us and predatory capitalism that doesn’t especially when it’s in the shape of asset bubble inflation by a financial sector that exceeds the carrying capacity of real economies plunging them into recession. It is even more dysfunctional when there is a widespread failure to recognize that a sovereign currency issuing government can create money without indebtedness to anyone to re-balance the predatory financial asset price and debt inflation which is equivalent to massive deflationary taxation without representation. We see this in the Eurozone where despite German banks actively participating in the asset price and debt inflation which led to severe economic difficulties for other Eurozone member countries German Neo-Liberal politicians refuse to recognize the issue and persist in arguing for austerity programs for these countries to achieve the arbitary 3% of GDP deficit collar. Indeed the Neo-Liberal politicians of the other Eurozone countries ignorant of a government’s capacity to create money without indebtedness actively and ignorantly participate in the imposition of deflationary austerity programs. This is the Western disease which unless arrested will see a return to a new dark age of brutality and misery for millions.

  6. The issue is broader: all deflationary/austerity policies are pushed by creditors/people sitting on money: for them the reality with 15% unemployment is much much better than if their money lost value in a booming economy which employs everybody. Their are relatively very rich if the rest of us is poor and fights for scraps.

    • Good point! I’d also point that the debt holders of the monetary sovereign face ZERO default risk so why should they care if the economy crashes? In fact, the deflation would cause their real yields to rise!

  7. Schofield | September 29, 2012 at 6:22 am , “There is a fine line between competitive market capitalism that benefits us and predatory capitalism that doesn’t especially when it’s in the shape of asset bubble inflation by a financial sector that exceeds the carrying capacity of real economies plunging them into recession. It is even more dysfunctional when there is a widespread failure to recognize that a sovereign currency issuing government can create money without indebtedness to anyone to re-balance the predatory financial asset price and debt inflation which is equivalent to massive deflationary taxation without representation. ”
    That fine line is allowing for profit banks to do such a good job, that is , making profits for themselves.
    That fine line is allowing for profit banks to “print” our sovereign currency and to charge compound interest on it for their own gain.
    That fine line is perhaps the flaw in American capitalism: Legislationing that someone else other than the government itself can issue that currency that is “the good faith and credit of the American people”, and allowing an insult to be added to that injury, that is, to allow them (banks) to expotentially double that currency by charging compound interest.
    That fine line is in allowing banks to use the redistribution of the currency for their own use rather than “for the general welfare” or for equality.
    “The Wealth of a Nation is in its Wealth Redistribution” justaluckyfool

    and