Great article. Thank you.
Many Americans still do not realize that the Fed is a privately owned corporation.
"The Federal Reserve banks are not government agencies. ...but are independent, privately owned and locally controlled corporations." -- Lewis vs. United States, 680 F. 2d 1239 9th Circuit 1982
In the nearly 100 years of its existence, the Fed has NEVER PAID FEDERAL TAXES. "The accounts of the Federal Reserve System have never been audited. It operates outside the control of Congress and manipulates the credit of the United States" - http://en.wikiquote.org/wiki/Barry_Goldwater
The Fed violates the US Constitution. Article 1, section 8, "The Congress shall have the Power.....to coin money, regulate the Value thereof,.... "
http://theunjustmedia.com/The%20federal_reserve_is_privately_own.htm
Before the Fed took over the gold in Fort Knox, from the US Treasury - it contained over 700 million ounces of gold, 70% of all the gold in the world. The last audit was carried out over 50 years ago during Eisenhower's presidency.
Last month, the Wall Street Journal published full page ad "Anybody Seen Our Gold?", alleging that U.S. gold reserves still held at Fort Knox were being surreptitiously shipped overseas by the Fed http://wnd.com/news/article.asp?ARTICLE_ID=59876
The Fed, from its questionable inception in 1913 to today it, by design, has undermined the US economy and has insured a lifetime of feudal-like, debt-based enslavement of the American people.
We must abolish it.
It Sure Looks Like We're In a Recession
Buzz this article up.
Yesterday, Bernanke testified on capital hill. His testimony, which is available on the Federal Reserve's website, offers a good overview of how the Fed views the economy.
It's also important to remember the Fed is as much a political player as it is an economic player. While a completely honest Fed would be great it is not going to happen. The Fed has to help manage the public's economic expectations. As such, it has to ease the public into a certain economic frame of reference. This is why yesterday was the first time we heard the Fed use the word "recession". The Fed has been aware of the economic situation for some time. But if they had come out and said "we're in a recession and it's really going to suck" they would have induced panic.
Here are the relevant portions of his testimony along with commentary.
Although our recent actions appear to have helped stabilize the situation somewhat, financial markets remain under considerable stress. Pressures in short-term bank funding markets, which had abated somewhat beginning late last year, have increased once again. Many lenders have been reluctant to provide credit to counterparties, especially leveraged investors, and have increased the amount of collateral they require to back short-term security financing agreements. To meet those demands, investors have reduced their leverage and liquidated holdings of securities, putting further downward pressure on security prices.
Credit availability has also been restricted because some large financial institutions, including some commercial and investment banks and the government-sponsored enterprises (GSEs), have reported substantial losses and writedowns, reducing their available capital. Several of these firms have been able to raise fresh capital to offset at least some of those losses, and others are in the process of doing so. However, financial institutions' balance sheets have also expanded, as banks and other institutions have taken on their balance sheets various assets that can no longer be financed on a standalone basis. Thus, the capacity and willingness of some large institutions to extend new credit remains limited.The effects of the financial strains on credit cost and availability have become increasingly evident, with some portions of the system that had previously escaped the worst of the turmoil--such as the markets for municipal bonds and student loans--having been affected. Another market that had previously been largely exempt from disruptions was that for mortgage-backed securities (MBS) issued by government agencies. However, beginning in mid-February, worsening liquidity conditions and reports of losses at the GSEs, Fannie Mae and Freddie Mac, caused the spread of agency MBS yields over the yields on comparable Treasury securities to rise sharply. Together with the increased fees imposed by the GSEs, the rise in this spread resulted in higher interest rates on conforming mortgages. More recently, agency MBS spreads and conforming mortgage rates have retraced part of this increase, and conforming mortgages continue to be readily available to households. However, for the most part, the nonconforming segment of the mortgage market continues to function poorly.
In corporate debt markets, yields and spreads on both investment-grade and speculative-grade corporate bonds rose through mid-March before falling more recently. Issuance of investment-grade bonds by both financial and nonfinancial corporations has been quite robust so far this year, but issuance of new high-yield debt has stalled. Strains continue to be evident in the commercial paper market as well, where risk spreads remain elevated and the quantity of commercial paper outstanding, particularly asset-backed paper, has decreased. Commercial and industrial loans at banks grew in January and February, but at a considerably slower pace than in previous months.
This set of paragraphs outlines the central problem faced by the markets, so let's take it slowly to see what is happening.
Let's start with this basic picture of the US economy.
The financial system stands at the center of the US economy; it takes savings from the public, pools it, and then lends it to business. It also stands between businesses because the financial system provides credit to buy literally everything in the economy. In other words, without a ready source of rapidly available credit the US economy drags to a halt.
And that's where the real rub comes in. For the last 9 months we have heard a continuing drum beat of news from the financial sector that banks are "writing down" the value of assets. The reason why this is so detrimental is the US financial system uses a "fractional reserve" banking system. All this means is a bank can loan out a certain percentage of its assets. For example -- and purely hypothetically -- if a bank has $1 million dollars in assets it could make loans of say $5 million. But as the bank's total assets decrease from a bunch of writedowns the bank's ability to make loans decreases. And that's where the bug problem comes in.
All of these writedwons we've been hearing about have the following negative impact.
-- Because of the just discussed fractional reserve system, the ability of banks to make loans is seriously compromised. As a result, there are fewer loans available.
-- Because of the breadth of the writedown news (literally everyone and their brother has announced problems) banks are unwilling to lend to each other. Why? Because even in the short-term market of commercial paper (which has a maximum maturity of 270 days) the possibility of the borrower announcing they have to writedown the value of their assets is high. This means the possibility of a borrower saying "we can't repay the loan" is much higher, leading to a drop in the total amount of loans being made. It also means the cost of short-term funding is increasing. Here is a chart of the commercial paper spreads from the Federal Reserve
Those spikes indicate risk is increasing. Here is a chart of total commercial paper outstanding. Pay attention to the yellow line
There's been a huge drop in the amount of commercial paper outstanding.
Putting all of these factors together we get a very disturbing picture. Because of all the writedowns in the financial sector the ability of financial players to make loans is seriously hampered. In addition, because of the increased fear of borrowers announcing they have writedowns to make, there are fewer short-term loans being written. As a result, the amount of short-term credit is decreasing and the cost of making these loans is increasing. This slows the US economy.
Notably, in the housing market, sales of both new and existing homes have generally continued weak, partly as a result of the reduced availability of mortgage credit, and home prices have continued to fall.1 Starts of new single-family homes declined an additional 7 percent in February, bringing the cumulative decline since the early 2006 peak in single-family starts to more than 60 percent. Residential construction is likely to contract somewhat further in coming quarters as builders try to reduce their high inventories of unsold new homes.
I've written about why the housing market is nowhere near bottom. Short version: there's a ton of supply combined with an already massively indebted US consumer decreasing demand. Let's not forget tightening credit markets limiting credit. The only way for this imbalance to be cured is for prices to drop hard.
Private payroll employment fell 101,000 in February, after two months of smaller job losses, with job cuts in construction and closely related industries accounting for a significant share of the decline. But the demand for labor has also moderated recently in other industries, such as business services and retail trade, and manufacturing employment has continued on its downward trend. Meanwhile, claims for unemployment insurance have risen somewhat on balance, and surveys indicate that employers have scaled back hiring plans and that jobseekers are experiencing greater difficulties finding work. The unemployment rate edged down in February and remains at a relatively low level; however, in light of the sluggishness of economic activity and other indicators of a softer labor market, I expect it to move somewhat higher in coming months
Here are the relevant charts:
The year-over-year change in payroll growth has been slowing substantially and is now in negative territory.
The unemployment rate is ticking up.
Short version: the job market is in terrible shape.
This is leading to declining consumer confidence and sentiment:
Which will further lower spending.
After rising at an annual rate of about 3 percent over the first three quarters of last year, real disposable income has since increased at only about a 1 percent annual rate, reflecting weaker employment conditions and higher prices for energy and food. Concerns about employment and income prospects, together with declining home values and tighter credit conditions, have caused consumer spending to decelerate considerably from the solid pace seen during the first three quarters of last year. I expect the tax rebates associated with the fiscal stimulus package recently passed by the Congress to provide some support to consumer spending in coming quarters.
Here are the relevant charts:
Remember the decreasing employment from above? That is leading to
Dropping income. When consumer's have less money to spend
Real (inflation-adjusted) personal consumption expenditures are decreasing.
It also means that real (inflation-adjusted) retail sales are decreasing on a year-over-year basis.
In the business sector, the pullback in hiring that I noted earlier has been accompanied by some reduction in capital spending plans, as weaker sales prospects, tighter credit, and heightened uncertainty have made business leaders more cautious. On a more positive note, the nonfinancial business sector remains financially sound, with liquid balance sheets and low leverage ratios, and most firms have been able to avoid unwanted buildups in inventories. In addition, many businesses are enjoying strong demand from abroad. Although the prospects for foreign economic growth have diminished somewhat in recent months, net exports should continue to provide considerable support to U.S. economic activity in coming quarters.
Because consumers are cutting back on spending, businesses are cutting back on investment.
Durable goods year-over-year change has been negative for some time.
But the Philadelphia Fed survey is clearly weaker.
As is the empire state (New York) index.
Let's review:
-- There are big problems in the credit markets that aren't going away anytime soon.
-- Housing is still a mess.
-- Employment growth is decreasing
-- Real Disposable income is decreasing, leading to
-- Decreasing consumer spending, leading to
-- Lower business investment.
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Remember:
The Federal Reserve is neither government (it's private banks) nor has a Reserve. It creates money out of nothing and interest is owed to the Fed for every US dollar.
-Rothschild Banks of London and Berlin
-Lazard Brothers Bank of Paris
-Israel Moses Sieff Banks of Italy
-Warburg Bank of Hamburg and Amsterdam
-Lehman Brothers Bank of New York
-Kuhn Loeb Bank of New York
-Chase Manhattan Bank of New York
-Goldman Sach Bank of New York
a great article on the Fed can be read here:
http://globaleconomicanalysis.blogspot.com/2008/04/fed-uncertainty-principle.html
If i can learn this stuff, so can you.
Hale,
What would happen if the nearly 400,00 Americans in Iraq (military and mercenary) were to suddenly come home?
Probably correct about a recession...but I suspect it's simply a return of the same recession Clinton left America saddled with in 2000. You remember, that recession started in first quarter 2000, a full year before BlowJob Bill hightailed it out with the White House china. It was cut short with tax cuts and fiscal policy that addressed the issue quickly. But after Her Idiocy Nancy Pelosi took over the House, and Harry Bleed got the Senate, the economy has begun to tank, that's for sure.
Your post contrasted with your ID gives new meaning to the definition of oxymoron.
The Bush recession started at the NEAR THE START OF THE SECOND QUARTER OF 2001. Growth in the 4th quarter of 2000 was near 4%, unemployment under 4%. That's not a recession except to clueless right wingers trying to rewrite history.
Smartey,
Clinton's Economy was golden. You can thank your Republican friends on Wall Street for the 2000 crash. Maybe you are too young to remember that it happened due to a stock market "tech bubble".
Just like this one is due to a housing bubble. Both were Wall Street, the Republican keep, induced
.I while I agree that Pelosi and Reid have been miserable, compared to the absoluely jaw droppingly bad Frist and Hastert years, it has been heaven.
1.) You completely forget the impact of interest rates. When you lower interest rates to 0% after adjusting for inflation, you're giving money away.
2.) You forget that Bush turning a surplus into a deficit. He's also added over $3 trillion dollars of total debt to the national total.
No, Smartey it wasn't cut short, just delayed and made worse because the current commander in chief has been too busy lining his buddies pockets and resolving father issues than dealing with the economy's fundamental problems.
Pelosi and Reed have little to do with the economic mess we're in. Democrats in congress are an impotent bunch. Too many of them are willing to compromise with Republicans and screw the American people, hence the latest legislation which rewards the large home construction companies and protects lenders, but does almost nothing for homeowners who overextended themselves believing the bullshit Wall Street was peddling.
Bush tanked this economy, but you can be sure he and his friends will continue to live lives of luxury. When a president is asked a question about gasoline approaching 4 dollars a gallon and he answers he hadn't heard that one can only conclude how out of touch he is with Main Street America.
And if you're going to call elected officials names, let's refer to Bush as the drunk, cokehead, Guard deadbeat he was and to Cheney as Mr. 4 Deferment, too busy to fight for his country, but not too busy to send other people's sons and daughters to die for theirs (Oh Yeah I've heard the argument it's a volunteer force. Yeah, right. so that makes it okay to send them to die in a useless war).
Ditto Robert 59, I couldn't have said it better.
Hnag on a minute here. The recession you speak of, and correct me Hale if I am wrong, started in 2001.
Clinton left with a budget surplus not a deficit. There was no recession until after the Bush tax cuts and even that was severely affected by 9/11. Clinton, for all of his faults, was the best "Republican" president we have had for years. He passed all of the republican agenda set under Newt such as welfare reform, balanced budget, NAFTA, banking deregulation, etc.
The reason the neo-cons hated him is because he forced them to finallly pass all of these things they had been talking about for years but did nothing about. In other words, he stole their thunder.
He virtually gave the republicans every financial package they wanted including banking deregulation. So, if there was a recession in 2000, then it was because of Republican monetary policies that he agreed with and gave to them.
And now you have the fallout.
Never fear Hale, I'm going to spend my $300 prince george gives me. And my three hundred is all that it will take to revive this economy. Well, that is, if I don't use it up in gas going to the grocery store down the street which will then take the remainder. Hmm, maybe I won't be able to buy that new toy after all. But then, it could be out of my price range by that time anyway.
I remember it that it was that wily old communist Lenin who said that the capitalist willl sell you the rope to hang himself with. He forgot however, that we have corporate socialism - of the rich, by the rich, and only for the rich- which is why we are now in the bailout stage. So much for free market capitalism.
The same people who gave us this finacial mess also gave us the war. They are happy to subsidise the financial sector but loathe to pass a new GI bill for their faithful vets because it is a "handout." The philosophy appears to be that the only good soldier and patriot is a dead soldier.
What I don't get is there are less than 50 comments regarding this post, but a story about some reporter calling Hillary a whore has already generated 1100 plus.
Like alot of people I can understand why MormonDude doesn't get it. My brother in law explained it to me. He's a very good businessman. A 100,000 in cash is always worth more than a house, car, piece of property. You can take that cash and easily borrow against it. A noncash asset always presents risk. It's worth zero until it is converted to cash.
I've got a piece of property I own free and clear. The realtors tell me it's worth 80,000. My gut tells me it won't sell for 60,000. I bet if I put it up for collateral to get a loan the bank would tell me no thanks in today's market.
You know, I was all fired up to post the question you have except I know the answer, as I'm sure you do also: most citizens are not only financially ignorant, they don't know they're ignorant and if you try to tell them (diplomatically, of course) you're likely to get a fist in the mouth. This disaster has been brewing for years--it's been all over the web if you know where to look. I watched Helicopter Ben and the boys tell Congress they had no clue until 24 hours before shit hit the fan. So how come little ole' me, the Aden Sisters, Chuck Butler at Everbank, Peter Schiff (there is a very long list) have seen it coming for years and invested accordingly? Congressman Ron Paul did everything possible to get the message out and he was laughed off the air and out of the race.
About your property, if you can grow something on it, then you have real value. CNBC is touting the bottom of the crash is in, which echoes the Depression mantra "recovery is just around the corner."
We've been distracted by sex and gossip so the greatest slight of hand trick in history could be pulled off. This debacle has years to run and it going to get very ugly before it's over.
I couldn't say it better than you did, 'financially ignorant' and the 'greatest slight of hand trick in history'.
Where will the plutocrats turn after the carcass is picked clean? Just askin'.
Excellent, as usual.
A key issue here, I think, is that the three circles on your graph would be of vastly unequal size.
Well, it certainly would be if "business sector" omitted "non-production" businesses.
And here, I believe, is a key point: a nation of more than 320 million people MUST PRODUCE. It cannot be in "the financial services business." It cannot rely in any way upon the "manufacture" of its own money; nor upon that money's continued ready acceptance, most especially not now.
We have vast amounts of idle factories which are not currently listed as "in production" or "idle" because they would indeed require refurbishing and retrofitting to put them into a production-ready state. But for us to continue to rely upon the importation of goods from remote (and increasingly hostile) sources, at the exclusion of our own sustained ability to manufacture those same goods ourselves in serviceable-to-us quantities is ... ... beyond foolhardy.
Not-so-metaphorically speaking, our national derriere is exposed because we closed down the underwear factory. :-)
That's madness.
Our country is full of salesmen and middlemen. Everyone takes their cut.
Look no further than this sub-prime crisis. Closing costs on every home are thousands and thousands of dollars, and egregious title insurance is charged even on a brand new homes that have never been owned before . The real estate agent gets a larger commission by putting you into a bigger house than you can afford. The mortgage salesmen get bonuses and perks based on how much they can screw you over on your loan, and how many sub-prime loans they can crank out. Construction companies are employing hundreds of thousands of illegals to maximize their own profits.
And now that everyone can see it's all a sham, what happens? The closing costs don't get handed back. The real estate commissions don't get handed back. The mortgage salesmen that made these bad deals in the first place aren't punished, and don't have to give their commissions back. Clinton is calling for the bailout of "responsible lenders." (Why would they need to be bailed out if they were responsible???) The construction companies are given tax relief by Congress.
So when someone asks you where the trillion dollars in write-downs went, don't be surprised that it is all long since frittered away. Everyone has their hand in the pie, but they accept no culpability when they harm the entire world economy.
Sundial, great poste. Cheers.
The dolts who thought the USA could only be a service country surely missed the mark. This gave the factory owners a open door OUT OF THE COUNTRY.
I believe that we should have taxes equal to a ratio of sales and profits per employee......BASED UPON USA employment. By that, I am saying, the tax on revenue or profit per employee will decrease if EMPLOYEEs in the USA increase.
What's interesting is teh shift in despeartion in teh last month or so. In January/February, teh bulls and banks sounded shrill and desperate. Now it's all teh bears sounding increasingly desperate as they see their "short" gambles go south.
Food prices in our area are climbing weekly. What cost us $100 3 weeks ago now runs around $125
These kind of price changes don't show up in the CPI because the government assumes we will all substitute for lower cost items. This assumption may be valid in long term trends, but when the trend changes, we aren't quick enough to change our buying habits. FWIW
We eat what's on sale. Always have. Probably always will.
We have one store that's got good prices on cereal, milk, and meat. Another is good on produce, bakery items, frozen foods, etc. We alternate between the two depending on the type of food we're more interested in at the moment.
And besides, we still spend hundreds of times what is really necessary to live. Anyone can survive on beans and rice for pennies a day.
Food and energy are EXCLUDED from the CPI.
Bondad no matter how many times you say it or wish it to be, until we have two back to back quarters of negative growth than we can use the "R" word. Until then what you said is a lie.
how is it a lie that goes right over my head
"The financial system stands at the center of the US economy; it takes savings from the public..." That sums it up pretty good.
A recession? NOPE! He didn't use the word, so the recession is avoided.
Just like the Bush Admin sucessfully staved off civil war in Iraq by refusing to refer to Iraqis killing Iraqis as a civil war.
Just as effective, just as telling.
The Republicans were hoping their fantasy-based economic policies would stave off the disaster until the election - it looks like they aren't going to make it. The silver lining is that maybe voters will start to pay attention to the transfer of wealth from the poor to the rich and finally do something about it.
Solution? Baby bonds!
Oh, wait, that was Hillary.
Solution? Using our Chinese credit card to build infrastructure! Thanks Obama. All we need now as we've crested the hill and are heading down is to step on the gas.
Posted April 3, 2008 | 07:32 AM (EST)