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Old July 27th, 2009 #1
Alex Linder
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Default The Fed

You Can't Print Production and Prosperity

by Doug French

It's hard to imagine that the monetary policy talk can get any nuttier, but we've likely only just begun. After all, despite the Federal Reserve growing its balance sheet by 140 percent and dropping rates essentially to zero, the bankruptcies just keep on coming. Ex-Fed governor Wayne Angell told Larry Kudlow's CNBC audience, "monetary policy always works!" Although Angell does stipulate that it takes time before the tromping on the monetary gas pedal will spin the economic tires and spray the prosperity gravel.

But good grief, the Fed started cutting rates in September 2007, dropping the federal-funds rate from 5.25 percent to 4.75 percent, and it was cut, cut, cut until daddy set the target rate at 0 to .25 percent in December of last year. In the meantime, one trillion dollars has been added to the M-2 money supply.

Despite all this money creation, Circuit City, Sharper Image, Goody's, Gottschalk's, Comp USA, Levitz Furniture, Chrysler, General Motors, General Properties, and – most recently – Eddie Bauer have filed for bankruptcy protection. And personal bankruptcy filings are up in every state and soaring in Nevada, Georgia, Alabama, Tennessee, Indiana, and Michigan.

In May, forty-eight states had more people out of work than in the previous month or year, with the national unemployment rate increasing from 8.9 percent to 9.4 percent. Moreover, California, Nevada, North Carolina, Oregon, Rhode Island, and South Carolina had their highest rates of unemployment on record. Maybe Mr. Angell will change his mind when he gets laid off. Just how long are we supposed to wait for this monetary magic to work?

Now the word is that zero-percent interest rates are just too darn high. That's why we haven't seen a reinflation of bubble America. The Financial Times reports the existence of a Federal Reserve staff memorandum that makes the case for a negative-five-percent federal-funds rate. Meanwhile, Japanese authorities are toying with the idea of outlawing cash in their country. Despite using every fiscal trick in the book and keeping interest rates at zero percent for a decade, that economy has been mired in a postbubble depression. So the current theory "would suggest that nominal interest rates of [negative four] percent might be closer to what is required to rescue the economy from another deflationary spiral," reported the Times Online.

The talking heads and policy wonks are trying to tell us that we're not borrowing enough, and that's why we're in a depression and why the Japanese economy has been depressed for more than a decade.

However, the real reason we're in a depression is because businesses and individuals borrowed too much and invested it poorly. Economist Murray Rothbard explained that a depression is the recovery stage: "The liquidation of unsound businesses, the 'idle capacity' of the malinvested plant, and the 'frictional' unemployment of original factors that must suddenly and en masse shift to lower stages of production – these are the chief hallmarks of the depression stage."

That's why monetary policy isn't working and won't work. People must save and pay off their debts. The malinvestments of the boom must be liquidated. New liquidity and zero-percent interest rates will only create new malinvestments, not a sound economy.

But you won't hear that on TV or read it in the New York Times. The Nobel Prize–winning economist and Gray Lady columnist Paul Krugman is now worried about the "paradox of thrift," the theory that, when consumers save too much en masse, the economy is worse off because there is not enough consumption.

But as economist Frank Shostak explains, it is savings – not demand – that enables the expansion of production of goods and services. "In short, no effective demand can take place without prior production," Shostak writes. "If it were otherwise, then poverty in the world would have been eradicated a long time ago." In other words, you can't print production and prosperity, much as the Fed may try. And Ben Bernanke is trying.

For those not familiar with Krugman's policy suggestions, he wrote back in August 2002 that "[t]o fight this recession, the Fed needs more than a snapback; it needs soaring household spending to offset moribund business investment. And to do that, as Paul McCulley of Pimco put it, Alan Greenspan needs to create a housing bubble to replace the Nasdaq bubble."

Sir Alan followed Krugman's advice, and look where we are now. More of the same will only create more financial pain.

This article originally appeared on Mises.org.

http://www.lewrockwell.com/french/french122.html
 
Old July 27th, 2009 #2
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The Federal Reserve — the quasi-autonomous body that controls the US’s money supply — is a “Ponzi scheme” that created “bubble after bubble” in the US economy and needs to be held accountable for its actions, says Eliot Spitzer, the former governor and attorney-general of New York.

In a wide-ranging discussion of the bank bailouts on MSNBC’s Morning Meeting, host Dylan Ratigan described the process by which the Federal Reserve exchanged $13.9 trillion of bad bank debt for cash that it gave to the struggling banks.

Spitzer — who built a reputation as “the Sheriff of Wall Street” for his zealous prosecutions of corporate crime as New York’s attorney-general and then resigned as the state’s governor over revelations he had paid for prostitutes — seemed to agree with Ratigan that the bank bailout amounts to “America’s greatest theft and cover-up ever.”

 
Old July 27th, 2009 #3
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Quote:
For those not familiar with Krugman's policy suggestions, he wrote back in August 2002 that "to fight this recession, the Fed needs more than a snapback; it needs soaring household spending to offset moribund business investment. And to do that, as Paul McCulley of Pimco put it, Alan Greenspan needs to create a housing bubble to replace the Nasdaq bubble."
Only possible if...

http://www.bizzia.com/yieldingwealth...tead-of-banks/

These dimwits talking about unsound businesses and idle capacity and malinvestments without mentioning the trillions of out-of-thin-air Federal Reserve dollars being dumped into Goldman Sachs, Chase, and AIG (et al) is simply beyond ridiculous. These various jewish-controlled banks are the very models of unsound business. They're little more than glorified monopoly money Ponzi schemes. At least I can buy decent clothing at Eddie Bauer. What can one buy from Goldman Sachs besides fancy paper "derivatives" and bogus stock notes?

Some Thomas Jefferson quotes:

We must not let our rulers load us with perpetual debt. We must make our election between economy and liberty or profusion and servitude. If we run into such debt, as that we must be taxed in our meat and in our drink, in our necessaries and our comforts, in our labors and our amusements, for our calling and our creeds...[we will] have no time to think, no means of calling our miss-managers to account but be glad to obtain subsistence by hiring ourselves to rivet their chains on the necks of our fellow-sufferers... And this is the tendency of all human governments. A departure from principle in one instance becomes a precedent for[ another]... till the bulk of society is reduced to be mere automatons of misery... And the fore-horse of this frightful team is public debt. Taxation follows that, and in its train wretchedness and oppression.

The system of banking [is] a blot left in all our Constitutions, which, if not covered, will end in their destruction... I sincerely believe that banking institutions are more dangerous than standing armies; and that the principle of spending money to be paid by posterity... is but swindling futurity on a large scale.

I am for a government rigorously frugal and simple. Were we directed from Washington when to sow, when to reap, we should soon want bread.

I consider the foundation of the Constitution as laid on this ground: That 'all powers not delegated to the United States, by the Constitution, nor prohibited by it to the States, are reserved to the States or to the people' (10th Amendment). To take a single step beyond the boundaries thus specifically drawn around the powers of Congress, is to take possession of a boundless field of power, no longer susceptible to any definition.

We have slid far indeed.
 
Old July 28th, 2009 #4
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Federal Reserve Banks Combined Financial Statements

(4) Significant Accounting Policies

Quote:
Differences exist between the accounting principles and practices in the FAM and generally accepted accounting principles in the United States (“GAAP”), primarily due to the unique nature of the Reserve Banks’ powers and responsibilities as part of the nation’s central bank. The primary difference is the presentation of all SOMA securities holdings at amortized cost, rather than using the fair value presentation as required by GAAP.
Does this factoid concern anyone?
 
Old July 31st, 2009 #5
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At N.Y. Fed, Blending In Is Part of the Job

Some Fear Wall Street Too Heavily Influences The Financial Enforcer

By Neil Irwin
Washington Post Staff Writer
Monday, July 20, 2009

NEW YORK -- The low-slung cubicles wrap around the ninth floor of a building three blocks from Wall Street, each manned by a young staffer staring at flashing numbers on a flat-screen computer monitor and working the phones to gather the latest chatter from financial markets around the world.

It could be any investment bank or hedge fund. Instead, it is the markets group of the Federal Reserve Bank of New York, which has been on the front lines of the government's response to the financial crisis. Federal Reserve and Treasury Department officials make the major decisions, but the New York Fed executes them.

The information gathered there provides crucial insights into the financial world for top policymakers. But the bank is so close to Wall Street -- physically, culturally and intellectually -- that some economic experts worry that the New York Fed puts the interests of the financial industry ahead of those of ordinary Americans.

"The New York Fed sticks out as being not just very, very close to Wall Street, but to the most powerful people on Wall Street," said Simon Johnson, an economist at MIT. "I worry that they pay too much deference to the expertise and presumed wisdom of a sector that screwed up massively."

Even some former insiders at the Fed say the bank does not pay enough attention to the fundamental flaws in the country's financial system or to the risks associated with bailing out financial firms -- for instance, the chance that banks will be encouraged to take more unwise gambles. These experts worry that the New York Fed has adopted the mindset of a trading floor: well attuned to ripples in financial markets but not to long-term trends and dangers.

Last month, for instance, Wall Street bond traders wanted the central bank to ramp up its purchase of Treasury bonds, which would help the traders by driving up prices. But Fed officials in Washington and around the country concluded that such a move would be counterproductive in the longer run, in contrast to some New York Fed staffers, whose views more closely mirrored those on Wall Street.

New York Fed employees "play a very valuable role, day in, day out, with detailed contacts with the big financial firms," said William Poole, a former president of the Federal Reserve Bank of St. Louis who is now at the Cato Institute. "What I think is missing is a longer-run perspective. They tend to be sort of short-term in their outlook, which is true of a lot of the financial firms. Traders have a horizon of a few hours or a few weeks, at most."

The New York Fed's home is a fortresslike building, with bars securing the windows on lower floors. Its main lobby resembles a Gothic cathedral: dim, quiet, with stone walls, as if to inspire a mix of fear and awe.

Like the other 11 regional Federal Reserve banks, the New York Fed is a curious mix of public and private, part of a system Congress created in 1913 to avoid concentrated power in Washington or New York alone. Its board of directors is composed of bankers, businesspeople and community leaders, who select the bank president with approval from Fed governors in Washington. Banks in New York, Connecticut and parts of New Jersey own shares in the New York Fed, though its profits are returned to the U.S. Treasury.

The man in charge is a soft-spoken economist named William C. Dudley, who took over as president in January, replacing Timothy F. Geithner when he became Treasury secretary.

With a proclivity for button-down Oxford shirts and rumpled suits, Dudley does not fit the mold of a Wall Street executive. He has won fans across the Federal Reserve System for a collaborative style, as well as a talent for explaining complicated problems in the financial world and drawing up solutions to them.

It is his résumé that alarms some critics, who see an example of a too-cozy relationship between financial firms and their lead regulator. One of several bank officials who have worked in the private sector, Dudley was at Goldman Sachs for two decades, including 10 years as chief economist, before joining the New York Fed in 2007.

The bank's board of directors, which selected Dudley, includes such corporate titans as Jamie Dimon, the head of J.P. Morgan Chase, and Jeffrey Immelt, General Electric's chief. Richard Fuld, then the chief executive of Lehman Brothers, resigned from the Fed just days before his firm went under. Stephen Friedman, who sat on Goldman's board, resigned as chairman of the New York Fed board earlier this year after controversy arose over his purchase of Goldman stock while at the Fed.

"I don't think they're consciously doing things to tilt the playing field to Goldman Sachs and the other major banks," said Dean Baker, co-director of the Center for Economic and Policy Research. "But when you work at a place, you tend to internalize their views, and that is going to color your policies. It's not that they're being deliberately corrupt; it's that they come to incorporate the interests of major banks in their views."

Dudley argues that he has been willing to take on large banks repeatedly, especially with stress tests earlier this year that many viewed as onerous and which required some banks to raise more capital.

For their part, senior Fed officials in Washington say the experience Dudley and some of his colleagues have in the private sector has proved invaluable in helping them understand how markets are failing.

"He has been the right person at the right place at the right time," said Donald L. Kohn, vice chairman of the Federal Reserve System Board of Governors.

On the ninth floor, the first employees show up at 4 a.m. and hit the phones to collect the latest on overnight trading in Asia and Europe.

The workers on the front lines are "trader analysts." Many of them are around age 30, with master's degrees in international affairs or public policy from schools such as Johns Hopkins [neocon breeding ground] and Columbia. Some stay at the bank for decades, rising through the ranks; others go to Wall Street firms within a few years (some of those converts have looked to return to the Fed lately as investment banks have shed jobs by the thousands).

The staff, though paid much less than Wall Street workers, is well compensated by government standards. The 289 bank officers earned an average of $204,000 in 2007 -- more than Cabinet secretaries.

"They're the eyes and ears of the Federal Reserve in financial markets, and they wouldn't be doing their jobs if they weren't sensitive to what's occurring in that world," Kohn said. Then it is up to the board and the Fed's policymaking committee "to take that information, weigh it along with all the other information we get and set policy."

This intimacy with the firms they regulate can give Fed officials crucial intelligence. At the height of the financial crisis in September, staffers learned from their market contacts that Wall Street's two largest investment banks, Goldman Sachs and Morgan Stanley, were in mortal danger because their trading partners were so quickly losing faith in them, according to an update on the day's market activity by the New York Fed staff obtained by The Washington Post. Four days later, the central bank brought the two firms under the Fed's protective umbrella by agreeing to make them "bank holding companies."

But in allowing Goldman and Morgan to convert themselves to bank holding companies that received access to greater federal aid, Fed officials exempted them from the usual requirements, potentially putting taxpayer money at risk. (Since then, the firms' fortunes have improved enough that the government has incurred no losses.)

In responding to the financial crisis, the New York Fed has designed many of its programs to try to take advantage of some of the same business practices that contributed to the crisis.

Last fall, Fed staffers in New York and Washington began developing ideas to address paralysis in the markets for credit card loans, auto loans and other forms of consumer debt.

In Washington, Fed staffers wanted the central bank to hire a small number of firms to purchase the securities backed by these loans, thus injecting fresh credit into the market. But New York Fed staffers thought it better to let any investor put up money, matched with a loan from the Fed, to buy the securities. They argued that this approach would restart private markets more effectively and could be deployed faster. The downside: The New York Fed's strategy could allow private investors to earn huge returns while the government limited their losses.

Federal Reserve Chairman Ben S. Bernanke and other top Fed officials sided with New York.

The New York Fed, in scrambling to save the financial industry, has even taken a page out of the industry playbook, adopting a trick known as "special purpose vehicles." These entities, as used by Citigroup and other banks, contributed to the financial meltdown. But the Fed turned to similar entities when it bumped up against legal restrictions on its ability to buy risky assets. When the central bank decided to rescue Bear Stearns and, later, American International Group, New York Fed lawyers suggested creating separate limited liability corporations to buy the assets. The Fed then lent money to these new entities.

Dudley said the Fed has made such moves to support the overall economy, helping to keep a deep recession from getting much worse. When programs have helped individual firms, they have done so only to prevent catastrophic damage to the broader U.S. economy.

"Nobody here is trying to do anything but support the economy and support market functioning," he said in an interview. "We are worried about the stability of the system, not any individual institution."

http://www.washingtonpost.com/wp-dyn...071902148.html
 
Old July 31st, 2009 #6
Axel Faaborg
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I came up with a slam-dunk economic policy yesterday: eliminate electronic money transfers, checks, and possibly money orders. Nothing but cash(and design new cash currency that's damn near impossible to counterfeit, made out of a polymer with holograms and crap, no tracking mechanisms though.)

People would go absolutely batshit if they had to pay what they pay now only in cash, for everything.
 
Old August 1st, 2009 #7
Alex Linder
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Why Bernanke Is in Panic Mode

by Gary North

Bernanke video: He stutters; he stammers; he is in visible panic mode over Ron Paul's bill to audit the Federal Reserve. Watch it. You'll love it! Then send it to your friends.

Usually, when Ben Bernanke is interviewed, he has the demeanor of a college professor in the presence of freshman students. Of course, as a full professor, he did not have to teach freshmen. That is for untenured assistant professors to do. Stammering and stuttering are therefore a real departure for him. There is a reason for this.

For the first time since 1914, there is a public debate in Congress over the Federal Reserve's power. Never before has a majority of the House of Representatives called for what should always have existed: Congressional scrutiny over the FED's money. Bernanke says that Ron Paul's bill to audit the Federal Reserve is a bill to audit Federal Reserve policy. Yet the bill says nothing about auditing policy. So, what is he talking about?

Bernanke says that Congress can have access to an audit at any time. Sure it can – an audit vetted and sanitized by the FED, where no one knows which banks got what bailout money. This is an audit in the way a CIA audit is an audit. The main differences are these: (1) the CIA legally operates only outside the borders of the United States; (2) the CIA can assassinate any uncooperative Congressman who insists on a full audit. The FED does not have the second power, but it is not limited by the first restriction.

What has Bernanke panicked is this: the Federal Reserve has bailed out the biggest banks and has let almost 100 little ones die. This is crony capitalism at its most notorious.

The threat is that Congress will discover what should be obvious: the biggest banks last October almost went bankrupt. Bernanke and Paulson admitted this to Congressional leaders. This is how they got the leaders to authorize the Treasury bailout. This is why the FED swapped marketable Treasury debt for unmarketable toxic debt at face value with the biggest banks.

Which banks? The FED refuses to say.

This is the heart of the matter. This is what has Bernanke in a panic. If Congress compels a full audit – a real audit, not a FED-controlled audit – individual members of Congress will discover that the American financial system is a house of cards. A few of them will release the results of the audit to the public. This will include Website publishers, who will go over the audit, line by line. The mainstream media will face being scooped by newsletter writers, so they will try to publish first.

The public will find out which banks are not safe. This is what has Bernanke in panic mode.

The public will pull deposits out of the biggest, least safe banks and open new accounts at banks that look safer. That will bust some very big banks.

There is no way that the FDIC could cover the losses of even one of these giant banks. It is down to $12 billion in assets, mostly T-bills. It would have to come to Congress for the line of credit that Congress has extended: $500 billion.

The banking cartel would face a breakdown. Why? Because the public would finally learn which big banks got how much money, how much Treasury debt for toxic assets, and on what terms.

[much more]
http://www.lewrockwell.com/north/north739.html
 
Old August 2nd, 2009 #8
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The jews will stop an audit at all costs. They would sell their firstborn if required.


Quote:
China is out making deals across the world. Last week’s BusinessWeek cover story details China’s recent shopping spree which includes a car business, appliances and department stores.
China is flush with cash and 2008’s meltdown has allowed it to purchase assets at bargain-basement prices. As a result, China’s overseas investments grew to $52 billion in 2008, more than double the $26.5 billion the country sent overseas in 2007.
The second reason is China’s looking to diversify away from its massive U.S. Treasury holdings. By purchasing these companies, China is acquiring the expertise needed to move the country up the manufacturing food chain.
If growth in China continues at the level we saw in the second quarter, it’s likely China’s shopping spree is just getting started. __________________
http://www.financialsense.com/fsu/ed...ls/holmes/2009
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Old August 3rd, 2009 #9
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Default 75% Favor Auditing The Fed


Quote:
Wednesday, July 29, 2009

So much for the ongoing secrecy of the nation’s independent central banking system. A new Rasmussen Reports national telephone survey finds that 75% of Americans favor auditing the Federal Reserve and making the results available to the public.

Just nine percent (9%) of adults think that’s a bad idea and oppose it. Fifteen percent (15%) aren’t sure.

Over half the members of the House now support a bill giving the Government Accounting Office, Congress’ investigative agency, the authorization to audit the books of the Federal Reserve Board. Support for the bill has grown now that the Obama administration is proposing to give the Fed greater economic regulatory powers. The Fed which sets U.S. monetary policy was created as an independent agency to keep it free of politically-motivated interference.

Fed Chairman Ben Bernanke in a town forum filmed on Sunday which is airing this week on PBS stations said he is strongly opposed to the audit legislation. “I don’t think the American people want Congress running monetary policy,” *[oh, you dirty jewboy. That's actually Congress' job!]he said. Howard Rich addressed this issue in a recent commentary and concluded it was important to locate the “trillions of dollars” the Fed has spent over the last year-and-a-half.

The new survey finds that an overwhelming majority of Americans in every demographic category – including age, gender, political affiliation, race and income – disagree with Bernanke and favor auditing the Fed to make its secretive deliberations public.

Fifty-two percent (52%) of Americans support Bernanke’s efforts to speak out more publicly than his predecessors as Fed chairman, but his favorables have gone down over the past month. A plurality (41%) think the previous Fed chairman, Alan Greenspan, did a better job, too.

While the president hopes to expand the Fed chairman’s regulatory controls, 46% of Americans say he already has too much power over the economy.

Fifty-one percent (51%) oppose expanding the Fed’s regulatory powers.

Despite Bernanke’s pledge that the Fed will keep interest rates and inflation down, 54% of Americans think interest rates will be higher a year from now, up 20 points from April.

Perhaps helping to drive the support for regularly auditing the Fed is the growing unpopularity of Obama’s economic initiatives to date. While the Fed is an independent agency, just 20% of Americans believe the Fed chairman is truly independent of the Obama administration. Sixty percent (60%) say his decision-making is influence by the president.

Please sign up for the Rasmussen Reports daily e-mail update (it’s free) or follow us on Twitter. Let us keep you up to date with the latest public opinion news.

See survey questions and toplines. Crosstabs are available to Premium Members only.
Source:
http://www.rasmussenreports.com/publ...diting_the_fed

Quote:
Section 8. The Congress shall have power to lay and collect taxes, duties, imposts and excises, to pay the debts and provide for the common defense and general welfare of the United States; but all duties, imposts and excises shall be uniform throughout the United States;
To borrow money on the credit of the United States;
To regulate commerce with foreign nations, and among the several states, and with the Indian tribes;
To establish a uniform rule of naturalization, and uniform laws on the subject of bankruptcies throughout the United States;
To coin money, regulate the value thereof, and of foreign coin, and fix the standard of weights and measures;
http://www.law.cornell.edu/constitut....html#section8
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Old August 3rd, 2009 #10
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Quote:
Originally Posted by Axel Faaborg View Post

People would go absolutely batshit if they had to pay what they pay now only in cash, for everything.
Exactly what they DON'T want .

That would cause the entire debt pyramid to collapse . It would expose the Emperor's nakedness .

America is a nation living on borrowed time , everything is being done to postpone the settlement date .

Speed skating, across thin ice . You slow down , you fall through .
 
Old August 4th, 2009 #11
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Dismantling the Temple

By William Greider
This article appeared in the August 3, 2009 edition of The Nation.
July 15, 2009

The financial crisis has propelled the Federal Reserve into an excruciating political dilemma. The Fed is at the zenith of its influence, using its extraordinary powers to rescue the economy. Yet the extreme irregularity of its behavior is producing a legitimacy crisis for the central bank. The remote technocrats at the Fed who decide money and credit policy for the nation are deliberately opaque and little understood by most Americans. For the first time in generations, they are now threatened with popular rebellion.

During the past year, the Fed has flooded the streets with money--distributing trillions of dollars to banks, financial markets and commercial interests--in an attempt to revive the credit system and get the economy growing again. As a result, the awesome authority of this cloistered institution is visible to many ordinary Americans for the first time. People and politicians are shocked and confused, and also angered, by what they see. They are beginning to ask some hard questions for which Federal Reserve governors do not have satisfactory answers.

Where did the central bank get all the money it is handing out? Basically, the Fed printed it, out of thin air. That is what central banks do. Who told the Fed governors they could do this? Nobody, really--not Congress or the president. The Federal Reserve Board, alone among government agencies, does not submit its budgets to Congress for authorization and appropriation. It raises its own money, sets its own priorities.

Representative Wright Patman, the Texas populist who was a scourge of central bankers, once described the Federal Reserve as "a pretty queer duck." Congress created the Fed in 1913 with the presumption that it would be "independent" from the rest of government, aloof from regular politics and deliberately shielded from the hot breath of voters or the grasping appetites of private interests--with one powerful exception: the bankers.

The Fed was designed as a unique hybrid in which government would share its powers with the private banking industry. Bankers collaborate closely on Fed policy. Banks are the "shareholders" who ostensibly own the twelve regional Federal Reserve banks. Bankers sit on the boards of directors, proposing interest-rate changes for Fed governors in Washington to decide. Bankers also have a special advisory council that meets privately with governors to critique monetary policy and management of the economy. Sometimes, the Fed pretends to be a private organization. Other times, it admits to being part of the government.

The antiquated quality of this institution is reflected in the map of the Fed's twelve regional banks. Five of them are located in the Midwest (better known today as the industrial Rust Belt). Missouri has two Federal Reserve banks (St. Louis and Kansas City), while the entire West Coast has only one (located in San Francisco, not Los Angeles or Seattle). Virginia has one; Florida does not. Among its functions, the Federal Reserve directly regulates the largest banks, but it also looks out for their well-being--providing regular liquidity loans for those caught short and bailing out endangered banks it deems "too big to fail." Critics look askance at these peculiar arrangements and see "conspiracy." But it's not really secret. This duck was created by an act of Congress. The Fed's favoritism toward bankers is embedded in its DNA.

This awkward reality explains the dilemma facing the Fed. It cannot stand too much visibility, nor can it easily explain or justify its peculiar status. The Federal Reserve is the black hole of our democracy--the crucial contradiction that keeps the people and their representatives from having any voice in these most important public policies. That's why the central bankers have always operated in secrecy, avoiding public controversy and inevitable accusations of special deal-making. The current crisis has blown the central bank's cover. Many in Congress are alarmed, demanding greater transparency. More than 250 House members are seeking an independent audit of Fed accounts. House Speaker Nancy Pelosi observed that the Fed seems to be poaching on Congressional functions--handing out public money without the bother of public decision-making.

"Many of us were...if not surprised, taken aback, when the Fed had $80 billion to invest in AIG just out of the blue," Pelosi said. "All of a sudden, we wake up one morning and AIG was receiving $80 billion from the Fed. So of course we're saying, Where is this money coming from? 'Oh, we have it. And not only that, we have more.'" So who needs Congress? Pelosi sounded guileless, but she knows very well where the Fed gets its money. She was slyly tweaking the central bankers on their vulnerability.

Fed chair Ben Bernanke responded with the usual aloofness. An audit, he insisted, would amount to "a takeover of monetary policy by the Congress." He did not appear to recognize how arrogant that sounded. Congress created the Fed, but it must not look too deeply into the Fed's private business. The mystique intimidates many politicians. The Fed's power depends crucially upon the people not knowing exactly what it does.

Basically, what the central bank is trying to do with its aggressive distribution of trillions is avoid repeating the great mistake the Fed made after the 1929 stock market crash. The central bankers responded hesitantly then and allowed the money supply to collapse, which led to the ultimate catastrophe of full-blown monetary deflation and created the Great Depression. Bernanke has not yet won this struggle against falling prices and production--deflationary symptoms remain visible around the world--but he has not lost either. He might get more public sympathy if Fed officials explained this dilemma in plain English. Instead, they are shielding people from understanding the full dimensions of our predicament.

President Obama inadvertently made the political problem worse for the Fed in June, when he proposed to make the central bank the supercop to guard against "systemic risk" and decide the terms for regulating the largest commercial banks and some heavyweight industrial corporations engaged in finance. The House Financial Services Committee intends to draft the legislation quickly, but many members want to learn more first. Obama's proposal gives the central bank even greater power, including broad power to pick winners and losers in the private economy and behind closed doors. Yet Obama did not propose any changes in the Fed's privileged status. Instead, he asked Fed governors to consider the matter. But perhaps it is the Federal Reserve that needs to be reformed.

A few months back, I ran into a retired Fed official who had been a good source twenty years ago when I was writing my book about the central bank, Secrets of the Temple: How the Federal Reserve Runs the Country. He is a Fed loyalist and did not leak damaging secrets. But he helped me understand how the supposedly nonpolitical Fed does its politics, behind the veil of disinterested expertise. When we met recently, he said the central bank is already making preparations to celebrate its approaching centennial. Some of us, I responded, have a different idea for 2013.

"We think that would be a good time to dismantle the temple," I playfully told my old friend. "Democratize the Fed. Or tear it down. Create something new in its place that's accountable to the public."

The Fed man did not react well to my teasing. He got a stricken look. His voice tightened. Please, he pleaded, do not go down that road. The Fed has made mistakes, he agreed, but the country needs its central bank. His nervous reaction told me this venerable institution is feeling insecure about its future.

Six reasons why granting the Fed even more power is a really bad idea:

1. It would reward failure. Like the largest banks that have been bailed out, the Fed was a co-author of the destruction. During the past twenty-five years, it failed to protect the country against reckless banking and finance adventures. It also failed in its most basic function--moderating the expansion of credit to keep it in balance with economic growth. The Fed instead allowed, even encouraged, the explosion of debt and inflation of financial assets that have now collapsed. The central bank was derelict in enforcing regulations and led cheers for dismantling them. Above all, the Fed did not see this disaster coming, or so it claims. It certainly did nothing to warn people.

2. Cumulatively, Fed policy was a central force in destabilizing the US economy. Its extreme swings in monetary policy, combined with utter disregard for timely regulatory enforcement, steadily shifted economic rewards away from the real economy of production, work and wages and toward the financial realm, where profits and incomes were wildly inflated by false valuations. Abandoning its role as neutral arbitrator, the Fed tilted in favor of capital over labor. The institution was remolded to conform with the right-wing market doctrine of chairman Alan Greenspan, and it was blinded to reality by his ideology (see my Nation article "The One-Eyed Chairman," September 19, 2005).

3. The Fed cannot possibly examine "systemic risk" objectively because it helped to create the very structural flaws that led to breakdown. The Fed served as midwife to Citigroup, the failed conglomerate now on government life support. Greenspan unilaterally authorized this new financial/banking combine in the 1990s--even before Congress had repealed the Glass-Steagall Act, which prohibited such mergers. Now the Fed keeps Citigroup alive with a $300 billion loan guarantee. The central bank, in other words, is deeply invested in protecting the banking behemoths that it promoted, if only to cover its own mistakes.

4. The Fed can't be trusted to defend the public in its private deal-making with bank executives. The numerous revelations of collusion have shocked the public, and more scandals are certain if Congress conducts a thorough investigation. When Treasury Secretary Timothy Geithner was president of the New York Fed, he supervised the demise of Bear Stearns with a sweet deal for JPMorgan Chase, which took over the failed brokerage--$30 billion to cover any losses. Geithner was negotiating with Morgan Chase CEO and New York Fed board member Jamie Dimon. Goldman Sachs CEO Lloyd Blankfein got similar solicitude when the Fed bailed out insurance giant AIG, a Goldman counterparty: a side-door payout of $13 billion. The new president at the New York Fed, William Dudley, is another Goldman man.

5. Instead of disowning the notorious policy of "too big to fail," the Fed will be bound to embrace the doctrine more explicitly as "systemic risk" regulator. A new superclass of forty or fifty financial giants will emerge as the born-again "money trust" that citizens railed against 100 years ago. But this time, it will be armed with a permanent line of credit from Washington. The Fed, having restored and consolidated the battered Wall Street club, will doubtless also shield a few of the largest industrial-financial corporations, like General Electric (whose CEO also sits on the New York Fed board). Whatever officials may claim, financial-market investors will understand that these mammoth institutions are insured against failure. Everyone else gets to experience capitalism in the raw.

6. This road leads to the corporate state--a fusion of private and public power, a privileged club that dominates everything else from the top down. This will likely foster even greater concentration of financial power, since any large company left out of the protected class will want to join by growing larger and acquiring the banking elements needed to qualify. Most enterprises in banking and commerce will compete with the big boys at greater disadvantage, vulnerable to predatory power plays the Fed has implicitly blessed.

Whatever good intentions the central bank enunciates, it will be deeply conflicted in its actions, always pulled in opposite directions. If the Fed tries to curb the growth of the megabanks or prohibit their reckless practices, it will be accused of damaging profitability and thus threatening the stability of the system. If it allows overconfident bankers to wander again into dangerous territory, it will be blamed for creating the mess and stuck with cleaning it up. Obama's reform might prevail in the short run. The biggest banks, after all, will be lobbying alongside him in favor of the Fed, and Congress may not have the backbone to resist. The Fed, however, is sure to remain in the cross hairs. Too many different interests will be damaged--thousands of smaller banks, all the companies left out of the club, organized labor, consumers and other sectors, not to mention libertarian conservatives like Texas Representative Ron Paul. They will recognize that the "money trust" once again has its boot on their neck, and that this time the government arranged it.

The obstacles to democratizing the Fed are obviously formidable. Tampering with the temple is politically taboo. But this crisis has demonstrated that the present arrangement no longer works for the public interest. The society of 1913 no longer exists, nor does the New Deal economic order that carried us to twentieth-century prosperity. The country thus has a rare opportunity to reconstitute the Federal Reserve as a normal government agency, shorn of the bankers' preferential trappings and the fallacious claim to "independent" status as well as the claustrophobic demand for secrecy.

Progressives in the early twentieth century, drawn from the growing ranks of managerial professionals, believed "good government" required technocratic experts who would be shielded from the unruly populace and especially from radical voices of organized labor, populism, socialism and other upstart movements. The pretensions of "scientific" decision-making by remote governing elites--both the mysterious wisdom of central bankers and the inventive wizardry of financial titans--failed spectacularly in our current catastrophe. The Fed was never independent in any real sense. Its power depended on taking care of its one true constituency in banking and finance.

A reconstituted central bank might keep the famous name and presidentially appointed governors, confirmed by Congress, but it would forfeit the mystique and submit to the usual standards of transparency and public scrutiny. The institution would be directed to concentrate on the Fed's one great purpose--making monetary policy and controlling credit expansion to produce balanced economic growth and stable money. Most regulatory functions would be located elsewhere, in a new enforcement agency that would oversee regulated commercial banks as well as the "shadow banking" of hedge funds, private equity firms and others.

The Fed would thus be relieved of its conflicted objectives. Bank examiners would be free of the insider pressures that inevitably emanate from the Fed's cozy relations with major banks. All of the private-public ambiguities concocted in 1913 would be swept away, including bank ownership of the twelve Federal Reserve banks, which could be reorganized as branch offices with a focus on regional economies.

Altering the central bank would also give Congress an opening to reclaim its primacy in this most important matter. That sounds farfetched to modern sensibilities, and traditionalists will scream that it is a recipe for inflationary disaster. But this is what the Constitution prescribes: "The Congress shall have the power to coin money [and] regulate the value thereof." It does not grant the president or the treasury secretary this power. Nor does it envision a secretive central bank that interacts murkily with the executive branch.

Given Congress's weakened condition and its weak grasp of the complexities of monetary policy, these changes cannot take place overnight. But the gradual realignment of power can start with Congress and an internal reorganization aimed at building its expertise and educating members on how to develop a critical perspective. Congress has already created models for how to do this. The Congressional Budget Office is a respected authority on fiscal policy, reliably nonpartisan. Congress needs to create something similar for monetary policy.

Instead of consigning monetary policy to backwater subcommittees, each chamber should create a major new committee to supervise money and credit, limited in size to members willing to concentrate on becoming responsible stewards for the long run. The monetary committees, working in tandem with the Fed's board of governors, would occasionally recommend (and sometimes command) new policy directions at the federal agency and also review its spending.

Setting monetary policy is a very different process from enacting laws. The Fed operates through a continuum of decisions and rolling adjustments spread over months, even years. Congress would have to learn how to respond to deeper economic conditions that may not become clear until after the next election. The education could help the institution mature.

Congress also needs a "council of public elders"--a rotating board of outside advisers drawn from diverse interests and empowered to speak their minds in public. They could second-guess the makers of monetary policy but also Congress. These might include retired pols, labor leaders, academics and state governors--preferably people whose thinking is no longer defined by party politics or personal ambitions. The public could nominate representatives too. No financial wizards need apply.

A revived Congress armed with this kind of experience would be better equipped to enact substantive law rather than simply turning problems over to regulatory agencies with hollow laws that are merely hortatory suggestions. Reordering the financial system and the economy will require hard rules--classic laws of "Thou shalt" and "Thou shalt not" that command different behavior from certain private interests and prohibit what has proved reckless and destructive. If "too big to fail" is the problem, don't leave it to private negotiations between banks and the Federal Reserve. Restore anti-monopoly laws and make big banks get smaller. If the financial system's risky innovations are too complicated for bank examiners to understand, then those innovations should probably be illegal.

Many in Congress will be afraid to take on the temple and reluctant to violate the taboo surrounding the Fed. It will probably require popular rebellion to make this happen, and that requires citizens who see through the temple's secrets. But the present crisis has not only exposed the Fed's worst failures and structural flaws; it has also introduced citizens to the vast potential of monetary policy to serve the common good. If Ben Bernanke can create trillions of dollars at will and spread them around the financial system, could government do the same thing to finance important public projects the people want and need? Daring as it sounds, the answer is, Yes, we can.

The central bank's most mysterious power--to create money with a few computer keystrokes--is dauntingly complicated, and the mechanics are not widely understood. But the essential thing to understand is that this power relies on democratic consent--the people's trust, their willingness to accept the currency and use it in exchange. This is not entirely voluntary, since the government also requires people to pay their taxes in dollars, not euros or yen. But citizens conferred the power on government through their elected representatives. Newly created money is often called the "pure credit" of the nation. In principle, it exists for the benefit of all.

In this emergency, Bernanke essentially used the Fed's money-creation power in a way that resembles the "greenbacks" Abraham Lincoln printed to fight the Civil War. Lincoln was faced with rising costs and shrinking revenues (because the Confederate states had left the Union). The president authorized issuance of a novel national currency--the "greenback"--that had no backing in gold reserves and therefore outraged orthodox thinking. But the greenbacks worked. The expanded money supply helped pay for war mobilization and kept the economy booming. In a sense, Lincoln won the war by relying on the "full faith and credit" of the people, much as Bernanke is printing money freely to fight off financial collapse and deflation.

If Congress chooses to take charge of its constitutional duty, it could similarly use greenback currency created by the Federal Reserve as a legitimate channel for financing important public projects--like sorely needed improvements to the nation's infrastructure. Obviously, this has to be done carefully and responsibly, limited to normal expansion of the money supply and used only for projects that truly benefit the entire nation (lest it lead to inflation). But here is an example of how it would work.

President Obama has announced the goal of building a high-speed rail system. Ours is the only advanced industrial society that doesn't have one (ride the modern trains in France or Japan to see what our society is missing). Trouble is, Obama has only budgeted a pittance ($8 billion) for this project. Spain, by comparison, has committed more than $100 billion to its fifteen-year railroad-building project. Given the vast shortcomings in US infrastructure, the country will never catch up with the backlog through the regular financing of taxing and borrowing.

Instead, Congress should create a stand-alone development fund for long-term capital investment projects (this would require the long-sought reform of the federal budget, which makes no distinction between current operating spending and long-term investment). The Fed would continue to create money only as needed by the economy; but instead of injecting this money into the banking system, a portion of it would go directly to the capital investment fund, earmarked by Congress for specific projects of great urgency. The idea of direct financing for infrastructure has been proposed periodically for many years by groups from right and left. Transportation Secretary Ray LaHood co-sponsored legislation along these lines a decade ago when he was a Republican Congressman from Illinois.

This approach speaks to the contradiction House Speaker Pelosi pointed out when she asked why the Fed has limitless money to spend however it sees fit. Instead of borrowing the money to pay for the new rail system, the government financing would draw on the public's money-creation process--just as Lincoln did and Bernanke is now doing.

The bankers would howl, for good reason. They profit enormously from the present system and share in the money-creation process. When the Fed injects more reserves into the banking system, it automatically multiplies the banks' capacity to create money by increasing their lending (and banks, in turn, collect interest on their new loans). The direct-financing approach would not halt the banking industry's role in allocating new credit, since the newly created money would still wind up in the banks as deposits. But the government would now decide how to allocate new credit to preferred public projects rather than let private banks make all the decisions for us.

The reform of monetary policy, in other words, has promising possibilities for revitalizing democracy. Congress is a human institution and therefore fallible. Mistakes will be made, for sure. But we might ask ourselves, If Congress were empowered to manage monetary policy, could it do any worse than those experts who brought us to ruin?

About William Greider

National affairs correspondent William Greider has been a political journalist for more than thirty-five years. A former Rolling Stone and Washington Post editor, he is the author of the national bestsellers One World, Ready or Not, Secrets of the Temple, Who Will Tell The People, The Soul of Capitalism (Simon & Schuster) and, most recently, Come Home, America.

http://www.thenation.com/doc/20090803/greider/print

Last edited by Mike Parker; August 4th, 2009 at 10:34 AM.
 
Old August 22nd, 2009 #12
Alex Linder
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Bulletins From Clunkerville

By MIKE WHITNEY

Is the economy really recovering or is it all just hype?

Here's what we know. The Fed doesn't drop rates to zero unless its facing a 5 alarm fire and needs to pull out all the stops. The idea is to flood the markets with liquidity in order to avoid a complete financial meltdown. It's a last-ditch maneuver and the Fed does not take it lightly.

The Fed initiated its zero interest rate policy, ZIRP, eight months ago (December 16 2008) and hasn't raised rates since. In the meantime, Fed chair Ben Bernanke has pumped huge amounts of money into the financial system using thoroughly-untested and unconventional means. No one knows whether Bernanke can roll up his multi-trillion dollar lending facilities or not (and avoid Zimbabwe-like hyperinflation) because no one has ever created similar programs. It's all "make-it-up-as-you-go" policymaking. What we do know, however, is that the Fed intends to keep rates at rock-bottom for the foreseeable future, which means that the lights are all still blinking red.

Here's an excerpt from the Federal Open Market Committee (FOMC) on Wednesday:

"The Committee will maintain the target range for the federal funds rate at 0 to 1/4 percent and continues to anticipate that economic conditions are likely to warrant exceptionally low levels of the federal funds rate for an extended period. As previously announced, to provide support to mortgage lending and housing markets and to improve overall conditions in private credit markets, the Federal Reserve will purchase a total of up to $1.25 trillion of agency mortgage-backed securities and up to $200 billion of agency debt by the end of the year. In addition, the Federal Reserve is in the process of buying $300 billion of Treasury securities. To promote a smooth transition in markets as these purchases of Treasury securities are completed, the Committee has decided to gradually slow the pace of these transactions and anticipates that the full amount will be purchased by the end of October. The Committee will continue to evaluate the timing and overall amounts of its purchases of securities in light of the evolving economic outlook and conditions in financial markets. The Federal Reserve is monitoring the size and composition of its balance sheet and will make adjustments to its credit and liquidity programs as warranted."

Translation: The economy is still getting battered and the Fed will keep rates at zero until the storm passes. Bernanke will continue to purchase boatloads of Fannie and Freddie mortgage-backed securities (MBS) to avoid an even-more precipitous decline in housing prices. The Fed will also purchase $300 billion in US Treasuries (monetization) in an effort to prime the pump and keep long-term interest rates artificially low. (Note: The Fed is only suspending its monetization program--Treasury buy-backs--because the dollar dropped to a dangerous support level, below which lies the abyss. Thus, Bernanke's announcement is not a sign of confidence in the fictional "recovery", but fear of a "disorderly unwind" of the dollar.)

On balance, the Fed's statement is an expression of desperation, not optimism. Bernanke would like nothing more than to prove to his critics wrong by raising rates and shutting down a couple lending facilities. But he has no choice. The situation is dire. Just imagine where housing prices would be today if Bernanke hadn't bought $1 trillion of mortgage-backed securities? Housing would be crashing even harder than it is already.

The Fed is in a pitch-battle with deflation, and it's losing ground fast. If that wasn't true, then Bernanke would simply raise rates .50 basis points and soak up some of the excess liquidity he's been spraying everywhere. But he can't, because if he did, the equities markets would plummet 500 points in an afternoon and the financial system would be tossed back on the rocks. Bernanke's liquidity is the only thing keeping the economy vanishing into a deflationary black hole.

The economy is still on life-support and the "green shoots" storyline is pure fiction. The financial system will be on a drip-feed from the Fed for years to come. Maybe forever. Things aren't better; they're worse. Look at the facts.

There were 1.9 million foreclosures in 2009 in the first six months, and there will be another 1.5 before the end of the year. Is that better?

According to Bloomberg:

"A glut of unsold homes is also pushing down prices. The 3.8 million homes for sale in June would take 9.4 months to sell at the current pace of transactions, according to the National Association of Realtors. The inventory turnover rate averaged 4.5 months in the six years from 2000 to 2005.....More than 18.7 million homes, including foreclosures, residences for sale and vacation homes, stood vacant in the U.S. during the second quarter....Total home sales fell 23.7 percent in June versus a year earlier." (Bloomberg)

Bloated supply, falling prices, record foreclosures, flagging demand--and according to Deutsche Bank--48 percent of all mortgages will be underwater by 2011. It's all bad.

Here's another clip from Bloomberg today 8-12-09:

"Home price declines in the U.S. accelerated in the second quarter, dropping by a record 15.6 percent from a year earlier, as foreclosures weighed on values.

The median price of an existing single-family home dropped to $174,100, the most in records dating to 1979, the National Association of Realtors said today.

‘I don’t think we’re at a bottom yet in home prices,’ said Scott Anderson, a senior economist at Wells Fargo & Co. in Minneapolis. ‘There’s also a pretty big shadow supply of houses. People are kind of waiting for the bottom but there’s a pent up supply out there.”...Home prices are tumbling even as mortgage rates remain near all-time lows. The average U.S. rate for a 30-year fixed home loan was to 5.22 percent last week, down from 5.25 percent the prior week.’" (Bloomberg)

The decline in housing prices is accelerating, not slowing down. The historic collapse in real estate is ongoing and it is wiping out trillions in homeowner equity making it increasingly difficult for consumers to borrow on the diminishing value of their collateral. This is why foreclosures, defaults and personal bankruptcies are soaring. According to the American Bankruptcy Institute: consumer bankruptcy filings reached 126,434 in July, a 34.3 per cent increase year over year, and a 8.7 per cent increase sequentially (116,365 in June). July's number is the highest monthly total since the October 2005 bankruptcy reform aka the Bankruptcy Abuse Prevention and Consumer Protection Act.)

This is why households and consumers can no longer spend as much as they had before the crisis. Credit lines are being pared back; personal savings are rising, and GDP (excluding fiscal stimulus) is shrinking.

Every one of the 3.5 million foreclosures represents hundreds of thousands of dollars the banks will never recoup. That's why the rate of bank failures will be much greater than current estimates. The banks are facing a triple-whammy; soaring foreclosures, tumbling asset prices, and a meltdown in commercial real estate. The combo has created a gigantic capital hole which is forcing the banks to slow lend even to applicants with flawless credit. The Fed has built up excess bank reserves by $800 billion, but it hasn't made a bit of difference. They banks are still not able to lend.

The uptick in housing last month reflects seasonal changes and a shifting of pain from the low end of the market to higher priced homes; nothing more. Homes that are priced over $1 million are now sitting on the market for 20 months; a lifetime in real estate parlance. High-end neighborhoods have turned into leper colonies. Zero interest; zero traffic. Expect a crash this year.

Now take a look at this from CNBC's Diana Olick:

"The number of homes listed officially on the market, while still at historically high levels, might be only the tip of the iceberg," said Stan Humphries, chief economist at real estate website Zillow.com in Seattle, Washington.

“According to Zillow's latest Homeowner Confidence Survey, 12 per cent of homeowners said they would be ‘very likely’ to put their home on the market in the next 12 months if they saw signs of a real estate market turnaround, 8 percent said ‘likely,’ while 12 percent said ‘somewhat likely.’
Survey results could translate into around 20 million homeowners trying to sell their homes, a startling number given that the Census bureau indicates there are 93 million U.S. houses, condos and co-ops, Humphries said.

“According to the National Association of Realtors, the market is currently on track to sell 4.89 million homes annually.

"’At this pace, it would take about four years to run through this amount of backlogged inventory,’ he said.

"’Shadow inventory has the potential to give us another leg down on home prices during the second half of the year,’ said Steven Wood, chief economist at Insight Economics in Danville, California. (Diana Olick, "Shadow inventory lurks over US housing recovery" CNBC)

The banks are using all types of accounting tricks to hide the real losses or the true value of downgraded assets. The only difference between a common crook and a commercial banker is a well-paid accountant.

The banking system is broken and it’s only going to get worse as the hammer comes down on the commercial real estate market. The Fed and Treasury are already working out the details for another stealth bailout that they'll initiate without Congress's approval. It's all very hush-hush. The plan will involve more mega-leveraging of government liabilities. Bernanke has appointed himself the de facto Czar of Hedge Fund Nation, Clunkerville USA. An article in this week's Financial Times further illustrates how the Fed has transformed the economy into a riverboat casino:

"The Federal Reserve Bank of New York is aggressively hiring traders as its seeks to manage its burgeoning securities holdings, making the central bank one of Wall Street's most active recruiters of financial talent.

“The Fed, which says that most of its new recruits come from private sector financial firms, is hiring employees as many banks, rating agencies, hedge funds and private equity groups shed staff. New York city officials recently estimated that the sector's woes would lead to a loss of up to 140,000 jobs.

“The Fed's need for more traders is a direct consequence of the central bank's efforts to keep credit flowing through the US economy. The Fed has been buying fixed-income securities at such a rate that its assets have more than doubled to $2,000bn in the past year, leading the central bank to conclude that it needs more people to monitor the markets and to manage its credit risks." (Financial Times, "NY Fed in hiring spree as assets soar", Aline van Duyn)

Can you believe it? The Fed is drafting a gaggle of professional speculators just to keep all its balls in the air. What a joke. This isn't a recovery; it's a sit-com. Here's Warren Buffett summing it up on CNBC:

"I get figures on 70-odd businesses, a lot of them daily. Everything that I see about the economy is that we've had no bounce. The financial system was really where the crisis was last September and October, and that's been surmounted and that's enormously important. But in terms of the economy coming back, it takes a while.... I said the economy would be in a shambles this year and probably well beyond. I'm afraid that's true."

"The economy is in a shambles". That's from the horse's mouth. Inventories are down 11 per cent year-over-year, durable goods are down 10.4 per cent y-o-y, industrial capacity is at record lows, manufacturing is still contracting, housing is in the tank, shipping and rail freight are scraping the bottom, retail is in a long-term funk, and--according to Krugman--the slight dip in unemployment was a statistical anomaly. Here's Bob Herbert's great summary of the unemployment data:

"Some 247,000 jobs were lost in July, a number that under ordinary circumstances would send a shudder through the country. It was the smallest monthly loss of jobs since last summer. And for that reason, it was seen as a hopeful sign. The official monthly unemployment rate ticked down from 9.5 percent to 9.4 percent....The country has lost a crippling 6.7 million jobs since the Great Recession began in December 2007...

“The percentage of young American men who are actually working is the lowest it has been in the 61 years of record-keeping, according to the Center for Labor Market Studies at Northeastern University in Boston. Only 65 of every 100 men aged 20 through 24 years old were working on any given day in the first six months of this year. In the age group 25 through 34 years old, traditionally a prime age range for getting married and starting a family, just 81 of 100 men were employed.... The numbers are beyond scary; they’re catastrophic.

“This should be the biggest story in the United States. When joblessness reaches these kinds of extremes, it doesn’t just damage individual families; it corrodes entire communities, fosters a sense of hopelessness and leads to disorder....

“A truer picture of the employment crisis emerges when you combine the number of people who are officially counted as jobless with those who are working part time because they can’t find full-time work and those in the so-called labor market reserve — people who are not actively looking for work (because they have become discouraged, for example) but would take a job if one became available....The tally from those three categories is a mind-boggling 30 million Americans — 19 percent of the overall work force.

“This is, by far, the nation’s biggest problem and should be its No. 1 priority." ("A Scary Reality" Bob Herbert, New York Times)

Sorry, Bob, the media has no time for unemployment news. It tends to undermine the positive vibes from green shoots stories.

The stock market rally has made it harder for people to see the truth. But the facts haven't changed. Deflation is setting in across all sectors and the economy has reset at a lower rate of economic activity. Housing prices are falling, consumer spending is slowing, layoffs are rising, and demand is getting weaker. That means growth will be sub-par for the foreseeable future. Here's an excerpt from a speech given by San Francisco Fed Janet Yellen drawing the same conclusion:

"I don’t like taking the wind out of the sails of our economic expansion, but a few cautionary points should be considered... a massive shift in consumer behavior is under way.. American households entered this recession stretched to the limit with mortgage and other debt. The personal saving rate fell from around 8 per cent of disposable income two decades ago to almost zero. Households financed their lifestyles by drawing on increasing stock market and housing wealth, and taking on higher levels of debt. But falling house and stock prices have destroyed trillions of dollars in wealth, cutting off those ready sources of cash. What’s more, the stark realities of this recession have scared many households straight, convincing them that they need to save larger fractions of their incomes.... a rediscovery of thrift means fewer sales at the mall, and fewer jobs on assembly lines and store counters....

“This very weak economy is, if anything, putting downward pressure on wages and prices. We have already seen a noticeable slowdown in wage growth and reports of wage cuts have become increasingly prevalent—a sign of the sacrifices that some workers are making to keep their employers afloat and preserve their jobs. Businesses are also cutting prices and profit margins to boost sales..... With unemployment already substantial and likely to rise further, the downward pressure on wages and prices should continue and could intensify....

“If the economy fails to recover soon, it is conceivable that this very low inflation could turn into outright deflation. Worse still, if deflation were to intensify, we could find ourselves in a devastating spiral in which prices fall at an ever-faster pace and economic activity sinks more and more."

"Falling prices." "Deflation." "Devastating spiral." That's not the kind of honesty that one expects from a Fed chief. Yellen must have stopped drinking the lemonade.

And don't forget the banking system is still broken. Not a dime from the $700 billion TARP bailout was used to purchase toxic assets. The banks are still drowning in red ink. Bernanke has known since last September when Lehman Bros. defaulted, that the bad assets would have to be removed before the economy could recover. An underwater banking system is a constant drain on public resources and a drag on growth. Bernanke knows this, but rather than remove the assets by nationalizing the banks or restructuring their debt (as he should have done) he expanded the Fed's balance sheet by $1.2 trillion which provided the liquidity that financial institutions pumped into the stock market. "Bernanke's Rally" has generated the capital the banks needed to keep them from writing-down their debts or filing for Chapter 11, but the problems still persist right below the surface. Just this week, Elizabeth Warren's Congressional Oversight Panel released a damning report which stressed the need to address the issue of toxic assets. According to the COP's report:

"Financial stability remains at risk if the underlying problem of toxic assets remains unresolved.... If the economy worsens, especially if unemployment remains elevated or if the commercial real estate market collapses, then defaults will rise and the troubled assets will continue to deteriorate in value. Banks will incur further losses on their troubled assets. The financial system will remain vulnerable to the crisis conditions that TARP was meant to fix....

“Changing accounting standards helped the banks temporarily by allowing them greater leeway in describing their assets, but it did not change the underlying problem. In order to advance a full recovery in the economy, there must be greater transparency, accountability, and clarity, from both the government and banks, about the scope of the troubled asset problem.

“The problem of troubled assets is especially serious for the balance sheets of small banks. Small banks‘ troubled assets are generally whole loans, but Treasury‘s main program for removing troubled assets from banks‘ balance sheets, the PPIP will at present address only troubled mortgage securities and not whole loans.

“Given the ongoing uncertainty, vigilance is essential. If conditions exceed those in the worst case scenario of the recent stress tests, then stress-testing of the nation‘s largest banks should be repeated to evaluate what would happen if troubled assets suffered additional losses."

To sum up: There will be no real recovery until the toxic assets problem is resolved. Unfortunately, the Treasury and Fed have shown that they intend to sweep this issue under the rug for as long as possible.

Toxic assets, falling home prices, widespread malaise in the credit markets are just part of the problem. The deeper issue is the dismal condition of the US consumer who has seen his home equity dissipate, his retirement funds sawed in half,his access to credit curtailed, and his job put at risk. Ordinary working class Americans now face what David Rosenberg calls, "the era of consumer frugality---new paradigm of savings, asset liquidation and debt repayment ." Life styles will have to be toned-down and living standards lowered to meet the new deflationary reality. More and more people will be forced to jettison their credit cards and live within their means. It's not the end of the world, but it does foreshadow a protracted period of negative growth, social unrest and persistent high unemployment. Stock market euphoria can last a long time, but the laws of gravity still apply. Things will shake out eventually---and when they do--stocks will return to earth, debts will be written down, and a new era of thriftiness will ensue. Until then, it looks like we'll just keep faking it.

Mike Whitney lives in Washington state. He can be reached at [email protected]

http://counterpunch.org/whitney08142009.html
 
Old August 22nd, 2009 #13
Alex Linder
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Bulletins From Clunkerville

By MIKE WHITNEY

Is the economy really recovering or is it all just hype?

Here's what we know. The Fed doesn't drop rates to zero unless its facing a 5 alarm fire and needs to pull out all the stops. The idea is to flood the markets with liquidity in order to avoid a complete financial meltdown. It's a last-ditch maneuver and the Fed does not take it lightly.

The Fed initiated its zero interest rate policy, ZIRP, eight months ago (December 16 2008) and hasn't raised rates since. In the meantime, Fed chair Ben Bernanke has pumped huge amounts of money into the financial system using thoroughly-untested and unconventional means. No one knows whether Bernanke can roll up his multi-trillion dollar lending facilities or not (and avoid Zimbabwe-like hyperinflation) because no one has ever created similar programs. It's all "make-it-up-as-you-go" policymaking. What we do know, however, is that the Fed intends to keep rates at rock-bottom for the foreseeable future, which means that the lights are all still blinking red.

Here's an excerpt from the Federal Open Market Committee (FOMC) on Wednesday:

"The Committee will maintain the target range for the federal funds rate at 0 to 1/4 percent and continues to anticipate that economic conditions are likely to warrant exceptionally low levels of the federal funds rate for an extended period. As previously announced, to provide support to mortgage lending and housing markets and to improve overall conditions in private credit markets, the Federal Reserve will purchase a total of up to $1.25 trillion of agency mortgage-backed securities and up to $200 billion of agency debt by the end of the year. In addition, the Federal Reserve is in the process of buying $300 billion of Treasury securities. To promote a smooth transition in markets as these purchases of Treasury securities are completed, the Committee has decided to gradually slow the pace of these transactions and anticipates that the full amount will be purchased by the end of October. The Committee will continue to evaluate the timing and overall amounts of its purchases of securities in light of the evolving economic outlook and conditions in financial markets. The Federal Reserve is monitoring the size and composition of its balance sheet and will make adjustments to its credit and liquidity programs as warranted."

Translation: The economy is still getting battered and the Fed will keep rates at zero until the storm passes. Bernanke will continue to purchase boatloads of Fannie and Freddie mortgage-backed securities (MBS) to avoid an even-more precipitous decline in housing prices. The Fed will also purchase $300 billion in US Treasuries (monetization) in an effort to prime the pump and keep long-term interest rates artificially low. (Note: The Fed is only suspending its monetization program--Treasury buy-backs--because the dollar dropped to a dangerous support level, below which lies the abyss. Thus, Bernanke's announcement is not a sign of confidence in the fictional "recovery", but fear of a "disorderly unwind" of the dollar.)

On balance, the Fed's statement is an expression of desperation, not optimism. Bernanke would like nothing more than to prove to his critics wrong by raising rates and shutting down a couple lending facilities. But he has no choice. The situation is dire. Just imagine where housing prices would be today if Bernanke hadn't bought $1 trillion of mortgage-backed securities? Housing would be crashing even harder than it is already.

The Fed is in a pitch-battle with deflation, and it's losing ground fast. If that wasn't true, then Bernanke would simply raise rates .50 basis points and soak up some of the excess liquidity he's been spraying everywhere. But he can't, because if he did, the equities markets would plummet 500 points in an afternoon and the financial system would be tossed back on the rocks. Bernanke's liquidity is the only thing keeping the economy vanishing into a deflationary black hole.

The economy is still on life-support and the "green shoots" storyline is pure fiction. The financial system will be on a drip-feed from the Fed for years to come. Maybe forever. Things aren't better; they're worse. Look at the facts.

There were 1.9 million foreclosures in 2009 in the first six months, and there will be another 1.5 before the end of the year. Is that better?

According to Bloomberg:

"A glut of unsold homes is also pushing down prices. The 3.8 million homes for sale in June would take 9.4 months to sell at the current pace of transactions, according to the National Association of Realtors. The inventory turnover rate averaged 4.5 months in the six years from 2000 to 2005.....More than 18.7 million homes, including foreclosures, residences for sale and vacation homes, stood vacant in the U.S. during the second quarter....Total home sales fell 23.7 percent in June versus a year earlier." (Bloomberg)

Bloated supply, falling prices, record foreclosures, flagging demand--and according to Deutsche Bank--48 percent of all mortgages will be underwater by 2011. It's all bad.

Here's another clip from Bloomberg today 8-12-09:

"Home price declines in the U.S. accelerated in the second quarter, dropping by a record 15.6 percent from a year earlier, as foreclosures weighed on values.

The median price of an existing single-family home dropped to $174,100, the most in records dating to 1979, the National Association of Realtors said today.

‘I don’t think we’re at a bottom yet in home prices,’ said Scott Anderson, a senior economist at Wells Fargo & Co. in Minneapolis. ‘There’s also a pretty big shadow supply of houses. People are kind of waiting for the bottom but there’s a pent up supply out there.”...Home prices are tumbling even as mortgage rates remain near all-time lows. The average U.S. rate for a 30-year fixed home loan was to 5.22 percent last week, down from 5.25 percent the prior week.’" (Bloomberg)

The decline in housing prices is accelerating, not slowing down. The historic collapse in real estate is ongoing and it is wiping out trillions in homeowner equity making it increasingly difficult for consumers to borrow on the diminishing value of their collateral. This is why foreclosures, defaults and personal bankruptcies are soaring. According to the American Bankruptcy Institute: consumer bankruptcy filings reached 126,434 in July, a 34.3 per cent increase year over year, and a 8.7 per cent increase sequentially (116,365 in June). July's number is the highest monthly total since the October 2005 bankruptcy reform aka the Bankruptcy Abuse Prevention and Consumer Protection Act.)

This is why households and consumers can no longer spend as much as they had before the crisis. Credit lines are being pared back; personal savings are rising, and GDP (excluding fiscal stimulus) is shrinking.

Every one of the 3.5 million foreclosures represents hundreds of thousands of dollars the banks will never recoup. That's why the rate of bank failures will be much greater than current estimates. The banks are facing a triple-whammy; soaring foreclosures, tumbling asset prices, and a meltdown in commercial real estate. The combo has created a gigantic capital hole which is forcing the banks to slow lend even to applicants with flawless credit. The Fed has built up excess bank reserves by $800 billion, but it hasn't made a bit of difference. They banks are still not able to lend.

The uptick in housing last month reflects seasonal changes and a shifting of pain from the low end of the market to higher priced homes; nothing more. Homes that are priced over $1 million are now sitting on the market for 20 months; a lifetime in real estate parlance. High-end neighborhoods have turned into leper colonies. Zero interest; zero traffic. Expect a crash this year.

Now take a look at this from CNBC's Diana Olick:

"The number of homes listed officially on the market, while still at historically high levels, might be only the tip of the iceberg," said Stan Humphries, chief economist at real estate website Zillow.com in Seattle, Washington.

“According to Zillow's latest Homeowner Confidence Survey, 12 per cent of homeowners said they would be ‘very likely’ to put their home on the market in the next 12 months if they saw signs of a real estate market turnaround, 8 percent said ‘likely,’ while 12 percent said ‘somewhat likely.’
Survey results could translate into around 20 million homeowners trying to sell their homes, a startling number given that the Census bureau indicates there are 93 million U.S. houses, condos and co-ops, Humphries said.

“According to the National Association of Realtors, the market is currently on track to sell 4.89 million homes annually.

"’At this pace, it would take about four years to run through this amount of backlogged inventory,’ he said.

"’Shadow inventory has the potential to give us another leg down on home prices during the second half of the year,’ said Steven Wood, chief economist at Insight Economics in Danville, California. (Diana Olick, "Shadow inventory lurks over US housing recovery" CNBC)

The banks are using all types of accounting tricks to hide the real losses or the true value of downgraded assets. The only difference between a common crook and a commercial banker is a well-paid accountant.

The banking system is broken and it’s only going to get worse as the hammer comes down on the commercial real estate market. The Fed and Treasury are already working out the details for another stealth bailout that they'll initiate without Congress's approval. It's all very hush-hush. The plan will involve more mega-leveraging of government liabilities. Bernanke has appointed himself the de facto Czar of Hedge Fund Nation, Clunkerville USA. An article in this week's Financial Times further illustrates how the Fed has transformed the economy into a riverboat casino:

"The Federal Reserve Bank of New York is aggressively hiring traders as its seeks to manage its burgeoning securities holdings, making the central bank one of Wall Street's most active recruiters of financial talent.

“The Fed, which says that most of its new recruits come from private sector financial firms, is hiring employees as many banks, rating agencies, hedge funds and private equity groups shed staff. New York city officials recently estimated that the sector's woes would lead to a loss of up to 140,000 jobs.

“The Fed's need for more traders is a direct consequence of the central bank's efforts to keep credit flowing through the US economy. The Fed has been buying fixed-income securities at such a rate that its assets have more than doubled to $2,000bn in the past year, leading the central bank to conclude that it needs more people to monitor the markets and to manage its credit risks." (Financial Times, "NY Fed in hiring spree as assets soar", Aline van Duyn)

Can you believe it? The Fed is drafting a gaggle of professional speculators just to keep all its balls in the air. What a joke. This isn't a recovery; it's a sit-com. Here's Warren Buffett summing it up on CNBC:

"I get figures on 70-odd businesses, a lot of them daily. Everything that I see about the economy is that we've had no bounce. The financial system was really where the crisis was last September and October, and that's been surmounted and that's enormously important. But in terms of the economy coming back, it takes a while.... I said the economy would be in a shambles this year and probably well beyond. I'm afraid that's true."

"The economy is in a shambles". That's from the horse's mouth. Inventories are down 11 per cent year-over-year, durable goods are down 10.4 per cent y-o-y, industrial capacity is at record lows, manufacturing is still contracting, housing is in the tank, shipping and rail freight are scraping the bottom, retail is in a long-term funk, and--according to Krugman--the slight dip in unemployment was a statistical anomaly. Here's Bob Herbert's great summary of the unemployment data:

"Some 247,000 jobs were lost in July, a number that under ordinary circumstances would send a shudder through the country. It was the smallest monthly loss of jobs since last summer. And for that reason, it was seen as a hopeful sign. The official monthly unemployment rate ticked down from 9.5 percent to 9.4 percent....The country has lost a crippling 6.7 million jobs since the Great Recession began in December 2007...

“The percentage of young American men who are actually working is the lowest it has been in the 61 years of record-keeping, according to the Center for Labor Market Studies at Northeastern University in Boston. Only 65 of every 100 men aged 20 through 24 years old were working on any given day in the first six months of this year. In the age group 25 through 34 years old, traditionally a prime age range for getting married and starting a family, just 81 of 100 men were employed.... The numbers are beyond scary; they’re catastrophic.

“This should be the biggest story in the United States. When joblessness reaches these kinds of extremes, it doesn’t just damage individual families; it corrodes entire communities, fosters a sense of hopelessness and leads to disorder....

“A truer picture of the employment crisis emerges when you combine the number of people who are officially counted as jobless with those who are working part time because they can’t find full-time work and those in the so-called labor market reserve — people who are not actively looking for work (because they have become discouraged, for example) but would take a job if one became available....The tally from those three categories is a mind-boggling 30 million Americans — 19 percent of the overall work force.

“This is, by far, the nation’s biggest problem and should be its No. 1 priority." ("A Scary Reality" Bob Herbert, New York Times)

Sorry, Bob, the media has no time for unemployment news. It tends to undermine the positive vibes from green shoots stories.

The stock market rally has made it harder for people to see the truth. But the facts haven't changed. Deflation is setting in across all sectors and the economy has reset at a lower rate of economic activity. Housing prices are falling, consumer spending is slowing, layoffs are rising, and demand is getting weaker. That means growth will be sub-par for the foreseeable future. Here's an excerpt from a speech given by San Francisco Fed Janet Yellen drawing the same conclusion:

"I don’t like taking the wind out of the sails of our economic expansion, but a few cautionary points should be considered... a massive shift in consumer behavior is under way.. American households entered this recession stretched to the limit with mortgage and other debt. The personal saving rate fell from around 8 per cent of disposable income two decades ago to almost zero. Households financed their lifestyles by drawing on increasing stock market and housing wealth, and taking on higher levels of debt. But falling house and stock prices have destroyed trillions of dollars in wealth, cutting off those ready sources of cash. What’s more, the stark realities of this recession have scared many households straight, convincing them that they need to save larger fractions of their incomes.... a rediscovery of thrift means fewer sales at the mall, and fewer jobs on assembly lines and store counters....

“This very weak economy is, if anything, putting downward pressure on wages and prices. We have already seen a noticeable slowdown in wage growth and reports of wage cuts have become increasingly prevalent—a sign of the sacrifices that some workers are making to keep their employers afloat and preserve their jobs. Businesses are also cutting prices and profit margins to boost sales..... With unemployment already substantial and likely to rise further, the downward pressure on wages and prices should continue and could intensify....

“If the economy fails to recover soon, it is conceivable that this very low inflation could turn into outright deflation. Worse still, if deflation were to intensify, we could find ourselves in a devastating spiral in which prices fall at an ever-faster pace and economic activity sinks more and more."

"Falling prices." "Deflation." "Devastating spiral." That's not the kind of honesty that one expects from a Fed chief. Yellen must have stopped drinking the lemonade.

And don't forget the banking system is still broken. Not a dime from the $700 billion TARP bailout was used to purchase toxic assets. The banks are still drowning in red ink. Bernanke has known since last September when Lehman Bros. defaulted, that the bad assets would have to be removed before the economy could recover. An underwater banking system is a constant drain on public resources and a drag on growth. Bernanke knows this, but rather than remove the assets by nationalizing the banks or restructuring their debt (as he should have done) he expanded the Fed's balance sheet by $1.2 trillion which provided the liquidity that financial institutions pumped into the stock market. "Bernanke's Rally" has generated the capital the banks needed to keep them from writing-down their debts or filing for Chapter 11, but the problems still persist right below the surface. Just this week, Elizabeth Warren's Congressional Oversight Panel released a damning report which stressed the need to address the issue of toxic assets. According to the COP's report:

"Financial stability remains at risk if the underlying problem of toxic assets remains unresolved.... If the economy worsens, especially if unemployment remains elevated or if the commercial real estate market collapses, then defaults will rise and the troubled assets will continue to deteriorate in value. Banks will incur further losses on their troubled assets. The financial system will remain vulnerable to the crisis conditions that TARP was meant to fix....

“Changing accounting standards helped the banks temporarily by allowing them greater leeway in describing their assets, but it did not change the underlying problem. In order to advance a full recovery in the economy, there must be greater transparency, accountability, and clarity, from both the government and banks, about the scope of the troubled asset problem.

“The problem of troubled assets is especially serious for the balance sheets of small banks. Small banks‘ troubled assets are generally whole loans, but Treasury‘s main program for removing troubled assets from banks‘ balance sheets, the PPIP will at present address only troubled mortgage securities and not whole loans.

“Given the ongoing uncertainty, vigilance is essential. If conditions exceed those in the worst case scenario of the recent stress tests, then stress-testing of the nation‘s largest banks should be repeated to evaluate what would happen if troubled assets suffered additional losses."

To sum up: There will be no real recovery until the toxic assets problem is resolved. Unfortunately, the Treasury and Fed have shown that they intend to sweep this issue under the rug for as long as possible.

Toxic assets, falling home prices, widespread malaise in the credit markets are just part of the problem. The deeper issue is the dismal condition of the US consumer who has seen his home equity dissipate, his retirement funds sawed in half,his access to credit curtailed, and his job put at risk. Ordinary working class Americans now face what David Rosenberg calls, "the era of consumer frugality---new paradigm of savings, asset liquidation and debt repayment ." Life styles will have to be toned-down and living standards lowered to meet the new deflationary reality. More and more people will be forced to jettison their credit cards and live within their means. It's not the end of the world, but it does foreshadow a protracted period of negative growth, social unrest and persistent high unemployment. Stock market euphoria can last a long time, but the laws of gravity still apply. Things will shake out eventually---and when they do--stocks will return to earth, debts will be written down, and a new era of thriftiness will ensue. Until then, it looks like we'll just keep faking it.

Mike Whitney lives in Washington state. He can be reached at [email protected]

http://counterpunch.org/whitney08142009.html
 
Old August 29th, 2009 #14
Alex Linder
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The Fed on the Defensive

by Gary North

I do not recall this in my lifetime. A majority in the House of Representatives has co-signed H.R. 1207, a bill introduced by Ron Paul to have the Federal Reserve System audited by an independent government agency, the Comptroller General's office.

The bill has been bottled up in committee by Barney Frank, who has insisted that he is doing this in order to better coordinate consideration of the best way to gain greater transparency from the Federal Reserve. He has not said that he favors an independent audit of the FED.

It would be easy for Congressman Frank to hold hearings on the bill. This would allow Dr. Paul to bring in expert witnesses on the FED to make the case for an independent audit. It would get a lot of YouTube play. It would be the first time since the replacement of eccentric Congressman Wright Patman in 1975 as the chairman of the House Banking Committee that the FED has been exposed to anything like serious criticism in Congress. (Patman, an inflationist and a greenbacker, hated the FED. He was chairman of the House Banking Committee, 1965–75.) Congressman Frank has yet to announce hearings.

There was a posting on the DailyPaul site that Frank will hold hearings soon. Someone heard it on the radio. I will believe it when I see the YouTube videos.

The FED in June hired a public relations expert, Linda Robinson, to deal with Congress. She was formerly a lobbyist for Enron. I have little doubt that it was H.R. 1207 that forced the FED into this move.

Now Ron Paul's book, End the Fed, is about to be published. It is expected to become a best-seller. Think about this. There have been books attacking the Federal Reserve System for over ninety years, but they have been written by obscure people who no one in the general public has heard of. They have not sold well. They have not been written by someone who persuaded over half of the House of Representatives to support a bill to audit the FED. They have not been written by someone who once raised over $30 million in a run for President.

This is unprecedented. For the first time in the history of the Federal Reserve System, there are literally millions of people who have heard of the FED and who would like to see it shut down.

There have been academic and investment critics of this or that policy of the FED, most notably Milton Friedman, who criticized the FED for not inflating enough, 1930–33. But there has never been a serious audience ready to listen to arguments on why a system of 12 private banks should oversee monetary policy, and why one of them, the New York Federal Reserve Bank, should execute this policy without having to answer to anyone.

[much more thru link]
http://www.lewrockwell.com/north/north750.html
 
Old August 31st, 2009 #15
Alex Linder
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Assessing What Ron Paul Has Accomplished

Gary North

Aug. 31, 2009

I began my article on "The FED on the Defensive" with these words:

I do not recall this in my lifetime. A majority in the House of Representatives has co-signed H.R. 1207, a bill introduced by Ron Paul to have the Federal Reserve System audited by an independent government agency, the Comptroller General's office.

A reader sent me a suggested correction.

So if my realization is typical, framing discussion of the current crisis in terms of the U.S.A. repeating its own history could greatly facilitate comprehension of the vast majority who still do not perceive the present crisis clearly and otherwise won't until long after it has buried them. Because it is common to hear comments like "we're in uncharted territory" and your "I do not recall in my lifetime". While undoubtedly true in a sense, the more important other truth is that the nation has traveled this territory repeatedly in the past 300 years but apparently does not recognize it: we repeatedly failed to learn from the past. Why not hammer on the point that this crisis is the old recurring problem? Nothing new here. We should know what we've got coming to us as we've been "corrected" in the past so many times for the same contest between avaricious motives and libertarian ideals.

The critic means well, but he does not understand the magnitude of what Ron Paul has accomplished.

To suggest that, once upon a time, meaning before 1913, there were criticisms of central banking is like saying that, once upon a time, before Keynes' General Theory, there were criticisms of government budget deficits. Quaint, but irrelevant.

In the 19th century -- a century of the international gold standard and free trade -- there were critics of central banking. The economists debated this issue in sophisticated treatises. That, of course, is what economists do: debate. What is remarkable in retrospect is the high level of sophistication of the debates in the popular press.

Central banking was a hot topic in the Jackson era, especially in the key year of 1832, when the Whigs made it a political issue by introducing the bill to recharter the Second Bank of the United States four years before the charter would automatically expire. They did this in an election year. They thought they would win in November. Instead, they lost big.

Jackson won the bank war in 1832. The central bankers and the academic Establishment have never forgiven him for this. His position on the Second Bank is universally excoriated in economic history textbooks and monographs. This story even gets into lower division history textbooks. Students who are told about central banks only twice in the textbooks are told that Jackson was a narrow-minded bigot on central banking. The only other reference to central banking in the textbooks is the story -- carefully sanitized -- of the establishment of the Federal Reserve System, a victory described, though never explained, as a triumph of the American people over the political control of money. It was, of course, a triumph of the big bank cartel over competitive banks that offered greater safety. The bankers feared bank runs on overleveraged banks, meaning large New York City banks.

As an historian by training, I can think of no cartelization of any industry that has been more successfully concealed by academia. This is by far the largest, richest, and most successful cartel in American history. Yet there is almost no criticism of the system and its enforcement tool, the Federal Reserve System. Whatever mild technical quibbles the academic community has had with the FED, the central issue of central banking is never even mentioned, let alone refuted. What is the central issue? That all central banking is a government-licensed enforcement arrangement of a well-organized, well-funded cartel. As with all cartels, it operates at the expense of competitors who would otherwise offer better opportunities to the public.

For almost a century, criticisms of this arrangement have been confined to fringe groups. The most articulate of these critics have been members of the Austrian School of economics, most notably Ludwig von Mises and Murray Rothbard. No school of academic opinion opposes central banking, other than the Austrians. The success of academia and the mainstream media in suppressing the story of central banking has been almost total. Anyone with first-hand knowledge of the battle to break through this blackout knows how little success critics have had. They have been almost completely marginalized.

This is true in every nation. Central banking is today universal, excluding Andorra, Monte Carlo, and Panama.

That a Congressman who is regarded by his peers as a highly principled eccentric could get a bill to audit the Federal Reserve accepted by a substantial majority in the House of Representatives is nothing short of sensational. He was the right man at the right time.

The timing was created by Alan Greenspan, whose policies created the bubbles, followed by Ben Bernanke, who had no clue that his stabilization of the monetary base in 2006 and 2007 would create a near-collapse of the banking system.

There was Ron Paul, running for President, saying that this would happen. He was dismissed as a crank. Then it happened in one 60-day period: early September to early November, 2008. He is now perceived as a kind of prophet.

He targeted the FED. Millions of people heard him. They had not previously heard of the FED, let alone its threat to the economy. Then the crisis came, before the election. He had seen it coming. No one else with a public presence had.

Ron Paul analyzed things accurately. He had warned about the Federal Reserve ever since his first term in 1976. He stuck to his guns for 32 years. Then . . . boom! The FED's policies blew up in plain sight . . . and plain sites.

The FED is on the defensive for the first time. Three men made this possible: Greenspan Bernanke, and Paul. Only Paul has profited from this.

He really did create a revolution in the literate public's perception of the Federal Reserve System. The FED will never get the anti-FED toothpaste back in the tube. Not with YouTube.

For a 42-minute video on the Federal Reserve System produced by the Ludwig von Mises Institute, click the PLAY button.

http://www.garynorth.com/public/5389.cfm
 
Old August 31st, 2009 #16
Alex Linder
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In some ways, North is a fraud, by he writes often and well on this stuff. Use his ideas and expressions, and diffuse the knowledge they contain among our own.
 
Old August 31st, 2009 #17
Alex Linder
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[This is great stuff.]

Jackson won the bank war in 1832. The central bankers and the academic Establishment have never forgiven him for this. His position on the Second Bank is universally excoriated in economic history textbooks and monographs. This story even gets into lower division history textbooks. Students who are told about central banks only twice in the textbooks are told that Jackson was a narrow-minded bigot on central banking. The only other reference to central banking in the textbooks is the story -- carefully sanitized -- of the establishment of the Federal Reserve System, a victory described, though never explained, as a triumph of the American people over the political control of money. It was, of course, a triumph of the big bank cartel over competitive banks that offered greater safety. The bankers feared bank runs on overleveraged banks, meaning large New York City banks.

As an historian by training, I can think of no cartelization of any industry that has been more successfully concealed by academia. This is by far the largest, richest, and most successful cartel in American history. Yet there is almost no criticism of the system and its enforcement tool, the Federal Reserve System. Whatever mild technical quibbles the academic community has had with the FED, the central issue of central banking is never even mentioned, let alone refuted. What is the central issue? That all central banking is a government-licensed enforcement arrangement of a well-organized, well-funded cartel. As with all cartels, it operates at the expense of competitors who would otherwise offer better opportunities to the public.


I think that's the most memorable way I've seen the Fed arrangement + context described.

Good example for writers: it's not just that you provide an accurate description and explanation, it's that you make it as memorable as you possibly can. So it sticks.
 
Old August 31st, 2009 #18
Steve B
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Quote:
Originally Posted by Alex Linder View Post
In some ways, North is a fraud, by he writes often and well on this stuff. Use his ideas and expressions, and diffuse the knowledge they contain among our own.
He never gets into specifics does he? "The Fed" is some nameless, faceless giant banking cartel "that's been screwing us since Jackson". May be one of the reasons why the fed is so reluctant to open its books. Actual people might revealed and North does his usual job of not naming them.

Btw, has anyone ever conclusively documented the fed being controlled by the Rothschild banking/crime family? Ive read articles on the subject but the fed won't tell us who owns what and in what amount. The books are closed to the public so isn't ownership of the fed mostly just conjecture?
 
Old August 31st, 2009 #19
Alex Linder
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Quote:
Originally Posted by Steve B View Post
He never gets into specifics does he? "The Fed" is some nameless, faceless giant banking cartel "that's been screwing us since Jackson". May be one of the reasons why the fed is so reluctant to open its books. Actual people might revealed and North does his usual job of not naming them.

Btw, has anyone ever conclusively documented the fed being controlled by the Rothschild banking/crime family? Ive read articles on the subject but the fed won't tell us who owns what and in what amount. The books are closed to the public so isn't ownership of the fed mostly just conjecture?
North never gets deeper than that, that I've seen. Of course, North is big on selling information, so it's possible he goes deeper in his private stuff. My guess is he doesn't cares about the specifics of ownership and control, he cares about the fact of the cartel and its economic effects on the economy and country. North is a jew fan, and a member of a particularly jewy Protestant sect.

I'm not really aware of anyone else who goes into that stuff much deeper. Maybe LaRouche. You can find the historical personages in The Creature from Jekyll Island.
 
Old August 31st, 2009 #20
Rick Ronsavelle
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"Gary North, in his reckless and illegitimate campaign to smear me with falsehoods, ignores the fact that I republish several such Zionist texts in my book The Jewish Genocide of Armenian Christians which can be found at: http://www.jewishracism.com/JewishGenocide.htm, including the works of the American Jew Mordecai Manuel Noah in their entirety from pages 441 to 526, and lengthy extracts from the work of David Hartley and Isaac Newton on pages 109-120. One can also find articles reproduced in my book on pages 231-236, etc. More such reproductions are found in another of my books, The Manufacture and Sale of Saint Einstein.

North's statement that I present no factual basis for my claims is, not to put too fine a point on it, vicious nonsense. Mr. North is the first Christian theologian I have yet to encounter who is so ignorant of this significant body of literature, that he would dare to question the nature of the works I cite. I recommend that he read B. W. Tuchman, Bible and Sword: England and Palestine from the Bronze Age to Balfour, New York University Press, New York, (1956); before again making an ass of himself in this way. There are so many other less obvious ways for him to show his ignorance.

For example, Mr. North finds it extraordinary that I should state the well documented fact that Jewry was behind the Armenian Genocide. Gary North goes so far in his hateful campaign to smear me as to equate this widely held and thoroughly proven view with madness drawn from hatred. If he has read my book, which Gary North presumes to criticize, then he must have read the vast body of factual evidence I reproduce in it, including what the British Ambassador to the Ottoman Empire, Gerard Lowther, wrote to the British Foreign Office, (cont.)"

http://jewishracism.blogspot.com/200...-jumps-in.html
 
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