How do you thank someone who has taken you from crayons to perfume? It isn't easy, but I'll try...
- Lulu, To Sir, With Love (1967)
There is so much to say about the United States government not defaulting.
I'd like to start with a thank you.
It isn't easy, but I'll try.
Thank you, Congress, for showing the world there's nothing wrong with the full faith and credit of the United States... and for showing the world that having full faith and credit in the United States government is a total bust.
An extension? Really? So, we go through this again in a matter of weeks?
But let's move on. Let's talk about Janet Yellen. She's far more relevant.
She's about to become the most powerful person in the United States - in the entire world, for that matter.
Here's the first thing Yellen could do with all that power - if she wants to save America.
So, just how powerful is Janet Yellen going to be?
The (Real) Most Powerful Person in the World
The power to make or break America, to enslave it or free it, is vested in one person: the chairman of the Federal Reserve Board.
You see, it isn't the president of the United States that has the real power. Presidents come and go. The pimps and panderers of Congress come and go, too. And too many stay for too long.
It's not that presidents and Congress are a sideshow, or that they act on the periphery of the economy - even though they have marginalized themselves to the point of being bit players in the game.
It is simply that the power to control the money supply, the power to control interest rates, and the power to supervise - or more aptly the power to supersize - the banks that have become the arbiters of our daily lives and our manifest destiny (manifesting money in their bonus pools) resides at the Federal Reserve.
You want prosperity? Alan Greenspan gave it to us - not any president or Congress.
You want a crisis and a Great Recession? Alan Greenspan obliged us.
You want to stop the financial systems of the world from going over a cliff? Ben Bernanke saved all the Too Big to Fail banks from imploding into nothingness.
You want to make those Too Big to Fail banks (that all essentially failed) a lot bigger? That would be Ben Bernanke.
You want to enrich the 1% and eviscerate the middle class? You guessed it: Ben Bernanke.
Yellen, the now vice-chairman of the Federal Reserve Board, has been nominated to the chairman's seat to run America. She will be confirmed.
There are a lot of questions about what Yellen will do and not do with her power.
But will she free us, or continue to enslave us?
What's the first thing Yellen should do when she puts on that bejeweled crown?
Should she address how she'll steer monetary policy?
Should she address where she'll steer policy and execution on bank supervisory issues?
If she delves into monetary policy, should she get into the weeds on tapering quantitative easing?
Or should she refrain from tapering... at least until there's pheasant under glass on every table - and two Bentleys in every garage - in the homes of her banker "constituents" and their crony capitalist comrades?
If she delves into bank supervision, should she support higher, stronger capital standards, surcharges on Too Big to Fail behemoths, or beefed-up liquidity standards?
Should she limit short-term wholesale funding, and mandate transparent capital plans?
Would she advocate for orderly resolution laws that trigger automatically when institutions are insolvent.... or when they're adjudicated criminal enterprises?
Or should she just pretend she's going to make changes while enforcing the status quo?
Or would she begin to change things for the better?
A Change in the Role of the Fed?
There is one thing she could do, one thing she should do - if she wants to save America.
And it's the first thing she should do. It should be the thing that guides her every policy position, her every decision, and her every proclamation to the American people.
Janet Yellen, immediately upon being confirmed, should hold a press conference. Here's what she should tell America - and the rest of the world:
"As Chairman of the Federal Reserve Board, I will free America from the economic shackles the Federal Reserve System - a system forged on behalf of the banks and institutions that have used it to commandeer our free markets. I am starting right now, by asking the American people to tell Congress to take back the Fed's dual mandate and take 100% sole responsibility for fiscal policies to ensure full employment.
"I am serving notice, right here and now, that the Federal Reserve will never again be the president's or Congress' piggybank. If they don't want to raise taxes to pay for wars, or programs and giveaways they hope to buy votes with, they'll have to pay whatever interest rate their creditors demand. Never again will we manipulate interest rates to finance government deficits.
"And as far as being a lender of last resort: Starting today, we're out of that business. If banks are too big to fail, we will dismantle them. If banks are found guilty of criminal acts, we will jail guilty parties and dismantle them. Any capital markets products that cause inordinate systemic risk, in any way, will be either limited to use by bona-fide hedgers or outlawed.
"The Fed's mandate under my rule will be simply to free capital markets from manipulation, engender open competition that serves the public good, and ensure price stability commensurate with proactive growth across America."
Now that would take us from crayons to perfume!