Will Ron Paul Be Able To End The Fed?

 Is Ron Paul finally in position to really do something about the Federal Reserve?  U.S. Representative Spencer Bachus, the chairman-elect of the House Financial Services Committee, has announced that Ron Paul will chair the domestic monetary policy subcommittee starting next month.  This puts Ron Paul in tremendous position to be able to put significant pressure on the Federal Reserve.  In previous years Ron Paul has introduced legislation to end the Federal Reserve but it never got any traction.  During this most recent session of Congress an effort by Ron Paul to have a full audit of the Federal Reserve conducted gathered quite a bit of momentum for a while, but in the end it did not get passed.  However, a very limited examination of Fed activities during the recent financial crisis was passed, and that examination has revealed some really shocking things.  With so many Tea Party members entering Congress this upcoming session there may be more momentum than ever to hold the Federal Reserve more accountable.  Ron Paul is already talking about how he is planning for a full slate of hearings on U.S. monetary policy and he has indicated that he plans to restart a push to have the Fed audited.
And why shouldn’t the Federal Reserve be fully audited?  The Federal Reserve has more power over the U.S. economy than any other institution and yet it has not been subjected to a comprehensive audit since it was created back in 1913.
So what would an audit accomplish?
Well, it would hopefully expose what is going on inside the Federal Reserve.
A very, very limited examination of Fed transactions that occurred during the recent financial crisis forced the Federal Reserve to reveal the details of 21,000 transactions stretching from December 2007 to July 2010 that totaled more than 3 trillion dollars.  It turns out that the Federal Reserve was just handing out gigantic piles of nearly interest-free cash to their friends at the largest banks, financial institutions and corporations all over the globe.
These revelations have many members of Congress wondering what else has been going on inside the Federal Reserve.
For example, U.S. Senator Bernie Sanders was absolutely outraged by these “backdoor bailouts” by the Federal Reserve….

“The $700 billion Wall Street bailout turned out to be pocket change compared to trillions and trillions of dollars in near zero interest loans and other financial arrangements that the Federal Reserve doled out to every major financial institution.”

More members of Congress than at any other time in recent memory are openly wondering if it is now time “to pull back the curtain” at the Federal Reserve.  For those who would like to see the power of the Federal Reserve greatly diminished, there should be one primary goal right now.
Expose the Federal Reserve.
The truth is that the more the American people learn about the Federal Reserve and about what it has been doing the more they disapprove.
During his farewell speech on the floor of the U.S. Senate this week, Senator Jim Bunning noted that as the American people become increasingly aware of what the Federal Reserve is doing the less they like it….

“Public awareness of what the Fed is doing is increasing while public opinion of the Fed is falling.”

Unfortunately, the views of Ron Paul and other anti-Federal Reserve members of the Tea Party movement are strongly opposed by many other members of the Republican Party.
In a recent Bloomberg Television interview, Barney Frank noted this division within the ranks of the Republicans….

“I do not believe that Ron Paul’s views on the Fed represent the views of most Republicans.”

However, there is evidence that the tide is turning with the American public.
According to a recent Bloomberg National Poll, the number of Americans that would like to see the Federal Reserve held more accountable or even completely abolished is increasing….

Asked if the central bank should be more accountable to Congress, left independent or abolished entirely, 39 percent said it should be held more accountable and 16 percent that it should be abolished. Only 37 percent favor the status quo.

Those are very exciting numbers.  A majority of Americans now want the power of the Federal Reserve to be reduced or they want it shut down entirely.
If Ron Paul is able to get a comprehensive audit of the Federal Reserve passed, the revelations that would come out of that would certainly turn public opinion against the Fed even more.
So what is so bad about the Federal Reserve?
Well, think of it as a perpetual debt machine.
Did you know that the U.S. national debt is 5,000 times larger than it was a hundred years ago?
That’s right – back in 1910, prior to the passage of the Federal Reserve Act, the national debt was only about $2.6 billion.
Since that time, our debt has been endlessly skyrocketing.
Under the Federal Reserve system, the U.S. government cannot just go out and print money.  It is actually the Federal Reserve that issues our currency.
The way our system works, whenever the U.S. government arranges for the Federal Reserve to issue more currency, more government debt is created at the same time.  In fact, as I have written about previously, all of our money is now based on debt.
No debt, no money.
What we desperately need is for the current monetary system to be scrapped.  The federal government should take back the power to issue currency and should implement a new system based on money that is debt-free.
The truth is that it is insane that any sovereign government should have to go into debt just to produce more of its own currency.
Instead, what we have under the Federal Reserve system is a money supply that will forever be expanding, a currency that will forever be deteriorating in value and a national debt that will continue to skyrocket until the entire system collapses.
Since the Federal Reserve was created in 1913, the U.S. dollar has lost over 95 percent of its purchasing power.  This continual debasement of our currency is called “inflation” and it is a hidden tax on every man, woman and child in the United States.
It is absolutely guaranteed that every single dollar that you own will go down in value over the long-term.
But the American people have come to accept that a constantly expanding national debt and a currency that is constantly losing value is the most “rational” economic system that humanity has ever come up with.
So who benefits from all this?
Well, for fiscal year 2010 the U.S. government paid out over 413 billion dollars in interest on the national debt.  In future years that number is projected to rapidly skyrocket even more.
Wouldn’t you like to be getting a nice chunk of that 413 billion dollars?
It turns out that loaning money to the U.S. government is very, very profitable.
That 413 billion dollars is money that was transferred from the American people to the U.S. government, and then transferred from the U.S. government to big financial institutions, foreign countries, and very wealthy bankers.
So what did we get in return for our 413 billion dollars?
Nothing.
Sadly, this is not just going on in the United States.  This is going on literally in almost every nation on earth.
All over the world sovereign governments are drowning in debt and so they have to drain their citizens dry so that they can meet their obligations.
In the book of Proverbs, it tells us that “the rich ruleth over the poor, and the borrower is servant to the lender.”  Americans like to think that they live in “the land of the free”, but the truth is that we have become enslaved to debt.
But even worse, we have consigned our children and our grandchildren to a lifetime of debt.  They will have to work all of their lives to pay trillions of dollars in interest on all of the debt that we have accumulated in this generation.
How would you like to be born into a world where the previous generation had racked up a $13 trillion debt that now you were expected to pay off?
There is a reason why people like Ron Paul are so obsessed with the Federal Reserve.  It is not because they don’t have anything better to do.  It is because the future of our country literally hangs in the balance.
Throughout American history, presidents, top members of Congress and leading business people have warned us about the dangers of having a central bank.  In fact, even though our young people are no longer taught this, the debate over central banking was one of the most important themes in early American history.
But we didn’t listen to the warnings.
We were convinced that we knew better.
The Gift
Well, now we have an economic system that is dying and a $13 trillion debt that we are passing along to our children and to our grandchildren.
Perhaps we were not as smart as we thought we were.

Bernanke warns economic outlook ‘uncertain’

 Federal Reserve chairman Ben Bernanke warned the outlook for the US economy was “unusually uncertain” Wednesday but said the central bank could step in to bolster a faltering recovery.
Bernanke told US lawmakers the world’s largest economy would see only “moderate growth, a gradual decline in the unemployment rate, and subdued inflation over the next several years.”
Underlining the severity of the crisis, Bernanke warned private-sector hiring was still growing at “a pace insufficient to reduce the employment rate materially.”
Motorola DROID A855 Android Phone (Verizon Wireless)
His comments kicked off two days of hearings in Congress, which is deeply divided over how to deal with high unemployment and a stuttering recovery.
Read entire article

Fed Sees Slower Growth

 Federal Reserve officials, who are likely to reveal Wednesday a cut in their assessment of the growth outlook, are divided on how aggressively the central bank should act if the economy slows further.
Fed officials still expect the U.S. economy to keep growing. But an updated forecast to be released Wednesday afternoon with the minutes of the Fed’s late-June policy meeting is likely to show that officials have trimmed their second-half forecasts—as have many private forecasters.
One topic under debate is the possibility that today’s already-low inflation may turn into a debilitating bout of deflation, a broad drop in prices across the economy.
Fed officials disagree on the risk of deflation. A few see it as a threat; others call it very unlikely, Fed officials said in recent interviews.
Read entire article

Bernanke Says Fed Does Not Engage In Stock Market Or “Individual Stock” Manipulation; Some Loose Ends On FX Swaps

 In a response letter sent to Alan Grayson, the Fed chairman has the following brief retort to the question of whether “the Federal Reserve- alone or in concert with the Treasury Department or any part of the government- ever taken any action with the purpose or effect of supporting the stock market or an individual stock”: “The Federal  Reserve has not intervened to support the stock market or an individual stock.” Shocking. And we are confident that the fine people at Liberty 33 just sit all day, twiddling their thumbs now that the Fed is no longer in the MBS and UST monetization business. Furthermore, anyone who reads anything into the fact that the FRBNY is continuously ramping up its hiring of traders, both credit and equity, as posted in assorted public venues, is simply paranoid and does not understand that this is only due to Brian Sack’s fascination in being surrounded by 400 traders daily. On the other hand, at this point pretty much everyone is aware of the sad state of FRBNY intervention, whether it is in the FX market or the gold market, and indirectly via the discount window and the repo system, in which banks purchase bonds at auction, using discount window or other zero cost capital, only to repo it back, and to use the proceeds to bid up stocks. Maybe Mr. Grayson can ask the Chairman whether the Fed is actively endorsing primary dealers to bid up risky assets to create the impression that since the market is ramping higher (on no volume, mind you, but who cares) that the economy is doing so as well (we will shortly have something to say that refutes this thesis, compliments of none other than Goldman Sachs). All cynicism aside, Grayson at least still continues to ask the right questions: among these are 1) How does the fed plan on dealing with the $1.7 trillion in MBS on the Fed’s balance sheet, 2) Why Greenspan and Bernanke were so wrong in keeping the FF rate for so long, and how does the Chairman plan to reconcile the same bubble creation that blew up the economy last time ZIRP was around, with the deflationary threat to the economy, 3) Why does the Fed think a Tobin tax is bad (and, incidentally, why does the Fed even have an opinion on tax policy), 4) Why is the Fed failing at pushing unemployment lower even with ZIRP and QE, 5) How the Fed is lobbying on behalf of its, and Wall Street’s interest, 6) How much gold should the US government own, and many others.
Yet the most interest question in our opinion is whether or not the Fed, via its prior and ongoing liquidity swap operations, is actively pumping dollars into foreign CB at the unwind of a swap that has differing entry and exit cross fixings. This is actually a great question which will demand much more thorough analysis, as during the last liquidity crisis, the Fed pumped over $500 billion in capital in foreign banks at a time when the DXY was at then-all time highs, only to unwind these swaps as the dollar subsequently crashed, resulting in a massive net flow of dollars from the Fed to foreign banks. As such liquidity swaps are far more than mere liquidity backstops – they are yet another shadow mechanism to pump money into foreign CBs. Furthermore, the money outflowing in this manner, far outweighs any interest earnings on swaps, which Bernanke determines amounted to about $2.1 billion in 2009.
Another wonderful question to which Bernanke, unless he had completely lost his mind, gives a negative anwer, is whether any foreign banks that were the recipients of FX swaps, used the proceeds to buy US Treasuries. Obviously, Bernanke’s answer is no, as this would be yet another shadow monetization process. We do, however, wonder just how Bernanke knows precisely what foreign CBs did with all the excess cash: surely, this money thus created out of the Chairman’s printer thin air, is completely fungible, and to say that foreign CBs did not use that money to purchase USTs, would mean that foreign central Banks did not buy USTs at all during the period in question. Bernanke surely sees this problem as in another question he himself notes: “Because money is fungible, in general it is not possible to determine whether a counterparty used funds obtained from loans or through other transactions for a specified purpose. It is not possible to specifically connect the extension of particular loans by the Federa Reserve with the acquisition of US government debt.” And herein lies the rub – by outright denying that FX swaps were used to monetize debt, Bernanke may have cornered himself, as the next logical question is just what did foreign CBs buy with any FX lines that were not used up in further downstream liquidity facilitating operations. Does Bernanke in essence say that foreign Central Banks never purchase US Treasuries? That would be an amusing claim, and is certainly refuted by the definition of Indirect Bidders, conveniently provided by the Fed itself.
We surely do hope Mr. Grayson will take his line of questioning to the next logical step, which is catching the Chairman in outright lies. At this point, with so many loose ends over at Liberty 33 and the Marriner Eccles building, it is just a matter of time.
Full response by Bernanke to Grayson.
Bernanke Response to Grayson Questions 5.28.10

Ron Paul: Restore a Full Audit of the Fed!

Fed Board May Soon Add Three More Millionaires to Its Ranks

 The Federal Reserve Board may soon be adding three millionaires to its ranks.
Janet Yellen, nominated by President Barack Obama to be the central bank’s vice chairman, and Peter Diamond and Sarah Bloom Raskin, the picks for two other governor vacancies, each have combined assets of at least $1 million with their spouses, according to financial disclosures with the Office of Government Ethics. The trio awaits Senate confirmation.
That would leave Chairman Ben S. Bernanke as the sole member of the Board of Governors who’s not definitely a millionaire. Bernanke and his family had $852,000 to $1.9 million in financial assets in 2008. Yellen would replace retiring Vice Chairman Don Kohn, whose last disclosure showed assets ranging from $574,000 to $1.29 million.
The federal government forms require officials to report only a range in the value of holdings. Primary residences are excluded from reporting.
Full article here

Bernanke Tells Students Money Alone Doesn’t Buy Happiness

 U.S. Federal Reserve Chairman Ben Bernanke had a warning for students Saturday: Money alone won’t buy you happiness.
In uncharacteristic remarks for a Fed chief who normally dwells on gross domestic product and the consumer price index, Bernanke will tell students at the University of South Carolina there are other things beyond wealth and income that can make life satisfying.
“If you are ever tempted to go into a field or take a job only because the pay is high and for no other reason, be careful!,” Bernanke said in remarks prepared for delivery at the university’s commencement ceremony.
Read entire article

Audit The Fed Push Strengthened By Second Front In Senate

 The push to audit the Federal Reserve was given a fresh injection yesterday with the introduction of another bipartisan amendment to the Wall Street reform bill in the Senate that would force the central bank to reveal where $2 trillion in public bailout money was spent.
Sens. Chuck Grassley (R-Iowa) and Byron Dorgan (D-N.D.) noted that the Fed’s continued secrecy regarding its emergency lending programs, even in the face of federal court rulings, had motivated them to introduce the measure.
“The Fed refuses to disclose this information to the American people so we are taking Congressional action to determine how the Fed has used these trillions of dollars,” Dorgan said in a joint press release.
“The Fed has gone beyond was was viewed as its historical authority in the last two and a half years without any transparency or accountability,” Grassley said. “Our amendment changes that by making the Fed’s emergency loan authority subject the light of day.”
Grassley is already a co-sponsor of the audit the Fed amendment introduced by Sen. Bernie Sanders (I-Vt.).
Sanders’ amendment is due to be voted on imminently. If it succeeds, following the passage of a similar amendment in the House late last year sponsored by Congressman Ron Paul, The Fed may be forced to undergo a thorough audit by Congress’ investigative arm, the Government Accountability Office.
Currently the GAO has no means of reviewing the vast majority of the Fed’s monetary policy deliberations and decisions. The GAO also cannot examine the Fed’s transactions with foreign governments, foreign central banks and other global financial organizations.
“How often do you have some of the most progressive members in Congress — and I include myself within that fold — working with some of the more conservative members?” Sanders observed Wednesday.
Earlier this week it was revealed that the Fed is secretly engaged in an intense lobbying effort to stave off moves toward an audit. It is pushing Senators to support an amendment by Sen. Jeff Merkley (D-Ore.) that would amount to a much more restrictive audit provision.
In addition to backlash from the Fed and the country’s largest commercial banks, the thorough audit provisions face opposition from the White House. Chief of staff Rahm Emanuel is reportedly working closely with the Fed to kill off the audit provisions at all costs to protect the power structure dominated by the international banking elite.
All three parties contend that an audit would politicize monetary policy decisions and threaten the independence of the Fed.
Dean Baker, renowned macroeconomist and co-founder of the Center for Economic and Policy Research explains why such contentions are weak arguments:

I just don’t see any legitimate meaning of that term, independence, that it interferes with. We want them to make what they think are the best calls. But after the fact, do they have to answer for it? Should they have to say that these are the calls we made, this is why we made them? Absolutely.
I don’t understand how that isn’t independent. So those are the two arguments, on the one hand the stigma that will be created if at some point it’s known that banks go to the Fed, and on the other hand, that it somehow harms their independence. I mean, the FDA has to give a full account, we reviewed this drug, we reviewed that drug, this is why we approved this drug, here’s why we didn’t. I don’t understand why the fed should operate differently.

If the audit the Fed provisions survive, it may leave Obama no choice but to veto the entire financial reform bill.
The administration wants to see the creation of a large “independent” bureau within the Federal Reserve to police lending and other customer financial service transactions.
“It creates one of the most important, one of the most powerful, all-powerful individuals in the entire federal government,” Sen. Roger Wicker, R-Miss., has commented, objecting to the autonomy the Democratic leadership would give the head of the bureau.
A veto on auditing the Fed would prove a very unpopular move, which is why the White House wants it killed off in the Senate.
A Wall Street Journal poll illustrates the overwhelming support for auditing the Fed, with almost 90% saying a measure allowing Congress to audit the Fed should be passed.

Fed Documents Reveal Secret Lobbying Effort Against Audit Provisions

 White House, Big Banks and Fed are desperately trying to kill off moves for transparency
By: Steve Watson
Tuesday, May 4th, 2010
The Federal Reserve is secretly engaged in an intense lobbying effort in an attempt to stave off moves to have the Government Accountability Office audit it, internal documents reveal.
The Huffington Post has obtained the documents, which were distributed to Senate offices by a Fed official, whose identity the online news site agreed not to reveal.
“The effort to beat back the audit relies on playing two members of the same caucus — Sens. Bernie Sanders (I-Vt.) and Jeff Merkley (D-Ore.) — off each other.” writes Ryan Grim.
Today will see a possible first round of votes on on amendments to Senator Christopher Dodd’s financial-overhaul bill. One such amendment is S 604 The Federal Reserve Sunshine act, the Senate version of Congressman Ron Paul’s Federal Transparency Act, sponsored by Sen. Sanders. The amendmentcalls for a full audit of the Fed.
The unnamed Fed official in the documents essentially acknowledges support of a much more restrictive audit proposal by Sen. Merkley.
“I am sending some information on the effects of audits of the Federal Reserve System as well as two additional documents – one summarizes the GAO and related provisions in the Dodd Bill as passed by the committee (Title XI, Sections 1151-1153) and the other is a summary of the Sanders and Paul/Grayson amendments,” the Fed official wrote in an e-mail accompanying the documents.
“As I mentioned, we believe that the bipartisan Corker-Merkley provision in the Dodd Bill is quite strong and addresses issues of transparency and disclosure without impinging on the independence of monetary policy,” the Fed official writes.
Ron Paul’s Campaign For Liberty website has consistently addressed the problem with this watering down provision, noting that it guarantees continued secrecy for the Fed.
Paul and Sanders have persistently disproved the Fed’s claim that their provisions for an audit would interfere with monetary policy deliberations and the Fed’s overall independence.
Merkley’s provision is essentially a Senate version of Congressman Mel Watt’s (D-NC) amendment to the House financial reform bill, which would have severely limited the audit, and gutted Ron Paul’s H.R. 1207 bill.
The Watt amendment was also supported by the Fed before it was rejected in favour of Ron Paul’s amendment by the House Financial Services Committee last November.
Even Merkley himself notes that the provision weakens the prospect of an audit of the Fed:
“I appreciate Representative [Alan] Grayson’s concerns over accountability at the Federal Reserve. I have been a strong proponent of Fed reform and voted against the re-confirmation of Ben Bernanke because the Fed has been so lax in using its regulatory powers,” Merkley said in a statement to HuffPost, responding to an analysis from Rep. Alan Grayson (D-Fla.) showing that the Senate bill did not meaningfully expand transparency.
“Moreover, I felt strongly that we need to act now to empower the GAO to audit the extraordinary emergency programs created by the Fed and I succeeded in getting that power into the Senate bill. Rep. Grayson points out, fairly in my mind, that we need to go even further to audit the Fed’s standing programs. I agree. While we need to protect the Fed’s independence to implement monetary policy, I think the structure and use of their standard programs should be transparent.” Merkley added.
A full audit of the Fed under the Sanders and Paul/Grayson amendments would pave the way for disclosure of which financial institutions received $2 trillion in public bailout funds, information that the Fed refuses to make public and, along with the largest commercial banks in the U.S., has fought tooth and nail to keep secret.
The Sanders and Paul/Grayson amendments would ensure that such lending could never again be done in secret.
Their efforts were boosted yesterday by the damning revelations that former Fed chairman Alan Greenspan wanted internal warnings over the housing bubble kept secret in 2004, so that outsiders, whom he said did not fully understand the situation, would not be able to interject in the debate.
In addition to the backlash from the Fed and the banks, the audit provisions face opposition from the White House, with the administration trotting out the same argument that an audit would threaten the independence of the Fed.
“It’s likely, in fact, that the Obama administration will be under intense pressure to veto the entire financial reform bill if ‘audit the fed’ survives.”, notes Brian Beutler.
White House chief of staff Rahm Emanuel is reportedly working closely with the Fed to kill off the audit provisions at all costs to protect the power structure dominated by the international banking elite.
Yesterday Congressmen Grayson and Paul appeared on Dylan Ratigan to discuss the progress of their efforts to audit the Fed.
Watch the video:

Ron Paul I Think They're Going To Destroy The Dollar!

Bernanke Warns: U.S. Debt Could Balloon to More Than 100% of GDP

How The Fed Is Destroying The Dollar

Did The Fed Just (Surreptitiously) Bail Out Europe?

 No, not just Greece – all of Europe.  Without Congressional authorization or notice, of course.
Hattip to a nice emailer….

Or if you prefer it on a one-year time scale…

That nice little vertical line is a gain of $421.8 billion dollars of outstanding loans and leases in one week’s time.
WHERE THE HELL DID THAT MONEY GO AND WHAT COLLATERAL WAS TAKEN AGAINST A FOUR HUNDRED BILLION DOLLAR INCREASE IN OUTSTANDING LOANS?
You won’t find anything like that in the records – because it’s never happened before.  That’s beyond unprecedented, it’s ridiculous, and assuming it’s also accurate, someone has some ’splaining to do on what clearly appears to be some sort of back-door game being run.
Update: It has been suggested that this may be related to the FASB changes and securitized loans coming back on the balance sheet.  If so, where’s the alleged memorandum items on the other side and the footnote on FRED?  The latter is missing, but the necessary data on FRED to confirm that is not yet updated.
Nonetheless, if this is the case, it’s still bad (just not catastrophic) as this will directly hit capital ratios.  Or, put another way, where’s the additional capital that “should” be there to support what is now on balance sheet and was previously off (never mind that it was crooked as hell to have it off in the first place!)

The Guy Who Stole All Our Money Now Wants to Steal Our Paycheck, Too

 Ben Bernanke has funneled trillions of dollars worth of bailouts, guarantees and sweetheart deals to U.S. (and foreign – and see this) banks.
This money was pickpocketed from you and me, directly (through government spending) and indirectly (increasing debt costs, future inflation, etc).
Bernanke is now calling for tax increases and raising the possibility of reductions in entitlements such as Medicare and Social Security.
Tax increases means we keep less from each paycheck. Reduction in services means that money we’ve already paid to the government (through social security, etc.) will now instead be paid to the bankers to service the U.S. debt.
Isn’t that like a guy who stole our money now trying to steal our paycheck, too?
As JR writes:

We now have the unbelievable spectacle of the banker as the taxman—Volcker, the banker calling for a VAT tax; Bernanke calling for a tax hike and the possibility of reductions in Medicare and Social Security.
At last, the pretense is gone. First these bankers, posing as national leaders with a mission to rein in inflation, steal the money from the treasury, debase the currency, game the debt, and, now, take the lead in asking for more.

Bernanke Says Americans Must Pay Off “Public” Debt

DALLAS—The U.S. must start to prepare for challenges posed by an aging population with a credible plan to gradually reduce a soaring public debt, Federal Reserve Chairman Ben Bernanke said Wednesday.
Health spending is set to increase over the long term as the U.S. population grows older, posing challenges to the country’s already strained finances, the Fed chief warned.
Meanwhile, Fed Bank of New York President William Dudley said Wednesday that the damage caused by financial-market bubbles should bring about a sea change in the way the central bank acts, with the Fed needing to move toward active efforts to reign in financial market excess.
Read entire article

The Fed in Hot Water:

 The Fed has finally came clean. It now admits it bailed out Bear Stearns – taking on tens of billions of dollars of the bank’s bad loans – in order to smooth Bear Stearns’ takeover by JPMorgan Chase. The secret Fed bailout came months before Congress authorized the government to spend up to $700 billion of taxpayer dollars bailing out the banks, even months before Lehman Brothers collapsed. The Fed also took on billions of dollars worth of AIG securities, also before the official government-sanctioned bailout.
The losses from those deals still total tens of billions, and taxpayers are ultimately on the hook. But the public never knew. There was no congressional oversight. It was all done behind closed doors. And the New York Fed – then run by Tim Geithner – was very much in the center of the action.
This raises three issues.
First, only Congress is supposed to risk taxpayer dollars. The Fed is not part of the legislative branch. Its secret deals, announced almost two years after they were done, violate the democratic process, if not the Constitution itself. Thomas Jefferson put a stop to Alexander Hamilton’s idea of a powerful central bank out of fear it would be unaccountable to the public. The Fed has just proven Jefferson’s point.
Second, if the Fed can secretly bail out big banks, the problem of “moral hazard” – bankers taking irresponsible risks because they know they’ll be rescued – is far greater than anyone assumed after Congress and the Bush and Obama administrations bailed out the banks. Big banks will always be too big to fail because they know the Fed will secretly back them up if they get into trouble, even if Congress won’t do it openly.
Third, the announcement throws a monkey wrench into the financial reform bill now on Capitol Hill, which gives the Fed additional authority by, for example, creating a consumer protection bureau inside it. Only yesterday, Sen. Jim DeMint (R-S.C.) blasted the Dodd bill for expanding the Fed’s authority “even as it remains shrouded in secrecy.”
The Fed has a big problem. It acts in secret. That makes it an odd duck in a democracy. As long as it’s merely setting interest rates, its secrecy and political independence can be justified. But once it departs from that role and begins putting billions of dollars of taxpayer money at risk — choosing winners and losers in the capitalist system — its legitimacy is questionable.
That it chose to reveal the truth about its activities during a week when Congress is out of town, when much of official Washington and the Washington media have gone on vacation, and only after several federal courts have held that the Fed must release documents related to its bailout of Bear Stearns, suggests it would rather remain secret than become transparent.
Much of what Ben Bernanke and Tim Geithner did (when Geithner was at the New York Fed) in 2008 was presumably necessary. But the public has no way of knowing. The public doesn’t even know who else the Fed has bailed out, or what entities it will bail out in the future. All we know is the Fed secretly bailed out Bear Stearns and AIG and thereby subjected taxpayers to risks that remain even today, without informing the public. That’s not a record on which to build public trust.

The Fed’s Last Hurrah

 During the 1990s, inflationary Federal Reserve policy fueled a tech stock bubble. When that bubble burst, the Fed inflated a larger one in real estate. Now that the real estate bubble has burst, the Fed is inflating the biggest bubble of them all — a bubble in government. While the earlier booms at least provided the illusion of prosperity and some fun while they lasted, the government bubble will cripple the economy and deliver widespread misery to the vast majority of Americans.

Of course, there will be winners in the government bubble, at least for a while. As was the case with the stock and real estate bubbles, plenty of money will be made by the well-connected and parasitic classes. Government employees will continue to enjoy pay raises at our expense, as will anyone benefiting from the new wave of subsidies, such as Wall Street investment bankers, financial speculators, and those working in health care or education.
Take the recent student loan reforms that were slipped into the health care bill. Obama wants to reduce the cost of providing student loans by taking the profits out of the industry. According to Obama, student loans are too expensive because banks profit from making them. If the government nationalizes the function, we would apparently bring down costs by eliminating those pesky profits.
This is a Marxist argument, pure and simple. If true, it would apply to all industries, not just banking. States like Cuba and North Korea would be the envy of the world, as they prohibit profits across the board. The truth is that profits, earned from free-market competition, keep cost down. By taking the profits out and putting the bureaucrats in, any incentive to provide better service or lower costs is eliminated. It’s not hard to predict that student loan costs will now rise faster than ever.
That is clearly not the result we want. To solve the problem, people must understand that college tuitions are so expensive specifically because the government has guaranteed student loans (see my video blog on this topic for a detailed explanation). Guaranteed loans don’t mean more access to education, but rather that universities are free to charge more per pupil than if their customers were paying out-of-pocket.
Obama’s plan only serves to remove more market forces and creates an even bigger moral hazard. Under the new rules, students will be required to repay a much smaller portion of what they borrow. As a result, students will be willing to borrow even greater amounts of cash to pay inflated tuitions, making it that much easier for colleges and universities to raise them.
Also, since the government will actually be loaning the money directly, rather than simply guaranteeing private-sector loans, the Treasury will actually have to borrow the money itself before it can re-lend it to students. I suppose the irony of going into debt to loan money never registers in Washington. Further, as this bill will cause tuitions to rise even faster, it will necessitate even larger loans that will produce even greater taxpayer losses when the loans end in default or forbearance.
Whether it is in education, housing, health care, automobiles, insurance, or banking, greater government involvement in the economy means higher prices, lower productivity, more bailouts, bigger deficits, increased taxes, diminished industrial capacity, fewer private sector jobs, less freedom, and a falling standard of living.
In the end, when runaway inflation and skyrocketing interest rates burst the government bubble, there will be no more bubbles to replace it — just one hell of a hangover.

These gains will come at the expense of the taxpayers who foot the bill and the consumers who face higher prices. As government grows, it deprives the private sector of the resources it needs to survive and grow. The result is a lower overall standard of living. Not only are government jobs less productive than private sector jobs, but bureaucratic interference actually makes the remaining private sector jobs less efficient as well.

Our economy is being transformed from a mostly capitalistic one to a mostly socialistic one. More decisions are being made by politicians and lawyers in Washington and fewer by entrepreneurs. The motivation behind this shift is the mistaken belief that the financial crisis of 2008 was caused by too much capitalism and a lack of proper government oversight. This conclusion is self-serving for those in power, and couldn’t be more economically misguided. Through corruption or just plain ignorance, Congress and this Administration have embraced an ideology that has failed every time it has been tried.

Bernanke Running Amuck: by Martin D. Weiss, Ph.D.

 Fed Chairman Bernanke is running amuck, and for the first time since the birth of the U.S. dollar, our government is egregiously abusing its power to print money.

Specifically, from September 10, 2008 to March 10 of this year, he has increased the nation’s monetary base from $850 billion to $2.1 trillion — an irresponsible, irrational and insane increase of 2.5 times in just 18 months.

It is, by far, the greatest monetary expansion in U.S. history. And you must not underestimate its sweeping historical significance.
Full article here

Federal Reserve Must Disclose Bank Bailout Records

 The Federal Reserve Board must disclose documents identifying financial firms that might have collapsed without the largest U.S. government bailout ever, a federal appeals court said.
The U.S. Court of Appeals in Manhattan ruled today that the Fed must release records of the unprecedented $2 trillion U.S. loan program launched primarily after the 2008 collapse of Lehman Brothers Holdings Inc. The ruling upholds a decision of a lower-court judge, who in August ordered that the information be released.
The Fed had argued that disclosure of the documents threatens to stigmatize borrowers and cause them “severe and irreparable competitive injury,” discouraging banks in distress from seeking help. A three-judge panel of the appeals court rejected that argument in a unanimous decision.
The U.S. Freedom of Information Act, or FOIA, “sets forth no basis for the exemption the Board asks us to read into it,” U.S. Circuit Chief Judge Dennis Jacobs wrote in the opinion. “If the Board believes such an exemption would better serve the national interest, it should ask Congress to amend the statute.”
Full story here.

Now Bernanke Wants To Eliminate Reserve Requirements Completely

 Up until now, the United States has operated under a "fractional reserve" banking system.  Banks have always been required to keep a small fraction of the money deposited with them for a reserve, but were allowed to loan out the rest.  But now it turns out that Federal Reserve Chairman Ben Bernanke wants to completely eliminate minimum reserve requirements, which he says "impose costs and distortions on the banking system". At least that is what a footnote to his testimony before the U.S. House of Representatives Committee on Financial Services on February 10th says. So is Bernanke actually proposing that banks should be allowed to have no reserves at all?
That simply does not make any sense. But it is right there in black and white on the Federal Reserve's own website....
The Federal Reserve believes it is possible that, ultimately, its operating framework will allow the elimination of minimum reserve requirements, which impose costs and distortions on the banking system.
If there were no minimum reserve requirements, what kind of chaos would that lead to in our financial system?  Not that we are operating with sound money now, but is the solution to have no restrictions at all?  Of course not.
What in the world is Bernanke thinking?
But of course he is Time Magazine's "Person Of The Year", so shouldn't we all just shut up and trust his expertise?
Hardly.
The truth is that Bernanke is making a mess of the U.S. financial system.
Fortunately there are a few members of Congress that realize this.  One of them is Republican Congressman Ron Paul from Texas.  He has created a firestorm by introducing legislation that would subject the Federal Reserve to a comprehensive audit for the first time since it was created.  Ron Paul understands that creating money out of thin air is only going to create massive problems.  The following is an excerpt from Ron Paul's remarks to Federal Reserve Chairman Ben Bernanke at a recent Congressional hearing....
"The Federal Reserve in collaboration with the giant banks has created the greatest financial crisis the world has ever seen. The foolish notion that unlimited amounts of money and credit created out of thin air can provide sustainable economic growth has delivered this crisis to us. Instead of economic growth and stable prices, (The Fed) has given us a system of government and finance that now threatens the world financial and political institutions. Pursuing the same policy of excessive spending, debt expansion and monetary inflation can only compound the problems that prevent the required corrections. Doubling the money supply didn’t work, quadrupling it won’t work either. Buying up the bad debt of privileged institutions and dumping worthless assets on the American people is morally wrong and economically futile."
The truth is that the financial system that we have created makes inflation inevitable.  The U.S. dollar has lost more than 95 percent of the value that it had when the Federal Reserve was created.  During this decade the value of the dollar will decline a whole lot more.
That doesn't sound like a very good investment.
But that is what happens when you give bankers power to make money up out of thin air.
And things are only going to get worse.
Especially if Bernanke gets his way and reserve requirements are eliminated entirely.
The U.S. economy is a giant mess already, and we have got a guy at the controls who simply does not have a clue.
It's going to be a rough ride.