Full Committee Hearing
| H.R. 1207, the Federal Reserve Transparency Act of 2009 |
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| 9 a.m., Friday, September 25, 2009, 2128 Rayburn House Office Building | ||||
| Click Here To View Archived Webcast | ||||
| Witness List & Prepared Testimony:
Available Member Statements: Printed Hearing:
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http://www.house.gov/apps/list/hearing/financialsvcs_dem/fchr_092509.shtml
End The Fed;Save the Dollar
By Brian Beers
Nothing good can come from the Federal Reserve," writes Texas Congressman Ron Paul in his latest book hitting shelves this week, titled "End the Fed."
"It is the biggest taxer of them all. Diluting the value of the dollar by increasing its supply is a vicious, sinister tax on the poor and middle class."
Paul makes the case that the Fed is the main culprit responsible for the current economic mess the country faces through the destructive policies of cheap credit and excessive money printing.
"Prosperity can never be achieved by cheap credit," says Paul. "If that were so, no one would have to work for a living. Inflated prices only deceive one into believing that real wealth has been created."
The Federal Reserve, created in 1913, has been acting as the main central bank of the United States for nearly one hundred years. Many Americans are either not sure or not interested in what role the Fed plays in managing the economy. "The economic crisis has changed everything," writes Congressman Paul.
Paul is currently pushing for passage of a bill, H.R. 1207, that would allow for an unprecedented audit of the Federal Reserve. The bill has 289 co-sponsors, and is gaining solid momentum in the House of Representatives.
The worse the economy gets, the more power Congress is willing to grant to the Federal Reserve. Trillions of dollars created and distributed by the Fed with no requirement to submit to any oversight" argues Congressman Paul.
"End the Fed" is a sharp counter to Keynesian economic theory, and takes aim at the hazards of a managed economy.
Paul, a strong advocate of free-markets and the Austrian school of economics counters those looking to blame the near collapse of the financial system on capitalism by penning, "Manipulating the money supply and interest rates rejects all the principles of the free market, and so it cannot be said that too free a market caused this mess. The market was not free at all. It was manipulated and distorted."
But, wait.
Didn't Fed Chairman Bernanke hint that the recession may already be over?
Wouldn't that indicate that the "emergency interventions" of the past year or so worked to stabilize the economy, and all is on its way back to normal?
Paul writes, "The Fed is using all its power to drive the monetary base to unprecedented heights, creating trillions in new money out of thin air. From April 2008 to April 2009, the adjusted monetary base shot up from $856 billion to an unbelievable $1.749 trillion. Was there any new wealth created? New production? No, this was the Ben Bernanke printing press at work. If you and I did anything similar, we would be called counterfeiters and be sent away for a lifetime in prison. But, when the Fed does it - complete with a scientific gloss - it is seen as the perfectly legal and responsible conduct of monetary policy."
On the inflation front, Paul adds "It's as if we still believe that money can be grown on trees, and we don't stop to realize that if it did grow on trees, it would take on the value of leaves in the fall, to be either mulched or bagged and put in a landfill. That is to say, it would be worthless."
You get the feeling after reading this book, that Paul sees his goal of cutting off the power of the Fed as attainable in the long run, but needed a "playbook" to help educate the general public as to why they should care, and what they should demand be done about it from their elected officials.
The passage from the book that stuck with me the most. "When we unplug the Fed, the dollar will stop its long depreciating trend, international currency values will stop fluctuating wildly, banking will no longer be a dice game, and financial power will cease to gravitate toward a small circle of government-connected insiders."
Ron Paul's case for sound money policies and the end of "Fed domination" marches on, this time in hardcover.
The Money Monolopy
By Ron Paul
Most Americans haven’t thought much about the strange entity that controls the nation’s money. Visitors to Washington can see the Federal Reserve’s palatial headquarters, the monetary parallel to the Supreme Court or the U.S. Capitol. We hear the Fed chairman testify to Congress, citing complex data, making predictions, and attempting to intimidate anyone who would take issue. He postures as master of the universe, completely knowledgeable and in control. But how much do we really know about what goes on inside the Fed? Even with the newest round of bailouts, journalists had difficulty determining where the money was coming from and where it was headed. From its founding in 1913, secrecy and inside deals have been part of the way the Fed works. It says that its job is to keep inflation in check. But this is like the car industry claiming to control road congestion. The Fed might attempt to stop the effects of inflation, namely rising prices. But under the old definition of inflation—an artificial increase in the supply of money and credit—the reason for its existence is to generate more, not less. The banking industry has always had trouble with the idea of a free market that provides opportunities for both profits and losses. The first part, the industry likes. The second is another matter. That is the reason for the constant drive in American history toward the centralization of money, a trend that not only benefits the largest banks with the most to lose from a sound-money system, but also the government, which is able to use an elastic system as an alternative form of revenue support. Whenever instability turns up, we see efforts to socialize the losses, but rarely do people question the source of instability. Economist Jesús Huerta de Soto places the blame on the institution of fractional-reserve banking. This is the notion that depositors’ money in use as cash may also be loaned out for speculative projects, then re-deposited. The system works as long as people do not attempt to withdraw their money all at once. In the face of such a demand, banks turn to other banks to provide liquidity. But when the failure becomes system-wide, they turn to government. The core of the problem is the conglomeration of two distinct functions of a bank. The first is warehousing, whereby banks keep money safe and provide checking, ATM access, record keeping, and online payment, services for which consumers are traditionally asked to pay. The second service the bank provides is a loan service, seeking out investments and putting money at risk in search of return. The institution of fractional reserves mixes these functions, such that warehousing becomes a source for lending. The bank loans out money that has been warehoused—and stands ready to use in checking accounts or other forms of checkable deposits—and that loaned money is deposited yet again in checkable deposits. It is loaned out again and deposited, with each depositor treating the loan money as an asset on the books. In this way, fractional reserves create new money, pyramiding it on a fraction of old deposits. An initial deposit of $1,000, thanks to this “money multiplier,” turns into $10,000. The Fed adds reserves to the balances of member banks in the hope of inspiring ever more lending. As customers, we believe that we can have both perfect security for our money, withdrawing it whenever we want and never expecting it not to be there, while still earning a return on that same money. In a true free market, however, there tends to be a tradeoff: you can enjoy the service of a warehouse or loan your money and hope for a return. The Fed, by backing up fractional-reserve banking with a promise of endless bailouts and money creation, attempts to keep the illusion going. The history of banking legislation can be seen as an elaborate attempt to patch the holes in this leaking boat. Thus have we created deposit insurance, established the “too-big-to-fail” doctrine, and approved schemes for emergency injections to keep an unstable system afloat . The story can be said to begin in 1775, when the Continental Congress issued paper money called the Continental. The currency was inflated to the point of disaster, the first great hyperinflation in U.S. history, and it gave rise to a hard-money school of thought that would agitate against central banking and paper money for generations. It also explains why the Constitution placed a ban on paper money and permitted only gold and silver. In 1791, the First Bank of the United States was chartered, and in 1792, Congress passed the Coinage Act recognizing the dollar as the national currency. Fortunately, the charter on the incipient central bank was not renewed and expired in 1811. In 1812, with war raging between Britain and the U.S., the government issued notes to finance the war, resulting in suspensions of payment as well as inflation. During a war, inflation is something you might expect, but instead of permitting normal conditions to return, in 1816, Congress chartered the Second Bank of the United States, which aided and abetted ever more expansion and the creation of a boom-bust cycle. Nineteenth-century banking theorist Condy Raguet explains: The sanction of the community was extended to them during the continuance of the war then existing with Great Britain, on account of the belief that their condition was forced upon them by the peculiar circumstances of the country; but no sooner had peace returned in the early part of 1815, than all their pledges were violated, and instead of manifesting by their actions a desire to contract their loans so as to place themselves in a situation for complying with their obligations, they actually expanded the currency by extraordinary issues, whilst there was no existing check upon them, until its depreciation became so great that speculation and overtrading in all their disastrous forms, involved the country in a scene of wretchedness, from which it did not recover in ten years. The inevitable downturn came—the Panic of 1819. But it ended peacefully precisely because nothing was done to stop it. Jefferson pointed out that the panic was only wiping out wealth that was fictitious to begin with. After massive political agitation, and following Andrew Jackson’s Executive Order that withdrew the federal government’s deposits from the bank, the Second Bank closed in 1836. But the war between North and South set off another round of inflationary finance, eventually killing off wartime currencies and prompting another deflation that set the stage for a gold standard that was solid but not perfect. Its flaws—banks were permitted fractional reserves and were beginning to rely on regulations to dampen competition—created the dynamic that led to the Federal Reserve. Jacob Schiff, head of Kuhn, Loeb, and Co., gave a speech in 1906 that began the push for a central bank. He explained that the “country needed money to prevent the next crisis.” He worked with his partner Paul Moritz Warburg and Frank Vanderlip of the National City Bank of New York to create a commission that called for a “central bank of issue under the control of the government.” They began to work within other organizations to push the agenda, winning over the American Banking Association and important players in government. Once the groundwork was laid, the crisis atmosphere of 1907 assisted. During this brief contraction many banks stopped paying out gold to depositors. This led to a consolidation of opinion in favor of a general guarantor. In 1908, Congress created a National Monetary Commission to look into banking reform. It was staffed by people close to the largest banks: First National Banking of New York, Kuhn Loeb, Bankers Trust Company, and the Continental National Bank of Chicago. By 1909, President William Howard Taft endorsed a central bank and the Wall Street Journal ran a 14-part series making the case. The series was unsigned but was written by a NMC member, Charles A. Conant, and made the usual arguments for elasticity, but added additional functions that the central bank could play, including manipulating the discount rate and gold flows as well as bailing out failing banks. Pamphleteering, scholarly statements, political speeches, and press releases by merchant groups followed. By November 1910, the time was right for drafting the bill that would become the Federal Reserve Act. A meeting was convened at a Georgia resort called the Jekyll Island Club, co-owned by J.P. Morgan. The players took elaborate steps to preserve secrecy, and the press reported that it was a duck-hunting expedition. But history recorded who was there: John D. Rockefeller’s man in the Senate, Nelson Aldrich; Morgan senior partner Henry Davison; German émigré and central-banking advocate Paul Warburg; National City Bank vice president Frank Vanderlip; and NMC staffer A. Piatt Andrew, who was also assistant secretary of the Treasury. Two Rockefellers, two Morgans, one Kuhn Loeb person, and one economist—the essence of the Fed: powerful bankers and government officials working together to make the nation’s money system serve their interests, with economists there to provide scientific gloss. It has been pretty much the same ever since. The structure they proposed would be “decentralized” into 12 member banks, providing cover for the cartelization, and was presented to the National Monetary Commission in 1911. Then the propaganda was stepped up with newspaper editorials, phony citizens’ leagues, and endorsements from trade organizations. With a vote by Congress, the government conferred legitimacy on a cartel of bankers and permitted them to inflate the money supply at will, insulating them against the consequences of bad loans and overextension of credit. Hans Sennholz called the creation of the Fed “the most tragic blunder ever committed by Congress. The day it was passed, old America died and a new era began. A new institution was born that was to cause, or greatly contribute to, the unprecedented economic instability in the decades to come.” It was a form of financial socialism that benefited the rich and powerful. As for the excuse, it was then what it is now: the Fed would protect the monetary and financial system against inflation and violent swings in market activity. It would stabilize the system by providing stimulus when it was necessary and pulling back on inflation when the economy overheated. A statement by the comptroller of the currency in 1914 promised nirvana: the Fed “supplies a circulating medium absolutely safe.” Further, “under the operation of this law such financial and commercial crises, or ‘panics,’ as this country experienced in 1873, in 1893, and again in 1907, with the attendant misfortunes and prostrations, seem to be mathematically impossible. … It is hoped that the national-bank failures can hereafter be virtually eliminated.” Reality has been much different. Consider the dramatic decline in the value of the dollar since the Fed was established. The goods and services you could buy for $1 in 1913 now cost nearly $21. We might say that the government and its banking cartel have together stolen $0.95 of every dollar as they have pursued a relentlessly inflationary policy. As for the abolition of panics, 20th-century recessions documented by the National Bureau of Economic Research include: 1918-19, 1920-21, 1923-24, 1926-27, 1929-33, 1937-38, 1945, 1948-49, 1953-54, 1957-58, 1960-61, 1969-70, 1973-75, 1980, 1981-82, 1990-91, 2001, 2007, and the current panic with no end in sight. Some mathematical impossibility! One aspect of the promise that has been kept: banks don’t fail as they used to. But is this really a good thing? If businesses are not allowed to fail, what gives them incentive to succeed with soundness and productivity to the common good? In a competitive and free system, deposits would not be unsafe; any that were not paid back as promised would fall under fraud laws. Deposits that would be unsafe would be loans to the bank that would be treated like any other risky investment. Consumers would keep a more careful watch over the institutions that are handling their money and stop trusting regulators in Washington. As the years have gone on, the Fed has been granted ever more leeway in the means it uses to inflate the money supply. It can now buy just about anything it wants and write it down as an asset. When it buys debt, it buys with newly created money. It maintains a strict system of low-reserve ratios that allows banks to pile loans on top of deposits and take the new deposits as the basis for ever more loans. It can set the federal funds rate at a level to its liking and influence interest across the entire economy. It intervenes in currency markets. The Fed’s architects might have imagined that it would help smooth out the business cycle—provided you think that the real problem of the cycle is its bust phase when credit contracts. And the Fed can provide liquidity in these times by printing money to cover deposits. But if you think of the cycle as beginning in the boom phase—when money and credit are loose and lending soars to fund unsustainable projects—matters change substantially. In 1912, Ludwig von Mises wrote The Theory of Money and Credit, which warned that central banks would worsen and spread business cycles rather than eliminate them. The central bank can reduce the interest rate that it charges member banks for loans. It can buy government debt and add that debt as an asset on its balance sheet. It can reduce the reserve coverage for loans at member banks. But in doing all of this, it is toying with the signals that the banking industry sends to borrowers. Businesses are fooled into taking out longer-term loans and starting projects that cannot be sustained. Investors flush with new cash buy homes or stocks, activities that spread a buying-and-selling fever. This activity creates a false boom. When lower interest rates result from real saving, the banking system is signaling that the necessary sacrifice of present consumption has taken place to fund long-term investment. But when central banks artificially push down rates, they create the impression that the savings are there when they are absent. The resulting bust becomes inevitable as goods that come to production can’t be purchased. Reality sets in: businesses fail, homes are foreclosed upon, and people bail out of stocks. International markets complicate the picture by allowing the boom phase of the cycle to continue longer than it otherwise would, as foreigners buy up and hold new debt, using it as collateral for their own monetary extensions. But eventually they, too, become ensnared in the boom-bust cycle of false prosperity followed by all-too-real bust. Knowledge of this problem was not well spread among bankers and government officials in 1913, when the Federal Reserve was created. But it wouldn’t be long before it became apparent that the Fed would bring not stability but more instability, not shorter booms and busts but deeper and longer ones. The longest one of all, dramatically exacerbated by bad economic policy, was the Great Depression. And now we appear to be entering another phase of extreme crisis—courtesy of the Federal Reserve. Ron Paul is an 11-term congressman from Texas, bestselling author, and former presidential candidate. This essay is excerpted from the book END THE FED, Copyright (c) 2009 by the Foundation for Rational Economics and Education, Inc (FREE). Reprinted by permission of Grand Central Publishing, a Division of Hachette Book Group, Inc., New York, NY. All rights reserved. The American Conservative welcomes letters to the editor.
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How The Federal Reserve Runs the US - Part 2
By Stephen Lendman
It almost happened 43 years ago when one president decided to act on behalf of the people who elected him. That man was John Kennedy, who before his death planned to end the Federal Reserve System to eliminate the national debt a central bank creates by printing money and loaning it to the government. That debt has now risen to over $8,400,000,000,000 ($8.4 trillion) which every taxpayer must pay for and has done so in the amount of nearly $174,000,000,000 ($174 billion) in just the first three months of 2006. This debt service is now an annualized amount exceeding two-thirds of a trillion dollars. It's made the bankers rich (which was the whole idea) and the public poorer because we're taxed to pay the tab. It's no exaggeration to call this the greatest financial scam in world history and one that gets greater every day.
The debt was less onerous 40 years ago, but Kennedy understood its danger to the country and the burden it placed on the public. Thus, on June 4, 1963, he issued presidential order EO 11110 giving the president authority to issue currency. He then ordered the US Treasury to print over $4 billion worth of "United States Notes" to replace Federal Reserve Notes. He intended to replace them all when enough of the new currency was in circulation so he could end the Federal Reserve System and the control it gave the international bankers over the US government and the public. Just months after the Kennedy plan went into effect, he was assassinated in Dallas in what was surely a coup d'etat disguised to look otherwise and may well have been carried out at least in part to save the Fed System and concentration of power it created that was so profitable for the powerful bankers in the country. Those benefitting from it had good reason to be involved in the plot to save the special privilege they weren't willing to give up without a fight. It's a plausible explanation that may explain who may have been behind the assassination and for what reason. Whatever the truth is, the banking cartel was only in distress a short time. Once Lyndon Johnson took office, he rescinded Kennedy's presidential order and restored the cartel's former power. It's kept it ever since and is now, of course, more powerful than ever. Even presidents are unable to stop it and those who would try have a lesson from history to give them pause.
con't
By Stephen Lendman
Years ago I read William Greider's excellent book published in 1987 on how the US Federal Reserve System works. It was detailed and explicit and makes wonderful and informative reading, except for the solution he suggests to a huge problem. His was far too timid. This article proposes a much different one. Greider called his book Secrets of the Temple with a sub-title: How the Federal Reserve Runs the Country. A better sub-title might have been how the Fed (and other key central bankers) runs the world. This article attempts to summarize what it does, how it does it, for whose benefit and at whose expense. For those who don't know, prepare for some stunning information and commentary.
Let's be clear at the outset. The US Federal Reserve, Bank of England, Bank of Japan and the European Central Bank (for the 12 European countries that adopted the single euro currency in 1999) are institutions with enormous power far beyond what most people everywhere can imagine. These most dominant of all central banks, as well as most others, have a powerful influence on the financial conditions in virtually all countries including their own, of course, in an increasingly borderless financial world where a significant economic event in one nation can affect most others for better or worse.
One other powerful bank is also part of today's financial world. It needs mentioning because of its importance, even though it requires a separate article to explain how it works more fully. It's the secretive, inviolable and accountable to no one Bank of International Settlements (BIS) founded in 1930 and based in Basle, Switzerland. This bank most people never heard of is the central banker to its member central banks - a sort of banking "boss of bosses" equivalent to what apparently exists in the shadowy world of Mafia dons. Like most other central banks, including the Federal Reserve (explained below), it's privately owned by its members.
It's believed by some academicians and others who've studied the BIS that the ruling elite of financial capitalism established this bank of banks to be the apex of power to exercise authority over a world financial system owned and controlled by them. It's thought their plan was to use this bank to dominate the political system of every country and control the world economy in a feudalistic fashion. In a word, the thinking goes that these super-elite want to rule the world by controlling its money, and they set up this supranational all-powerful bank of banks to do it. As important as that is, that discussion remains for another time as the intent of this article is to focus solely on the US Federal Reserve.
The dominant central banks and BIS, together with most others, wield their influence in cartel-like alliance with each other to assure they all benefit more than they otherwise would without such a cozy arrangement. With their immense power it's no play on words to say these financial institutions do indeed rule the world. Because they're able to create money, they fund the needs of their governments, their militaries and all business activity that couldn't function without a ready supply of that most needed of all commodities. It's money, not love, that makes the world go round, and central bankers have the power to create or remove from circulation as much or little of it as they choose and for whatever purpose they have in mind. That kind of power can move mountains or destroy them.
No nation's central bank is more powerful today than the US Federal Reserve, but it wasn't always that way, and it now has competition for the top spot it hasn't known since WW II. The Fed, as it's called, has existed since it was first established by an act of Congress in 1913. But the Bank of England has been around since Britannia ruled the waves beginning in 1694 when King William III needed help funding the kind of escapade that takes lots of ready cash - war. Back then it was with France, and the king needed a friendly banker to print it up for him to help him fight it. He also needed financial help to facilitate trade and manage the country's debt that always mounts up when wars are fought. The Bank of England wasn't the first central bank, but it was the modern world's first privately owned one in a powerful country. It was called the Bank of England to keep the public from knowing that it, like our Federal Reserve, was and still is privately owned and not part of the government. It was also the model used in the formation of our own central bank and most others.
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BY WALTER WILLIAMS
RELEASE: WEDNESDAY, SEPTEMBER 9, 2009
Inflation and Deficits
With the massive increases in federal spending, inflation is one of the risks that awaits us. To protect us from the political demagoguery that will accompany that inflation, let's now decide what is and what is not inflation. One price or several prices rising is not inflation. Increases in money supply are what constitute inflation, and a general rise in prices is the symptom. As the late Nobel Laureate Professor Milton Friedman said, "(I)nflation is always and everywhere a monetary phenomenon, in the sense that it cannot occur without a more rapid increase in the quantity of money than in output."
Thinking of inflation as rising prices permits politicians to deceive us and escape culpability. They shift the blame saying that inflation is caused by greedy businessmen, rapacious unions or Arab sheiks. Instead, it is increases in the money supply that cause inflation, and who is in charge of the money supply? It's the government operating through the Federal Reserve Bank and the U.S. Treasury.
Our nation has avoided the devastating hyperinflations that have plagued other nations. The world's highest inflation rate was in Hungary after World War II, where prices doubled every 15 hours. The world's second highest inflation rate is today's Zimbabwe, where last year prices doubled every 25 hours, a rate of 89 sextillion percent. That's 89 followed by 23 zeros. Our highest rate of inflation occurred during the Revolutionary War, when the Continental Congress churned out paper Continentals to pay bills. The monthly inflation rate reached a peak of 47 percent in November 1779. This painful experience with inflation, and collapse of the Continental dollar, is what prompted the delegates to the Constitutional Convention to include the gold and silver clause into the United States Constitution so that the individual states could not issue bills of credit. The U.S. Constitution's Article I, Section 8 permits Congress: "To coin Money, regulate the Value thereof, and of foreign Coin, and fix the Standard of Weights and Measures."
The founders of our nation feared paper currency because it gave government the means to steal from its citizens. When inflation is unanticipated, as it so often is, there's a redistribution of wealth from creditors to debtors. If you lend me $100, and over the term of the loan prices double, I pay you back with dollars worth only half of the purchasing power they had when I borrowed the money. Since inflation redistributes (steals) wealth from creditors to debtors, we can identify inflation's primary beneficiary by asking: Who is the nation's largest debtor? If you said, "It's the U.S. government," go to the head of the class.
Inflation is just one effect of massive increases in spending. Some might argue that future generations of Americans will pay for today's massive budget deficits. But is there really a federal budget deficit? The short answer is yes, but only in an accounting sense -- but not in any meaningful economic sense. Let's look at it. Our GDP this year will be about $14 trillion. If 2009 federal expenditures are $3.9 trillion and tax receipts are $2.1 trillion, that means there is an accounting deficit of $1.8 trillion. Is it the Tooth Fairy, Santa or the Easter Bunny who makes up the difference between expenditures and revenue? Is it a youngster who is born in 2020 or 2030 who makes up the difference? No. If government spends $3.9 trillion of our $14 trillion GDP this year, of necessity it has to force us to spend privately $3.9 trillion less this year. One method to force us to spend less privately is through taxation. Another way is to enter the bond market and drive up the interest rates, which put a squeeze on private investment in homes and businesses. Then there is inflation, which is a sneaky form of taxation.
Profligate spending burdens future generations by making them recipients of a smaller amount of capital and hence less wealth.
Walter E. Williams is a professor of economics at George Mason University. To find out more about Walter E. Williams and read features by other Creators Syndicate writers and cartoonists, visit the Creators Syndicate Web page at www.creators.com.
COPYRIGHT 2009 CREATORS.COM
http://economics.gmu.edu/wew/articles/09/InflationAndDeficits.htm
The Federal Reserve, through its extensive network of consultants, visiting scholars, alumni and staff economists, so thoroughly dominates the field of economics that real criticism of the central bank has become a career liability for members of the profession, an investigation by the Huffington Post has found.
This dominance helps explain how, even after the Fed failed to foresee the greatest economic collapse since the Great Depression, the central bank has largely escaped criticism from academic economists. In the Fed's thrall, the economists missed it, too.
"The Fed has a lock on the economics world," says Joshua Rosner, a Wall Street analyst who correctly called the meltdown. "There is no room for other views, which I guess is why economists got it so wrong."
One critical way the Fed exerts control on academic economists is through its relationships with the field's gatekeepers. For instance, at the Journal of Monetary Economics, a must-publish venue for rising economists, more than half of the editorial board members are currently on the Fed payroll -- and the rest have been in the past
The Fed failed to see the housing bubble as it happened, insisting that the rise in housing prices was normal. In 2004, after "flipping" had become a term cops and janitors were using to describe the way to get rich in real estate, then-Federal Reserve Chairman Alan Greenspan said that "a national severe price distortion [is] most unlikely." A year later, current Chairman Ben Bernanke said that the boom "largely reflect strong economic fundamentals."
The Fed also failed to sufficiently regulate major financial institutions, with Greenspan -- and the dominant economists -- believing that the banks would regulate themselves in their own self-interest.
Despite all this, Bernanke has been nominated for a second term by President Obama.
In the field of economics, the chairman remains a much-heralded figure, lauded for reaction to a crisis generated, in the first place, by the Fed itself. Congress is even considering legislation to greatly expand the powers of the Fed to systemically regulate the financial industry.
Elyse Siegel, Julian Hattem, Jeff Muskus and Jenna Staul contributed to this report
The Real Reason Behind the Bailout
I was just listening to Ron Paul on the latest Bail-Out of banks. He disapproved of the Bail-Out because he claims that it will destroy the financial system as we know it by destroying the dollar's value and creating hyper-inflation.
Ron Paul said "you can not just create trillions of dollars out of thin air without creating inflation". Paul's conclusions are based upon the idea of demand pull inflation. This means a situation where excess amounts of money are chasing a static or near static amount of goods and services.
This monetary theory was elaborated upon by Milton Friedman for which he was given the Nobel Prize in 1976. The idea is that when the Money Regulators increase the supply of money, the increase causes consumers to demand more goods and services causing inflation.
Suppliers recognize the demand and start producing more goods and services thereby creating jobs and prosperity. This idea assumes that the increase in the money supply makes its way into the hands of the consumers who create the extra demand.
Freidman claimed that the Federal Reserve allowed or caused the monetary aggregates to decrease by 33% during the 1930s, thereby creating and prolonging the Rosenfeldt depression.
However, it is possible that the extra money created by the Regulators never makes it way to the consumers. If it does not, then there is no extra demand for goods and services and no inflation and no extra production, no extra jobs and no prosperity.
So the question is whether the extra money supply from the Bail-Out will reach the consumer/taxpayer. The sad answer is that very little will. Almost the entire Bail-Out will go to the banks and insurance companies, where it is intended to go. Its purpose is to secure holders of bank bonds, the holders of credit default swaps guaranteed by investment banks and insurance companies and secure past and future excessive executive compensation paid by those banks and insurance companies.
The banking and insurance "industries" made sure of that by making enormous campaign contributions to such notables as Senator Christopher Dodd, Chairman of the Senate Banking Committee ($13 million since 1989) and to the lisping Representative Barney "My-o- My" Frank ($2.5 million).
Although the "taxpayers" will get little benefit from the trillion dollar bail-outs, they will get the entire bill as the "taxpayers" will be given more debt to repay with interest.
Now to digress a bit.
Most middle class Americans have substantial home mortgages, large credit card balances and other future required payments of Federal Reserve notes for medical care, insurance, real estate taxes, car payments, gas expenses and schooling costs for their children.
Essentially, the middle class is up to its eyeballs in debt and as a result has a short position in dollars. They are long on houses, cars and investments in the stock and bond markets. For the past year, there has been a short squeeze on people who owe Federal Reserve Notes which has accelerated in the past months as people seek to pay bills and sell assets such as real estate and stocks.
At least the people received some value when they built their own debt and will get something of value in exchange for future payments if they can indeed make those payments.
Back to the Bail-Out
What the Bail-Out does is saddle the country and all its "taxpayers" with with new trillions of debt and makes it such that every "taxpayer", regardless of how wise, cautious and frugal he may be, owes loads of Federal Reserve Notes (money) to the Federal Reserve Banking system. What will the "taxpayers" receive for this new tax saddle? The answer is that they have received and will receive nothing. Almost all of the Bail-Out money goes to the corporations whose errand boys like Greenspan, Paulson, Bernanke, Dimon, Mozilo and Fuld carried out the debt trap that was set 9-10 years ago.
This Bail-Out puts a further short squeeze of dollars into play. Perhaps the 50% drop in the price of oil, gold trading below 800 and the recent strong dollar portends more ugly things to come.
Contrary to Ron Paul's forecast of hyper-inflation, which will only take place if the increased money supply goes to the hands of the consumers and does not create a corresponding amount of debt, there may be a severe demand for dollars and hyper-deflation, where the country and the people have no money to buy goods and services but only debts.
The bankers have discovered a way to force the people of
In the past, only wars created that amount of national debt. But now those debt creating war mongers have found the more friendly face of public bail-outs.
John Olagues
| Rating: | ★★★★★ |
| Category: | Books |
| Genre: | Nonfiction |
| Author: | Andre Eggelletion |
