Tag Archives: Federal Reserve

In FED we trust?

Representative Ron Paul (R- TX) has introduced a bill in congress entitled HR 1207 Federal Reserve Transparency Act.  The FED, according to it’s own website is an institution which is “Independent within the government”.  Created on December 23rd 1913 under the Federal Reserve Act, it functions as a self funding semi-autonomous entity responsibile to report periodically in front of congress.  The FED’s site states “The Federal Reserve’s ultimate accountability is to Congress, which at any time can amend the Federal Reserve Act.

Currently, the Federal Reserve is audited annually by an independent auditor and can be audited by the Government Accountability Office (GAO) under the Federal Banking Agency Audit Act of 1978.  The question is if the FED is created by Act of congress and is subject to independent audit then what is the purpose of the new Federal Reverse Transparency Act, and why has the Act gained such broad support in congress thus far?

The Washington Post ran a story on July 24th which stated that the Federal Reserve Transparency Act would “subject the Fed’s decisions to a full-blown audit by the Government Accountability Office, the investigative arm of Congress.”.  Additionally Bloomberg.com reported that on July 22nd “Bernanke told Paul at a House Financial Services Committee hearing last week that GAO audits, often initiated at the request of members of Congress, could be used as a club against the Fed.”  But if, as we’ve seen, the FED’s own website states that it is already subject to audit by the GAO what is the real issue here?

 

Ron Paul questions Ben Bernanke

Ron Paul questions Ben Bernanke

The principle on which the FED’s independence rests is its mandate to regulate monetary policy free from the influence of politics.  This fact is actually quite strange when we think that the foundation of this nation was the dependence of all institutions on civil society as opposed to the dependence of the government on institutions such as the Church or the Central Banks of Europe.

Now the regulation of the monetary system is something which we seem to take for granted.  It has only been the recent expansion of the FED into areas not traditionally under it’s domain in response to the financial crisis which has cause the backlash behind the Federal Reserve Transparency Act.  The recent attempts to have the FED regulate financial markets, oversee consumer protection, purchase distressed structured assets in order to support the markets, and intervene in the support of businesses from brokerages, investment banks, manufactures, and mortgage lenders have all contributed to the general impression that the government has ceded too much power to an entity which is self described as an “independent entity within the government”.

Prior to this financial crisis it was commonly understood that the dual mandate of the FED was to balance price stability and full employment.  It did this through it’s regulation of short term interest rates and its control over monetary policy.  Basically, the FED would lower or raise interest rates or, in conjunction with the US Treasury, reduce or increase the amount of currency in circulation.  Thereby, in theory, the FED was able to add a layer of control over the economic cycles of boom and bust which all nations and economies are subject to.

It is open for debate as to the effectiveness of the FED in this regard.  A mere 16 years after its creation the FED was unable to (or even contributed to) the Great Depression.  We generally assume that the marvelous expansion of the economy in the 20th century was proof of the effectiveness of the FED.  Certainly the American Economy is many many times larger now at the beginning of the 21st century than it was at the beginning of the 20th.  But, as this financial crisis has made clear, so is the balance sheet of the government many many times larger as well.

We see today that the FED has done everything possible to achieve so called “price stability” at the expense of its other assumed mandate of “full employment”.  There are many who openly question whether it wasn’t the FED’s own policies of artificially low interest rates and artificially cheap credit which caused the current crisis.  In this regard, with years of FED supported asset price growth and a short period of asset price crash the term “price stability” seems incorrect, the more correct term would be “price control” or lack thereof.  With the official unemployment rate at almost 10% and the unofficial unemployment rate projected to be much higher, we hear that such is the necessary sacrifice in order for “the markets to heal”.  As if markets were human beings who bleed and heal and human beings are just workers whose place is analogous to red blood cells rather than individual citizens.

I think this really is at the heart of the debate over the Federal Reserve Transparency Act.  On one side there are those who believe that the economic system is paramount and from it comes the health of the nation, while the other side believes that individual citizens in representative democracy are the ultimate source of the State’s continued existence.

This philosophical debate goes to the core of our ideas of government and the individual and its history is as old as human civilization.  Where does our individual responsibility lie? Is it to us, or our family, or our friends? Is it to our city, or our state, or our nation?  Where does the FED’s ultimate responsibility lie? Is it to itself and its member banks, or the United States government, or to the other central banks of the world?

It remains to be seen whose best interests are being served here; but I can only trust in the knowledge that anytime attempts at transparency are resisted it can only mean one thing… fraud.  Can we afford to trust the same individuals, the same organizations, and the same system to fix the societal ills which they have caused?  Transparency will never be tolerated when it comes to the FED, regardless of what their website claims.  If it were, the American people would know that they are only cogs in the machine, and the owners of capital mean to continue to impose the silent tax upon them… inflation.  Just as the revolutions of representative democracies were wagged on the basis of “no taxation without representation”, so the public knowledge of the silent tax of inflation would demand a response in kind and in measure.

 

Ben Bernanke

Ben Bernanke

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The Bail Out: Just say NO!

  Bloomberg reports today that the European Union is contemplating regulating hedge funds: 

http://www.bloomberg.com/apps/news?pid=20601087&sid=aPD_prVa1owQ&refer=home

     Nothing the U.S. Treasury or FED does will mean anything until hedge funds are regulated. The reason we are in this mess to begin with was a long period of artificially cheap credit and lax regulation of entities like hedge funds which use borrowed money and shares to leverage and speculate on anything from stocks to bonds to oil to grain… These are private pools of capital which in their heyday returned double and even triple digit percent gains with little to no regulation or tax.
     We may blame the mortgage crisis for the failure of banks and investment houses, and indeed the mortgage market was a bubble… But the real question is what supported the mortgage bubble? It’s the same thing that supported the tech bubble before it and has supported the commodities bubble since the mortgage bubble burst… Artificially cheap credit and leverage.

     Truly a casino economy in which the investment banks lend money to hedge funds which bet wildly (sometimes leveraging up to 30 times their original capital investment). This drives up the prices of investments in a bull market and drives down investments in a bear market.

     Each time the excesses of easy credit wreak havoc on a segment of investments such as technology stocks, or mortgages, or commodities… The hedge fund capital moves onto the next sector.

     The problem is now that the easy capital has dried up, the investment banks stop dealing the easy credit drug and the hedge funds act like desperate addicts and do anything to get more.  Now the US is being robed to feed the addiction.

     The banks now have the administration demanding free passage of a no strings attached bail out. What this amounts to is the banks asking the government… aka… the taxpayers, for a loan or a mortgage. When you go get a mortgage how much of a down payment do they require? How much interest do they charge? We as taxpayers should demand at least as much from the banks as they would from us as borrowers.

     The same tactics which got us into Iraq are being used again here… Hurry! Don’t think, just re-act. Give us a blank check. Just as Iraq was not responsible for 9-11 and just as the invasion of Iraq was preconceived before 9-11 as a way to reward the military industrial complex. So now this bail out is not going to go to the people who need it, but to reward the banking industry and the hedge funds. It’s a devilish model we’ve seen before… Remove all impediments to greed and let the profit gorging go on to the point of crisis, then create fear and panic in the population and rush them into giving up their money and their freedom as citizens to save those who created the problem and who have already reaped all the rewards.

     It’s corporate capitalism in the good times and corporate socialism in the bad times. Have you ever wondered how capitalism and democracy have been able to co-exist in America? The answer is they haven’t. It’s not real capitalism because the government protects the corporations. It’s not real democracy because the citizens have given up their freedom and become consumers… Locked in a debtor’s prison on the outside world.

     If the government takes on all the risky “toxic” assets of the banks do you think they will in turn wipe out your credit card debt, or your car loans, or your mortgage? Of course not. But they are trying to make you afraid that if you don’t give them your money they will stop giving new loans. My question to the American people is do we really need more loans, more debt, more credit? Show them that it’s really them that are afraid and not US.

     Stand up and say no to this. In the coming months and years economic times are going to be tough enough. We don’t need more debt from the credit-drug pushers. We need the money the government is going to use to bail the banks out to fund our schools, our social security, our new industries, our health care.

     It’s a critical juncture in American history right now and each of us can do what we can to stand up and say no more! Do you want 30 more years of the corruption, the scandals, the wars, the fear…? All in exchange for a credit card to go shopping with. Or do you want a real country where the real engines of American growth… The American workers are able to work and have time to be with their families, can afford to put good healthy food on the table, can afford health care for their children and themselves when they’re sick, can afford to clean up the environment, can afford to give their children an education?

     Do we not realize that if we agree to this bail out we agree to let the next generation of Americans be the first to do worse than their parents? And for what? For fear that we won’t get that extra credit card, or the extra vacation, or that new car.

     If we choose to let the financial version of the invasion of Iraq happen because we are afraid of the financial version of 9-11 we have really learned nothing over these last 8 years. It’s time today to do something.  Speak to people you know, write emails to your senators and congressmen, stand outside with a sign… Anything. But it must be done NOW before this bail out passes through the legislature.

     Don’t let Bush and Cheney get away with another trillion dollars of our money before they leave office. It’s our tax money and we need it more than the banks do.

     http://www.congress.org/congressorg/home/