Time to End "Bernanke Panky?"

Deplore as he must the current minor Internet buzz about abolishing the Federal Reserve Board or impeaching its leaders, Fed Chairman Ben Bernanke must have a grudging historical sense that 75 years ago, such chastisement might have been appropriate.

Back in 2002, Bernanke, then a Fed Board member, told a Chicago meeting that the group's honoree, octogenarian economist Milton Friedman, had been correct in blaming the Fed for the Great Depression. "You're right," Bernanke told Friedman and the rest of the audience. "We [the FRB] did it. We're very sorry. But thanks to you [Friedman's analyses and teachings], we won't do it again."

So, if recent Fed policies of blowing monetary bubbles and then bailing out the most reckless Wall Street institutions in fact "do it again," albeit through a different economics, is Bernanke ready for a new round of 1932-style talk about abolishing the Fed or impeaching its leaders?

Perhaps he should be. At least three aspects of Bernanke's Fed chairmanship over the last two years -- the J.P. Morgan Chase-Bear Stearns bail-out, his subservience to Treasury Secretary Henry Paulson, and the Fed's decision in 2006 to stop publishing M3 money supply data that mocked its insistence on "anchored" inflation -- have generated major controversy.

Extra-legal Bernanke Behavior in the March J.P. Morgan Chase - Bear Stearns Bailout: Former Fed chairman Paul Volcker, a recognized pillar of U.S. finance, has opined that the Fed took "actions that extend to the very edge of its lawful and implied powers, transcending in the process certain long-embedded principles and practices." Moreover, the statute under which Bernanke purported to act required affirmative votes from five Fed Board members, and Bernanke procured only four. Other critics contend that the bail-out was really on behalf of J.P. Morgan, which could have been pulled down by the impact on its holdings of a Bear failure. In this view, the $29 billion loaned to finance the deal was legally a usurpation of Congressional appropriations power.

Bernanke and the President's Working Group on Financial Markets: Since this outfit, CIA-like in its official but also clandestine nature was set up in 1988, rumor has made it a backstage and unauthorized financial markets participant in crisis periods. The March episode may well be another example. Treasury Secretary Paulson is the Working Group's big capo in Washington, not Bernanke. Indeed, bipartisan leaders of the Senate Finance Committee expressed open concern that Paulson had told Bernanke what to do. Furthermore, although Bernanke testified to Congress that he didn't know about the grave Bear Stearns financial situation until March 13, it turns out, from Freedom of Information Act disclosures, that he may well have known. On March 11, Bernanke and another bail-out architect, New York Fed President Tim Geithner, lunched with representatives of every big Wall Street firm except Bear Stearns. The financial website Monkeybusinessblog.com assumes that Bear people were not on hand because it was their own situation being discussed.

Bernanke, Inflation and the Suppression of M3 Money Supply Data: In November 2005, several weeks after Bernanke was named as chairman, the Fed announced that publication of the broad "M3" money supply data would be discontinued in March 2006 because it was "duplicative." It wasn't, because the M3 measurement is much broader than the other two yardsticks (M1 and M2). More importantly, over the last two years, M3 has ballooned to a 15-16 percent annual growth rate. These no longer official computations mocked Bernanke's pretenses that inflation was low and under control. Indeed, the investment firm of Stifel Nicolaus just published charts showing how closely the 2001-2008 oil price surge has related to the galloping growth in M3. Here, too, the legal question becomes: What did Bernanke know about inflation and the suppression of M3 and what was his personal involvement?

Given that the embattled chairman has the big guns in Washington and a grateful Wall Street on his side, he probably has little to fear. For example, House Financial Services Committee Chairman Barney Frank, a leading pro-bailout Democrat, told the Wall Street Journal that "I don't think that changing the agenda of the Federal Reserve is going to be high on any new president's agenda. I think people think Bernanke is doing well."

People as in "the American people" or people as in big Democratic and Republican donors? One must assume the latter. Right after the Bear gambit, Britain's Financial Times reported that U.S. poll data showed the public opposing bank bail-outs by 4:1 ("U.S. Home-owner Bail-out Hits Resistance," Financial Times, April 2).

Herein lies the warning. Search the Internet for a conjunction of Bernanke or the Federal Reserve with impeachment, you don't get much beyond one or two quirky financiers and the official website of the maverick Republican presidential contender, Congressman Ron Paul of Texas, who favors U.S. withdrawal from Iraq and abolition of the Federal Reserve Board. Paul has no use for either anointed GOP nominee John McCain or the party establishment. However, he does have support from a tenth or so of the Republican electorate. And should Paul signal his followers to back this year's presumed Libertarian presidential nominee, former Georgia Congressman Bob Barr, some pundits think the latter could take 2-3 percent of the November vote, siphoning off enough disgruntled conservatives to beat McCain.

Could the impeachment of Bernanke become a 2008 issue? I doubt it. Congressman Paul, as a member of the House Financial Services, probably knows that back in 1932, Republican Congressman Louis McFadden of Pennsylvania, a longtime Chairman of the House Banking Committee, made a fool of himself with a resolution indicting the Federal Reserve Board for its actions, and then later switched focus to impeachment. The hidden irony is that Bernanke, philosophically, must empathize with frustration with early 1930s monetary policy.

In 2008, however, a more restrained critique could be effective. If Paul and Barr de-emphasize the fringe Libertarian stuff -- marijuana legalization and such like -- and go straight for the jugular of Iraq bungling and its effect on oil prices, along with Federal Reserve misbehavior, they might have a shot at that 2-3 percent. Moreover, even if Barr drew only 1.4 percent, say, on a national basis, he could do better in five swing states -- Ohio, Florida, Colorado, Nevada and New Mexico -- where sensitivity to the housing bubble and mismanaged mortgage crisis runs especially high.

Volcker, the grand old man of U.S. monetary policy, has told audiences that he doesn't believe that incumbent Fed chairman Bernanke will be reappointed by the next president. He certainly won't be if the integrity of his behavior in office becomes a significant 2008 campaign issue.

Comments

[Jules1]

I have watched Aaron Russo's " American Freedom to Fascism" it was a very scary video, but eye opening about how we are being used and abused by the Fed and IRS and the Bush Administration.............we should revolt and have our own Boston Tea Party, this is what Ron Paul is trying to get done I have heard......................

[bubbathehatesponge]

I had seen the photo taken in late August 2005 of Ben Bernanke, Don Rumsfeld, Chertoff, Dick Cheney, Rice and Bush sitting around a table planning for what to do after Katrina struck New Orleans. (Remember the world watched Katrina approach NOLA for almost 10 full days). Ben at the time was Bush's "financial adviser" in the same light of Miers being his personal legal advisor....basically the who's who of hate, criminality, death, despair, and destruction on a global scale. Once I saw this person, Ben Bernanke giving ideas about land grabs, price gouging, increasing oil costs and saying it was "the storm", cutting off media, installing Joe Allbaugh then head of Blackwater and former head of FEMA during 911 as security, I knew Mr. Bernanke would go far. (As we have seen 1000's of times before to be promoted within BushCo it is essential to commit horrific crimes to show loyalty).

One month later, Ben Bernanke is nominated as Fed Chairman. All I thought at that time in Oct 2005 was "what can one person do to commit and cover-up the most horrific crimes imaginable as a Fed Chairman?" One can only imagine what treasonist ideas this man came up with to get that spot. Wait.....just look at the results of Katrina and maybe we can try.

[kestudi]

Thank you for your article, Mr. P: I am pleased that FUNDAMENTAL issues of monetary policy are seeing the light of day in this forum. Don't let up! The good guys need an "echo chamber" just as much as the bad guys, these days!

The inflation issue has been puzzling me, because it is so difficult to attribute the recent ramp-up in prices (oil, food, or otherwise) to one specific cause. Has anyone an idea as to what proportion of the general increase in prices is a result of monetary inflation, and what proportion is due to an increase in worldwide demand?

[drkazmd65]

Damned fingers and inability to proofread!

That last line of my last post should have read "NOT in the sense that the Bushies have twisted it."

[drkazmd65]

Mr Phillips,.... as a Liberal, but mostly fiscal conservative, I thank you for your books and your writings in general. Another excellent post btw.

You are proof that there is nothing inherently wrong with being a Conservative in the true sense of the word - nor in the sense that the Bushies have twisted it.

[zizyphus]

I believe the American public is deliberately kept ignorant about the Fed. The average person would probably say that the Fed is an agency of the federal government (results of my informal poll). The average person must think that they are working to help the American people stay out of another Great Depression. The average person would be very wrong.

They drove us into that depression just as surely as their corrupt policies are bringing on the next big depression. Their policies are designed to benefit the banks, now a cartel of racketeers, and keep it possible for the black market economy, the trillions that are off the books, to keep the hedge funds awash in black market cash from drugs, slaves, and arms sales.

Aaron Russo's film Freedom to Fascism gives a clear-eyed look at the Fed.

[marignymitch]

I think the average person would say 'Wha?'

And I think Wall Street and Fed like it that way.

[zizyphus]

I am hoping a charismatic leader will take on the issue of the Feds dirty dealings and educate the public about what these creeps are up to. Then lead a national movement to abolish the FRB, and print our own money again. Who this might be is unclear at this point, but we can hope! This issue is so crucial, yet so hidden from the public's awareness. How dare they take my tax money to bail out Bear Stearns for their bad gambling debts. I wish someone had bailed me out when I lost thousands in the market after 911. But I am just a human being, not a special, important corporation, whose rights seem to exceed those of humans.

[Henry]

The big issue is this: The difference amongst central bank rates from Japan, USA, and EU. The range is from 0.5% to 2.0%, to 4.0%. This permits a "carry-trade" that blindfolds the invisible hand distorting market decisions.
The upshot, of course, is that globalism will require a coordinated money system amongst member countries. So... this business about impeaching the fed is yesterdays news. The future is going to require a massive rethinking and restructuring of culture, nationalism, and sovereignty. Hold on... it's comin. Iraq was consistent with the one world order...ours.

[joebhed]

Henry,
damn, I agree again.
There is a one-world-order move to take the US into a monetary union as a means of supporting the dollar.
What we need is exactly the cooperative approach "among free nations" you have called for.
Hang on to that notion.

[TexasSteve]

"Blindfold the invisible hand", that's rich! Thanks for the laugh...

[WIpatriot]

Right you are, Henry. "Blindfolding" the invisible hand always results in the invisible finger.

[bobo209]

AIPAC and Iraq
It has become relatively fashionable for some members of the Israeli lobby to deny any involvement in the build-up towards the war on Iraq. But few remember what AIPAC executive director Howard Kohr told the New York Sun in January 2003: "Quietly lobbying Congress to approve the use of force in Iraq was one of AIPAC's successes over the past year."

And in a New Yorker profile of Steven Rosen, AIPAC's policy director during the run-up to the war on Iraqi, it was stated that "AIPAC lobbied Congress in favor of the Iraqi war".

Compare it with a 2007 Gallup study based on 13 different polls, according to which 77% of American Jews were opposed to the Iraq war, compared to 52% of Americans.

Walt and Mearsheimer contend "the war was due in large part to the lobby's influence, and especially its neo-con wing. The lobby is not always representative of the larger community for which it often claims to speak."

[joebhed]

Kevin Phillips is The Man.

I would like to remind readers again that the charges leveled by Congressman Louis McFadden of Pennsylvania against the FED and SecTres included:
Conspiracy, Fraud, Unlawful Conversion and Treason.

Mr. Phillips posting should begin a new era of monetary education in this country.

He mentions Ron paul, who I admire at a certain level.
Unfortunately, he has no plan for a proper monetary creation and management system of, by and for the people - as the Constitution requires.
Every opening I made to Ron Paul's campaign convinced me that he would support a return to Wildcat Banking, and letting the chips fall where they may, as do many Libertarians and all Austrian economists.

People need to be educated about the Chicago Plan.
People need to know that the FED system was foisted upon this country by a bunch of European bankers, while America was thinking about their Christmas presents in 1913.
Read Douglas' "Economic Democracy".

Both Conservatives and Progressives opposed the private bankers' money-creation powers in the evolution of this incredible profit-making scheme against the people.

With Barney Franks in the Bernanker's pocket, Liberals better get their head out of their arses and wise up.
See:
http://www.neweconomics.org/gen/uploads/CreatingNewMoney.pdf

[sophistwatch]

Perhaps if the public saw in print the true drag coefficient on our economy directly attributable to the FRB and its activities, sufficient concern could generated to start a national dialog on this issue.

Your theory about Dr. Paul and Congressman Barr mounting a joint effort to hedge against a McCain victory could, indeed, be effective. I think Obama should drop hints that he is willing to consider Paul as a possible Secretary of the Treasury.

Additional support should be sought from people like Paul O'Neill, Warren Buffet and others seen as rational and reputable fiscal conservatives.

The true fiscal conservatives in all parties would likely be happy to support sound policies that embrace the value of fundamentals.

If you could convince Paul and Barr to adopt and promote your position on manufacturing, I think it would go a long way towards bundling and selling a common sense approach to high finance problems with an emphasis on job creation.

Thank you for your insight and straight forward approach to this very important issue.

[Marlyn]

" I think Obama should drop hints that he is willing to consider Paul as a possible Secretary of the Treasury. "

or how about Kevin Phillips?

[sophistwatch]

But of course. I think Mr. Phillips is a more qualified choice for TS, but there are other places for him that would make better use of his talents.

Let's say, for example, as the director of the President's Working Group on Financial Markets. My suggestion for Dr. Paul as Secretary of the Treasury is based on the political capital associated with his recent popularity. In my estimation, Dr. Paul would be more effective at "siphoning" votes from McCain.

[AnnoyedCanuck]

Ron Paul as Treasury Secretary?

How would that work when Paul wants to abolish the Fed, eliminate income tax and most of the current functions of the US Treasury?

Do yourself a favor and read what the US was like in the 19th century, back before anti-trust laws, financial disclosure requirements, the SEC and insider-trading regulations, and the creation of a lender of last resort for banks. The economy was a roller coaster, exponentially more volatile than today. Speculative bubbles and conflict of interest were the order of the day. There were absolutely no restrictions on corrupt corporate practices.

The results? Extreme inequities in wealth distribution, and exaggerated cycle of boom and bust.

No thanks.

[therealredstateblues]

How is that any different from todays bubbles, insider trading, inequalities of wealth and roller coaster rides?

[joebhed]

Actually, those policies of Ron Paul are close to being achievable.
But, unfortunately Ron Paul is not the Money master.
The Canuck is right.
Read up on Wildcat Banking.

Mr. Paul HAS NO PROGRAM, beyond abolishing the FED.
Were he a supporter of the Sound Money policies advocated by monetary reformists, we could go a long way to ending the income tax.
Because he has a national platform.

But such reeform would require the bringing forth of a new debt-free money system, with the government creating all new money rather than borrowing it from the private bankers, who create it out of thin air with the stroke of a pen.
And, their right to do that was created with the stroke of another pen.
And we can either remove that right and restore it to the American people where it belongs, or we can sit by and watch this country get sucked up into the new world order of the international financial capitalists, and call it a day for America.

The most essential principle:
"Sound monetary reform requires the issuance of all money (legal tender) by the State, exclusively; in amounts calculated to stabilize the general price level; without debt obligation to private persons; with all lending to be performed by private legal persons, exclusively; while safeguarding the widespread ownership of private property."

Government issue of credits.
Inflation-free and Debt-free money.
100 percent reserves for private bankers.
Increased private property ownership equals more, freer enterprise.

[Shaddup]

And nobody ever mentions that we pay taxes to pay off "interest" to the fed. Tear up that credit card.

[faust2001]

The oligarchial kleptocracy chugs ahead full bore. Impeach them all!
As far as marijuana legalization being a fringe issue, the ratio of Americans who support legalization must be close to the ratio you quoted of those who oppose bailouts. And I say this as a non-user. We are all sick and tired of regulations for citizens and not for banks.

[UncensoredReports]

The Great Oil Swindle

How much did the Fed really know?

By Mike Whitney

The great oil crunch is another fabricated crisis; another "smoke and mirrors" fiasco; another Enron-type shell-game engineered by banksters and hedge fund managers. Once again, the bloody footprints can be traced right back to the front door of the Federal Reserve. According to a January 4 editorial in the Wall Street Journal: "If the dollar had remained 'as good as gold' since 2001, oil today would be selling at about $30 per barrel, not $99. (today $126 per barrel) The decline of the dollar against gold and oil suggests a US monetary that is supplying too many dollars." Wall Street Journal 1-4-08 (I.E. The "fed" has been printing them out 24/7 since 2006)
http://www.informationclearinghouse.info/article20011.htm

[UncensoredReports]

The "fed"("federal"reserve) has been at the root cause of EVERY war, depression, resession, & inflation that America has EVER suffered, since even before they were the "fed". The "fed" is NOT part of our government, they are a private-for profit entity that capitalizes on human misery & by causing human misery.

The birth of the "fed":

In 1913, a group of bankers cooked up a scheme to rob America. They usurped the ability to print our money, printed up a bunch & used it to make loans on margin (could be called in at any time & once called in, had to be paid off in 24 hrs or face forclosure). They printed up money untill the dollar was seriously devalued then, called in the loans which caused a run on the banks which combined with the devalued dollar caused the "great" depression. They then took money OUT of the economy so that money was hard to find. The "fed" & "fed" type money-as-debt bankers were able to by up businesses, properties, etc, at PENNIES ON THE DOLLAR.

America's industrial base helped pull America out of the depression.

They also printed up a bunch of money out of nothing, & loaned it to the government then set up the (never properly ratified, twice supreme court ruled-[back when we had an HONEST supreme court]- UNCONSTITUTIONAL) income tax to pay STRICTLY the INTEREST on the FICTICIOUS DEBT.

[connski]

NOTHING philosophically equates democracy with capitalism -however believers in "markets" would have us think. America is now a plutocracy - the government exists to protect the rich. Paulson and Bernanke (and perhaps others) engineered the Bear bailout for which the people take risks but don't pocket the gains. IT IS A FALSE ARGUMENT that the people must pay a price to keep Wall Street afloat. Why not say "democracy is a casino"? Paulson's statement that Americans who abandon their mortgages due to falling value of their home are speculators shows his contempt. Goldman Sachs made millions speculating that the securitization of mortgages would fail. According to Paulson, speculate and gain - "everybody loves a winner", speculate and loose and you're a fiscal sinner!!!

[therealredstateblues]

Exactly - its all about socializing the risks and preventing the wealthy from becoming less wealthy

[Jules1]

This is all very true, so how do we as common folks stop it??????????????

[UncensoredReports]

You HAVE to see these:
http://www.kickthemallout.com/article.php/Banking_And_Curency

The zeitgeist (part3) shows how the fed DELIBERATELY caused the GREAT DEPRESSION.

[dadumdee]

I have yet to hear a rebuttal for zeitgeist. Its amazing to see the stuff that is covered in part 3 play out in the news. I saw zeitgeist before the bear-stearns bailout, so watching a private company be bailed out for shitty decisions, by another private company using the American taxpayer as collateral, is unAmerican.

[WIpatriot]

Sure the hell is.

[elbzee]

It took me a long time to digest. And, frankly, I'm still pretty nauseous. So, this has been going on for a long time. It's been known by some people for a long time. How is it that has been allowed? Exactly how do we stop it? Good God, it just keeps getting uglier and uglier.