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A Most Desperate Move by the Fed
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Prof. Rodrigue Tremblay
Global Research
December 18, 2008
"In a crisis, discount and discount heavily."Walter Bagehot (1826-1877), British economist
"I believe that banking institutions are more dangerous to our liberties than standing armies. Already they have raised up a monied aristocracy that has set the government at defiance. The issuing power (of money) should be taken away from the banks and restored to the people to whom it properly belongs." Thomas Jefferson (1743-1826), 3rd U.S. President.
"By this means [printing money] government may secretly and unobserved, confiscate the wealth of the people, and not one man in a million will detect the theft." John Maynard Keynes (1883-1946), British economist
On December 16 (2008), the Bernanke Fed took the most unusual step of lowering the overnight inter-bank lending rate, the federal funds rate, to a level never reached before, i.e. zero percent with an upside limit of 0.25 percent. It also announced that it will buy “large quantities of” mortgage-backed securities and is considering doing the same thing with Treasury bonds of longer maturities, in order to lower the entire yield curve. What it did not say explicitly is that the Fed is ready to debase the U.S. dollar to artificially low levels in order to reflate the U.S. economy. What the Fed wants is to trigger monetary inflation and change deflation expectations at all costs through large-scale debt monetisation and thus floating excess debts in a sea of newly created money.
Overall, what the Fed has done, in effect, is to announce that it is suspending the normal functioning of private credit and capital markets, according to supply and demand, and has decided to micro-manage such failing markets for the foreseeable future, that is to say as long as deflationary pressures, in its own view, persist in the U.S. economy. The Fed is also taking big chunks of ownership in large private U.S. banks in order to recapitalize them and to let them deleverage themselves in an orderly way.
People may want to know why the Fed went to that “socialist” extreme and what will be the financial and economic intended and unintended consequences?
- A d v e r t i s e m e n t
First of all, let’s keep in mind that the Fed is the only central bank in the world that is partly public-owned and partly private-owned. Bankers sitting on the Fed board can make decisions to lend new money to themselves at whatever rate they choose. The entire American financial and fiscal system is run by bankers, either at the Fed or at the Treasury. Indeed, beginning on January 20 (2009), the Obama administration’s Treasury Secretary will be the current president of the New York Fed, Mr. Timothy Geithner, who will be replacing Secretary Henry Paulson, himself a former CEO of the Wall Street investment bank Goldman Sachs.
Although the U.S. President initiates and Congress approves the nominations of the seven members (currently only five in exercise) of the Federal Reserve Board of Governors (for a 14-year term), the de facto managing of the Fed is left to bankers. This is done through the Federal Open Market Committee (FOMC) which implements monetary policy through open market operations and other discounting policies and discount loans. It is comprised of the seven members of the Board of Governors and five presidents of the twelve Federal Reserve District Banks. The Chairman of the Fed Board is also the Chairman of the FOMC. The President of the New York Fed is always on the FOMC and acts as its Vice Chairman. [The remaining 4 fed member slots are shared and rotated among the remaining 11 District Banks. In fact, the presidents of all twelve Federal Reserve District Banks are present at the FOMC meetings, but only five are enabled to vote at any given time. But, since members of the Fed board often originate from the regional Fed banks or from private banks, bankers are often in the majority in deciding American monetary policy.]
Secondly, by taking over private financial markets, the Fed is, in effect, covering its own mistakes (and those of the SEC and of the U.S. Treasury) for having allowed the building up of a shaky pyramid of asset-backed securities (ABS), not the least being the toxic mortgage-backed securities, and the gambling-prone credit default swaps (CDS), that has been crumbling to the ground.
It is my feeling that the Fed, by creating a bond bubble, at this time is only postponing the day of reckoning and is buying time. When the bond bubble bursts, and believe me, it will burst, as all bubbles do, this will push the U.S. economy further down. For instance, when this happens, many capitalized pension funds could fail and many retirees could be then pushed toward poverty. Future spikes in interest rates will hurt investments and damage the economy even more.
Meanwhile, a bout of competing currency devaluations has been launched, since other governments and other central banks will have to try to debase their own currencies if they want to avoid importing the worst of the U.S. economic downturn. This will be reminiscent of what happened during the 1930s economic depression. Not a pretty perspective for the future of fiat currencies.
It seems that the Fed has an uncanny talent for creating financial and economic bubbles. In the late 1990s, after the Asian financial crisis and after the near failure of the hedge fund Long-Term Capital Management (LTCM), in September 1998, the Greenspan Fed flooded the U.S. economy with liquidity and created the 2000 tech bubble. The same Greenspan Fed aggressively lowered the Federal Funds rate from 6.5 percent to 1 percent in 2004, thus paving the way to the worst housing bubble in American history. Now, the Bernanke Fed is at it again, and, by lowering the federal funds rate to close to zero and by announcing that it stands ready to monetize U.S. Treasury debt, it is actively blowing into what has the appearance of one of the worst bond bubbles ever.
Of course, the Fed has bestowed so much money on banks in exchange for their bad debts while the banks themselves are unwilling to lend, that U.S. banks’ excess reserves at the Fed have exploded to more than half a trillion (November ‘08), which is ten times what is required. This is a sign that the U.S. economy is currently in a liquidity trap.
There is a lot of money in the system, but it is not circulating. The velocity of money is down. In such a situation of excess liquidity, when the Fed creates more liquidity, it is like pushing on a string. Therefore, by lowering short-term interest rates to close to zero, the Fed is helping itself before helping others, since it will be paying less interest on Banks’ excess reserves, most of which came from the Fed anyhow. Some of the excess liquidity can spill into the stock market and lift all boats for a while. However, the true test of the Fed’s recent desperate move will be if banks increase their lending. We shall know in due course.
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December 18th, 2008 at 11:33 am
Anything and everything except turning off the press.
As much as I think the liquidity to the people would do more help than going to the corporations.
The truth in this article is that they need to stop digging deeper.
The car is stuck, it is time to call a tow truck.
December 18th, 2008 at 11:36 am
GRAND THEFT U.S.A……………………………..
December 18th, 2008 at 11:41 am
Simon Cowell
is ugly and american idol is the worst form of shit.
i believe people are what they eat,like i was taught in school.
america is shit…so it will eat shit….or something like that.
@
December 18th, 2008 at 11:47 am
Interesting article, thanks.
December 18th, 2008 at 11:53 am
So heres the question… Does Helicopter Ben actually believe he is helping by throwing bags of money out the window, or is this intentional? Is he compartmentalized or in on this great Scam?
I guess we will find out when he testifies at his Patriots’ Trial.
December 18th, 2008 at 12:06 pm
So……now that all of this is happening, what are we going to do about it, what is a viable solution? How can we take ALL monetary policy away from the Congress (who contributed as much to the current financial crisis as The Fed did from its totally out of control spending, unprecedented spending and total theft of the Treasury) and from the Fed?
http://www.ericwhoRU.bravehost.com for SOLUTIONS
His proposed 28th Amendment would fund government in a way that would eliminate ALL TAXATION by funding the government through the interest taken out on all loans to private sector borrowers.
http://www.talkshoe.com *Eric WhoRU Teaches Basic Fundamental Natural Principles Show* (type in)
Eric defeated the IRS in less than 5 minutes I suggest you all go there and find out how he did it.
Eric WhoRU “From Fascism to Freedom” , Individual Political Sovereignty, a call to all Patriots!
http://www.ericwhoRU.bravehost.com
December 18th, 2008 at 12:07 pm
I’ve got dibs on being the bailiff at the Treason Trials=)
DTTNWO, LLTR
December 18th, 2008 at 12:26 pm
2009???
December 18th, 2008 at 12:41 pm
I’ve been hearing rumors and rumors and rumors…of early next year….Feb or Mar…
it all goes bust.
the Amero…will be here. banks are loading up on them now. my question is this….
they are saying they will give people 1/20 Amero for every dollar?….
will it be a 1/1 switch? I have heard absolutely NOT!
what economically will this do? how will our salaries, current indebtedness..etc…all factor in the equation?
anyone have any verifiable scoop on that..?
December 18th, 2008 at 12:50 pm
Would you give your money to a thief for safe keeping when you know that thief was also the one who robbed the bank ?
December 18th, 2008 at 1:28 pm
“The issuing power (of money) should be taken away from the banks and restored to the people to whom it properly belongs.” — Jefferson
I don’t want any group, big or small, to issue my money or decide it’s worth.
December 18th, 2008 at 1:52 pm
Y is that every time i look to see y my country is going down the tubes this burnake idiot is rite their. i dont like your face u crooked treasonous traitor, your on my shit list. a$$hole.
December 18th, 2008 at 2:10 pm
Fuck the FED and screw Washington DC as long as the FED is in operation. Washington DC has no authority over me as long as the FED stands. Abolish the FED then maybe you can start to re-earn my trust.
Kiss my ass private non Federal Reserve.
December 18th, 2008 at 2:25 pm
“Federal Reserve” sure sounds “federal,” doesn’t it?
December 18th, 2008 at 2:27 pm
Federal Reserve sure sounds “federal,” doesn’t it?
December 18th, 2008 at 3:36 pm
You think things are bad now? In the next 30 days Israel is going to bomb Iran’s nuclear facilities and the price of oil will spike back up over $150.00 per barrel. Ben can’t Stop that one from happening and his “Ponsi Scheme” will come crashing down as Hyper-Inflation takes off and sends the US into DEPRESSION!
It’s not a matter of “IF”, it’s just a matter of “WHEN” and we all know it will be before Obama becomes president! (Before Jan 20, 2009)
December 18th, 2008 at 4:05 pm
The federal reserve is as federal as federal express.
December 18th, 2008 at 5:34 pm
#11 energy blades? what planet are you from??? lol
December 18th, 2008 at 5:52 pm
“Bankers own the earth; take it away from them but leave them with the power to create credit; and, with a flick of a pen, they will create enough money to buy it back again… If you want to be slaves of bankers and pay the cost of your own slavery, then let the bankers control money and control credit.”
- Sir Josiah Stamp, Director, Bank of England, 1940.
December 18th, 2008 at 5:55 pm
Fight Back is a Fucking Fed FBI Or something anytime you see this type of post its the Feds trying to get you to fall into a sting. Any time you see this know its a Fed of some kind.
December 18th, 2008 at 5:55 pm
PAY ATTENTION TO THE DATES>>>>
December 18th, 2008 at 5:57 pm
“We are grateful to the Washington Post, The New York Times, Time Magazine and other great publications whose directors have attended our meetings and respected their promises of discretion for almost forty years… It would have been impossible for us to develop our plan for the world if we had been subjected to the lights of publicity during those years. But, the world is now more sophisticated and prepared to march towards a world government. The supranational sovereignty of an intellectual elite and world bankers is surely preferable to the national auto-determination practiced in past centuries.”
- David Rockefeller, Bilderberg Meeting, June 1991 Baden, Germany
December 18th, 2008 at 6:01 pm
“In the next century, nations as we know it will be obsolete; all states will recognize a single, global authority. National sovereignty wasn’t such a great idea after all.”
- Strobe Talbot, President Clinton’s Deputy Secretary of State, Time Magazine, July 20th, l992
December 18th, 2008 at 6:20 pm
how this for your thoughts with our government trying to bring back the fairness doctrine…..
“Once a government is committed to the principle of silencing the voice of opposition, it has only one way to go, and that is down the path of increasingly repressive measures, until it becomes a source of terror to all its citizens and creates a country where everyone lives in fear.” – Harry Truman
December 18th, 2008 at 6:33 pm
I am concerned for the security of our great nation, not so much because of any threat from without, but because of the insidious forces working from within. ~ General Douglas MacArthur
December 18th, 2008 at 6:35 pm
It is well that the people of the nation do not understand our banking and monetary system, for if they did, I believe there would be a revolution before tomorrow morning. ~ Henry Ford
December 18th, 2008 at 7:01 pm
Civil unrest is just another way of saying the nations political populations been awakened.
This is the best youtube I have ever seen about the bail-out and coming economic crash, starring lots of Ron Paul. Watch and Rate!!!
http://www.youtube.com/watch?v=8PIEGK0IbA4
December 18th, 2008 at 7:11 pm
Why don’t they just torch the American flag already and put a picture of the private non Federal Reserve building on it with credit cards and printing presses flying out of it.
December 19th, 2008 at 12:57 am
hey Fight Back,
There’s nothing to see here, so just go back to your nice cozy home, call your boss and tell him you found nothing.
December 19th, 2008 at 4:41 am
The revolution is coming soon, within a year…I can feel it…The sheeple are starting to wake up more and more. Although over 80% of americans still have no idea whats going on, and outta that 80% id say roughly half of em dont care and are consumed with their own lives…And then there is the sick people who agree with the NWO..I am very concerned with the fate of our nation, so far we are LOSING people, sad but true…I do have faith though when push comes to shove and people will have no choice but to understand whats going on because it will be so blatant, that national sovereignty will prevail, because our weapon is numbers and we do have them…All we can do now is inform as many people as possible…Im doing my part, I suggest you all do the same or within 3 or 4 years WE WILL LOSE…Lets do it people, get out there and dont worry about peoples responses. If they call you nuts, shake it off and keep spreading the word..
Resistance is our ONLY shot at even being alive a few years from now, I promise you
December 19th, 2008 at 7:58 am
I know that this isn’t the article in which to be placing this comment, but I felt that is was important nonetheless. I was listening to Alex yesterday when he was interviewing Tex Marrs. They arrived at the subject of luciferian hand signs and the Codex Magica. It was stated that world leaders and corporate CEOs often give this certain hand sign. I also know that Alex and many of us are Ron Paul supporters. However, I did a little investigating, and Mr. Paul flashes the same hand sign over and over. Here is the proof. http://www.youtube.com/watch?v=_x6inINzThw I would like Alex to address this fact.
December 19th, 2008 at 10:15 am
@ #32
Yeah, Ron Paul is a Mason, see his knuckle handshake in that video? His job is to confuse those who want freedom and to live with Liberty. He took all of our money, then spent it on a party for himself and Ventura, the guy he is bringing in to be the Patriot deceiver next. Of course, as a CIA operative, Alex Jones already knows all about this – but he ain’t telling you
December 19th, 2008 at 11:19 am
Notice his hand gesture the shape of a pyramid,just like Texe Marrs in his book,these elites are demons in human flesh,pure evil.
December 19th, 2008 at 11:20 am
Notice his hand gesture the shape of a pyramid,just like Texe Marrs says in his book,these elites are demons in human flesh,pure evil.
December 19th, 2008 at 12:40 pm
Ben is praying to Baal for a Baal out. Baal is Satan in the Old Testament.
December 19th, 2008 at 3:33 pm
america needs to take back the federal reserve, and get it out the hands of these private hands
December 19th, 2008 at 3:41 pm
#34, Ya should couch your propaganda a little, anyway!
You’re so obviously some Northcom mole or Nazi
plant you might as well sign your name: Adolph
December 19th, 2008 at 9:47 pm
In the article ‘Fed cuts key interest rate to record low: zero to 0.25%’ in the L.A. Times, it seems the fed’s actions are presented in a positive light. It makes it seems like the Fed was unwilling to make this move before due to the inflation caused by high energy costs. Now that the energy costs have come down it is safe to decrease rates to stimulate the economy or so the subtle implication goes. What is wrong with this view point? Could it not be the case that by buying all these toxic securities while keeping the economy moving the Fed is buying time for the securities it will hold to revalue? Why shouldn’t we stimulate the economy with a flood of currency if that currency can just be removed by open market operations if inflation gets out of hand? Isn’t this better than a deflationary spiral? I know we are in bad times right now, but isn’t this what a central bank is supposed to do? Isn’t it supposed to take control and soften the blow? I’m sure I’m going to be called a government agent by at least one person, but I’m just trying to understand all of this. Thanks.