QE2: Credit Bubble Bulletin

by Doug Noland
Posted originally November 05, 2010

http://prudentbear.com/

In Bill Gross’s latest, he posits that the Fed is “pushing on a string.”  This is not the case. The current backdrop has little-to-no similarity to the 1930’s; the world is definitely not today stuck in a Credit collapse and deflationary quagmire. Instead, much of the globe is facing an unrelenting onslaught of financial inflows and heightened inflationary pressures. Faltering dollar confidence is the prevailing force behind troubling inflationary pressures and strengthening Bubble Dynamics.

Increasingly, “emerging” economy Credit systems have succumbed to overheating, while key developed economies are locked into a perilous cycle of massive non-productive government debt expansion. Our unsound debt, liquidity and currency dynamics ensure that excess flourishes throughout global Credit systems. Bubbles are today left to run uncontrolled and undisciplined by a market hopelessly distorted by liquidity overabundance. Fed policies seemingly ensure that global liquidity goes from extraordinary to extreme overabundance.

The Fed may today be alone in “quantitative easing” through the purchase of domestic government obligations. Our central bank, however, has considerable global company when it comes to monetization and liquidity creation. From Bloomberg’s tally we know that global central bank international reserve positions have inflated $1.5 TN over the past 12 months. That last thing the global financial system needs is an additional shot of liquidity and reason to believe that dollar devaluation will be accelerated.

In post-announcement analysis of the Fed’s commitment to another $600bn of Treasury purchases, Bill Gross commented on CNBC that “the biggest risk is inflation down the road.” I again disagree with Mr. Gross. The greatest risk is a destabilizing crisis of confidence for our nation’s debt obligations.  Our system doubled total mortgage debt in just over six years during the mortgage/Wall Street finance Bubble. Washington is now on track to double the federal debt load in just over 4 years. Federal Reserve policy remains instrumental in accommodating a precarious Credit Bubble at the heart of our monetary system.

Inflationary Thursday – Benny Drops the Big One!

by Phil of Phil’s Stock World
Originally posted Nov 4, 2010

Mutually Assured Destruction (MAD)

THAT WAS THE ACTUAL MILITARY POLICY OF THE UNITED STATES OF AMERICA AND THE REST OF THE WORLD for about 30 years. We had Presidents and Kings and thousands of bureaucrats – the top minds of 2 generations – all getting together on a regular basis and coming up with or buying into insanity like the system on the right. We look back at it now and say “Gee, what were we thinking” but the whole World went down this path for a  while.

There is a scene from Doctor Strangelove where Major Kong, the bomb commander, is so focused on completing his mission that he loses sight of the bigger picture but he doesn’t regret his actions – he goes down in a blaze of glory that ultimately dooms the World but his sense of personal triumph at achieving his wrong-headed goal is the punctuation for the film. Watch this scene and think of Bernanke, tinkering with this or that but so focused on “fixing” the economy with the one tool at his disposal that he ends up destroying it instead.

After putting over $2Tn into our Dead Parrot Economy since the crash and getting no response, Bernanke is upping the ante with another $600Bn round of Quantitative Easing ON TOP OF the ongoing $250-$300Bn round of POMO commitments for a total of about $110Bn per month dumped into the economy between now and the end of Q2. This represents a 10% increase in the money supply over 8 months and, therefore, a planned 10% decrease in the purchasing power of your dollar-denominated assets or, to put it bluntly – a 10% tax on everything you own.

That is the joke of this country.  People sit there arguing about whether or not to extend a tax cut that will cost 3% of a year’s salary while the Fed, with no electoral oversight, is simply taking 10% of your LIFETIME savings – AGAIN!  They did it last year, they did it this year and now they promise to do it next year too.  That’s 30% folks!

The Ruling Elite Called

by Jim Quinn
Posted 29 July 2010 in The Burning Platform

I JUST GOT OFF THE HORN WITH THE RULING ELITE. WE HAD AN EMERGENCY CONFERENCE CALL and to tell you the truth, they ain’t happy. You little people are not responding the way you are supposed to. A significant portion of you are not getting more optimistic because they tell you to. Instead of just reading the headline on Bloomberg that durable goods orders skyrocketed in June, you actually read the details that said durable goods orders plunged. It is getting difficult for the ruling elite to keep the masses sedated and dumbed down. These damn bloggers, with their facts and critical thinking, are throwing a wrench into the gears.

Obama and his crack team are working round the clock to lock down the internet, but it will take time. Not that they are totally dissatisfied. They’ve been able to renovate their penthouses and purchase new mansions in the Hamptons with the billions in bonuses you supplied through TARP. The $1.2 trillion supplied by your children and grandchildren to buy up toxic mortgages off their balances sheets was a godsend. They will never call you suckers, not to your face.

“What comes after a quadrillion?”

Their spirits were buoyed by the 2,600 pages DONK (Dodd/Frank) financial reform bill. So many loopholes, so little time. Obama and his crack team of Obamanistas in the White House, supported by their mouthpieces in the mainstream media, have been able to easily manipulate the non-thinking masses into believing this bill would have stopped the last financial crash and will stop the next one. The Ministry of Truth has been working overtime utilizing Federal Reserve paid shill economists like Alan Blinder and Mark Zandi to perpetuate the myth that the actions taken in the last 18 months have averted a Depression, saved 8 million jobs, created a long-lasting recovery, wiped out Swine Flu, and earned Paul Krugman a nobel prize in fiction.

This is where we have a problem. The worshippers of Keynes, that rule the country, are pissed off at you. Don’t you realize that government spending of your money, borrowed from the Chinese, with the bill passed to your grandchildren, was supposed to reinvigorate your animal spirits? They handed you other people’s money to buy cars and homes and what do you do? You stop buying cars and homes as soon as they stop paying you to buy cars and homes. You ungrateful bastards.

Bennie has been hugely successful at ruining the retirements of millions of grandmothers by paying them .20% on their money market accounts while forcing mortgage rates for 30 years down to 4.5%. And still you don’t buy houses. Timmy has instructed Fannie Mae to make home loans to anyone with a pulse who can make an X on a piece of paper. No money down, no proof of income, no assets. Just like the good old days. Still you don’t buy houses. What is wrong with you?

Wall Street and politicians still don’t get it

by Bill Fleckenstein
Contrarian Chronicles January 8, 2010

THE GAMBLERS AND THE CLUELESS ARE LEADING this nation into the abyss. If only we could throw out all of them. There were many lists made of the “best” and “worst” of 2009. List-makers did themselves proud ticking off item after item.

But – understandably, because it’s a nonfinancial crowd – one item got away from them: The 30-year Treasury bond turned in its worst performance in 40 years, as the yield rose from about 2.7% to about 4.6%. (For the layman, yields rise as bond prices fall.) Given all the deflation fears and all the money that has poured into the Treasury market, that factoid may come as a surprise.

We’re facing a protracted period when bonds deliver nothing but losses for folks – just as the funding crisis I’ve written about before (read “The next crisis has already begun“) is due to make itself visible this year. The only question is whether problems will erupt first in the bond market or the currency market. We’ll probably learn a lot more on that score between now and March, when Federal Reserve chief Ben Bernanke is expected to end quantitative easing, by which the Fed has pumped money into the financial system.

Of course, the fact that we’re going to have a funding crisis is a function of the Fed’s activities. And, wouldn’t you know it, the central bank’s chief gave a speech last week that Bloomberg covered under the headline “Bernanke says low rates didn’t cause housing bubble.” The fact that Bernanke is so deeply in denial shows that he really doesn’t understand the risks of printing money.

Lehman Died so TARP and AIG Might Live

by Mike Whitney
Originally posted September 18, 2009

“LEHMAN’S FATE WAS SEALED NOT IN THE boardroom of that gaudy Manhattan headquarters. It was sealed downtown, in the gloomy gray building of the New York Federal Reserve, the Wall Street branch of the U.S. central bank.” –Stephen Foley, UK Independent

Stephen Foley is on to something. Lehman Bros. didn’t die of natural causes; it was drawn-and-quartered by high-ranking officials at the US Treasury and the Federal Reserve. Most of the rubbish presently appearing in the media, ignores this glaring fact. Lehman was a planned demolition (most likely) concocted by ex-Goldman Sachs CEO Henry Paulson, who wanted to create a financial 9-11 to scare Congress into complying with his demands for $700 billion in emergency funding (TARP) for underwater US banking behemoths. The whole incident reeks of conflict of interest, corruption, and blackmail.

The media have played a critical role in peddling the official “Who could have known what would happen” version of events. Bernanke and Paulson were fully aware that they playing with fire, but they chose to proceed anyway, using the mushrooming crisis to achieve their own objectives. Then things began to spin out of control; credit markets froze, interbank lending slowed to a crawl, and stock markets plunged. Even so, the Fed and Treasury persisted with their plan, demanding their $700 billion pound of flesh before they’d do what was needed to stop the bleeding. It was all avoidable.

Lehman had potential buyers – including Barclays – who probably would have made the sale if Bernanke and Paulson had merely provided guarantees for some of their trading positions. Instead, Treasury and the Fed balked, thrusting the knife deeper into Lehman’s ribs. They claimed they didn’t have legal authority for such guarantees. It’s a lie. The Fed has provided $12.8 trillion in loans and other commitments to keep the financial system operating without congressional approval or any explicit authorization under the terms of its charter. The Fed never considered the limits of its “legal authority” when it bailed-out AIG or organized the acquisition of Bear Stearns by JP Morgan pushing $30 billion in future liabilities onto the public’s balance sheet. The Fed’s excuses don’t square with the facts.

The Federal Reserve is Immoral

The Federal Reserve is Immoral

Posted 13 Aug 2009

During the first few days of each month comes a task that is increasingly approached with dread around here and, unfortunately, that condition is likely to persist for some time.

Shortly after banks make their month-end update to various short-term savings accounts that we hold, these balances are queried, only to find that, almost without exception, interest credited is less than it was in prior months and far less than it was eight or ten months ago.

Why?

Largely as a result of the Federal Reserve keeping short-term interest rates pegged to zero.

You see, aside from some Certificates of Deposit that were locked up late last year which, today, provide the strangest of feelings during a very strange period in history (i.e., feeling lucky to get about 2.5 percent interest for a one-year CD), it’s nearly impossible to get more than a two percent return these days on any kind of an FDIC-insured account and, more likely than not, you’ll get less than one percent.

Speaking as one who knows from experience, there’s a big difference between one or two percent and five or six percent, what used to be the “minimum” rate of return for a super-safe savings account backed by the government.

More importantly, if this is causing us angst every month, I can only imagine what it’s doing to the budgets of other savers whose finances are far less comfortable than ours.

Put simply, the freakishly low short-term interest rates that the Federal Reserve is jamming down everyone’s throat are immoral and, maybe, just maybe, a lot more people are beginning to see this, along with other practices of our central bank that are just not right.

Maybe, just maybe, something will finally be done about reforming (or, as suggested by Rep. Ron Paul, abolishing) this banking cartel – hopefully before the Fed celebrates its 100-year anniversary in a few years.

Just to be clear on the terminology here, Merriam-Webster offers the following:

immoral
adjective
not moral; broadly : conflicting with generally or traditionally held moral principles

moral
adjective
1a: of or relating to principles of right and wrong in behavior

Setting aside questions about the dark veil of secrecy surrounding who and how much the central bank has been helping with their problem loans, problem assets, and problems staying solvent, there are at least three ways that the organization David Wessel calls “the fourth branch of government” is acting badly these days – by punishing savers, by enriching the banks, and by fleecing the poor.

Of course, none of this is really new – it all just seems a whole lot more relevant today than ever before given the current state of affairs in this country and around the world.

Punish the Savers

As noted above, it used to be that you could always count on getting five or six percent interest in a “no-risk” savings account backed by the FDIC. In fact, going all the way back to 1955 (when the interest rate data at the Fed’s website stops), the average short-term lending rate is right between those two marks – 5.66 percent.

Ever since I was a teenager, I can remember thinking, “If I could somehow amass a million dollars, that would surely generate enough money to live on for the rest of my life”.

Well, welcome to the 21st century, where the asset bubbles keep a-poppin’ and the interest rates keep a-droppin’.

Over most of the last hundred years, aside from the dollar losing more than 90 percent of its purchasing power (versus a loss of zero during the prior ten decades), there hasn’t been too much to complain about in the Fed’s management of money and interest rates but, since asset bubbles and the attendant “mopping up” process have become a way of life, the rate of return on savings has been abysmal.

With the exception of the “baby-steps” rate raising campaign a few years ago, the Fed funds rate has been below two percent since 2002 – after the decade’s first asset bubble met its pin.

Now, if there was a good reason for keeping rates so low, this might all make some sense to senior citizens who have looked disappointingly at their bank statements for years, but given the fact that the low-rates in 2002-2004 led to the housing and credit bubbles forming and then bursting a few years later, and here we are with even lower rates today, all of this should make anyone with half a brain realize that there is something seriously wrong with the system as it currently operates.

In a nation in dire need of internal savings, the fact that savers are being punished as never before is just plain wrong – immoral – and the idea that we live in an era of “low inflation” is just salt rubbed in the wounds of senior citizens who, year after year, watch prices for health care and energy rise by some multiple of the one or two percent they can earn on their savings.

Twenty years from now (perhaps sooner), they’ll look back on today’s monetary policy and say to themselves, “What were they thinking, punishing the savers like that when the U.S. desperately needed savings?”

Enrich the Banks

As if it weren’t bad enough that savers are cheated every time the Federal Reserve lowers interest rates, the worst part is that banks are the beneficiaries.

You see, in addition to buying up many of the bad assets previously held on bank’s books over the last year or so – the result of waves of imprudent bank lending – when the Fed lowers interest rates it helps to make the business of banking much more profitable and, conventional wisdom has it that our financed-based economy will then begin to recover.

And when the banks can borrow at these super-low rates, that means that savers can’t earn much more in interest.

Banks come first and savers are far down on the list.

Why does the system work this way?

Well, most people haven’t got a clue what the Federal Reserve is or what it does (though, understandably, there is growing interest in this topic, ever since the wheels fell off of the global economy last fall), but the crucial bit of information that the now-slightly-more-curious public should learn quickly is that the central bank was not set up to help the people or the government, but, rather, to help the big banks.

In fact, according to G. Edward Griffin, who happened to write a whole book on the subject, the very reason that the Federal Reserve was formed back in 1913 was so that big banks could wrest back control of the banking system from the many small, fledgling, independent banks all around the country that were taking away their business.

Look around you today. You might see lots of little banks failing, but only a few large ones ever go under and none of the country’s biggest banks ever fail.

The Fed was created by the big banks, for the big banks, and its unwritten “mission statement” is to do whatever it takes to ensure the survival and profitability of those big banks, getting the government to step in with public money when necessary for “the greater good”, effectively socializing the losses while keeping the gains in private hands.

That’s why what we have today – a wholly unsustainable system of ever-expanding credit and debt dominated by a handful of “too big to fail” banks – keeps getting propped up.

The masses are led to believe that credit is the “lifeblood of the economy” when, in fact, credit is the lifeblood of a banking system that has, over time, sucked the life out of the economy.

It’s hard to imagine anything that is more immoral than the Federal Reserve’s role in this process, now almost a hundred years in the making.

Fleece the Poor

In arriving at the third and final way that the Federal Reserve is immoral, clearly, that last thought in the previous section was premature.

In fact, there is one very good example of something being done today by the central bank that is even more immoral than a nearly century long wealth transfer from the public sector to the private banking system – the ongoing assistance being provided by the Fed in helping the banking system reach out and find new customers so that every possible dollar can be extracted from them.

You see, the country’s big banks (along with the central bank that serves their interests) would much prefer that poor people all across the country not go to a place like you see to the right and, for a small fee, convert their paycheck into cash and forever live within their means.

Bankers would much rather see the nation’s poor open up checking accounts and then venture further into the world of modern day banking, quickly learning to spend well beyond their means.

Left unsaid in the Fed’s many efforts to reach out to the “unbanked” is that checking accounts are a sort of “gateway drug” for many people – a road to debt serfdom where, in addition to paying interest on money borrowed to buy stuff that they don’t need, these “newly banked” poor will also be fleeced by a bewildering array of fees and charges in a system that is set up to systematically suck as much money out of as many people as possible.

Over the years, the Federal Reserve has made great efforts to attract new customers for banks, in some cases providing cartoon characters to make the whole idea of debt serfdom seem like a friendly sort of condition, much in the same way that Joe Camel once attracted new smokers.

Under the guise of “education” and with “consumer protection” as its goal, the Federal Reserve might seem to be “looking out for the little guy”, but they’re not. They’ve had the power to do this for many years now but, for obvious reasons, have exercised their “power to protect” the consumer only sparingly, allowing millions of subprime borrowers to give the housing bubble one last giant hurrah before it finally burst.

Fortunately, it appears that the Obama administration would like to see the American consumers’ interests watched over by some other group and for good reason. A report earlier in the week in the Financial Times detailed how big banks in the U.S. plan to extract almost $40 billion in overdraft fees from American consumers whose balance sheets haven’t been bolstered by government bailouts.

It seems that, with the collapse of the mortgage finance bubble, big banks are now reverting to a profit model that is driven more by extracting fees from their customers wherever possible and overdraft fees from the cash-strapped are “the mother lode”.

A full 90 percent of overdraft fees come from just 10 percent of all checking accounts and most of this 10 percent have low credit scores and/or are recent entrants to the world of mainstream banking.

Not surprisingly, the highest overdraft fees come from the biggest banks – Citigroup, Bank of America, JP Morgan Chase, Wells Fargo, SunTrust, and Citizens Bank.

For banks, overdraft fees are a low risk, high profit part of their business, not something that is usually mentioned as part of the Fed’s outreach programs. It is a sophisticated, large scale sort of “payday loan” system that many Americans fall prey to and, as long as customers have their payroll checks automatically deposited, the bank will always have first crack at the money and people will continue to spend more than they make because, when you get down to the very basics here, most people aren’t very good at math.

But, banks are.

Maybe Ron Paul is right – the Fed should be abolished.

Then markets could set interest rates, banks would have to fend for themselves, and there would be one less group helping to extract what little money the poor have left.

Tim Iacono

Iacono Research.com

Read all the other articles written by Tim Iacono

by Tim Iacono
Iacono Research.com
Originally posted 13 Aug 2009

DURING THE FIRST FEW DAYS OF EACH MONTH comes a task that is increasingly approached with dread around here and, unfortunately, that condition is likely to persist for some time.

Shortly after banks make their month-end update to various short-term savings accounts that we hold, these balances are queried, only to find that, almost without exception, interest credited is less than it was in prior months and far less than it was eight or ten months ago.

Why?
Largely as a result of the Federal Reserve keeping short-term interest rates pegged to zero.
You see, aside from some Certificates of Deposit that were locked up late last year which, today, provide the strangest of feelings during a very strange period in history (i.e., feeling lucky to get about 2.5 percent interest for a one-year CD), it’s nearly impossible to get more than a two percent return these days on any kind of an FDIC-insured account and, more likely than not, you’ll get less than one percent.

Speaking as one who knows from experience, there’s a big difference between one or two percent and five or six percent, what used to be the “minimum” rate of return for a super-safe savings account backed by the government. More importantly, if this is causing us angst every month, I can only imagine what it’s doing to the budgets of other savers whose finances are far less comfortable than ours.

The Fed on the Defensive

The Fed on the Defensive

by Gary North

August 29, 2009

by Gary North

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

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

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

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

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

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

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

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

THE BLOOMBERG LAWSUIT

The Bloomberg news service has sued the Board of Governors of the FED under the Freedom of Information Act. The lawsuit says that it is illegal for the Board of Governors to refuse to release information on which banks have received financial aid from the FED.

The Board of Governors countered with this argument. The New York FED is a privately owned entity. It executes monetary policy. It is not subject to the Freedom of Information Act. The FED also argued that the banking system would be threatened by the release of this information.

This case went to court. The judge ruled on August 24 that the Board of Governors of the FED must make this information public no later than August 31.

On August 26, the FED asked the judge not to enforce her ruling. Why not? Because it would be bad for the banking system. She had heard that argument before.

Well, what else? The Board of Governors’ lawyer insisted that the Board has no knowledge of what the New York FED – its legal agent – really does. The lawyer said, “We don’t control the system of record-keeping in New York.” She insisted that the Board of Governors just cannot find out what the New York FED did with the money in time to meet the deadline.

Apparently, the Board of Governors, a government agency, has taken seriously Jesus’ words regarding charity (alms):

But when thou doest alms, let not thy left hand know what thy right hand doeth: That thine alms may be in secret: and thy Father which seeth in secret himself shall reward thee openly (Matthew 6:3–4).

The two FEDS, the government one and the private one, were surely involved in the charity business, to the tune of a trillion dollars or so. This was a system of handouts on an unprecedented scale.

The Father in Washington has surely rewarded the FED in the past. The FED expects more of the same in the future. But now this pesky lawsuit forces an opening of the books.

Is the lawyer’s argument credible? Perhaps the judge will not regard it as credible. So, the FED had another argument. The FED wants her to wait until the case can be heard on appeal. But there was a hitch. The FED did not say when it intends to appeal.

Here is the FED, with a court ruling against it, and with the clock ticking, admitting that it has no date set to file an appeal. Its lawyers apparently had no fall-back position. Is this credible? Of course not.

Will it work? We shall see. If it does work, and if H. R. 1207 remains bottled up in committee, the growing army of people who have finally found out about the FED will have two more pieces of evidence that the U.S. government does not run the FED.

If the bill passes the House and the Senate, Obama will veto it. The FED is not going to be audited by the government. That is not how the world works. The FED is only officially under government authority. Except in wartime, it has never been under government authority. It was set up to provide the illusion of government control. That illusion has worked since 1913.

The FED does face a major problem. If it escapes from both the Congress and the courts, this will sell lots more copies of “End the Fed.” On the other hand, if the court system finally forces the FED to reveal who got what and on what terms, then banks in the future will hesitate to go to the FED, hat in hand, because the public learn who was begging for a bailout. This is not the sort of information that big bank bankers want the financial press to discover, let alone the Internet.

The handouts went to the big banks. Most banks were ignored. They were allowed to sink or swim. This has created a problem: bank bankruptcies every weekend for as far as the eye can see.

416 PROBLEM BANKS

The Federal Deposit Insurance Corporation, flush with a $30 billion loan from Congress, has announced that its list of problem banks climbed in one month from 305 to 416. The list is secret, of course, for the same reason that the New York FED’s list is secret. The FDIC does not want to cause a run on any of the 416 banks.

A bank run these days takes the form of wire transfers and checks written to other banks to open an account. The money supply remains constant. Some banks lose; others win. The bad banks go bust.

The FDIC then has to buy up all of their bad assets. Solvent banks then buy the good assets. The big winners are the solvent banks that buy their rivals’ assets at fire-sale prices. The big losers are taxpayers and investors who believe that all of the Treasury debt that Congress must sell to cover its loan to the FDIC will be repaid in real money some day.

On August 27, the FDIC announced that its member institutions lost $3.7 billion in the second quarter of 2009. In a press release that was reminiscent of “Spin City,” the head of the FDIC, Sheila Bair, announced:

“While challenges remain, evidence is building that the U.S. economy is starting to grow again,” said FDIC Chairman Sheila Bair. “Banking industry performance is – as always – a lagging indicator. The banking industry, too, can look forward to better times ahead. But, for now, the difficult and necessary process of recognizing loan losses and cleaning up balance sheets continues to be reflected in the industry’s bottom line.”

Translation: “The economy is better off than the banks are, and the economy remains in the pits. Why? Because banks are not lending. Someday, things will turn around for the banking system as a whole, but don’t get your hopes up. Cleaning up bank balance sheets these days is comparable to cleaning up the Augean stables, for all you classics buffs out there.”

Chairman Bair went on to say, “The FDIC was created specifically for times such as these. No matter how challenging the environment, the FDIC has ample resources to continue protecting depositors as we have for the last 75 years. No insured depositor has ever lost a penny of insured deposits…and no one ever will.”

Translation: “Congress may have to fork over another couple of hundred bullion – maybe $500 billion, if Senator Dodd’s bill is signed into law – but no one will ever lose a penny in an FDIC-insured bank. But taxpayers will pay a pretty penny to whoever buys all those T-bills that Congress will have to issue to keep the FDIC solvent.”

The press release reported the following.

1. Total assets of insured institutions declined by $238 billion.

2. The number of institutions on the FDIC’s “Problem List” rose. At the end of June, there were 416 insured institutions on the “Problem List,” up from 305 on March 31.

3. Total reserves of the Deposit Insurance Fund (DIF) stood at $42 billion. [No mention of the $30 billion loan from Congress to get reserves back up.]

How bad is this number: 416 problem banks? Not as bad as 1882 problem banks. That is the estimate of Institutional Risk Analytics, a private research firm. The organization gave a grade of F to 1882 banks, as of June 30. This figure was up by 16.5% since late March.

What about the number of A-rated banks? The number was down by 21% since late March.

This list does not include the 19 big banks that went through the stress tests, which all of them passed. The stress tests assumed that big banks would have enough capital to withstand a 9% loss rate over the next two years. The problem is, according to the company’s managing director, that we are already at 9% loss rates, and we are not yet at the bottom of the cycle. If the economy does not recover by the 4th quarter, banking statistics will head down in 2010. (http://tinyurl.com/nr2z67)

The Federal Reserve System intervened to save the financial system in 2008. But has the system as a whole recovered? No. Has unemployment stopped rising? No. Has the economy recovered? No.

GROWING HOSTILITY TO THE FED

Always in the past, the Federal Reserve has remained free from serious criticism. The media are obedient lap dogs. So are the academic economists. The textbooks never point out that the FED is the enforcing arm of a huge cartel. The professors refrain from applying to the FED their analyses in their chapters on cartels.

Today, for the first time, there is a growing audience of intelligent people who are being exposed to the truth about the FED. This has taken place outside Establishment channels, which includes the largest talk radio shows.

The FED has had a 90-year free ride. That ride is over. The FED will never again get off scot-free. The Web is sufficient to continue to inform people regarding the economic disasters that the FED has caused by its anti-recession, big-bank bailout policies.

Bernanke is pursuing the same low-interest rate policy that Greenspan pursued from mid-2000 to mid-2004. A few mainstream critics of Greenspan now say that his policy failed. But they refuse to say that Bernanke’s policy is the same, and that the resulting crises will be worse.

The critics do not see the operations of the FED in terms of a consistent theory of monetary cause and effect. They view monetary policy as somehow based on the personality of the Chairman. Before, Greenspan was “the Maestro.” Bernanke is “the Professor.” The policies are the same: pump and dump. The FED pumps up the money supply, and the Treasury dumps T-bills and T-bonds on the FED.

The FED has promised to unwind its doubled monetary base (balance sheet) when the economy revives. In recent months, it has sold off some debt. The monetary base is down from its peak. The Treasury has been able to sell its debt to investors who still dear the economy. This cannot go on for more than a year unless the economy stays in recession. The size of the deficits will be too great.

The FED really is trapped unless the economy revives, commercial bank credit to private industry revives, and price inflation remains low. But a revival of commercial bank lending will turn the FED’s monetary base into spendable money. The M1 money supply will double. The M1 money multiplier will go positive. At that point, the FED will have to unwind, meaning sell off assets. To whom? At what interest rate? It will be in competition with both the Treasury and Fannie/Freddie.

CONCLUSION

The FED has never had to play defense. It has had a free ride. The free ride is over.

The general public has still not heard of the FED. The FED still has the advantage of invisibility. But it is losing that invisibility. This is not going to change.

The FED is a legitimate target for people who think the government botches the economy. It is the classic example of the much-praised government-business alliance. It is the consummate model of that alliance. When it fails to achieve its twin official goals of low unemployment and low price inflation, millions of its economic victims will figure out who the culprit is.

End the Fed.

Gary North [send him mail] is the author of Mises on Money. Visit http://www.garynorth.com. He is also the author of a free 20-volume series, An Economic Commentary on the Bible.

Copyright © 2009 Gary North

by Gary North
Posted originally August 29, 2009

I DO NOT RECALL THIS IN MY LIFETIME. A majority in the House of Representatives has co-signed H.R. 1207, a bill introduced by Ron Paul to have the Federal Reserve System audited by an independent government agency, the Comptroller General’s office.

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

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

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

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

The United States is in Deep Doodoo!

by Michael Rivero

Aurick says: This superb article was first written in 1998. I am posting it here not so much as to say “The author told you so”, but to point out that the long term economic future of the United States was obvious, or should have been obvious, to the people who are awarded lofty degrees and paid huge salaries to comprehend such things. Instead, the economists persisted in explaining away the visible signs of gathering troubles and earned their salaries by justifying why the policies that robbed the poor to give to the rich should continue unabated.

I should also mention that the current general public consensus regarding the economic disaster unfolding around us is that “it all began with subprime and irresponsible lending by the banks”. No, it did not. It began many years before, and had nothing to do with housing bubbles or banks.

Click on the link to go straight there, or else locate it under the sidebar Pages, on the right of the screen: https://quantumpranx.wordpress.com/the-united-states-is-in-deep-doodoo/

2012: Message from Matthew

Suzanne Ward
Channelled from Matthew Ward December 31, 2007

WHAT WILL HAPPEN when you cross off the last day of 2011 on your calendar and you pin up the one for 2012?  The thoughts in many minds about that year range from the sublime to the ridiculous, and since the latter is so quickly addressed, that’s where I’ll begin. 

No, your world is not going to end.  Earth is an eternal soul inhabiting a planetary body, and now that it’s back from the brink of destruction— thanks to the infusion of light from your “space” neighbors—and on the way back to its original vibrant health and beauty, she’s going to keep it for a long time to come. 

With “ridiculous” accounted for, what is the “sublime” that you can expect 2012 to bring?  Like everything else that happens anywhere, the choice is up to individuals, the decisions each makes.  What I can tell you with certainty is, you who make the trip with Earth into the higher planes will be living in the promised Golden Age.  In numerous of his messages, my Matthew-Self has accurately described the changes and challenges during the transition between now and your world in 2012 with its astounding differences that you will welcome whole heartedly.