My Latin professor once taught me the golden rule of Roman emperors, Vulgus vult decipi, ergo decipiatur. It means the masses want to be cheated, so let's cheat them. Machiavelli built his theory of government partially on this credo.
The Federal Reserve is the most powerful yet least questioned of all Washington institutions. It can make or break elections, bail out entire governments, send the stock market to the stratosphere, or bankrupt whole industries. Yet it operates with less oversight than the CIA.
People made fun of Gerald Ford's buttons that said "WIN," meaning "Whip Inflation Now." The buttons and the accompanying propaganda campaign implied that consumers' bad vibes were the cause of inflation. Ha, Ha.
American money was never more sound, or banking more free, than 200 years ago. Since then, it's been a long, steady decline from the gold standard and competitive banking to our Fed-run system of inflated paper currency, deposit insurance, and perpetually shaky banks on the dole.
In the story of Rumpelstiltskin, an evil dwarf saves the life of a king's bride by spinning flax into gold. But the price is high for performing this seeming miracle. She must give the dwarf her first-born child.
The story could be an allegory for the "micro-credit" movement, the current enthusiasm of the political Left here and abroad. It promises credit for poor people with no savings or collateral. A closer look, however, shows the movement to be financially dangerous, subtly coercive, and, in its most famous case, an enemy to children and families.
Finally, thought some Mexicans, part of the $50 billion that Western taxpayers sunk into the bailout would get to native investors. In late August, Finance Minister Guillermo Ortiz waved $1.1 billion in the air for indebted individuals and companies. The result: the peso sunk like a rock, again.
We have the makings of a world central bank, thanks to the government officials from industrialized countries (the G-7) who met at Halifax, Nova Scotia, in June. U.S. Treasury Secretary Robert Rubin, as usual, got just what he wanted.
The economy is again teetering on the brink of recession, and everyone's calling on the Fed to do something—anything!—to prevent another economic slump. But while the Fed has mastered the art of messing up the economy, it doesn't have the ability to stop the bad consequences of its own manipulative actions.
The Clinton administration, working with Republican leaders, wants to do for foreign governments what the Reagan administration did for the S&L industry. The idea, as discussed at the Halifax world economic meeting, is to create a global bankruptcy court. It would restructure government debt wherever it may be, so long as the nation is on the verge of defult. It would then lend ever more money to debt-ridden governments.
The events of March 1995 could be a watershed in international monetary affairs. Beginning with the Bretton Woods agreement 50 years ago, the Federal Reserve system has been the global monetary regulator. The collapse of the dollar is a no-confidence vote that may have brought this role to an end.
