There are many similarities between the Chairman of the Federal Reserve Bank and the movie The Wizard of Oz. One of the memorable lines from this film classic, adapted from a fantasy novel by L. Frank Baum, is, “I’m just a very bad wizard.” That line rings true today, more than ever, as the world economy teeters on the brink of collapse.
If former U.S. Fed Chairmen Alan Greenspan, Ben Bernanke, Janet Yellin, and today’s Chairman Jerome Powell said the words, “I’ve been a bad Fed Chairman,” thousands would stand up and cheer. Honesty! At last.
The problem is that without any real financial education in our school system, 99 percent of graduates—even college graduates—know little of this mysterious, shadowy, global institution known as the central banking system. That’s why I thought I would use the story of Dorothy and the Wizard of Oz, a story loved by millions, to explain money, central banks and the mysterious Wizard . . . aka the Chairman of the U.S. Federal Reserve Bank.
The children’s novel titled The Wonderful Wizard of Oz was published in 1900. The book is filled with symbolic allegory about U.S. economics and politics in the 1890s, the timeframe during which Baum wrote his book. Biographers report that he had been a political activist in the 1890s with a special interest in gold and silver. Baum died in 1919, and, to my knowledge, was never asked if his classic children’s book had any hidden political or monetary symbolism . . . so his classic novel is open to interpretation.
For many, Dorothy represents the financially naïve . . . a sheltered but gutsy girl from Kansas. The scarecrow represents the farmers in the West. The scarecrow, who had been told he had “no brains,” is thought to be a stereotype of an uneducated rural farmer, a prejudicial characterization shared (some say . . .) by many elites in the East, even today.
When deflation hits, the value of farmers’ farms go down, but their mortgages do not. The Wicked Witch of the East, it’s been said, represents the corrupt “Eastern financial and industrial interests,” especially Wall Street.
And so the story repeats. On February 15, 2006, Fed Chairman Bernanke, an academic elite from the East, said: “Housing markets are cooling a bit. Our expectation is that the decline in activity or the slowing in activity will be moderate, that house prices will probably continue to rise.”
On September 15, 2008, Lehman Brothers filed for Chapter 11 bankruptcy protection, the largest bankruptcy filing in U.S. history. Real estate prices in the United States and around the world crashed, triggering the biggest real estate crash in world history.
Modern, naïve and poor scarecrows . . .
In 2008, many believed it was poor, “subprime buyers,” purchasing homes they could not afford, that caused the crash. In reality, it was financially-engineered derivatives, investment vehicles Warren Buffett has called “financial weapons of mass destruction.”
These weapons of financial mass destruction were manufactured under the watchful eye of the modern-day Wicked Witches of the East—the Fed, the Securities and Exchange Commission and Wall Street investment bankers like Bernie Madoff, non-executive head of the NASDQ stock exchange. Bernie served as NASDQ non-executive head until his arrest on December 11, 2008.
Bernie was arrested a for running a $64-billion Ponzi-scheme fraud, the largest financial fraud in U.S. history. Until the time of his arrest, Bernie’s firm was one of the most respected “market maker firms” on Wall Street. Bernie was a Wicked Witch of the East.
In The Wizard of Oz, Dorothy represents the naïve and financially uneducated American working class. In 2008, modern Dorothys—who have been characterized as naïve, uneducated Americans—were buying homes with Ninja (no income, no job) loans.
The tornado that carried Dorothy and her crew out of Kansas was much like the subprime crash of 2008 that cost millions of the financially-naive their homes and jobs. In 2008 alone, 861,664 American families lost their homes. In 2008, there were 3.1 million foreclosure filings. Foreclosure filings were up a record 81 percent between 2008 and 2009.
In 2008, Bernie Madoff took $64 billion from 4,800 high-income, high-net worth “Dorothys.”
One of Dorothy’s most famous lines is “Toto, I’ve a feeling we’re not in Kansas anymore.”
In 2020, an estimated one million Americans have not yet returned ‘home,’ 12 years after the 2008 subprime crash.
In 2017, Fed Chairman Janet Yellin stated: “Would I say there will never, ever be another financial crisis? You know probably that would be going too far, but I do think we’re much safer and I hope that it will not be in our lifetimes and I don’t believe it will be.”
In March of 2020, the biggest stock market crash in history occurred, dropping the U.S. economy into a depression in less than three weeks.
In May 2020, rioting broke out in over 140 U.S. cities and cities all over the world. None of us are in Kansas anymore. It is more than the murder of George Floyd. It is more than the shutdown of the world economy. We know something is wrong, very wrong. The economic crisis is more than race, money and poverty.
Personally, I think the problem is the Wizard. Tragically, most think the Fed Chairman is a “good Wizard.” Yet, in the end—in that classic movie every one of us has undoubtedly seen at least once—the Wizard says to Dorothy, “I’m just a very bad wizard.”
Since 1977, the Federal Reserve Bank has operated under a Congressional mandate to provide:
1. Maximum employment
2. Stable prices
3. Moderate long-term interest rates
In June of 2020:
1. Unemployment is over 30 percent
2. Prices are crashing
3. Interest rates are near zero
4. Debt is increasing–GDP is decreasing
Does that make sense to financially-naive Dorothy?
But wait . . . there’s more . . .
We are fast approaching a world where the richest one percent of the world’s population will have amassed over 50 percent of the planet’s wealth. The bottom 80 percent will be left with 5.5 percent of the wealth.
In May 2020, the Fed printed about $3 trillion. Most of it went to Wall Street, making people like Jeff Bezos and Mark Zuckerberg even richer.
Think about this: A trillion is 12 keystrokes on a computer. It takes less than a minute to create a trillion dollars. Yet, if you spent $1 every second, it would take 31,710 years to spend a trillion dollars. How long will it take the American taxpayer to pay back that huge sum?
This is why I own gold, silver and Bitcoin. They are outside the control of the Wizard—and the Wicked Witches of the East.
The Wizard has been artificially propping up the government and Wall Street, loaning trillions of dollars, at virtually no interest, to banks and public corporations.
The rich receive trillions in low-interest debt, in many cases, close to zero percent. What does Dorothy get? When the Dorothys of the world need money, they borrow at staggering interest rates, some that can climb to over 30 percent.
Even worse for financially-naïve Dorothys, they work for money and save money while the Wizard prints trillions in fake dollars, devaluing the purchasing power of Dorothy’s paycheck and lowering interest rates on Dorothy’s savings.
Corporate oligarchs (CEOs) receive money, indirectly, from the Wizard via QE, Quantitative Easing, a money-printing scheme used in 1930 during the Great Depression.
Rather than use this “free money” to improve their businesses, the CEOs use the money to ‘buy back shares of their businesses, inflating their companies’ share prices for the few who are in the stock market.
This “free money” from the Wizard weakens the CEOs’ businesses, although the share price of their company stock goes up. Dorothy’s job security is threatened when a CEO uses debt to buy back shares, because the credit rating of the company she works for goes from AAA to “junk.” This is why Neiman Marcus, J. Crew, JCPenney, Hertz, Gold’s Gym, True Religion and others have recently filed for bankruptcy.
Why do corporate CEOs do this? To receive income at lower tax rates. And how do they do that? They use the debt from their companies to buy company shares. Rather than make a company stronger, borrowing corporate debt drives the company shares higher . . . but the company is weaker, due to debt. Many AAA-rated corporations such as AT&T, GE and Ford have had their credit ratings downgraded to BBB, also known as “junk bonds.”
This begs another question: Why do they sell their stock options? The CEOs and executives sell their stock options—their bonus for doing a good job—at inflated prices. And these ‘sales’ are taxed at “capital gains” tax rates, which are lower than the tax rates their employees pay via their paychecks. Dorothys pay taxes at “ordinary income” tax rates, while executives pay “capital gains” tax rates, which are lower than “ordinary income” tax rates. Financially-naïve Dorothy has no idea what the Wizard and Wicked Witches of the East are doing.
But wait . . . there’s still more . . .
Dorothy is happy to have a 401(k) because her money and her company’s matching contribution goes into her 401(k) tax-free. Tax-deferred is a more accurate statement. The problem is that when she retires, the income coming out of her 401(k) is taxed at “ordinary income” tax rates, the highest tax rate. For the Dorothys of the world, the only way a 401(k) makes sense is if they plan on being poorer when they retire. If they plan on being rich, the income from their 401(k)s will be taxed at the highest tax rate.
The Tin Man in The Wizard of Oz, it’s been said, represents industrial workers who are tired of being treated like robots. In 2020, real robots are replacing real human beings. Like the Tin Man, they should have an oil can handy for squeaky joints . . . due to unemployment.
In 2020, college graduates are caught in the vice of student loan debt, low paying jobs and rising national debt. These issues are fueling revolt and unrest. So are underemployed artists, journalists, lawyers, cooks, waiters, small business owners and teachers who are joining a growing wave of vocal protesters. And while peaceful assembly is a First Amendment right, looting and violence are criminal acts. Ironically, while Dorothy protests peacefully, Wall Street’s Wicked Witches of the East are looting the pensions of teachers, firefighters and police officers via hedge funds and IRAs via the fees in mutual funds.
Many are angry at capitalism. But capitalism is not the problem. It is the corruption of capitalism, aka crony capitalism, led by the Wizards (corrupt politicians), the Wicked Witches of the East and a dysfunctional education system that steals from students via student loans—and teaches Dorothy nothing about money.
The real story . . .
There has been quite a bit written about the symbolism in The Wizard of Oz and here are some relevant highlights:
The Emerald City represents the place that produces “greenbacks,” which were first produced for the Civil War between 1861 and 1865.
In 1913, the Federal Reserve Bank was created. That same year, the 16th Amendment was passed and the IRS—the tax department—was created. Debt and taxes became fake (fiat, government) money.
Today, the Emerald City represents the Eccles Building which is where the U.S. Federal Reserve Bank is housed in Washington, DC.
In The Wizard of Oz, the Yellow Brick Road is the gold standard. In the original book, Dorothy’s slippers were made of silver, not rubies. And while there is no mention of gold or silver in the title of The Wizard of Oz, many believe the “Oz” is the abbreviation for “ounce,” or a gold and silver oz.
In 1971, the United States went off the Yellow Brick Road. That year, President Richard Nixon took the U.S. dollar off the gold standard, and the United States could print as much money as it wanted to pay its bills. That is why our nation’s debt exploded from millions in 1971 to trillions in 2020.
It shouldn’t be surprising that when the Wizard and the Emerald City prints money, the rich get richer and the poor and middle class get poorer.
On May 29, 2020, defending trillions of dollars of money printing, Fed Chairman Powell stated: “Money printing does not create income inequality.”
Is the Wizard lying . . . or telling the truth? In my opinion, he is telling the truth. The truth is, most of the money the Fed prints goes to Wall Street and that money is transferred to the rich, via higher stock prices, not income. The corporate elite and the Wicked Witches of the East get richer. Dorothy grows poorer.
It’s been suggested that the Cowardly Lion in The Wizard of Oz represents the cowardly politicians, those who roar loudly and appear fierce, but are essentially cowards. Cowardly politicians are why the issues related to the economy, education and the environment grow worse, but nothing changes. They are all on the Wizard’s payroll.
In 1933, the Glass-Steagall Act was passed. This act was passed to restore confidence in U.S. banks and helped end the Great Depression. This 1933 act separated the Dorothy banks (commercial mom and pop banks) from Wicked Witches’ East Coast Banks (investment banks).
Unfortunately, a number of politicians (aka cowardly lions) such as Bill Clinton, Larry Summers, Robert Rubin and Phil Gramm repealed the 1933 Glass-Steagall Act, an act designed to protect Dorothy from the Wicked Witches of the East.
Three storms brewing . . .
In 1900, the story of the Wizard starts with a “typhoon” or “tornado” that twists Dorothy out of Kansas. In 1999, with the repeal of the Glass-Steagall Act, the Wizard, the Wicked Witches of the East and cowardly politicians in Washington turned our banks and Wall Street into giant casinos. Dorothy’s money was now co-mingled with Wall Street money, and a brand-new casino was opened. The Wizard, the Wicked Witches of the East and the Cowardly Lions’ giant casinos caused the typhoons that hit—the 2000 dotcom crash, the 2008 subprime crash and, in 2020, the corona crash.
In 2020, tornados are called protests, rioting, looting, unemployment, murders and bankruptcies. Trillions of dollars in fake money are being handed out to Dorothy, and more money is being distributed to keep Wall Street bankers happy.
Many believe the Wizard from the Emerald City—cowardly politicians, including politicians who in 1964 ended the silver standard, President Nixon who in 1971 ended the gold standard and in 1972 opened the door to China, President Carter who authorized the 401k in 1978 and Clinton who repealed the Glass-Steagall Act in 1999—encouraged excessive risk taking in stock markets.
The stage was set for the “tornados” of 2000, 2008 and 2020.
When tornados strike . . .
The saying inside the Emerald City—the Fed, inside the nation’s capital, and the den of cowardly lions aka The White House and Congress—and inside the home of The Wicked Witches of the East (aka Wall Street) is: “Winnings are privatized, and losses are socialized.” That means: When elites win, they keep their winnings. When tornados strike, and elites lose, the Wizard, cowardly lions and Wicked Witches bail out the elites. And once again, the Dorothys, the mom and pops and the taxpayers lose.”
A few final words:
In 1900, the Wizard’s final words to Dorothy were:
“I’m just a very bad wizard.”
In 2020 . . . the words are the same.