Federal Reserve and Monetary Policy: Does President-Elect Obama have a path out of this mess?

If one looks back at history and tries to pick a moment in time in which current crisis can match with past crisis then that moment in time is mid 1930’s and things are looking bleak.

Here are 2 conflicting view points of the Great Depression; Futurecasts point of view and
New Deal Policies and the Persistence of the Great Depression: A General Equilibrium Analysis Harold L. Cole and Lee E. Ohanian, The Great Depression in the United States From A Neoclassical Perspective Harold L. Cole, Lee E. Ohanian

I believe Futurecasts’ analysis is much closer to the truth. If one substitutes the US of A for Germany during this period then one can gain a sense of certain inflationary events that has befallen on the US of A. Events such as the “printing” of money to keep Germany’s economy from crashing to the fleeing of investors out of Germany producing no new infrastructure/production. Last year’s decision by the Federal Reserve to lower Fed Funds target rate is an example of “printing” money. There was no consensus, by other Central Banks, which then lead to 128 days of dollar weakness. Dollar weakness lead to dollar denominated inflation. Wall Street’s advice to their investors/clients lead to massive capital leaving the country, for what Wall Street firms’ called “better returns”. Their advice is the same events that lead toward Germany’s poverty and the meteoric rise of Hitler. If one also subsitute China for the US of A and the US of A for Germany then one can look at the effects of Hawley-Smoot. China is currently in violation of its World Trade Organizations obligations of opening up its market to foreign companies. The US of A really needs the labor output of US of A factories and service companies going toward the 1 billion consumers of China.

One may cherry pick. I will, from FDR's policies prolonged Depression by 7 years, UCLA economists calculate By Meg Sullivan;
NIRA's role in prolonging the Depression has not been more closely scrutinized because the Supreme Court declared the act unconstitutional within two years of its passage.
"Historians have assumed that the policies didn't have an impact because they were too short-lived, but the proof is in the pudding," Ohanian said. "We show that they really did artificially inflate wages and prices."
Even after being deemed unconstitutional, Roosevelt's anti-competition policies persisted — albeit under a different guise, the scholars found. Ohanian and Cole painstakingly documented the extent to which the Roosevelt administration looked the other way as industries once protected by NIRA continued to engage in price-fixing practices for four more years.
The number of antitrust cases brought by the Department of Justice fell from an average of 12.5 cases per year during the 1920s to an average of 6.5 cases per year from 1935 to 1938, the scholars found. Collusion had become so widespread that one Department of Interior official complained of receiving identical bids from a protected industry (steel) on 257 different occasions between mid-1935 and mid-1936. The bids were not only identical but also 50 percent higher than foreign steel prices. Without competition, wholesale prices remained inflated, averaging 14 percent higher than they would have been without the troublesome practices, the UCLA economists calculate.

Doesn’t the above parallel certain sectors like the big major oil companies having no real competitors. Also does it not parallel the housing mess with respect toward price fixing by the likes of Fannie, Freddie, and the rating agencies like S&P and Moodys during Bush‘s first term? For a couple of financial companies that had knowledge of the housing market, they sure “missed” the effect of Fannie and Freddie’s fraud on the user cost of capital.

As one can sense, I’m not convinced by the Cole and Ohanian’s point of view. Their argument is based on an isolated US of A labor force. It can be shown that Neoclassical Theory is an economic model on a manifold and one must use a transformation between counties. In other words, there is no data as to the strength of global trade which would provide a gauge as to how much Germany‘s inflation and that country‘s destabilized nature had on wages in the US of A.

Got to love those topologic invariants.

So what is the correct path out of this mess? That depends on what President-Elect Obama opinion on the course China and Russia are taking. Questions like; does Russia’s extortion, by the use of its vast oil and natural gas reserves, pose a threat to NATO. Does Russia’s eye on some of the Ukraine’s territory, which Putin consider as Russia, destabilize Eastern Europe? Liquid natural gas can be process in the US of A and shipped to Western Europe to replace Russian natural gas. Does the US of A need a policy of containment with respect toward Russia? How much did Putin know about prior USSR dealings with Iraq? In particular, how much did Putin know about previous uranium yellow cake sells?

Is China really moving toward a Democracy and a Free Market or have they “pulled the wool” over some economist and others? Does the US of A need to emphasize to Chinese Communist Party members; Taiwan is the model of their future? Does the US of A need a policy of containment with respect toward China? Does President-Elect Obama have want it takes to remove China’s Normal Relation status and kick China out of WTO?

Viva La Revolucion!!!!!