Two bits of news in the last couple days. One, Ben Bernanke, Chairman of the Federal Reserve, has decided to extend Operation Twist, a policy whereby the Fed sells short-dated government paper in order to buy the longer-dated sort. It sounds boring but it involves $267 billion, so it's kind of consequential all the same. Oh, and traders warn that the disappearance of the Fed's holdings of short-dated government paper could gum up those markets, thereby causing costs greater thany any likely benefit. But still, mere reality doesn't deter Bernanke, who asserts, "We are prepared to do what's necessary. We are prepared to provide support for the economy. Additional asset purchases would be among the things that we would certainly consider if we need to take additional measures to strengthen the economy."
So: $267 billion of your money is being put at risk on a complex long-dated debt operation of dubious benefit, while the leader of that operation comments that much more money might be needed down the road. That's news item one.
News item two: Moody's announced a mass downgrade of American and European banks. Goldman Sachs and Morgan Stanley took a hit. So did Bank of America, JP Morgan and Citigroup. So too did a raft of European banks, including some of the biggest. The markets didn't react much to these downgrades, but only because the credit failings of these banks has long been baked into the price. Credit default swaps on two nationalized British banks, RBS and Lloyds, are already priced at junk levels. Anything Moody's says now is like a punch line delivered long after the party guests have departed. In reality, the truth is probably worse even than Moody's is suggesting. Many of these banks will see further downgrades, some of them sharp, before this crisis is done.
Now these things are connected. They're connected in the simplest of ways. The central banks are committed to a policy of debasing the currency, manipulating interest rates and artificially inflating asset bubbles. Meantime, the Western financial system is in parlous shape. Well, duh! Of course. You don't fix lousy banks by printing wild sums of money to prop up the markets. You fix lousy banks by writing off bad loans, forcing shareholders and creditors to take the hit. You clean up and move on. It's so obvious a child could see it.
But not Ben Bernanke. Part of the problem is a kind of academic groupthink. Two of the world's leading central bankers are Ben Bernanke of the Fed and Mervyn King of the Bank of England. King was a visiting professor at Harvard and then MIT, where he shared an office with the then Assistant Professor Ben Bernanke. They come from the same intellectual hutch, the same narrow world-view.
And please note, that world view is born of academic theory, not practical reality. It's born of an obsession with the Great Depression in the 1930s ... forgetting that everything, but everything, has changed since then. Back then, trade was limited, international finance modest, government finances strong, consumer credit exceptionally low, derivative markets all but non-existent. Not one of those things is true today. Government finances are shot to hell. Derivatives markets have bcome too big to regulate and too vast to fail. Consumer credit is terrifying. And the whole world is connected in one lethal stew of poor credit, mistrust and non-disclosure of losses.
So let's keep this simple. I argue the Great Depression has almost nothing to teach us. The academic central bankers who have guided us into this crisis, and have been printing money throughout it, are only making the problem worse. The mess our banks are in is in large part due to the failures of these same central bankers, the like-minded Nobel laureates and the same old recycled economic advisors.
The recipe for recovery is simple too. You need to rip the bandages off. It'll hurt, but the patient will get better. Banks (and central bankers) need to face up to their losses. If shareholders and bondholders have lost money, then tough. Why on earth should taxpayers pick up this tab? Because the banks have hired expensive lobbyists to purchase politicians' favor? I don't think so.
We are currently in the midst of a major depression. Unemployment (measured by U-6) is at almost 15%. The economic projections in the White House's budget are clearly powered by the kind of substances that President Clinton once smoked (but did not inhale). The government deficit is in meltdown, yet hasn't remotely engineered the kind of growth-led recovery we had been led to expect.
I'm not surprised. Here on Planet Ponzi we hold these truths to be self-evident. That the Fed is becoming impotent; it's running out of bullets. The Fed is out of touch with reality, printing trillions of dollars without the consent of the people of America. That the Fed is taking on a giagantic risk position in long-dated securities, which will have catastrophic consequences if -- or rather when -- interest rates rise. That existing policies have clearly, plainly and unequivocally failed -- yet are still being implemented seemingly without end.
It's time for a change, and the change can't come too soon.
Follow Mitch Feierstein on Twitter: www.twitter.com/PlanetPonzi
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Maybe Mr. Gaither and Dr. Bernanke could hire some of the NASCAR mechanics to modify their printing presses to print US dollars and US Treasury bonds as fast as they need to print “fiat” money so that they will always have enough money to pay for all of the quickly increasing US government activities.
The discounts/interest rates offered by the public at public FED auctions to purchase our freshly printed US securities by people in industrialized manufacturing nations that have accumulated US dollars depends and reflects upon the confidence that the USA instills these foreigners by our economic actions and the US government financial ability to repay these US Treasury Bonds when they become due.
The Guv-mint issues trade-able $-denominated($-D) instruments in lieu of taxation to pay for agreed upon government services.
As does every country.
Private corporations issue trade-able, $-D instruments in lieu of corporate equity in order to maximize their profit potential.
What the government does not do is run the printing presses of the nation's money supply, however measured.
That is a private function in control of the bankers for the last hundred years.
Government debt represents private savings - of the buyers of the debt.
In the case of foreign buyers, it represents their desire to hold an interest-bearing security versus the dollar itself.
ALL $-D debt, government and private, represent future claims on the national economy, including Credit-Default Swaps.
The amount of private $-D debt is many, many times the government debt.
What exactly is your point here?
Thanks.
I forgot about the Indian Rupee, the Pakistani Rupee, or the Brazilian Real which will also have purchasing power after the US dollar purchasing power is destroyed with the US government deficit spending since those nations (or their industrial manufacturing businesses and industries) are creating wealth instead of consuming wealth instead of consuming wealth as the USA is doing.
The value of the Euro, Yen and Pound Sterling are also being destroyed by their respective government's deficit spending, anti-manufacturing and anti-business economic laws and policies, just like the USA is destroying the value of the US Dollar.
Duh .. Bernanke has said this on so many occasions I'm at lost as to why it's news. For the longest time Bernanke has been taking the position that the fed has done all it can do holding the economic philosophy that it does. It is practically begging someone to save it from itself. Still people stand outside wringing their hands and crying for them to do something. They can't. They are trapped in an orthodoxy that claims free trade and growth as the mechanism that solves this crisis and it won't work.
The Fed finally realizes that it takes monetary policy and import rate policy to regulate this economy. They can't say "raise import rates to increase domestic demand". And congress continues to freetrade us into bankruptcy expecting a pat on the head.
It is like watching a child cling to a blanket that can bolonger keep him warm
And replace it with what?
http://kucinich.house.gov/uploadedfiles/need_act_final_112th.pdf
The Money System Common
I think Bernanke sees risk of higher interest rates in the near future and what he is trying to do is to avoid an interest rate shock when these short term bonds mature. He is kicking the can down the road. If you're a bond investor, here's your sign.
A huge portion of the world's economy is now siphoned off to hide in places like Panama and the Caribbean. This is true for the U.S. and countries like Greece. If these illicit operations were closed, Bernanke's (and the Greek's) job would be much easier.
The British Virgin Islands (BVI) is home to only about 30,000 people, but BVI is used by more than 457,000 shell corporations, most little more than post office boxes (1). Romney's Bain Capital has once of these shell corporations in the Cayman Islands. Bain's "office" is in a small office building called Ugland House. This office building is shared by more than 19,000 other shell corporations (2).
If the world were truly as poverty-stricken as some would lead us to believe, why have the number of mega-yachts grown by more than 400% in just the last fifteen years? (3)
References:
1. http://www.nytimes.com/2012/05/06/opinion/sunday/these-islands-arent-just-a-shelter-from-taxes.html
2. http://www.foreignpolicy.com/articles/2012/01/24/house_of_19000_corporations
3. http://www.msnbc.msn.com/id/25804188/ns/travel-luxury_travel/t/where-big-boys-go-berth/
http://fcic-static.law.stanford.edu/cdn_media/fcic-reports/fcic_final_report_chapter8.pdf
Every year we PAY $388 BILLION dollars for their effort in printing this PAPER...AND its all by DESIGN...
I do not believe that we could fire Bernanke...he and the Bank of England own us. and as a quick follow up CHINA has a hand in the pie as well since we owe them 4 TRILLION.
so its off to work we go to pay the robber barons.
from where do you get your info?
I thought the government provides the currency bills to the Fed banks at the cost of printing the "paper" money.
How does BoE get interest on our paper money, please.
Thanks.
The Fed prints money and charge us for the paper when it is put into use it creates more debt which we pay interest on which goes to the BOE.
maybe this will help: http://www.youtube.com/watch?v=fEqkphVOkHc
What is the primary function of the Bureau of Engraving and Printing?
"The mission of the Bureau of Engraving and Printing is to serve as the Federal Government's most secure and efficient source of vital Government securities. The BEP manufactures the financial and other securities of the United States. Accordingly, the BEP designs, prints, and furnishes a large variety of security products, including Federal Reserve Notes, Treasury securities, identification cards, naturalization certificates, and other special security documents."
Source BEP - FAQs.
Yes, Treasury Bonds create an interest-bearing debt from the government to the buyer of the bond, regardless of who prints the Bond.
Whoever prints up the Bond 'instrument', be it BEP or Goldman, only gets paid for the printing services, and does gain the profit from the Bond.
We pay interest to the Bond-(buyer)holder, not the Bond-printer.
I feel sure Bill Still would agree.
Thanks.
"Mr. Chairman, we have in this country one of most corrupt institutions the world has ever known. I refer to Federal Reserve Board, and Federal Reserve Banks, hereinafter called the Fed. The Fed has cheated the Government of these United States, and the people of the United States, out of enough money to pay the Nation's debt. The depredations and iniquities of the Fed has cost this Country enough money to pay the National Debt, several times over (poison). Some people think that Federal Reserve Banks are United States Government institutions. They are not Government institutions. They are private monopolies, which prey upon people of these United States,
more: http://www.freedom.org/board/articles/veon-506.html
But the Fed Act was passed, signed on the 23rd, not the 24th.
We have lost our freedom to private banks that create money out of thin air and enslave the common man to a life of debt. If we are to be indebted let it be to our country and not the bankers.
"The States should be applied to, to transfer the right of issuing circulating paper to Congress exclusively, in perpetuum." --Thomas Jefferson
"[The] Bank of United States... is the most deadly hostility existing, against principles and form of our Constitution... , penetrating by its branches acting by command and in phalanx, may, , upset the government. I deem no government safe which is under the vassalage of any self-constituted authorities, or any other authority than that of the nation, or its regular functionaries. What an obstruction could not this bank of United States, with all its branch banks, be in time of war! It might dictate to us the peace we should accept, or withdraw its aids. Ought we then to give further growth to an institution so powerful, so hostile
Take back the money system.
As Lincoln said, it is the supreme prerogative of the government, and of a sovereign people.
http://www.monetary.org/wp-content/uploads/2011/10/HR-2990.pdf
http://abolishthefederalreserve.org/
Those that lose in the big casino.....er Wall Street, world stock markets, and big banks.....want the taxpayers to pay for their losses.
****So far, THAT is what they are doing.
Please answer a simple question: what's a dollar?
Please tell me the value of a dollar, starting from first principles of barter trade. As it behooves one who is firmly rooted in practical reality, not academic discussions.
"Government finances are shot to hell. Derivatives markets have become too big to regulate and too vast to fail. Consumer credit is terrifying. And the whole world is connected in one lethal stew of poor credit, mistrust and non-disclosure of losses."
Now, given this, tell me the value of one barter dollar. Go ahead. Take your time.
Actually, come to think of it, from where is the term "barter dollar" derived?
From BarterWorks.org FAQs
What is a Barter Dollar?
A Barter dollar exists only as an account entry on the System. You can't physically touch a Barter dollar because no bills, notes or coins are issued.
A Barter dollar is considered to have the same value as a federal dollar. However, it is used only within the BarterWorks system; it never leaves the system and has no value outside of it. It cannot be converted into cash but rather is used along with cash.
Or, HERE, about BCI currency.
http://www.barterconsultants.com/accounting.cfm
Or, is this a trick question?
Of course you can't convert it into cash. That's the whole point. Ultimately, in some extremely elaborate and implicit sense, everything must be reducible to barter dollars, however. My point was that with all the confusion going on right now, we're not at a moment where this translation is easily accomplished. Hence it's not very helpful to complain about Fed actions on the basis of some theory whose presuppositions are evidently not valid at this moment.