Page 1 of
3 A rate cut with a shoeshine and a
smile By Julian Delasantellis
In
1939, The New Yorker magazine published the James
Thurber short story The Secret Life of Walter
Mitty
. In it, an average, fairly
nondescript middle-class American male, Walter
Mitty, fantasizes about lives of daring and
adventure, of danger and glory, while waiting in
the car for his wife as she finishes some errands.
In one fantasy, he dreams he is a British
fighter pilot, in another he is a hydroplane
captain, in yet another he is an eminent
surgeon dressing for an
operation.
The story has come to be a
classic of modern US literature. This was
particularly true after World War II, when the
brave soldiers and sailors of wartime settled down
into the endless cookie-cutter Levittowns of
postwar suburbia.
Sporting the battle
dress of 1950s American middle management, they
became, as Sloan Wilson called one of them in them
his 1955 novel The Man in the Gray Flannel
Suit, endless armies of soulless corporate
drones. English teachers used the Thurber story to
illustrate the point that, even under the most
straitlaced, proper, by-the-book corporate
middle-level executive, there are dreams,
fantasies and desires that act as a relief valve,
dissipating the excess psychic pressure of the
mind-numbing everyday world.
One wonders
what manner of Mitty fantasies the current
chairman of the Federal Reserve Board, Ben
Bernanke, dreams as he waits in the car for his
wife Anna to finish her errands.
Does he
imagine himself as a modern-day hero in the Ayn
Rand mode, a John Galt in Atlas Shrugged,
or a Howard Roark in The Fountainhead, men
of fearsome integrity and uncompromising
independence, men willing to accept their
ruination rather than compromise their principles?
Perhaps. Perhaps not; after all, it was his
predecessor, Alan Greenspan, who always had that
weird Rand thing going.
Maybe, as he waits
outside Linens and Things or Michael's Crafts, his
fantasies are even darker, more Gothic. Perhaps he
sees himself as a brave and fierce Macbeth, always
ready "with brandished steel, which smoked with
bloody execution" to vanquish the spurious
arguments of economic poseurs and pretenders.
However, for the sake of Bernanke
maintaining his grasp of reality (a rather
important character trait for a central-bank
leader), one would hope that he would identify
with another great character in world literature,
that of Willy Loman, the doomed American traveling
salesman of Arthur Miller's 1949 play Death of
a Salesman.
This was a man for whom
the fulfillment of the American dream was always
just tantalizingly out of his grasp; his best
friend said his problem in life was, "The only
thing you got in this world is what you can sell.
And the funny thing is that you're a salesman, and
you don't know that." His own son told him, "I'm a
dime a dozen, and so are you" - just another
eminently replaceable and disposable salesman in a
nation teeming with millions of others like him.
That's the real function of
the modern-day American central banker, to be
a traveling salesman for his true employers,
the US financial-services industry. That's
the exact reason a Federal Reserve interest-rate
cut coming out of Tuesday's Federal Reserve Board
meeting is a certainty.
It is with good
reason that many commentators are calling this
upcoming Federal Reserve Board meeting the most
important in a decade. At its conclusion we will
almost certainly see a reversal of Federal Reserve
rate-change policy, and that is not a common
event. From June 2004 to June 2006 the Fed raised
its key benchmark interest rate, the Federal Funds
target rate, 0.25 percentage points at the
conclusion of 17 straight meetings; at the next
one we will see a decrease in the target rate.
These are the four basic functions of the
US Federal Reserve System, from the system's
booklet The Federal Reserve System: Purposes
and Functions:
Conducting the United States' 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.
Maintaining the stability of the financial
system and containing systemic risk that may arise
in financial markets.
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.
Providing financial services to depository
institutions, the US government, and foreign
official institutions, including playing a major
role in operating the nation's payments system.
In the 1987 movie Moonstruck,
Loretta Castorini (Cher) is at confession with her
priest. She confesses, in order, to taking the
Lord's name in vain, sleeping with her fiance's
brother, and bouncing a check. "What was that
second thing you said, Loretta?"
In much
the same manner, the big question in US monetary
policy revolves around the real meaning of that
second function, "maintaining the stability of the
financial system and containing systemic risk that
may arise in financial markets".
"What was
that second function, Dr Bernanke?"
The
economic textbooks will tell you that the second
function refers to the modern central-bank
responsibility as the "lender of last resort". (I
described the "lender of last resort" function of
central banks in my August 21 Asia Times Online
article When the big guns fail, call in
China.) This is the core purpose of a
modern central bank, to lend money into the system
for banks and other financial institutions turned
away from private market finance, so as to assure
that no one institution's potential insolvency
takes down others, or the entire financial system,
with it.
But
now it seems that the new interpretation
of that second function is ensuring that
American upper-class and upper-middle-class investors
- the people news organizations cater
their reportage to (because advertisers tell them
that's whom they want to target) - not lose too
much money on their stock-market investments.
In much the same way as the sky
of a beautiful summer's day can suddenly be
darkened by a tremendous approaching thunderstorm, the
US - and to a great extent the world -
economy was enjoying bright and sunny skies early
this summer until, in late July, the sky began to
darken and, in early August, opened up, raining down
a tremendous storm of turmoil and disquiet.
That
storm has come to be known as the "subprime
crisis", the market's realization of the spreading
consequences of the US mortgage industry's recent
reckless housing-finance lending that so stoked
the final stages of the recent
housing-price-appreciation bubble. If the
borrowers can't pay back these mortgages it will
be big trouble for them, but more important than
the pain being suffered by the borrowers, who will
soon be evicted into the
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