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Thursday, May 3, 2012

Can This Force Stay With Us?

'Festive, Righteous Anger': Occupy Makes May-Day Comeback With Massive Demonstrations

All over the world, May 1 is celebrated as International Workers' Day. Yesterday, May Day also marked the reemergence of the Occupy movement, with events in cities all over America. AlterNet's reporters were in the field -- here are their dispatches from New York and the Bay AreaMidtown NYC, morning 
Midtown is a great place for chanting; your voice echoes off the tall buildings and you can hear it blocks away. Even better for marching bands, bells and whistles.  There may not actually be 99 pickets, but midtown Manhattan is clogged with them in the morning, and they're inside the heads of the people on the street--I walk past a couple discussing our "cruel," unequal society as I hurry from picket to picket. 
I made it to Bryant Park a few minutes after eight in a haze of rain, and found a crowd of around 100 huddled under their umbrellas or the ones at tables in the park. The Rude Mechanical Orchestra were clustered around their instruments but not playing, and Occupiers chatted with one another. 
My first picket stop was at the New York Times building, where the United Auto Workers (UAW) were picketing under a lovely awning in support of the National Organization of Legal Services Workers (UAW Local 2320). The lawyers and legal support staff of Legal Services NYC provide free legal aid to New York's low-income folks who need support--they help fight evictions, support the unemployed, work on benefits for the disabled, and more. They're facing cutbacks from their board, who want them to give back part of their healthcare benefits--not to mention cuts to the services they provide.
"We make next to nothing," a legal services worker told me, pointing out that her benefits allow her to do a low-paid service job and take care of herself and her family. None of the cuts have hit management. Their target for the day's picket was Michael Young, the vice chair of the Board of Directors at Legal Services NYC, who has been the point person in negotiating with the union. 
As we stood talking, the Rude Mechanical Orchestra and a small march rolled in, playing "Which Side Are You On?" and thrilling the workers, who didn't seem terribly connected at first to the larger May Day celebrations. The picket line turned into a dance party, and the band played along with chants of "Hey hey rich boy, my job is not your toy" and "We're legal services for the poor, fired up won't take no more." 
From Twitter, colleagues Allison Kilkenny, John Knefel and I heard reports of arrests at the Bank of America tower, which was surrounded by barricades when we arrived but quiet at the moment, so I moved on to News Corp headquarters, where the ticker outside the building warned "Occupy plans to shut down city today, gathering at Bryant Park." It made a lovely backdrop for the lively picket line, featuring several members of OWS's Direct Action working group as well as banners and activists from Picture the Homeless, SEIU, VOCAL-NY (including Wayne Starks, whom I spoke with on Tax Day), and other local groups. 
As they marched, the crowd repeated the crimes of Rupert Murdoch and News Corp--not only "Murdoch spies," a reference to the phone hacking scandal in the UK, but "News Corp called for closing HIV food pantries, housing for people with AIDS." 
From News Corp, I moved on to Chase, where a small but determined band was chanting "Save our homes, modify loans!" outside the branch on 47th and Madison, but no one had made it to the main headquarters, location of many an Occupy event. I saw a march rounding the corner as I headed the other way, trying to catch a march that had left News Corp for the headquarters of the Paulson Group, one of the world's largest hedge funds, but instead I crossed paths with a small march flying an anarchist flag, singing "Ain't no power like the power of the people because the power of the people don't stop." 
The marchers were young, mostly white, but the one arrest came when a young black man, whose name, I was told, was Gregory Walker, was slammed against a glass window and thrown to the ground--I didn't witness what happened to cause his arrest, but I did watch him loaded into a police van and the crowd spontaneously broke into "Solidarity Forever." 
Back at Bryant Park, the scene had picked up and the feeling was more Liberty Square than grim determination. A woman mic-checked to offer belly dance lessons, and I chatted with Betsy Fagin at the Library, back in action. Screenprinters had the next table over from the Library, and were churning out prints of a Guy Fawkes mask decorated with spring leaves. I caught up with Pam Brown and Suzanne Collado of the Occupy Student Debt campaign, who had been at their own picket outside of NYU, protesting student debt and the university's expansion plan (financed with students' money). 
The park is also serving as a staging location for marches. I spoke with organizers pulling together an immigrant worker justice march, departing at 11 to his Praesidian Capital, Wells Fargo, the Capital Grille, Chipotle and Beth Israel, in support of workers trying to organize, Wells' support for anti-immigrant legislation through ALEC, wage theft and discrimination, the Coalition of Immokalee Workers' Fair Food Campaign, and laundry workers who clean hospital sheets, respectively. 
On the way out, I spoke with Jerry, who told me about the Summer Disobedience school that will be held every Saturday in Bryant Park, training activists in pickets, marches, street theater and more. 
-- Sarah Jaffe
Wildcat Strike, NYC
The Wildcat Strike -- designed to bring together non-unionized, or unionized workers whose unions had not approved the strike -- was one of the unpermitted actions of May Day. Protestors and strikers came at the risk of their own arrests and the authorities had the right to "do whatever they want."
I arrived at Sara Roosevelt Park half an hour early. There were already 50 or 60 police huddled on the corner of Second Avenue and East Houston. At that point, there were maybe 10 protestors.
"I feel like they're the ones that should be protesting and we should be the cops," I joked to one of the few other protesters in the park.
"I know. I wish we could pull out our batons and tell them that they're blocking the sidewalk," he replied.
A few minutes later, fellow protesters and marches streamed in from Brooklyn, fresh from having walked across the Williamsburg Bridge. The police began to subside, merely observing the demonstrators as they played music, held signs and chanted.
Though the crowd was mostly young and though not exclusively white, far from racially diverse, their occupations -- and reasons for showing solidarity at the wildcat march in particular -- were vastly different.
"I am a non-union metal worker, working a pretty low range for my skill set," said Rachel, a young woman holding a foil flag as an artistic allude to metal workers. "I'm here to represent those who are actually in labor who don't want to be part of a permitted anti-capitalist march and stand in solidarity with my fellow workers who might be afraid or can't afford to be here."
Gregory, a doctoral student and graduate teaching assistant at SUNY Stony Brook College also came to use the wildcat strike as an opportunity to express himself in protest.
"I'm a union member, I'm a public employee of the state--and as a public employee, we are legally not allowed to strike. The wildcat strike provides a space for those of us who can't strike for whatever reason to still express ourselves in protest."
Gregory went on to talk about how his role as an instructor, and a member of the Graduate Student Employees Union made him align himself more with student strikers than other instructors. As students face state budget cuts, and increasing tuition and debt, he sees his role as an instructor as part of the larger struggle around education rather than precarious labor.
"I make $15,000 a year -- I should be striking for myself, but actually I'm striking for my students."
After a fairly civil 20 minutes of chatting, singing, live music and navigating the march, a march began. The first man who tried to even so much as leave Sara Roosevelt Park was immediately tackled to the ground and arrested by the NYPD. After digesting the chaos, demonstrators decided to run en masse to the south end of the park, many jumping over the railings to avoid the police and began marching south toward Chinatown.
The police followed, a parade of 30 riot cops on mopeds following strikers on foot on the sidewalk and on bicycles in the streets. Throughout the crowded, but peaceful march, vans and other arrest vehicles began to follow the mopeds, indicating imminent arrests.
Ironically, the extreme police presence was blocking traffic and inconveniencing the flow of the city far more than the strikers.
Once the march reached Houston and Lafayette -- almost a complete square from where it began -- the cops donned their riot gear and took out their batons. Protesters were kettled onto the sidewalks, spilling off of them and threatened if even so much as a foot was in the street. One nicely dressed man, without provoking anyone, was arrested and thrown to the ground.
After being halted by the police, the march continued up Broadway -- ever racing riot cops to resist being surrounded, the march continued and ended at Washington Square Park.
-- Anna Lekas Miller
Free University: Madison Square Park, noon-3pm
The sun came out over Madison Square Park as OWS Free University kicked off. Forgive the pun, but the class war was definitely in session. Professors and experts gathered groups around them throughout the benches and pathways of this park as midtowners walking by stopped to look. There was a lesson on "horizontal pedagogy"--or how to teach without hierarchy--talks by noted leftist thinkers Chris Hedges and Francis Fox Piven, a discussion about native/indigenous resistance and another about gender constructs, and most pertinently, a student debt teach-in. One guy was even leading a class on "ancient political philosophy" and I thought about the Athenian forum.
This action was meant to--and did--accomplish two goals. First, it recaptured the "public square" aspect of Zuccotti Park occupation and other encampments, that sense of people radically coming together and talking to each other about major, transformative ideas without boundaries or rules. Secondly, it demonstrated by example a principle of communal, free, shared and sharing education without tuition or fees, a rejoinder to the rising tuition costs at institutions across the country.
As the "class" sessions came to an end under the sunshine, demonstrators talked in clusters, took pictures and gathered around the park's central fountain. And then the sound of chants, whistles and guitars began to float over the park.
Protesters rushed over to Broadway to see the advancing "guitarmy" march--a musical, un-permitted, wild walk down from Bryant Park led by Tom Morello, its members spilling out onto the sidewalks and the center of Broadway flanked by the NYPD. Cheers and the sound of musical instruments ensued as the march continued on its way down toward the afternoon's destination: Union Square.
-- Sarah Seltzer
Global Justice
The hundreds upon hundreds of protesters streaming into Union Square on May Day were greeted by an elaborate paper “maypole.” There was no need for explanation, as the top of the maypole read, “All our grievances are connected”—another way of saying 'We are the 99%.'"
Walk a couple hundred feet in the park, and there's an Occupy Wall Street group that fervently believes that maxim: the Occupy Wall Street global justice working group. A contingent of about 30 people affiliated with the working group had gathered before the union-heavy permitted march from Union Square to Wall Street. The reason? To “declare our commitment to resist and to end wars at home and abroad,” in the working group’s own words.
The names Iran, Palestine, Egypt and more were written on the activists' placards. They joined thousands of demonstrators for a march that capped off a day full of actions highlighting economic inequality, police brutality, immigrant rights and more. In the streets, NY-based Palestine solidarity activist Dave Lippman provided the guitar-strumming while others sang songs. “When you shop and when you dine,” they sang, “stand up for Palestine”—a plea for boycotts of Israeli products.
Activists from the global justice working group are full of knowledge and experience about struggles from Bahrain to Egypt to Palestine. It includes organizers involved with CodePink, the War Resisters League, Adalah-NY and more--key groups working on peace and justice issues in the city. They want to bring their knowledge to the broader world of Occupy Wall Street activism. The march, and songs about struggles here and abroad, were one way of doing that.
“Very often in OWS you get people who don’t know what’s going on across the water,” explained Udi Pladott, an activist and former soldier in the Israeli army. “We’re trying to inject global issues into Occupy.” Toward that goal, the working group has sponsored events on Bahrain and held a teach-in on the global tear-gas industry.
“We want to make connections between the war on the poor here and wars abroad,” said Nancy Kricorian, an organizer with CodePink. Conversations with working group participants made clear what those connections are: a system that rewards militarism with profits while demanding austerity for the poor.
Apart from Bahrain and Palestine, the specter of a war with Iran, and organizing to stop that possibility, was very much on the minds of participants. A number of signs at the march read “No to sanctions. No to war. No to state repression.” I spoke with Manijeh Nasrabadi, a PhD student at New York University and an organizer with Havaar, an Iranian group that now works with the global justice working group, for more on this subject.
“There are people in Iran organizing against the same things. They have a government pushing neoliberal policies,” she explained. Nasrabadi also criticized the tendency of some on the left to reflexively back Iran’s leaders since they are in opposition to the West, even as the regime violently cracked down on dissent. “There is a third way: global solidarity,” that isn’t morally compromised, Nasrabadi said.
I asked Nasrabadi what the connection was between Iran, the US and the Occupy movement. Answers abound to that question.
But she had a simple answer that helps explain the importance of the global justice working group: “If bombs fall, it would derail thinking about class.”
 -- Alex Kane
Tom Morello and the Guitarmy, Union Square
Under unexpectedly sunny skies, thousands converged upon Union Square yesterday afternoon, their numbers growing as the Tom Morello-led “Guitarmy,” flanked by their acoustic axes, marched in from Bryant Park. One of the only spots with a city permit, the Square was the destination for the day’s live music, but it also served as a safe space for protesters unwilling or unable to risk arrest. As such: the undocumented faction came out in droves, and it became a symbolic place where unions and Occupy joined forces with immigrants' rights movements. People carried signs reading, “Amnesty Para Todos,” “Trabajando y EducaciĆ³n Para Todos,” “Stop the Raids” and, most crucially, “No a la guerra, ni a la militarizaciĆ³n de la frontera.” It’s important not to forget the bigger picture: the border debates are an extension of our country’s war-obsession, and solve no problems.
But the overall spirit at Union Square was one of joy and enthusiasm and united strength. A large stage was set up to accommodate the performers and speakers and the message was clear: through art, activism can glean both power and relief. At around 4pm, the show started with the beloved Tom Morello, aka the Nightwatchman, aka guitarist in Rage Against the Machine (which we recently learned is Paul Ryan’s favorite band, and who we hope will act on the knowledge by writing a song about him).
Because of the abundance of artists and speakers in the lineup, each act only got to perform two songs, and Morello used his time effectively. Playing after a speaker announced, “We’re here to announce that another world is not only possible, but on her way,” Morello brought his 20-person Guitarmy onstage to a fired-up crowd ready to party for justice. He kicked off his set with a singalong of “World Wide Rebel Songs,” which pays homage to union classics, and got thousands of protesters singing the chorus (and freaking out when he played the harmonica, because the proles, apparently, love a harmonica).
Then he noted that, were Woody Guthrie alive, he’d be 100, and that if he were still with us, he’d be headlining the event. Morello’s next song? “This Land is Your Land,” which resulted in another joyous singalong and pogo session. His parting words: “Take it easy, but take it.” Morello’s performance was followed by a speech by Emily Park, who announced herself as an undocumented student at CUNY. “DREAMers like me are the future of later,” she said, and advocated the New York DREAM Act that’s currently underway at the state level. Then Joyce Lyon, of the Domestic Workers union, reminded us that, “The thousands of you standing here are the engines that make the economy run,” whether documented or not.
Their speech was followed by a performance by a multinational Latin jazz band representing Local 802, the musician’s union, during which the drummer protested the elimination of 31 multicultural categories at the Grammys. (Including the award for best Latin jazz album and best Native American album, among others.) The band was followed by performances by rap trio Das Racist (full disclosure: my family members are in the group), noise-pop musician Dan Deacon, and rapper Immortal Technique, all of whom celebrated the energy and presence of the thousands in the crowd. A
While the focus was certainly on the arts, the most salient point of the rally was made by a speaker later in the day, who reminded us that the Supreme Court is on the cusp of legalizing Arizona’s immigration law, SB 1070, and that it was up to us to stand against similar racist laws like it. “This is not an immigration issue,” she said. “This is a people issue.” The crowd was penned in by barricades, guarded by ever more police as the protest geared up to march downtown, but her message was more powerful than the city’s ominous message. Immigration is a people issue, and this was a joyous, inspiring peoples’ protest.
-- Julianne Escobedo Shepherd
Marching from Union Square After the Rally, 5:30pm

Artists for Occupy and immigrant rights groups kicked off the long march from Union Square to Wall Street down Broadway. Despite the barricades and unnecessarily huge numbers of cops on both sides of the street, marchers headed downtown undaunted. Among their numbers were groups like the Teamsters, the Transit Workers Union, and student and community organizations.
Groups let out chants like "We are students, not statistics!" the very May Day-appropriate "Black, Latin, Asian, white! Workers of the world unite!" As we entered the shopping district they playfully shouted "Out of the shops, and into the streets!"
But there was a more mellow feeling than at marches past. One woman cheering for the protesters pointed up at the newly blue sky and grinned as if to say, "See? even the weather's on your side!" Marchers ran into friends, hugged each other and chatted. The solidarity all the unions and their official signage showed for immigrants was remarkable--groups that once seemed to have been divided by the 1 percent were making a huge effort to stand up for each other. And the atmosphere was one of festive, righteous anger: one protester walked by a Jesus costume carrying a massive cross, and another in a Captain America costume waved at us to applause from a window above.
As the vanguard of the march, led by taxicabs festooned in banners, crossed Houston Street a huge cry went up and echoed back, turning Broadway into a canyon of noise for block after block. "This is some serious shit," an onlooker said, shaking his head with a smile, at the throngs weaving back all the way to Union Square.
- Sarah Seltzer
Occupied Lower Manhattan, evening
The financial district was occupied all evening--by the NYPD, which was out in riot gear, brandishing batons, lining up on side streets and marching two by two down to rallying points for tired but fired-up occupiers from the final march. 
As the march--with crowd estimates of 30,000 or so--wound down, hundreds or even thousands wound up in the space at 55 Water Street, where they held a People's Assembly as night fell. The crowd was peaceful, but the space closed at 10 and so the NYPD moved in, calling for dispersal and threatening arrests. City council members Ydanis Rodriguez and Jumaane Williams were on hand with several members of the clergy, observing and gathering evidence. The two council members are part of a lawsuit filed this week against the NYPD. 
I followed a breakout march up side streets, and while at first it was disorganized, a crew of experienced occupiers, including many from the Plus Brigades (a newer working group that specifically works on clowning and other positive reactions in order to defuse tense situations with police) took lead of the march, walking arm in arm, dancing and singing. The tension faded as they marched, for a while, without police interference, singing, "This is what democracy looks like." 
When we came to Wall Street, though, we ran into a barricade--it seems that the worst thing occupiers can do is attempt to set foot on the actual street their movement is named for. The march turned up William and then down Pine, and as the crew paused to debate where to go next, reports of police violence on Pearl Street--where we'd just been--came in over Twitter from reporters John and Molly Knefel and Ryan Devereaux. We sat on the steps of a JP Morgan Chase building on Pine, and as some discussed tactics and plans for the rest of the night, stragglers came up William, visibly shaken by what they'd seen. "Police were just grabbing people, throwing them to the ground," one marcher said. 
And then the police arrived, bearing batons and riot cuffs. They cleared the steps mostly without incident, though there was tension and a faceoff for a while before most of the crowd dispersed back down Pine--where a line of police reinforced a line of barricades once again, keeping the crowd from getting anywhere near Wall Street. 
Many of the occupiers wound up where Occupy began, back in Zuccotti Park, where only one side was barricaded off and about 100 people were sitting, chatting in small groups, discussing, once again, what would come next--for the evening, for the movement, for everyone involved. A week of action is planned for later in May, and Brooklyn College is holding a rally today, May 2, to build on momentum from May Day. 
--Sarah Jaffe
Oakland/Bay Area
The Bay Area celebrated May Day with a series of strikes and protests throughout the day, as 19 local labor unions joined thousands of occupiers and immigrants' rights activists.
The Inlandboatmens' Union staged a half-day strike, shutting down ferry service from Sausalito to San Francisco. The ferry workers are in a dispute with management over healthcare costs, and have been working without a contract for over a year. Early in the morning, they were joined by Occupy protesters in a picket line at the Larkspur Ferry Terminal. Bus and bridge workers had promised to honor the picket.
About 200 people participated in a peaceful but boisterous immigrants' rights march in San Francisco's Mission District in the morning. Several separate demonstrations wound their way through downtown Oakland, trailed by a heavy police presence. At one point, tear gas was deployed to disperse a crowd, according to protesters who were on the scene.
In the afternoon, a large contingent of Occupy San Francisco activists -- as many as 1,500 -- marched from the Financial District to set up residence in a vacant building from which they had been evicted weeks earlier. The building, formerly a shelter, is owned by the Archdiocese of San Francisco.
Police staged around the corner during the afternoon, but at around 4:30, approximately 200 officers clad in riot gear moved in, erecting barricades around the building. A tense standoff ensued, during which time a man on the roof of the building threw several objects -- a brick and some metal pipes -- at police, striking and injuring another protester, who was taken away by ambulance. A San Francisco police spokesman later said that the man had been apprehended and charged with aggravated assault.
After several hours facing down protesters, police again pulled back, and as of press time, protesters had flooded back into the building en masse.
The largest action of the day took place in Oakland during the evening, as an estimated 3,000 people took to the streets around City Hall. The protest was largely uneventful until after nightfall when, in a scene that has come to be all too familiar, Oakland police ended up dispersing occupiers with tear gas and "flash-bang" grenades. As of press time, arrests were ongoing.
-- Joshua Holland

Is The Fed Responsible For Income Inequality?

The Fed's Jelly Donut Policy

A Jelly Donut is a yummy mid-afternoon energy boost.
Two Jelly Donuts are an indulgent breakfast.
Three Jelly Donuts may induce a tummy ache.
Six Jelly Donuts -- that's an eating disorder.
Twelve Jelly Donuts is fraternity pledge hazing.
My point is that you can have too much of a good thing and overdoses are destructive. Chairman Bernanke is presently force-feeding us what seems like the 36th Jelly Donut of easy money and wondering why it isn't giving us energy or making us feel better. Instead of a robust recovery, the economy continues to be sluggish. Last year, when asked why his measures weren't working, he suggested it was "bad luck."
I don't think luck has anything to do with it. The blame lies in his misunderstanding of human nature. The textbooks presume that easier money will always result in a stronger economy, but that's a bad assumption. Here is a good example of how a real family responds to monetary policy.
Consider my neighbors, Homer, Marge, and their three adult children, Bart, Lisa and Maggie. Homer has retired from the nuclear plant, and he and Marge live off savings and Homer's pension. Bart is in a bit of trouble with too much credit card debt and an underwater mortgage. Lisa has been putting away her salary and has enough for a downpayment on her first home. Maggie owns her own business and is ready to expand.

When interest rates are high, Homer and Marge park their savings in CDs or Money Market accounts and get a decent return. There is no incentive for them to take much risk with their money. Bart gets into trouble very quickly and defaults on his loans. Lisa decides she can't afford a mortgage until rates fall. And Maggie, who's been helping out Bart with some of his expenses, believes that she'd make money if she grew the business, but possibly not enough to service the debt she'd be undertaking.
When interest rates are low, everything changes. Homer and Marge are getting only a little interest on their savings, and are struggling to live off Homer's pension. They need to rethink their finances. Bart can manage to keep up the minimum payments on his credit cards and stay in his house. Lisa can get a cheap mortgage, and Maggie doesn't need to make such optimistic assumptions in order to expand her business.
Everyone agrees that low interest rates are a good way to stimulate a stalled economy. The Fed takes this logic a step further. It believes that if low interest rates are good, then zero-interest rates must be even better. As a brief emergency measure, such drastic behavior is reasonable and can even be necessary. In 2008, Chairman Bernanke had near unanimous support for his decision to drop rates to near zero. At the peak of the crisis, it made sense. But that was four long years and many jelly donuts ago. In the 2012 economy, a zero rate policy not only adds no benefit, it's actually harmful. Just ask the Simpsons.
When Homer was approaching 65, he and Marge met with a financial planner to figure out if they had enough money saved for retirement. They assumed they'd live to be 90, and could count on receiving a fixed amount from Homer's pension and social security checks. Marge, the cautious one, has not forgotten that stock market meltdown better known as the bursting of the tech bubble. She didn't want to take any investment risk and was content to have just enough for regular haircuts for herself, a bowling and beer budget for Homer, and visits with the children. They were told that, with nominal interest rates at 3%, they could safely retire with $200,000.
"What happens if interest rates go to zero and stay there?" Marge asked the advisor.
"You mean indefinitely? If you weren't willing to start taking investment risk, you'd need 50% more in savings, or $300,000. But why would you ask such a silly question?" asked the advisor.
To which Marge replied, "Well, we were thinking about moving to Japan..."

Homer and Marge aren't the only ones doing this sort of math. Every single day for the next 19 years, more than 10,000 Baby Boomers will turn 65. Those who started saving for retirement 15 years ago are suddenly finding themselves with insufficient savings to do so.
Some will stay in the work force longer, some will drastically reduce their spending, and some will do both. In a recent survey, 20% of U.S. workers say they have postponed their planned retirement age at least once during the last year. And those who have already retired have fewer options. Returning to the workforce could be challenging. David Rosenberg points out that the workforce for those 55 and older has expanded by 4 million since the start of the recession, and they are returning to the workforce at lower wages. Even more challenging is trying to find safe investments that generate a decent yield.
Zero-rate policy makes traditional riskless investments, such as CDs and Money Markets, unattractive to savers. Rather than view this as an unfortunate consequence of policy, Chairman Bernanke sees this as a benefit. He subscribes to the philosophy that rising stock prices will contribute to a 'virtuous cycle' of economic growth. He's hoping that those approaching retirement, and even the retired, will abandon the idea of making safe returns, and put their savings into equities instead.
In a similar vein, the Fed believes that by lowering interest rates, it makes bonds unattractive compared to stocks. Using logic worthy of Montgomery Burns, Homer's old boss at the Springfield Nuclear Plant, the Chairman is hoping to create a Wealth Effect. I can almost hear Mr. Burns and his sycophantic aide Smithers now:
Smithers: "Sir, you're saying we need the stock market to go up?"
Burns: "Yes, that's the fix we're looking for."
Smithers: "And why would that be, sir?"
Burns: "Don't you get it? A rising stock market allows people to feel wealthy. And a seemingly wealthy person is a profligate person."
Smithers: "Profligate, sir?"
Burns: "Profligate. It means they spend money they don't have on things they don't need."
Smithers: "So instead of enabling people to actually have more disposable income, we'll get them to spend more by simply making them feel rich?"
Burns: "Exactly! Now how can we do that?"
Smithers: "Well, we can always encourage them to sell their bonds and buy stocks."
Burns: "Now how would we ever convince them to do something as foolish as that?"
Smithers: "Just set interest rates to zero indefinitely. Then no one can afford not to invest in the market."
Burns: "Why, Smithers, that's brilliant! This is exactly the kind of counter-intuitive thinking we've been needing around here!"

Only it's not counter-intuitive; it is simply misguided thinking that persists among the Fed Chairman and other government ivory tower thinkers. They do not understand or relate to the prime component of capitalism and a free market: greed. And because they do not understand greed, they also do not understand fear, which presents a double whammy for making bad policy decisions.


Let's think about it from an investor's perspective: For about 30 years, bonds have mostly risen in value. By directly intervening in the bond market and by promising zero percent short-term interest rates through 2014, the Fed has all but guaranteed that it will do what it takes to keep bond prices from falling. Right now, Homer and Marge own bonds that yield 2%, practically risk-free. What rational investor will sell when there is no downside?
For years, people have talked about the 'Greenspan put' or the 'Bernanke put' on the stock market. Some question whether such a put is deliberate, others question its effectiveness, and some even question whether or not it exists at all. The Fed has always explicitly denied using monetary policy to create a floor on the markets, and its inability to do so should have been settled when the NASDAQ fell 78%. As for whether or not the Fed puts are a myth, I think it depends on where you look.
It isn't where you think: The real Fed put is under the bond market.
If the Fed's hope is to drive investors into equities, propping up the bond market is counter-productive. While there are many parts of the cycle where higher bond prices fuel higher stock prices, at this point in the cycle the relationship has reversed. In recent months, stocks and bonds have developed a strong negative correlation -- what is bad for bonds, is good for stocks. The Fed does not understand investor psychology: If you want to get people to sell bonds and buy stocks, the best way to do that is to show them that bond prices can, and do, fall.
Another flaw in the Fed's logic is that many savers aren't willing to participate in the virtuous cycle experiment. Some might be convinced to take on this risk. But others who, like Marge, have seen the market get cut in half twice in the last dozen years, will resist. They don't believe it is prudent to gamble their nest egg in the market.
Those who have given up on earning more will have to save more and spend less. This is the antithesis of a wealth effect, and their reduced spending is a drag on the economy.
This reduced spending has unintended consequences for the Simpson kids as well. Chairman Bernanke is unwilling to raise rates, even by a modest amount. He's hoping that his zero-rate interest policy will encourage Lisa to buy that house and persuade Maggie to start expanding the business. He worries that a rate hike will discourage them from doing so. What he cannot seem to acknowledge is that it's been three years of ZIRP, yet credit-worthy borrowers still are not looking for loans.
Interest rates are only one consideration when looking to invest. If it makes sense to build a factory in a 2% ten-year note environment, it probably still makes sense to build it with long rates at 4%. Long duration investments of that nature have so many other risks that, once rates are low enough, further reductions in the marginal cost of money no longer make much difference.
The corollary is that if it doesn't make sense at 2%, it isn't going to make sense at 1% or even at zero, because there must be some other reason not to build. The cost of money has long since passed the point where it is a constraint on otherwise sensible economic behavior in the real economy. Incrementally lower rates no longer trigger large refinancing, let alone construction booms, in the mortgage and housing markets.
Putting money back into the hands of savers would stimulate the economy and might be just the push that Maggie needs to go ahead with that business expansion.
Another blob of jelly that we are still working to digest is the Fed's promise to keep rates at zero for a long time. Chairman Bernanke hopes this will encourage borrowing and investment, but it may have the opposite effect because it undermines any sense of urgency. By setting the time value of money to zero, the Fed devalues time.
Retailers know that to create short-term demand for a promoted special, you have to create a reason to Buy Now! -- "One day Bonanza," "First 1,000 customers through the door," and even the softer, "Good while supplies last," incite action. The promise to keep rates low invites procrastination. Why should anyone make a marginal decision to borrow and spend or build today, knowing that low-cost financing will still be available through the end of 2014?
Chairman Bernanke's strategy of bringing Walmart's Every Day Low Pricing to central banking has not worked. If the Fed Chairman wants to light a fire under Lisa and Maggie, announcing a small rate increase with the possibility of more to come could provide the incentive they need to buy or build rather than risk missing out.


Some will argue that if the Fed raises rates, it will cause deflation. Just the word 'deflation' makes Chairman Bernanke break into a cold sweat and reach for the Jelly Donuts. Fear of deflation should depend on what, exactly, is deflating.
The sort of deflation that puts pressure on wages is a clear negative, as it leads to a lower standard of living. On the other hand, lower prices caused by scientific progress and higher efficiency are unambiguously positive.
Apple's newest iPhone has twice the memory, a better camera, and other small improvements and carries the same price as the prior version. Government statisticians see an improved product at the same price and count it as a price cut, or deflation.
There is no reason for the Fed to conduct monetary policy to offset advances that improve our standard of living, in particular when it results in driving up the price of something else, like oil.
Yet, while the Fed seems compelled to respond to innovation as if it were a bad thing, it throws up its hands when confronted with rising oil prices. Unfortunately, when the Fed sets policy with a goal of driving prices higher, it doesn't get to choose which prices are most affected.
When asked about the rising oil price, Chairman Bernanke concedes that it is a negative for consumers. He then disclaims any responsibility, and states it is beyond the power of the Fed to affect it. He blames oil prices on emerging markets, political turmoil and speculators. If we take him at his word that speculators are causing the problem, it's worth considering what might be causing the speculation.
From the 2010 Jackson Hole speech that kicked off the QE2 frenzy, spot oil went from $73 to $114 a barrel in eight months. The price of food and most other commodities went up even faster.
While Chairman Bernanke hopes that flooding the market with dollars will get people to buy stocks, he appears less willing to accept that many respond by scrambling for hard assets in fear of dollar debasement. The rush into commodities is further exacerbated by cheap money that enables the inexpensive financing of speculative, levered positions. Again we see the two drivers -- fear and greed -- at work. The consequences of this speculation are reflected in the prices of food and energy.
Worse is that, even if Chairman Bernanke believed his policies were influencing oil prices, it's not clear that it would change his behavior. He seems to believe that inflation is a necessary by-product of growth, and that as long as it is kept under some control, accommodative monetary policy will help the economy.
In the current economic cycle, I do not believe this is true. There is nothing that slows the economy faster than rising oil prices, and most recessions have been preceded by rising or even spiking oil prices. Money spent at the gas pump is not available to be spent at the Kwik-E-Mart on other items.
Inflation has ceased to be an unfortunate by-product of growth. Rather, it is a direct hindrance to growth. We see the evidence in the disappointing growth during the first half of 2011. When the Fed finally signaled that there would be no QE3, commodity inflation stopped, oil prices retreated, and the economy began to improve. Oil prices again rose with the serving of the "Operation Twist" Jelly Donut, putting 2012 growth estimates at risk.
Tighter monetary policy would limit inflation and in all likelihood trigger a pronounced reduction in oil and food prices, which would provide a substantial boost to the real economy. While this thought runs contrary to Fed groupthink, it is consistent with recent experience. In light of this, I cannot understand why we are even discussing, let alone hoping, for QE3.


Chairman Bernanke recently gave a series of speeches outlining his view of the role of the Fed and its performance during the financial crisis.
To summarize his version: The crisis wasn't the Fed's fault; the Fed did a heroic job in reacting to the crisis; and the Fed isn't going to repeat perceived mistakes from 80 years ago.
Chairman Bernanke made a number of comments that while historically questionable, reveal his point of view and lend credence to the theory that he has and is likely to continue to under-price the cost of money:
  • He points out that to encourage stability central banks are supposed to mitigate financial panics or crises, but pays no similar thought to the idea that they should encourage stability by preventing bubbles.
  • He said, "Tightening of monetary policy in 1928 and 1929 to stem stock market speculation" was a "policy error."
  • In discussing the causes of the Great Inflation of the 1970s, he said "monetary policymakers responded too slowly" but made no mention of abandoning the gold standard as one of the causes.
  • He said that the housing bubble was created by deteriorating underwriting standards and downplays the role of the overly accommodative monetary policy.

Taken together, the message is that when monetary policy proves inadequate, the Bernanke Fed's response has been, and will be, even more aggressive intervention.
So, where are we now? Real GDP is growing between 2-3% and reported inflation is running at between 2 and 3%. Excluding the calculated deflation from technological progress would add about another 1% to inflation. On that basis, nominal growth is probably about 5-7%.
In the face of this, we have a policy of near zero cost money with promises to keep it that way for years, and an open debate as to whether we need more quantitative easing. When this monetary policy is combined with a large fiscal deficit, it leaves policy makers very little flexibility should we enter another recession or encounter another crisis.
I know this isn't conventional thinking, and it certainly isn't the way the Fed looks at it, but I believe that raising short rates -- not to a high level, but to a still low level of 2 or 3% -- would be much more conducive to both growth and stability.
The household sector balance sheet has a negative duration gap, meaning that it holds proportionately more short-term floating assets like bank deposits and money markets compared to its liabilities, which are disproportionately long-term fixed obligations including mortgages.
Raising rates would directly transmit income to families, enabling them to spend more freely and boost the economy -- a stimulus so to speak.
Unfortunately, it appears that Chairman Bernanke is more focused on financial institution balance sheets. While the Fed recently declared most of the largest banks to be healthy, and approved programs to reduce bank capital, continuing with zero rates several years into the recovery reveals a focus to support banks rather than households.
Zero rates allow the banks to carry non-performing and other questionable assets indefinitely. When the cost of money is nearly zero, dead beat borrowers can appear current by making nominal payments. When banks can finance their non-performers for free, they have little incentive to work them out. This lengthening of the work-out process supports banking profits and defers needed pain for some underwater borrowers. But, it also prevents the markets -- particularly the real estate market -- from clearing. This in turn delays the economic recovery and postpones job creation.
Income inequality remains a headline issue. Democrats argue for higher taxes for top earners, and increased transfer payments to those on the other end of the spectrum. Republicans remain opposed to any redistributive policies. Ending the Jelly Donut monetary policy would do more to alleviate income inequality than any of the widely debated changes in the tax code.
For the super wealthy, zero rates supported by a Bernanke put on the bond market encourage outsized income through leveraged speculation. For everyone else, zero rates reduce the standard of living because greater food and energy costs soak up income. Ironically, it is some Republicans that are beginning to question the Jelly Donut monetary policy, while Democrats generally support it. Democrats who sincerely care about income inequality should speak out against the Fed's policies.
It is a reasonable concern that a sudden change in rate policy would be destabilizing to current leveraged investment positions. The market for interest rate derivatives is the largest in the world. Many institutions continue to manage interest rate derivative risk through Value-at-Risk, a flawed concept that I warned about the last time I was here in early 2008. Given the crisis that ensued later that year, and the now-understood meaning of VaR to be 'value of some risks in a normal environment,' it is a remarkable testament to our lack of true reform that the measure is nearly as widely used today as it was then.
As a result, it is important that any policy shift has to be delivered through considered messaging and preparation, as a shift in policy could cause problems for some institutions that are very deeply positioned in the zero-rates-forever camp.
If you haven't exercised in a while, going for that first run is indeed a painful experience. So, yes, policy makers should pay attention to possible disruption, but this is not reason enough to forgo the needed change in rate policy. After jogging for a few days, exercising becomes easier, and as exercising gets easier, the desire for more exercise goes up and the desire for Jelly Donuts goes down.


It's time for Chairman Bernanke to begin restoring the markets to their natural balance. Provide the proper incentives for Lisa and Maggie to start investing in the economy again. Let Bart possibly default on his unsustainable debts so that the banks can start getting those loans off the books. Stop giving Mr. Burns access to free money that he can use to speculate in bonds and commodities at the expense of the middle class. As for Homer and Marge, quit trying to fool them into thinking they're wealthy and instead give them the opportunity to retire with some financial security. With a little extra money in their pocket, Marge can go back to the beauty parlor, and Homer can support the beer and bowling economy.
I'd like to turn my attention to the stock market. There are a lot of cheap and even very cheap stocks. The companies in the S&P will earn over $100 per share collectively this year, and the consensus for next year is for higher earnings and no recession. The market is at 14 times earnings and only has to compete with 2% ten-year Treasury notes. Even with the recent rally, equities are cheap enough that they should not need the Fed to push risk-averse savers into stocks or a Bernanke put in order to do well. What gives?
I believe that stocks are depressed because there is a pervasive feeling that something awful is going to happen. What is this enormous tail-risk? It's the intersection of reckless fiscal policy with Jelly Donut monetary policy.
There is a fear that our Fed Chairman is an academic willing to take great systemic risks in an experiment to prove out his thesis as to how we should have fought the last Great Depression.
I believe that removing the tail risk that Chairman Bernanke will feed us a coma inducing dose of Jelly Donuts would go a long way toward restoring the relationship between P/E multiples and long-term interest rates to the benefit of stocks, at the expense of bonds. If the Fed were to stop trying so hard to prop-up the stock market, the reduction in tail risk would probably fuel the market going up on its own.
I think we've reached the point where even Homer can see that the last thing he needs is another Jelly Donut, but the Fed Chairman is oblivious.
We can all say "D'oh!"


While I hope that you found this discussion thought-provoking and persuasive, as an investor my job is to figure out what will happen rather than what should happen. If we didn't have a Jelly Donut monetary policy, I would sell gold, sell bonds and buy stocks. But, the Fed is filled with academics who thoughtlessly rely on econometric models that reflexively indicate that repeated Jelly Donut orgies are the best way to get a sugar rush into the economy. And, the Fed Chairman seems to have no trouble rationalizing any policy failure on the basis that "monetary policy cannot be a panacea," or "it's bad luck," or as proof that he just hasn't force fed us enough Jelly Donuts, yet. As long as this is the case, it seems unlikely the Fed will change course.
As a result, I will keep a substantial long exposure to gold -- which serves as a Jelly Donut antidote for my portfolio. While I'd love for our leaders to adopt sensible policies that would reduce the tail risks so that I could sell our gold, one nice thing about gold is that it doesn't even have quarterly conference calls.

David Einhorn is president of Greenlight Capital, Inc., which he co-founded in January 1996. Greenlight Capital is a value-oriented investment advisor whose goal is to achieve high absolute rates of return while minimizing the risk of capital loss. David is also Chairman of the Board of Greenlight Capital Re, Ltd. (NASDAQ:GLRE). He is the author ofFooling Some of the People All of the Time: A Long Short (and Now Complete) Story, published in December 2010.

The Fed Isn't Responsible For Runaway Inequality

Yes, that is what some people are arguing. ZeroHedge, which must be the finest collection of curious economic ideas on the web, published anarticle with this theory, based on another one from Mark Spitznagel that appeared in the WSJ. It isn't so difficult to take the idea apart, so here we go.

The main theories behind their idea:

  • Inflationary policies amount to wealth distribution from the poor to the rich because the latter 'get' the new money first
  • Or at least because the rich have parked their wealth in assets that "tend to rise disproportionally due to the inflationary policy."
  • Middle class incomes started to stagnate and "curiously coincided with the abandonment of the gold exchange standard and the unfettered growth in money and credit that followed on its heels."

While inflation does have redistributional effects (from lenders to borrowers and from people on nominal income to those that are indexed), to seriously claim that inflation (and therefore the Fed) is responsible for rising inequality and the great stagnation of the US middle classes doesn't pass even the most elementary testing of the data. Let's give you the graph for US inflation first:
(click to enlarge)
You'll see that the 1970s is the period that had significant inflation, even running at double digits twice for a couple of months. But the actual development of inflation sits very uneasily with the increasing trend in inequality from the 1970s and especially with the stagnation in the median wage.
(click to enlarge)
(click to enlarge)
(click to enlarge)
There are numerous empirical observations that directly contradict the thesis that the Fed and inflation is directly responsible for rising inequality:
  1. Inequality should have risen fastest when inflation was accelerating in the 1970s. This simply didn't happen.
  2. Inequality should have been reduced when inflation collapsed in the early 1980s (as a result of..the Fed, so much for them being so inflationary) but this didn't happen either.
  3. Inflation and inequality should have risen in the 1930s when currencies were decoupled from gold, but this didn't happen either.
  4. In Argentina inflation has been (and is) rampant at 20%+ butinequality was actually significantly reduced, and this after the country came off the currency board with the US dollar which had greatly limited their abilities for monetary expansion.
  5. Other countries came of the Bretton Woods system at the same time, but the middle class income stagnation is largely a US phenomenon, which is curious, as the US didn't experience the highest inflation of these countries.
  6. Japan has embarked on bouts of QE, but despite that it suffers from deflation and inequality is low by international standards.
We're sure there is plenty of other empirical data that directly contradicts the thesis that the Fed and inflation are responsible for the rise in inequality.
However, ZeroHedge isn't the only one to relate rising inequality to the financial sector. James Galbraith has done the same, in a new book titled Inequality and Instability, he argues that it is related to the growth of the financial sector:
More specifically, as the financial world has exploded in size across the west, this has made bankers rich, and - equally importantly - pumped up the value of their assets, such as stocks and bonds. [FT]
While inflation data don't fit the rise in inequality, the growth of the financial sector undoubtedly is an important contributor. The reason for that is technological (electronic trading, etc.) and regulatory, that is, the drive to deregulate the financial sector that enabled it to grow and go wild.
This is by no means the only reason for rising inequality but it is an important one and it fits the facts much better than blaming inflation created by the Fed.
Now, the ZeroHedge article also argues that the Fed "gives money to their friends on Wall Street" (they get it "first," which is why inequality rises). Krugman has pointed out that this isn't a free lunch; he argued that:
  • While Krugman himself is clamoring for more expansionary monetary policy, the financial establishment most definitely isn't.
  • Insofar as it involves buying assets at the long maturity (QE), it compresses the yield curve which is bad for banks (which borrow short and lend long).
  • The Fed isn't "giving away" money, the banks have to give up assets.
While the litany of disparaging remarks these rather obvious observations seem to provoke is quite remarkable, it cannot hide the fact that these observations are simple truths. On the third point, here is a funny example (again from the ZeroHedge article):
Well, let's look at his voodoo economics claims (how on earth did this guy get a Nobel prize in economics? If ever you needed proof that the prize has become a contrary indicator, Krugman provides it in spades). First of all, you will notice that he fails to mention how exactly the Fed comes into a position to 'buy stuff'. It does that by printing money from thin air, which is actually the central point of Spitznagel's critique. Let's just ignore it!
No, Krugman didn't "ignore it," he merely pointed out that the banks have to give something up, real assets. It's not a free lunch for the banks.

(Go to the link above to read the great comments!!)

Now, listen to what Paul Krugman has to say!