Pat Garofalo
Oct 7, 2011
http://thinkprogress.org/economy/2011/10/07/338887/1-facts-biggest-banks
The Occupy Wall Street protests that began in New York City more than three weeks ago have now spread across the country. The choice of Wall Street as the focal point for the protests — as even Federal Reserve Chairman Ben Bernanke said — makes sense due to the big bank malfeasance that led to the Great Recession.
While the Dodd-Frank financial reform law did a lot to ensure that a repeat of the 2008 financial crisis won’t occur — through regulation of derivatives, a new consumer protection agency, and new powers for the government to dismantle failing banks — the biggest banks still have a firm grip on the financial system, even more so than before the 2008 financial crisis. Here are eleven facts that you need to know about the nation’s biggest banks:
– Bank profits are highest since before the recession…: According to the Federal Deposit Insurance Corp., bank profits in the first quarter of this year were “the best for the industry since the $36.8 billion earned in the second quarter of 2007.” JP Morgan Chase is currently pulling in record profits.
– …even as the banks plan thousands of layoffs: Banks, including Bank of America, Barclays, Goldman Sachs, and Credit Suisse, are planning to lay off tens of thousands of workers.
– Banks make nearly one-third of total corporate profits: The financial sector accounts for about 30 percent of total corporate profits, which is actually down from before the financial crisis, when they made closer to 40 percent.
– Since 2008, the biggest banks have gotten bigger: Due to the failure of small competitors and mergers facilitated during the 2008 crisis, the nation’s biggest banks — including Bank of America, JP Morgan Chase, and Wells Fargo — are now bigger than they were pre-recession. Pre-crisis, the four biggest banks held 32 percent of total deposits; now they hold nearly 40 percent.
– The four biggest banks issue 50 percent of mortgages and 66 percent of credit cards: Bank of America, JP Morgan Chase, Wells Fargo and Citigroup issue one out of every two mortgages and nearly two out of every three credit cards in America.
– The 10 biggest banks hold 60 percent of bank assets: In the 1980s, the 10 biggest banks controlled 22 percent of total bank assets. Today, they control 60 percent.
– The six biggest banks hold assets equal to 63 percent of the country’s GDP: In 1995, the six biggest banks in the country held assets equal to about 17 percent of the country’s Gross Domestic Product. Now their assets equal 63 percent of GDP.
– The five biggest banks hold 95 percent of derivatives: Nearly the entire market in derivatives — the credit instruments that helped blow up some of the nation’s biggest banks as well as mega-insurer AIG — is dominated by just five firms: JP Morgan Chase, Goldman Sachs, Bank of America, Citibank, and Wells Fargo.
– Banks cost households nearly $20 trillion in wealth: Almost $20 trillion in wealth was destroyed by the Great Recession, and total family wealth is still down “$12.8 trillion (in 2011 dollars) from June 2007 — its last peak.”
– Big banks don’t lend to small businesses: The New Rules Project notes that the country’s 20 biggest banks “devote only 18 percent of their commercial loan portfolios to small business.”
– Big banks paid 5,000 bonuses of at least $1 million in 2008: According to the New York Attorney General’s office, “nine of the financial firms that were among the largest recipients of federal bailout money paid about 5,000 of their traders and bankers bonuses of more than $1 million apiece for 2008.”
In the last few decades, regulations on the biggest banks have been systematically eliminated, while those banks engineered more and more ways to both rip off customers and turn ever-more complex trading instruments into ever-higher profits. It makes perfect sense, then, that a movement calling for an economy that works for everyone would center its efforts on an industry that exemplifies the opposite.
Showing posts with label Ben Bernanke. Show all posts
Showing posts with label Ben Bernanke. Show all posts
Saturday, October 15, 2011
Wednesday, June 22, 2011
HBO’s Too Big to Fail: Propaganda aimed at the US population
By Charles Bogle
1 June 2011
Directed by Curtis Hanson, written by Peter Gould and Andrew Ross Sorkin, from a book by Andrew Ross Sorkin
http://wsws.org/articles/2011/jun2011/toob-j01.shtml
In an interview, the Wall Street Journal asked Paula Weinstein, executive producer of HBO’s Too Big to Fail, about the problem she faced in creating a suspenseful drama about the 2008 financial crisis that “wasn’t too esoteric” for a general audience.
Her reply indicates some of the problems with this production: “Everyone in the country suffered from it [the financial crisis], so we treated it like a thriller, like it was a regular movie.”
The movie features a fine cast, and a few of the actors have been given characters with a degree of dimensionality. However, the filmmakers’ decision to make a “regular movie,” i.e., a formulaic one, results in the type of stale story of a valiant individual saving the US from an evil power (in this case, certain predatory elements on Wall Street) so prevalent in American political movies. Not only is the story stale in this case, it is also untrue.
Most damaging to the television film’s credibility and ability to grapple critically with the epochal 2008 crisis was the choice of former US Treasury Secretary Henry Paulson as the individual in question. In sum, Too Big to Fail is propaganda for the population presented from an upper-middle class liberal perspective.
Too Big to Fail focuses on Paulson (William Hurt) as he and other top financial figures (both within and without the Bush administration) respond to the September 2008 crash. Initially, they are certain the problem will be contained within the subprime mortgage market, but as stocks plummet and rumors spread of major investment firms failing, the White House and Wall Street clash over who should save the banking system: the government or the private sector.
Paulson’s efforts to maneuver Wall Street into saving investment bank Lehman Brothers fail, and the threatened collapses of Freddie Mac and Fannie Mae and the insurance firm AIG result in credit lines freezing. At the same time, in this version of events, Paulson experiences an internal conflict between his belief that government should not interfere with the private sector and the need to go to Congress for bailout money.
The conflict appears to be resolved when Paulson and Federal Reserve Board Chairman Ben Bernanke (Paul Giamatti) convince the major investment banks to buy 20 percent of AIG assets (the Fed will buy the other 80 percent) and successfully push the $700 billion cash injection, or TARP (Troubled Asset Relief Program), through Congress and into the banks. However, the film’s conclusion makes that resolution problematic.
As Lehman Brothers CEO Dick Fuld, James Woods portrays an individual transformed from an arrogant, self-centered tyrant into someone painfully aware that he is being “played” by much larger social forces. Three close-ups, the last one just before Fuld agrees to Lehman’s bankruptcy filing, express this transformation most convincingly.
Hurt’s Henry Paulson in the HBO production is basically a decent man faced with navigating America (and the world) through a crisis of catastrophic proportions. To those outside his immediate circle, he presents a resolute, no-nonsense persona; but to those closest to him, Bernanke and especially his wife, Wendy (Kathy Baker), Paulson expresses self-doubt and even feelings of helplessness. Hurt avoids the theatrics often found in such characters, and his Paulson is the more human for that.
The other main characters are largely one-dimensional, sometimes to the point of becoming invisible. Giamatti’s Bernanke displays none of the haughty, smartest-guy-in-the-room demeanor seen and heard at congressional hearings and on Sunday news programs. Instead, he is invariably deferential, wise but humble, and always concerned with preserving democracy.
Warren Buffet (Ed Asner) is a grandfatherly figure in one brief scene, he answers a call from Paulson while entertaining his grandchildren at an ice cream parlor. Billy Crudup’s Timothy Geithner is hardly a presence, mostly attached as he is to cellphones and MacBooks.
Making Paulson the heroic center of Too Big to Fail reveals a great deal. First of all, the filmmakers (director Curtis Hanson and writer Peter Gould) demonstrate a willingness to overlook a considerable amount of “anti-heroic” behavior in the Paulson biography before 2008. Throughout the movie, Paulson is played as a stand-up guy virtually incapable of backing away from a problem or opponent. At one point, his wife pleads, “You can’t take all this on by yourself.” “It’s my job,” he reminds her stoically.
Were it not for Hurt’s understated characterization, this scene would be almost comical. The real Paulson used connections to both leave the Nixon White House during the Watergate scandal unscathed (Paulson was an office assistant to John Ehrlichman, who spent 10 months in prison for his role in the crime) and gain a position at Goldman Sachs in 1974. Then, after being named chief operating officer at Goldman Sachs, Paulson orchestrated what amounted to a coup, according to the New York Times, to force out his co-chairman, Jon Corzine, and take the position of CEO.
Paulson, one of the most powerful figures in banking in the US, acted in the 2008 crisis and beyond exclusively from the point of view of rescuing the financial system on behalf of the American ruling elite. The central concern of both the Bush and Obama administrations has been saving the bankers whose practices led the world economy to the edge of the abyss and making sure the working population paid for this process. (That HBO’s Too Big to Fail ultimately originates with the New York Times’ Andrew Ross Sorkin, an apologist for the financial aristocracy and defender of social inequality, comes as no surprise.)
Too Big to Fail’s depiction of Paulson as a selfless government official strains credulity, to say the least. A brief reference to the enormous amounts of money he made while Goldman Sachs CEO is countered by a Paulson assistant with, “He sold all of his shares before becoming Secretary of the Treasury”! In fact, Paulson was required by law to sell his shares but was allowed to do so tax-free. He made $200 million in the bargain.
Ignored entirely is the role played by Goldman Sachs and Paulson in triggering a crisis that continues to devastate millions globally.
Of course, artists interpret historical figures, but the interpretation must begin with an objective, critical reckoning of the whole person. How much more interesting and valuable would Too Big to Fail have been had its makers done so and explored the social forces driving Paulson’s machinations?
The filmmakers’ upper middle class perspective ensures that no such exploration will occur. Turning the real Paulson into a courageous figure directs the viewer’s attention away from the White House’s complicity in the crisis and toward the secretary of the Treasury as a savior.
The movie portrays Paulson’s (and the White House’s) decision to bail out the banks as unavoidable. At the conclusion, Bernanke and Paulson have one of their frequent meetings. The Fed chairman turns plaintively to Paulson and says, “I just hope that they [the banks] do what we ask them to. I hope they lend it [the money] out.” Paulson replies assuredly, “Of course they will.”
We are asked to believe that without the intervention of Paulson and the godlike Bernanke, a few greedy individuals would have caused unimaginable consequences. We are further asked to believe that what has followed has been solely the result of these individuals not keeping their promise. We deserve a good deal more than this piece of shallow propaganda.
1 June 2011
Directed by Curtis Hanson, written by Peter Gould and Andrew Ross Sorkin, from a book by Andrew Ross Sorkin
http://wsws.org/articles/2011/jun2011/toob-j01.shtml
In an interview, the Wall Street Journal asked Paula Weinstein, executive producer of HBO’s Too Big to Fail, about the problem she faced in creating a suspenseful drama about the 2008 financial crisis that “wasn’t too esoteric” for a general audience.
Her reply indicates some of the problems with this production: “Everyone in the country suffered from it [the financial crisis], so we treated it like a thriller, like it was a regular movie.”
The movie features a fine cast, and a few of the actors have been given characters with a degree of dimensionality. However, the filmmakers’ decision to make a “regular movie,” i.e., a formulaic one, results in the type of stale story of a valiant individual saving the US from an evil power (in this case, certain predatory elements on Wall Street) so prevalent in American political movies. Not only is the story stale in this case, it is also untrue.
Most damaging to the television film’s credibility and ability to grapple critically with the epochal 2008 crisis was the choice of former US Treasury Secretary Henry Paulson as the individual in question. In sum, Too Big to Fail is propaganda for the population presented from an upper-middle class liberal perspective.
Too Big to Fail focuses on Paulson (William Hurt) as he and other top financial figures (both within and without the Bush administration) respond to the September 2008 crash. Initially, they are certain the problem will be contained within the subprime mortgage market, but as stocks plummet and rumors spread of major investment firms failing, the White House and Wall Street clash over who should save the banking system: the government or the private sector.
Paulson’s efforts to maneuver Wall Street into saving investment bank Lehman Brothers fail, and the threatened collapses of Freddie Mac and Fannie Mae and the insurance firm AIG result in credit lines freezing. At the same time, in this version of events, Paulson experiences an internal conflict between his belief that government should not interfere with the private sector and the need to go to Congress for bailout money.
The conflict appears to be resolved when Paulson and Federal Reserve Board Chairman Ben Bernanke (Paul Giamatti) convince the major investment banks to buy 20 percent of AIG assets (the Fed will buy the other 80 percent) and successfully push the $700 billion cash injection, or TARP (Troubled Asset Relief Program), through Congress and into the banks. However, the film’s conclusion makes that resolution problematic.
As Lehman Brothers CEO Dick Fuld, James Woods portrays an individual transformed from an arrogant, self-centered tyrant into someone painfully aware that he is being “played” by much larger social forces. Three close-ups, the last one just before Fuld agrees to Lehman’s bankruptcy filing, express this transformation most convincingly.
Hurt’s Henry Paulson in the HBO production is basically a decent man faced with navigating America (and the world) through a crisis of catastrophic proportions. To those outside his immediate circle, he presents a resolute, no-nonsense persona; but to those closest to him, Bernanke and especially his wife, Wendy (Kathy Baker), Paulson expresses self-doubt and even feelings of helplessness. Hurt avoids the theatrics often found in such characters, and his Paulson is the more human for that.
The other main characters are largely one-dimensional, sometimes to the point of becoming invisible. Giamatti’s Bernanke displays none of the haughty, smartest-guy-in-the-room demeanor seen and heard at congressional hearings and on Sunday news programs. Instead, he is invariably deferential, wise but humble, and always concerned with preserving democracy.
Warren Buffet (Ed Asner) is a grandfatherly figure in one brief scene, he answers a call from Paulson while entertaining his grandchildren at an ice cream parlor. Billy Crudup’s Timothy Geithner is hardly a presence, mostly attached as he is to cellphones and MacBooks.
Making Paulson the heroic center of Too Big to Fail reveals a great deal. First of all, the filmmakers (director Curtis Hanson and writer Peter Gould) demonstrate a willingness to overlook a considerable amount of “anti-heroic” behavior in the Paulson biography before 2008. Throughout the movie, Paulson is played as a stand-up guy virtually incapable of backing away from a problem or opponent. At one point, his wife pleads, “You can’t take all this on by yourself.” “It’s my job,” he reminds her stoically.
Were it not for Hurt’s understated characterization, this scene would be almost comical. The real Paulson used connections to both leave the Nixon White House during the Watergate scandal unscathed (Paulson was an office assistant to John Ehrlichman, who spent 10 months in prison for his role in the crime) and gain a position at Goldman Sachs in 1974. Then, after being named chief operating officer at Goldman Sachs, Paulson orchestrated what amounted to a coup, according to the New York Times, to force out his co-chairman, Jon Corzine, and take the position of CEO.
Paulson, one of the most powerful figures in banking in the US, acted in the 2008 crisis and beyond exclusively from the point of view of rescuing the financial system on behalf of the American ruling elite. The central concern of both the Bush and Obama administrations has been saving the bankers whose practices led the world economy to the edge of the abyss and making sure the working population paid for this process. (That HBO’s Too Big to Fail ultimately originates with the New York Times’ Andrew Ross Sorkin, an apologist for the financial aristocracy and defender of social inequality, comes as no surprise.)
Too Big to Fail’s depiction of Paulson as a selfless government official strains credulity, to say the least. A brief reference to the enormous amounts of money he made while Goldman Sachs CEO is countered by a Paulson assistant with, “He sold all of his shares before becoming Secretary of the Treasury”! In fact, Paulson was required by law to sell his shares but was allowed to do so tax-free. He made $200 million in the bargain.
Ignored entirely is the role played by Goldman Sachs and Paulson in triggering a crisis that continues to devastate millions globally.
Of course, artists interpret historical figures, but the interpretation must begin with an objective, critical reckoning of the whole person. How much more interesting and valuable would Too Big to Fail have been had its makers done so and explored the social forces driving Paulson’s machinations?
The filmmakers’ upper middle class perspective ensures that no such exploration will occur. Turning the real Paulson into a courageous figure directs the viewer’s attention away from the White House’s complicity in the crisis and toward the secretary of the Treasury as a savior.
The movie portrays Paulson’s (and the White House’s) decision to bail out the banks as unavoidable. At the conclusion, Bernanke and Paulson have one of their frequent meetings. The Fed chairman turns plaintively to Paulson and says, “I just hope that they [the banks] do what we ask them to. I hope they lend it [the money] out.” Paulson replies assuredly, “Of course they will.”
We are asked to believe that without the intervention of Paulson and the godlike Bernanke, a few greedy individuals would have caused unimaginable consequences. We are further asked to believe that what has followed has been solely the result of these individuals not keeping their promise. We deserve a good deal more than this piece of shallow propaganda.
Friday, May 6, 2011
Bigger than Bin Laden – America’s New Public Enemy No.1
Gerald Celente
TrendsResearch.com
KINGSTON, NY, 4 May 2011— From the fans at Citi Field in Flushing to the mobs at the White House gates, “USA, USA,” was the chant heard across the nation. Jubilant Americans celebrated the breaking news that Public Enemy No.1, terrorist mastermind Osama bin Laden was dead.
Ten years have passed since the Twin Towers toppled and the Pentagon was whacked. After two failing wars and billions of dollars spent on the global manhunt to bring in Bin Laden “Dead or Alive,” America has now claimed victory. “This is bigger than the moon landing, this is huge,” exclaimed Fox News’ Geraldo Rivera.
“Justice has been done,” intoned President Barack Obama announcing Bin Laden’s death. He not only called it “a good day for America,” but also declared that “The world is safer. It is a better place because of the death of Osama Bin Laden."
While Secretary of State Hillary Clinton echoed the sentiment that “justice has been served,” she evidently took issue with the Presidential vision of a “safer” world, warning that terror “won’t stop with the death of Bin Laden, we must redouble our efforts.”
If it’s a “safer” world, why the need to “redouble our efforts”? These were but two of the contradictions coming from the White House in the early hours of the breaking story, and many discrepancies would follow. Some of them would be noted and debated, but totally absent from the 24/7 news coverage, political “high-fives” and patriotic triumphalism was the simple question: Why did Osama Bin Laden, former mujahedin ally of the United States, turn against it to become Public Enemy No.1?
Was it that he and his Al Qaeda fighters suddenly decided to hate America’s “freedom and liberties” as George W. Bush maintained? Or was it remotely possible that the attacks were motivated by US foreign policy – with its unconditional support of Israel and concomitant support of the same Middle East monarchs, autocrats and dictators now being toppled in the wave of revolution?
Also absent from America’s non-stop exultation and self-congratulation, absent from the acres of newsprint and the countless hours of air time, was any discussion of the practical consequences of the death of Bin Laden who, before making it back into the headlines, had been both a fading memory and a non-issue.
Osama Bin Who?
So irrelevant had Bin Laden and his jihad rhetoric become that, in the months preceding his assassination, every one of the uprisings occurring throughout the Middle East and North Africa was secular and in direct opposition to Bin Laden’s militant pan-Islamic vision.
In a sentence: There were no practical consequences whatsoever attending the death of Osama Bin Laden. It would do nothing to:
Help America win losing wars in Afghanistan and Iraq.
Lower the unemployment rate.
Stop the US or European nations from sinking deeper into recessions and depression.
Revive failing real estate markets or solve the debt and deficit crises.
Lower oil and food prices.
Reverse the damage or stop the radioactive fallout from Fukushima.
What Osama’s death did do was boost the President’s sagging poll numbers and deflect public attention from the news that really mattered.
On Wednesday, April 27th, just four days before Bin Laden was killed, a new Public Enemy No.1 held his organization’s first ever press conference. Federal Reserve Chairman Ben Bernanke told the world that the United States would continue its low interest rate polices and, in effect, continue to flood the world with cheap money.
The global equity markets immediately responded to the predictably destructive consequences. Before Bernanke ended the press conference, gold prices shot up $20 an ounce, silver $2, and the dollar fell to a 3 year low against a trade-weighted basket of currencies. Despite the Chairman’s claims to the contrary, the US dollar would continue to devalue and subsequently dollar based commodity prices would soar.
Needing neither a mountain lair nor sequestration behind closed Fed doors, the new Public Enemy No.1, “Osama” Ben Bernanke committed, in broad daylight, an act of financial terrorism that would have far reaching and long lasting implications for the American public. As the value of the dollar went down, the cost of nearly everything would go up…excepting the cost of “risk.”
This meant that financiers could continue to speculate and exploit the equity markets, with the profits going only to the 10 percent of Americans that owned 90 percent of the stocks, bonds and mutual funds. Moreover, the Fed reasoned the cheap dollar would also give a competitive edge to big US exporters. But as exports rose, so did the price of imports, putting further strains on average consumers whose real wages fell ever further behind the pace of inflation.
Bombs Away
What Osama Bin Laden’s death also did was to deflect attention from the US/NATO “humanitarian” mission in Libya, which, just two days earlier, had delivered several humanitarian bombs upon the home of Muammar Qaddafi’s son, killing him and three of his children.
The bungled attempt to assassinate Qaddafi (who had been visiting his son) was condemned by Russia, brought recriminations against NATO from other UN members for overstepping the UN mandate, and called into question the legality of the air strike. With a groundswell of public sympathy building around the world for Qaddafi’s murdered grandchildren, the very purpose and future of the entire mission was being called into question.
Trend Forecast: With the death of Osama Bin Laden, the restored, rebuilt, new and improved terror bandwagon rolls again…and it will keep rolling until Election Day 2012. Whether a real terror attack happens or not, Barack Obama, as he has done before, will take a page from the G.W. Bush playbook and keep the American public in a state of fear and hysteria.
And should terror strike the US, UK, France or other NATO ally, their governments, media “presstitutes,” pundits, and the public at large will debate and deplore the “cowardly act” and demand “swift justice.” They will blame Bin Laden sympathizers, Al Qaeda cells, Muammar Qaddafi, radical Islamists…but never will they blame themselves. They will refuse to acknowledge that what they called “terror” was nothing more than “revenge”; reprisal for foreign meddling in the domestic affairs of other nations, or retaliation for military invasions launched by the US, UK, France or other NATO ally upon a sovereign nation.
Meanwhile, back in DC, the Chairman of the Fed, Public Enemy No.1, “Osama” Ben Bernanke, will mastermind the destruction of the American dollar, the US economy and the purchasing power of the American people.
As we have been forecasting for years, gold, despite its recent pull back, is on-trend to reach $2000 per ounce (and possibly higher). And while Ben Bernanke claims that inflation is merely “transitory,” considering his penchant for printing trillions of digital dollars not worth the paper it’s not printed on, we see inflation as both entrenched and rising.
TrendsResearch.com
KINGSTON, NY, 4 May 2011— From the fans at Citi Field in Flushing to the mobs at the White House gates, “USA, USA,” was the chant heard across the nation. Jubilant Americans celebrated the breaking news that Public Enemy No.1, terrorist mastermind Osama bin Laden was dead.
Ten years have passed since the Twin Towers toppled and the Pentagon was whacked. After two failing wars and billions of dollars spent on the global manhunt to bring in Bin Laden “Dead or Alive,” America has now claimed victory. “This is bigger than the moon landing, this is huge,” exclaimed Fox News’ Geraldo Rivera.
“Justice has been done,” intoned President Barack Obama announcing Bin Laden’s death. He not only called it “a good day for America,” but also declared that “The world is safer. It is a better place because of the death of Osama Bin Laden."
While Secretary of State Hillary Clinton echoed the sentiment that “justice has been served,” she evidently took issue with the Presidential vision of a “safer” world, warning that terror “won’t stop with the death of Bin Laden, we must redouble our efforts.”
If it’s a “safer” world, why the need to “redouble our efforts”? These were but two of the contradictions coming from the White House in the early hours of the breaking story, and many discrepancies would follow. Some of them would be noted and debated, but totally absent from the 24/7 news coverage, political “high-fives” and patriotic triumphalism was the simple question: Why did Osama Bin Laden, former mujahedin ally of the United States, turn against it to become Public Enemy No.1?
Was it that he and his Al Qaeda fighters suddenly decided to hate America’s “freedom and liberties” as George W. Bush maintained? Or was it remotely possible that the attacks were motivated by US foreign policy – with its unconditional support of Israel and concomitant support of the same Middle East monarchs, autocrats and dictators now being toppled in the wave of revolution?
Also absent from America’s non-stop exultation and self-congratulation, absent from the acres of newsprint and the countless hours of air time, was any discussion of the practical consequences of the death of Bin Laden who, before making it back into the headlines, had been both a fading memory and a non-issue.
Osama Bin Who?
So irrelevant had Bin Laden and his jihad rhetoric become that, in the months preceding his assassination, every one of the uprisings occurring throughout the Middle East and North Africa was secular and in direct opposition to Bin Laden’s militant pan-Islamic vision.
In a sentence: There were no practical consequences whatsoever attending the death of Osama Bin Laden. It would do nothing to:
Help America win losing wars in Afghanistan and Iraq.
Lower the unemployment rate.
Stop the US or European nations from sinking deeper into recessions and depression.
Revive failing real estate markets or solve the debt and deficit crises.
Lower oil and food prices.
Reverse the damage or stop the radioactive fallout from Fukushima.
What Osama’s death did do was boost the President’s sagging poll numbers and deflect public attention from the news that really mattered.
On Wednesday, April 27th, just four days before Bin Laden was killed, a new Public Enemy No.1 held his organization’s first ever press conference. Federal Reserve Chairman Ben Bernanke told the world that the United States would continue its low interest rate polices and, in effect, continue to flood the world with cheap money.
The global equity markets immediately responded to the predictably destructive consequences. Before Bernanke ended the press conference, gold prices shot up $20 an ounce, silver $2, and the dollar fell to a 3 year low against a trade-weighted basket of currencies. Despite the Chairman’s claims to the contrary, the US dollar would continue to devalue and subsequently dollar based commodity prices would soar.
Needing neither a mountain lair nor sequestration behind closed Fed doors, the new Public Enemy No.1, “Osama” Ben Bernanke committed, in broad daylight, an act of financial terrorism that would have far reaching and long lasting implications for the American public. As the value of the dollar went down, the cost of nearly everything would go up…excepting the cost of “risk.”
This meant that financiers could continue to speculate and exploit the equity markets, with the profits going only to the 10 percent of Americans that owned 90 percent of the stocks, bonds and mutual funds. Moreover, the Fed reasoned the cheap dollar would also give a competitive edge to big US exporters. But as exports rose, so did the price of imports, putting further strains on average consumers whose real wages fell ever further behind the pace of inflation.
Bombs Away
What Osama Bin Laden’s death also did was to deflect attention from the US/NATO “humanitarian” mission in Libya, which, just two days earlier, had delivered several humanitarian bombs upon the home of Muammar Qaddafi’s son, killing him and three of his children.
The bungled attempt to assassinate Qaddafi (who had been visiting his son) was condemned by Russia, brought recriminations against NATO from other UN members for overstepping the UN mandate, and called into question the legality of the air strike. With a groundswell of public sympathy building around the world for Qaddafi’s murdered grandchildren, the very purpose and future of the entire mission was being called into question.
Trend Forecast: With the death of Osama Bin Laden, the restored, rebuilt, new and improved terror bandwagon rolls again…and it will keep rolling until Election Day 2012. Whether a real terror attack happens or not, Barack Obama, as he has done before, will take a page from the G.W. Bush playbook and keep the American public in a state of fear and hysteria.
And should terror strike the US, UK, France or other NATO ally, their governments, media “presstitutes,” pundits, and the public at large will debate and deplore the “cowardly act” and demand “swift justice.” They will blame Bin Laden sympathizers, Al Qaeda cells, Muammar Qaddafi, radical Islamists…but never will they blame themselves. They will refuse to acknowledge that what they called “terror” was nothing more than “revenge”; reprisal for foreign meddling in the domestic affairs of other nations, or retaliation for military invasions launched by the US, UK, France or other NATO ally upon a sovereign nation.
Meanwhile, back in DC, the Chairman of the Fed, Public Enemy No.1, “Osama” Ben Bernanke, will mastermind the destruction of the American dollar, the US economy and the purchasing power of the American people.
As we have been forecasting for years, gold, despite its recent pull back, is on-trend to reach $2000 per ounce (and possibly higher). And while Ben Bernanke claims that inflation is merely “transitory,” considering his penchant for printing trillions of digital dollars not worth the paper it’s not printed on, we see inflation as both entrenched and rising.
Wednesday, February 2, 2011
Obamanomics
One Blog that doesn't get the credit it deserves is Washington's Blog, found at http://georgewashington2.blogspot.com/. A collection of articles that focus on economic issues written by authors with pen names, the general argument is that the economics embraced by our political and media establishment "represent the interests of the people as opposed to the big banks, major corporations, and the military-industrial complex." Hard to argue with that.
In a January 13th post, Washington made the strong case against what The Konformist has warned is really a plot to destroy public worker unions:
Federal Reserve Chairman Ben Bernanke on Friday ruled out a central bank bailout of state and local governments strapped with big municipal debt burdens, saying the Fed had limited legal authority to help and little will to use that authority.
"We have no expectation or intention to get involved in state and local finance," Mr. Bernanke said in testimony before the Senate Budget Committee. The states, he said later, "should not expect loans from the Fed."
Congress has also discontinued the Build American Bond program, which was significant in temporarily financing California and other states' budgets...
That's unfortunate, given that many states and big cities are in a dire financial situation, and given that Keynesian economists say that aid to the states is one of the best forms of stimulus...
Unfortunately, as I will demonstrate below, virtually the entire government economic policy is to throw trillions of dollars at the biggest banks.
GW then blasts the Wall Street Bailouts (starting with TARP) in a deserved dismissive tone:
The $700 billion dollar TARP bailout was a massive bait-and-switch. The government said it was doing it to soak up toxic assets, and then switched to saying it was needed to free up lending. It didn't do that either. Indeed, the Fed doesn't want the banks to lend.
As I wrote in March 2009:
The bailout money is just going to line the pockets of the wealthy, instead of helping to stabilize the economy or even the companies receiving the bailouts:
* Bailout money is being used to subsidize companies run by horrible business men, allowing the bankers to receive fat bonuses, to redecorate their offices, and to buy gold toilets and prostitutes
* A lot of the bailout money is going to the failing companies' shareholders
* Indeed, a leading progressive economist says that the true purpose of the bank rescue plans is "a massive redistribution of wealth to the bank shareholders and their top executives"
* The Treasury Department encouraged banks to use the bailout money to buy their competitors, and pushed through an amendment to the tax laws which rewards mergers in the banking industry (this has caused a lot of companies to bite off more than they can chew, destabilizing the acquiring companies)
* And as the New York Times notes, "Tens of billions of [bailout] dollars have merely passed through A.I.G. to its derivatives trading partners".
The Blog then notes: "But the TARP bailout is peanuts compared to the numerous other bailouts the government has given to the giant banks.
Government Says No to Helping States and Main Street, While Continuing to Throw Trillions at the Giant Banks
Thursday, January 13, 2011
http://www.georgewashington2.blogspot.com/2011/01/government-says-no-to-helping-states.html
For what it's worth, here's the Center on Budget and Policy Priorities analysis of the budget problems on the state and local levels:
A spate of recent articles regarding the fiscal situation of states and localities have lumped together their current fiscal problems, stemming largely from the recession, with longer-term issues relating to debt, pension obligations, and retiree health costs, to create the mistaken impression that drastic and immediate measures are needed to avoid an imminent fiscal meltdown.
The large operating deficits that most states are projecting for the 2012 fiscal year, which they have to close before the fiscal year begins (on July 1 in most states), are caused largely by the weak economy. State revenues have stabilized after record losses but remain 12 percent below pre-recession levels, and localities also are experiencing diminished revenues. At the same time that revenues have declined, the need for public services has increased due to the rise in poverty and unemployment. Over the past three years, states and localities have used a combination of reserve funds and federal stimulus funds, along with budget cuts and tax increases, to close these recession-induced deficits. While these deficits have caused severe problems and states and localities are struggling to maintain needed services, this is a cyclical problem that ultimately will ease as the economy recovers.
Unlike the projected operating deficits for fiscal year 2012, which require near-term solutions to meet states’ and localities’ balanced-budget requirements, longer-term issues related to bond indebtedness, pension obligations, and retiree health insurance — discussed more fully below — can be addressed over the next several decades. It is not appropriate to add these longer-term costs to projected operating deficits. Nor should the size and implications of these longer-term costs be exaggerated, as some recent discussions have done. Such mistakes can lead to inappropriate policy prescriptions.
Misunderstandings Regarding State Debt, Pensions, and Retiree Health Costs Create Unnecessary Alarm
Misconceptions Also Divert Attention from Needed Structural Reforms
Iris J. Lav and Elizabeth McNichol
January 20, 2011
http://www.cbpp.org/cms/index.cfm?fa=view&id=3372
In September 2009, the Washington's Blog pointed out the strategy of pouring money to lenders (i.e. banks) is decidedly inferior to helping out borrowers (i.e. businesses and consumers):
Following the advice of neoclassical economists, Obama has got not a bang but a whimper out of the many bucks he has thrown at the financial system.
In explaining his recovery program in April, President Obama noted that:
“there are a lot of Americans who understandably think that government money would be better spent going directly to families and businesses instead of banks – ‘where’s our bailout?,’ they ask”.
He justified giving the money to the lenders, rather than to the debtors, on the basis of “the multiplier effect” from bank lending:
the truth is that a dollar of capital in a bank can actually result in eight or ten dollars of loans to families and businesses, a multiplier effect that can ultimately lead to a faster pace of economic growth. (page 3 of the speech)
This argument comes straight out of the neoclassical economics textbook. Fortunately, due to the clear manner in which Obama enunciates it, the flaw in this textbook argument is vividly apparent in his speech.
This “multiplier effect” will only work if American families and businesses are willing to take on yet more debt: “a dollar of capital in a bank can actually result in eight or ten dollars of loans”.
So the only way the roughly US$1 trillion of money that the Federal Reserve has injected into the banks will result in additional spending is if American families and businesses take out another US$8-10 trillion in loans.
What are the odds that this will happen, when they already owe more than they have ever owed in the history of America? ...
If the money multiplier was going to “ride to the rescue”, private debt would need to rise from its current level of US$41.5 trillion to about US$50 trillion, and this ratio would rise to about 375%—more than twice the level that ushered in the Great Depression...
Steve Keen Out-Thinks Larry Summers
Saturday, September 19, 2009
http://www.georgewashington2.blogspot.com/2009/09/steve-keen-out-thinks-larry-summers.html
Dave Dayen of FireDogLake.com does a great analysis of the payroll tax cut deal made by Team Obama, pointing out the ignored fact that the payroll tax replaces Making Work Pay:
Making Work Pay was a flat $400 for every worker, but the benefit phased out for workers making over roughly $95,000 a year. That meant it was targeted directly to people who would spend it and offered a pretty nice benefit. By contrast, the payroll tax cut applies to every worker in America, as Geithner says. Bill Gates will get a payroll tax cut. Alex Rodriguez will get a payroll tax cut. Paris Hilton will get a payroll tax cut. Because the payroll tax itself caps out currently at $106,800, the tax cut for Gates, Rodriguez, Hilton and anyone else making that number is $2,136. But that’s $2,136 more than they got under Making Work Pay. I’ll leave it toy you to determine whether that’s something they need, and something which will work to stimulate the economy.
By contrast, at the low end of the scale, the “benefit” from the payroll tax cut ends up worse than the benefit from Making Work Pay. Making Work Pay was a flat benefit of $400; with the payroll tax cut it’s a percentage of income. So any individual making under $20,000 a year or family making under $40,000 a year will see less of a benefit under the payroll tax cut. That comes out to roughly 50 million workers, or close to 1 in 3, using Geithner’s numbers.
So you have this crazy circumstance where the payroll tax cut ends up a worse deal for low-income workers, who would spend the money, and a better deal for high-income workers, who probably won’t.
It’s true that the payroll tax cut comes out to $110 billion in tax relief for 2011, roughly $50 million more than Making Work Pay on an annual basis. But it’s woefully targeted. And the phony use of “average tax cut” promulgated by Geithner belies the fact that it’s a worse deal for 1 in 3 workers.
And this critique is besides the concern the payroll tax cut may be a Trojan horse to destroy social security...
Sin of Omission by Geithner in Chest-Thumping over Tax Cut Deal
David Dayen
Saturday January 15, 2011
http://news.firedoglake.com/2011/01/15/sin-of-omission-by-geithner-in-chest-thumping-over-tax-cut-deal
Matt Stoller, former Senior Policy Advisor for Alan Grayson, puts this in a context of the last 40 years at NakedCapitalism.com:
Since the 1970s, Democratic elites have focused on breaking public sector unions and financializing the economy. Carter, not Reagan, started the defense build-up. Carter, not Reagan, lifted usury caps. Carter, not Reagan, first cut capital gains taxes. Clinton, not Bush, passed NAFTA. It isn’t the base of the Democratic party that did this, but then, voters in America have never had a lot of power because they are too disorganized. And there wasn’t a substantial grassroots movement to challenge this, either.
Obama continues this trend. It isn’t that he’s not fighting, he fights like hell for what he wants. He whipped incredibly aggressively for TARP, he has passed emergency war funding (breaking a campaign promise) several times, and nearly broke the arms of feckless liberals in the process. I mean, when Bernie Sanders did the filiBernie, Obama flirted with Bernie’s potential 2012 GOP challenger. Obama just wants policies that cement the status of a aristocratic class, with crumbs for everyone else (Republican elites disagree in that they hate anyone but elites getting crumbs). And he will fight for them.
There is simply no basis for arguing that Democratic elites are pursuing poor strategy anymore. They are achieving an enormous amount of leverage within the party. Consider the following. Despite Obama violating every core tenet of what might have been considered the Democratic Party platform, from supporting foreclosures to destroying civil liberties to torturing political dissidents to wrecking unions, Obama has no viable primary challenger. Moreover, no Senate Democratic incumbent lost a primary challenge in 2010, despite a horrible governing posture. Now THAT is a successful strategy, it minimized the losses of the Democratic elite and kept them firmly in control of the party. Thus, the political debate remains confined to what neoliberals want to talk about. It’s a good strategy, it’s just you are the one the strategy is being played on.
Understanding the Strategy of the Democratic Power Class
Matt Stoller
Thursday, January 13, 2011
http://www.nakedcapitalism.com/2011/01/matt-stoller-understanding-the-strategy-of-the-democratic-power-class.html
Of course, criticisms of Carter and Clinton are completely deserved, but there are some major differences here. One, when Obama was elected, he was facing the worst economic crisis in the USA since the Great Depression, and thus a more left wing policy of helping the poor, the working class and the middle class not only was the correct economic remedy, it was a politically popular one winnable if Obama cared to fight for it. Two, the economic betrayals made by Obama put his economic policy decidedly to the right of Ronald Reagan, no matter what the GOP mouthpieces may scream, and has arguably radically shifted the frame of debate even further than George W. Bush could have ever dreamed. This was my major concern over Obama during the 2008 election, that he was backed by Wall Streeters who hoped his cult of narcissism would be substitute for a real New Deal II. As the battle to bankrupt states and destroy public unions heats up, it would be fair to say "Mission Accomplished"...
In a January 13th post, Washington made the strong case against what The Konformist has warned is really a plot to destroy public worker unions:
Federal Reserve Chairman Ben Bernanke on Friday ruled out a central bank bailout of state and local governments strapped with big municipal debt burdens, saying the Fed had limited legal authority to help and little will to use that authority.
"We have no expectation or intention to get involved in state and local finance," Mr. Bernanke said in testimony before the Senate Budget Committee. The states, he said later, "should not expect loans from the Fed."
Congress has also discontinued the Build American Bond program, which was significant in temporarily financing California and other states' budgets...
That's unfortunate, given that many states and big cities are in a dire financial situation, and given that Keynesian economists say that aid to the states is one of the best forms of stimulus...
Unfortunately, as I will demonstrate below, virtually the entire government economic policy is to throw trillions of dollars at the biggest banks.
GW then blasts the Wall Street Bailouts (starting with TARP) in a deserved dismissive tone:
The $700 billion dollar TARP bailout was a massive bait-and-switch. The government said it was doing it to soak up toxic assets, and then switched to saying it was needed to free up lending. It didn't do that either. Indeed, the Fed doesn't want the banks to lend.
As I wrote in March 2009:
The bailout money is just going to line the pockets of the wealthy, instead of helping to stabilize the economy or even the companies receiving the bailouts:
* Bailout money is being used to subsidize companies run by horrible business men, allowing the bankers to receive fat bonuses, to redecorate their offices, and to buy gold toilets and prostitutes
* A lot of the bailout money is going to the failing companies' shareholders
* Indeed, a leading progressive economist says that the true purpose of the bank rescue plans is "a massive redistribution of wealth to the bank shareholders and their top executives"
* The Treasury Department encouraged banks to use the bailout money to buy their competitors, and pushed through an amendment to the tax laws which rewards mergers in the banking industry (this has caused a lot of companies to bite off more than they can chew, destabilizing the acquiring companies)
* And as the New York Times notes, "Tens of billions of [bailout] dollars have merely passed through A.I.G. to its derivatives trading partners".
The Blog then notes: "But the TARP bailout is peanuts compared to the numerous other bailouts the government has given to the giant banks.
Government Says No to Helping States and Main Street, While Continuing to Throw Trillions at the Giant Banks
Thursday, January 13, 2011
http://www.georgewashington2.blogspot.com/2011/01/government-says-no-to-helping-states.html
For what it's worth, here's the Center on Budget and Policy Priorities analysis of the budget problems on the state and local levels:
A spate of recent articles regarding the fiscal situation of states and localities have lumped together their current fiscal problems, stemming largely from the recession, with longer-term issues relating to debt, pension obligations, and retiree health costs, to create the mistaken impression that drastic and immediate measures are needed to avoid an imminent fiscal meltdown.
The large operating deficits that most states are projecting for the 2012 fiscal year, which they have to close before the fiscal year begins (on July 1 in most states), are caused largely by the weak economy. State revenues have stabilized after record losses but remain 12 percent below pre-recession levels, and localities also are experiencing diminished revenues. At the same time that revenues have declined, the need for public services has increased due to the rise in poverty and unemployment. Over the past three years, states and localities have used a combination of reserve funds and federal stimulus funds, along with budget cuts and tax increases, to close these recession-induced deficits. While these deficits have caused severe problems and states and localities are struggling to maintain needed services, this is a cyclical problem that ultimately will ease as the economy recovers.
Unlike the projected operating deficits for fiscal year 2012, which require near-term solutions to meet states’ and localities’ balanced-budget requirements, longer-term issues related to bond indebtedness, pension obligations, and retiree health insurance — discussed more fully below — can be addressed over the next several decades. It is not appropriate to add these longer-term costs to projected operating deficits. Nor should the size and implications of these longer-term costs be exaggerated, as some recent discussions have done. Such mistakes can lead to inappropriate policy prescriptions.
Misunderstandings Regarding State Debt, Pensions, and Retiree Health Costs Create Unnecessary Alarm
Misconceptions Also Divert Attention from Needed Structural Reforms
Iris J. Lav and Elizabeth McNichol
January 20, 2011
http://www.cbpp.org/cms/index.cfm?fa=view&id=3372
In September 2009, the Washington's Blog pointed out the strategy of pouring money to lenders (i.e. banks) is decidedly inferior to helping out borrowers (i.e. businesses and consumers):
Following the advice of neoclassical economists, Obama has got not a bang but a whimper out of the many bucks he has thrown at the financial system.
In explaining his recovery program in April, President Obama noted that:
“there are a lot of Americans who understandably think that government money would be better spent going directly to families and businesses instead of banks – ‘where’s our bailout?,’ they ask”.
He justified giving the money to the lenders, rather than to the debtors, on the basis of “the multiplier effect” from bank lending:
the truth is that a dollar of capital in a bank can actually result in eight or ten dollars of loans to families and businesses, a multiplier effect that can ultimately lead to a faster pace of economic growth. (page 3 of the speech)
This argument comes straight out of the neoclassical economics textbook. Fortunately, due to the clear manner in which Obama enunciates it, the flaw in this textbook argument is vividly apparent in his speech.
This “multiplier effect” will only work if American families and businesses are willing to take on yet more debt: “a dollar of capital in a bank can actually result in eight or ten dollars of loans”.
So the only way the roughly US$1 trillion of money that the Federal Reserve has injected into the banks will result in additional spending is if American families and businesses take out another US$8-10 trillion in loans.
What are the odds that this will happen, when they already owe more than they have ever owed in the history of America? ...
If the money multiplier was going to “ride to the rescue”, private debt would need to rise from its current level of US$41.5 trillion to about US$50 trillion, and this ratio would rise to about 375%—more than twice the level that ushered in the Great Depression...
Steve Keen Out-Thinks Larry Summers
Saturday, September 19, 2009
http://www.georgewashington2.blogspot.com/2009/09/steve-keen-out-thinks-larry-summers.html
Dave Dayen of FireDogLake.com does a great analysis of the payroll tax cut deal made by Team Obama, pointing out the ignored fact that the payroll tax replaces Making Work Pay:
Making Work Pay was a flat $400 for every worker, but the benefit phased out for workers making over roughly $95,000 a year. That meant it was targeted directly to people who would spend it and offered a pretty nice benefit. By contrast, the payroll tax cut applies to every worker in America, as Geithner says. Bill Gates will get a payroll tax cut. Alex Rodriguez will get a payroll tax cut. Paris Hilton will get a payroll tax cut. Because the payroll tax itself caps out currently at $106,800, the tax cut for Gates, Rodriguez, Hilton and anyone else making that number is $2,136. But that’s $2,136 more than they got under Making Work Pay. I’ll leave it toy you to determine whether that’s something they need, and something which will work to stimulate the economy.
By contrast, at the low end of the scale, the “benefit” from the payroll tax cut ends up worse than the benefit from Making Work Pay. Making Work Pay was a flat benefit of $400; with the payroll tax cut it’s a percentage of income. So any individual making under $20,000 a year or family making under $40,000 a year will see less of a benefit under the payroll tax cut. That comes out to roughly 50 million workers, or close to 1 in 3, using Geithner’s numbers.
So you have this crazy circumstance where the payroll tax cut ends up a worse deal for low-income workers, who would spend the money, and a better deal for high-income workers, who probably won’t.
It’s true that the payroll tax cut comes out to $110 billion in tax relief for 2011, roughly $50 million more than Making Work Pay on an annual basis. But it’s woefully targeted. And the phony use of “average tax cut” promulgated by Geithner belies the fact that it’s a worse deal for 1 in 3 workers.
And this critique is besides the concern the payroll tax cut may be a Trojan horse to destroy social security...
Sin of Omission by Geithner in Chest-Thumping over Tax Cut Deal
David Dayen
Saturday January 15, 2011
http://news.firedoglake.com/2011/01/15/sin-of-omission-by-geithner-in-chest-thumping-over-tax-cut-deal
Matt Stoller, former Senior Policy Advisor for Alan Grayson, puts this in a context of the last 40 years at NakedCapitalism.com:
Since the 1970s, Democratic elites have focused on breaking public sector unions and financializing the economy. Carter, not Reagan, started the defense build-up. Carter, not Reagan, lifted usury caps. Carter, not Reagan, first cut capital gains taxes. Clinton, not Bush, passed NAFTA. It isn’t the base of the Democratic party that did this, but then, voters in America have never had a lot of power because they are too disorganized. And there wasn’t a substantial grassroots movement to challenge this, either.
Obama continues this trend. It isn’t that he’s not fighting, he fights like hell for what he wants. He whipped incredibly aggressively for TARP, he has passed emergency war funding (breaking a campaign promise) several times, and nearly broke the arms of feckless liberals in the process. I mean, when Bernie Sanders did the filiBernie, Obama flirted with Bernie’s potential 2012 GOP challenger. Obama just wants policies that cement the status of a aristocratic class, with crumbs for everyone else (Republican elites disagree in that they hate anyone but elites getting crumbs). And he will fight for them.
There is simply no basis for arguing that Democratic elites are pursuing poor strategy anymore. They are achieving an enormous amount of leverage within the party. Consider the following. Despite Obama violating every core tenet of what might have been considered the Democratic Party platform, from supporting foreclosures to destroying civil liberties to torturing political dissidents to wrecking unions, Obama has no viable primary challenger. Moreover, no Senate Democratic incumbent lost a primary challenge in 2010, despite a horrible governing posture. Now THAT is a successful strategy, it minimized the losses of the Democratic elite and kept them firmly in control of the party. Thus, the political debate remains confined to what neoliberals want to talk about. It’s a good strategy, it’s just you are the one the strategy is being played on.
Understanding the Strategy of the Democratic Power Class
Matt Stoller
Thursday, January 13, 2011
http://www.nakedcapitalism.com/2011/01/matt-stoller-understanding-the-strategy-of-the-democratic-power-class.html
Of course, criticisms of Carter and Clinton are completely deserved, but there are some major differences here. One, when Obama was elected, he was facing the worst economic crisis in the USA since the Great Depression, and thus a more left wing policy of helping the poor, the working class and the middle class not only was the correct economic remedy, it was a politically popular one winnable if Obama cared to fight for it. Two, the economic betrayals made by Obama put his economic policy decidedly to the right of Ronald Reagan, no matter what the GOP mouthpieces may scream, and has arguably radically shifted the frame of debate even further than George W. Bush could have ever dreamed. This was my major concern over Obama during the 2008 election, that he was backed by Wall Streeters who hoped his cult of narcissism would be substitute for a real New Deal II. As the battle to bankrupt states and destroy public unions heats up, it would be fair to say "Mission Accomplished"...
Beast of the Year 2010: Glenn Beck
The votes are in, and The Konformist readers have spoken. Glenn Beck is your choice for the 2009 Beast of the Year - a choice that is well deserved.
One of the two big stories in the year following Obama's first 100 days was the rise of an extremely far right - and an often extremely crazy - movement given the label of "Tea Party" by some, or (more appropriately) "Teabaggers" by others. Point Zero of the Teabagger movement was Glenn Beck and his multimedia empire. Of course, there is nothing new here: during the Clinton years, Rush Limbaugh became a powerful media voice in his own right, and during the era of George W. Bush, Beck's current employer Fox News fueled the rise of Bill O'Reilly and Sean Hannity, while Ann Coulter became a shrill media commentator in her own right (among others.) So mark Beck down as the latest example of the right wing media darling, the only question being if this self-described rodeo clown will become a harmless buffoon who becomes a self-parody, or if he becomes a figurehead for a frightening reactionary movement. Stay tuned...
Runner-Up: Ben Bernanke
In the unlikely event that Beck can no longer fill its duties as Beast of the Year, Ben Bernanke is ready to take over the crown. Rest assured the BOTY trophy is in good hands either way. As the other big story of the past year has been the continued enrichment of the giant banking monoliths by the US government after the election of Obama, Bernanke, as head of the Federal Reserve, is ground zero of this vast larceny.
In any case, we salute you, Glenn and Ben. Congratulations, and keep up the great work!!!
One of the two big stories in the year following Obama's first 100 days was the rise of an extremely far right - and an often extremely crazy - movement given the label of "Tea Party" by some, or (more appropriately) "Teabaggers" by others. Point Zero of the Teabagger movement was Glenn Beck and his multimedia empire. Of course, there is nothing new here: during the Clinton years, Rush Limbaugh became a powerful media voice in his own right, and during the era of George W. Bush, Beck's current employer Fox News fueled the rise of Bill O'Reilly and Sean Hannity, while Ann Coulter became a shrill media commentator in her own right (among others.) So mark Beck down as the latest example of the right wing media darling, the only question being if this self-described rodeo clown will become a harmless buffoon who becomes a self-parody, or if he becomes a figurehead for a frightening reactionary movement. Stay tuned...
Runner-Up: Ben Bernanke
In the unlikely event that Beck can no longer fill its duties as Beast of the Year, Ben Bernanke is ready to take over the crown. Rest assured the BOTY trophy is in good hands either way. As the other big story of the past year has been the continued enrichment of the giant banking monoliths by the US government after the election of Obama, Bernanke, as head of the Federal Reserve, is ground zero of this vast larceny.
In any case, we salute you, Glenn and Ben. Congratulations, and keep up the great work!!!
Thursday, December 9, 2010
A Real Jaw Dropper at the Federal Reserve
http://www.huffingtonpost.com/rep-bernie-sanders/a-real-jaw-dropper-at-the_b_791091.html
Sen. Bernie Sanders
Independent U.S. Senator from Vermont
December 2, 2010
A Real Jaw Dropper at the Federal Reserve
At a Senate Budget Committee hearing in 2009, I asked Fed Chairman Ben Bernanke to tell the American people the names of the financial institutions that received an unprecedented backdoor bailout from the Federal Reserve, how much they received, and the exact terms of this assistance. He refused. A year and a half later, as a result of an amendment that I was able to include in the Wall Street reform bill, we have begun to lift the veil of secrecy at the Fed, and the American people now have this information.
It is unfortunate that it took this long, and it is a shame that the biggest banks in America and Mr. Bernanke fought to keep this secret from the American public every step of the way. But, the details on this bailout are now on the Federal Reserve's website, and this is a major victory for the American taxpayer and for transparency in government.
Importantly, my amendment also required the Government Accountability Office to conduct a top-to-bottom audit of all of the emergency lending the Fed provided during the financial crisis to be completed on July 21, 2011, which will take a hard look at all of the potential conflicts of interest that took place with respect to this bailout. So, in many respects, details that the Fed was forced to divulge on Wednesday about the $3.3 trillion in emergency loans that until now were totally kept from public scrutiny, marked the beginning, not the end, of lifting the veil of secrecy at the Fed.
After years of stonewalling by the Fed, the American people are finally learning the incredible and jaw-dropping details of the Fed's multi-trillion-dollar bailout of Wall Street and corporate America. As a result of this disclosure, other members of Congress and I will be taking a very extensive look at all aspects of how the Federal Reserve functions and how we can make our financial institutions more responsive to the needs of ordinary Americans and small businesses.
What have we learned so far from the disclosure of more than 21,000 transactions? We have learned that the $700 billion Wall Street bailout signed into law by President George W. Bush turned out to be pocket change compared to the trillions and trillions of dollars in near-zero interest loans and other financial arrangements the Federal Reserve doled out to every major financial institution in this country. Among those are Goldman Sachs, which received nearly $600 billion; Morgan Stanley, which received nearly $2 trillion; Citigroup, which received $1.8 trillion; Bear Stearns, which received nearly $1 trillion, and Merrill Lynch, which received some $1.5 trillion in short term loans from the Fed.
We also learned that the Fed's multi-trillion bailout was not limited to Wall Street and big banks, but that some of the largest corporations in this country also received a very substantial bailout. Among those are General Electric, McDonald's, Caterpillar, Harley Davidson, Toyota and Verizon.
Perhaps most surprising is the huge sum that went to bail out foreign private banks and corporations including two European megabanks -- Deutsche Bank and Credit Suisse -- which were the largest beneficiaries of the Fed's purchase of mortgage-backed securities.
Deutsche Bank, a German lender, sold the Fed more than $290 billion worth of mortgage securities. Credit Suisse, a Swiss bank, sold the Fed more than $287 billion in mortgage bonds.
Has the Federal Reserve of the United States become the central bank of the world?
The Fed said that this bailout was necessary to prevent the world economy from going over a cliff. But three years after the start of the recession, millions of Americans remain unemployed and have lost their homes, life savings and ability to send their kids to college. Meanwhile, big banks and corporations have returned to making huge profits and paying their executives record-breaking compensation packages as if the financial crisis they started never happened.
What this disclosure tells us, among many other things, is that despite this huge taxpayer bailout, the Fed did not make the appropriate demands on these institutions necessary to rebuild our economy and protect the needs of ordinary Americans.
For example, at a time when big banks have nearly a trillion dollars in excess reserves parked at the Fed, the Fed did not require these institutions to increase lending to small- and medium-sized businesses as a condition of the bailout.
At a time when large corporations are more profitable than ever, the Fed did not demand that corporations that received this backdoor bailout create jobs and expand the economy once they returned to profitability.
I intend to investigate whether these secret Fed loans, in some cases, turned out to be direct corporate welfare to big banks that used these loans not to reinvest in the economy but rather to lend back to the federal government at a higher rate of interest by purchasing Treasury Securities. Instead of using this money to reinvest in the productive economy, I suspect a large portion of these near-zero interest loans were used to buy Treasury Securities at a higher interest rate providing free money to some of the largest financial institutions in this country. That is something that we have got to closely examine.
At a time when Wall Street executives are now making more money than before the financial crisis, how many big banks that paid back TARP funds in 2009 to avoid limits on executive compensation received no-strings-attached loans from the Federal Reserve?
At a time when millions of Americans are paying outrageously high credit card interest rates, why didn't the Fed require credit card issuers to lower interest rates as a condition of the bailout?
The four largest banks in this country (Bank of America, JP Morgan Chase, Wells Fargo, and Citigroup) issue half of all mortgages in this country. We now know that these banks received hundreds of billions from the Fed. How many Americans could have remained in their homes, if the Fed required these bailed-out banks to reduce mortgage payments as a condition of receiving these secret loans?
We have begun to lift the veil of secrecy at one of most important agencies in our government. What we are seeing is the incredible power of a small number of people who have incredible conflicts of interest getting incredible help from the taxpayers of this country while ignoring the needs of the people.
Sen. Bernie Sanders
Independent U.S. Senator from Vermont
December 2, 2010
A Real Jaw Dropper at the Federal Reserve
At a Senate Budget Committee hearing in 2009, I asked Fed Chairman Ben Bernanke to tell the American people the names of the financial institutions that received an unprecedented backdoor bailout from the Federal Reserve, how much they received, and the exact terms of this assistance. He refused. A year and a half later, as a result of an amendment that I was able to include in the Wall Street reform bill, we have begun to lift the veil of secrecy at the Fed, and the American people now have this information.
It is unfortunate that it took this long, and it is a shame that the biggest banks in America and Mr. Bernanke fought to keep this secret from the American public every step of the way. But, the details on this bailout are now on the Federal Reserve's website, and this is a major victory for the American taxpayer and for transparency in government.
Importantly, my amendment also required the Government Accountability Office to conduct a top-to-bottom audit of all of the emergency lending the Fed provided during the financial crisis to be completed on July 21, 2011, which will take a hard look at all of the potential conflicts of interest that took place with respect to this bailout. So, in many respects, details that the Fed was forced to divulge on Wednesday about the $3.3 trillion in emergency loans that until now were totally kept from public scrutiny, marked the beginning, not the end, of lifting the veil of secrecy at the Fed.
After years of stonewalling by the Fed, the American people are finally learning the incredible and jaw-dropping details of the Fed's multi-trillion-dollar bailout of Wall Street and corporate America. As a result of this disclosure, other members of Congress and I will be taking a very extensive look at all aspects of how the Federal Reserve functions and how we can make our financial institutions more responsive to the needs of ordinary Americans and small businesses.
What have we learned so far from the disclosure of more than 21,000 transactions? We have learned that the $700 billion Wall Street bailout signed into law by President George W. Bush turned out to be pocket change compared to the trillions and trillions of dollars in near-zero interest loans and other financial arrangements the Federal Reserve doled out to every major financial institution in this country. Among those are Goldman Sachs, which received nearly $600 billion; Morgan Stanley, which received nearly $2 trillion; Citigroup, which received $1.8 trillion; Bear Stearns, which received nearly $1 trillion, and Merrill Lynch, which received some $1.5 trillion in short term loans from the Fed.
We also learned that the Fed's multi-trillion bailout was not limited to Wall Street and big banks, but that some of the largest corporations in this country also received a very substantial bailout. Among those are General Electric, McDonald's, Caterpillar, Harley Davidson, Toyota and Verizon.
Perhaps most surprising is the huge sum that went to bail out foreign private banks and corporations including two European megabanks -- Deutsche Bank and Credit Suisse -- which were the largest beneficiaries of the Fed's purchase of mortgage-backed securities.
Deutsche Bank, a German lender, sold the Fed more than $290 billion worth of mortgage securities. Credit Suisse, a Swiss bank, sold the Fed more than $287 billion in mortgage bonds.
Has the Federal Reserve of the United States become the central bank of the world?
The Fed said that this bailout was necessary to prevent the world economy from going over a cliff. But three years after the start of the recession, millions of Americans remain unemployed and have lost their homes, life savings and ability to send their kids to college. Meanwhile, big banks and corporations have returned to making huge profits and paying their executives record-breaking compensation packages as if the financial crisis they started never happened.
What this disclosure tells us, among many other things, is that despite this huge taxpayer bailout, the Fed did not make the appropriate demands on these institutions necessary to rebuild our economy and protect the needs of ordinary Americans.
For example, at a time when big banks have nearly a trillion dollars in excess reserves parked at the Fed, the Fed did not require these institutions to increase lending to small- and medium-sized businesses as a condition of the bailout.
At a time when large corporations are more profitable than ever, the Fed did not demand that corporations that received this backdoor bailout create jobs and expand the economy once they returned to profitability.
I intend to investigate whether these secret Fed loans, in some cases, turned out to be direct corporate welfare to big banks that used these loans not to reinvest in the economy but rather to lend back to the federal government at a higher rate of interest by purchasing Treasury Securities. Instead of using this money to reinvest in the productive economy, I suspect a large portion of these near-zero interest loans were used to buy Treasury Securities at a higher interest rate providing free money to some of the largest financial institutions in this country. That is something that we have got to closely examine.
At a time when Wall Street executives are now making more money than before the financial crisis, how many big banks that paid back TARP funds in 2009 to avoid limits on executive compensation received no-strings-attached loans from the Federal Reserve?
At a time when millions of Americans are paying outrageously high credit card interest rates, why didn't the Fed require credit card issuers to lower interest rates as a condition of the bailout?
The four largest banks in this country (Bank of America, JP Morgan Chase, Wells Fargo, and Citigroup) issue half of all mortgages in this country. We now know that these banks received hundreds of billions from the Fed. How many Americans could have remained in their homes, if the Fed required these bailed-out banks to reduce mortgage payments as a condition of receiving these secret loans?
We have begun to lift the veil of secrecy at one of most important agencies in our government. What we are seeing is the incredible power of a small number of people who have incredible conflicts of interest getting incredible help from the taxpayers of this country while ignoring the needs of the people.
Friday, November 26, 2010
WHAT’S REALLY BEHIND QE2?
http://www.webofdebt.com/articles/qe2.php
WHAT’S REALLY BEHIND QE2?
Ellen Brown, November 19th, 2010
The deficit hawks are circling, hovering over QE2, calling it just another inflationary bank bailout. But unlike QE1, QE2 is not about saving the banks. It’s about funding the federal deficit without increasing the interest tab, something that may be necessary in this gridlocked political climate just to keep the government functioning.
On November 15, the Wall Street Journal published an open letter to Fed Chairman Ben Bernanke from 23 noted economists, professors and fund managers, urging him to abandon his new “quantitative easing” policy called QE2. The letter said:
We believe the Federal Reserve’s large-scale asset purchase plan (so-called “quantitative easing”) should be reconsidered and discontinued. . . . The planned asset purchases risk currency debasement and inflation, and we do not think they will achieve the Fed’s objective of promoting employment.
The Pragmatic Capitalist (Cullen Roche) remarked:
Many of the people on this list have been warning about bond vigilantes while also comparing the USA to Greece for several years now. Of course, they’ve been terribly wrong and it is entirely due to the fact that they do not understand how the US monetary system works. . . . What’s unfortunate is that these are many of our best minds. These are the people driving the economic bus.
The deficit hawks say QE is massively inflationary; that it is responsible for soaring commodity prices here and abroad; that QE2 won’t work any better than an earlier scheme called QE1, which was less about stimulating the economy than about saving the banks; and that QE has caused the devaluation of the dollar, which is hurting foreign currencies and driving up prices abroad.
None of these contentions is true, as will be shown. They arise from a failure either to understand modern monetary mechanics (see links at The Pragmatic Capitalist and here) or to understand QE2, which is a different animal from QE1. QE2 is not about saving the banks, or devaluing the dollar, or saving the housing market. It is about saving the government from having to raise taxes or cut programs, and saving Americans from the austerity measures crippling the Irish and the Greeks; and for that, it may well be the most effective tool currently available. QE2 promotes employment by keeping the government in business. The government can then work on adding jobs.
The Looming Threat of a Crippling Debt Service
The federal debt has increased by more than 50% since 2006, due to a collapsed economy and the highly controversial decision to bail out the banks. By the end of 2009, the debt was up to $12.3 trillion; but the interest paid on it ($383 billion) was actually less than in 2006 ($406 billion), because interest rates had been pushed to extremely low levels. Interest now eats up nearly half the government’s income tax receipts, which are estimated at $899 billion for FY 2010. Of this, $414 billion will go to interest on the federal debt. If interest rates were to rise just a couple of percentage points, servicing the federal debt would consume over 100% of current income tax receipts, and taxes might have to be doubled.
As for the surging commodity and currency prices abroad, they are not the result of QE. They are largely the result of the U.S. dollar carry trade, which is the result of pressure to keep interest rates artificially low. Banks that can borrow at the very low fed funds rate (now 0.2%) can turn around and speculate abroad, reaping much higher returns.
Interest rates cannot be raised again to reasonable levels until the cost of servicing the federal debt is reduced; and today that can be done most expeditiously through QE2 -- “monetizing” the debt through the Federal Reserve, essentially interest-free. Alone among the government’s creditors, the Fed rebates the interest to the government after deducting its costs. In 2008, the Fed reported that it rebated 85% of its profits to the government. The interest rate on the 10-year government bonds the Fed is planning to buy is now 2.66%. Fifteen percent of 2.66% is the equivalent of a 0.4% interest rate, the best deal in town on long-term bonds.
A Reluctant Fed Steps Up to the Plate
The Fed was strong-armed into rebating its profits to the government in the 1960s, when Wright Patman, Chairman of the House Banking and Currency Committee, pushed to have the Fed nationalized. According to Congressman Jerry Voorhis in The Strange Case of Richard Milhous Nixon (1973):
As a direct result of logical and relentless agitation by members of Congress, led by Congressman Wright Patman as well as by other competent monetary experts, the Federal Reserve began to pay to the U.S. Treasury a considerable part of its earnings from interest on government securities. This was done without public notice and few people, even today, know that it is being done. It was done, quite obviously, as acknowledgment that the Federal Reserve Banks were acting on the one hand as a national bank of issue, creating the nation’s money, but on the other hand charging the nation interest on its own credit – which no true national bank of issue could conceivably, or with any show of justice, dare to do.
Voorhis went on, “But this is only part of the story. And the less discouraging part, at that. For where the commercial banks are concerned, there is no such repayment of the people’s money.” Commercial banks do not rebate the interest, said Voorhis, although they also “‘buy’ the bonds with newly created demand deposit entries on their books – nothing more.”
After the 1960s, the policy was to fund government bonds through commercial banks (which could collect interest) rather than through the central bank (which could not). This was true not just in the U.S. but in other countries, after a quadrupling of oil prices combined with abandonment of the gold standard produced “stagflation” that was erroneously blamed on governments “printing money.”
Consistent with that longstanding policy, Chairman Bernanke initially resisted funding the federal deficit. In January 2010, he admonished Congress:
"We're not going to monetize the debt. It is very, very important for Congress and administration to come to some kind of program, some kind of plan that will credibly show how the United States government is going to bring itself back to a sustainable position."
His concern, according to The Washington Times, was that “the impasse in Congress over tough spending cuts and tax increases needed to bring down deficits will eventually force the Fed to accommodate deficits by printing money and buying Treasury bonds.”
That impasse crystallized on November 3, 2010, when Republicans swept the House. There would be no raising of taxes on the rich, and the gridlock in Congress meant there would be no budget cuts either. Compounding the problem was that over the last six months, China has stopped buying U.S. debt, reducing inflows by about $50 billion per month.
QE2 Is Not QE1
In QE1, the Fed bought $1.2 trillion in toxic mortgage-backed securities off the books of the banks. QE1 mirrored TARP, the government’s Troubled Asset Relief Program, except that TARP was funded by the government with $700 billion in taxpayer money. QE1 was funded by the Federal Reserve with computer keystrokes, simply by crediting the banks’ reserve accounts at the Fed.
Pundits were predicting that QE2 would be more of the same, but it turned out to be something quite different. Immediately after the election, Bernanke announced that the Fed would be using its power to purchase assets to buy federal securities on the secondary market -- from banks, bond investors and hedge funds. (In the EU, the European Central Bank began a similar policy when it bought Greek bonds on the secondary market.) The bond dealers would then be likely to use the money to buy more Treasuries, increasing overall Treasury sales.
The bankers who applauded QE1 were generally critical of QE2, probably because they would get nothing out of it. They would have to give up their interest-bearing bonds for additional cash reserves, something they already have more of than they can use. Unlike QE1, QE2 was designed, not to help the banks, but to relieve the pressure on the federal budget.
Bernanke said the Fed would buy $600 billion in long-term government bonds at the rate of $75 billion per month, filling the hole left by China. An estimated $275 billion would also be rolled over into Treasuries from the mortgage-backed securities the Fed bought during QE1, which are now reaching maturity. More QE was possible, he said, if unemployment stayed high and inflation stayed low (measured by the core Consumer Price Index).
Addison Wiggin noted in his November 4 Five Minute Forecast that this essentially meant the Fed planned to monetize the whole deficit for the next eight months. He quoted Agora Financial’s Bill Bonner:
“If this were Greece or Ireland, the government would be forced to cut back. With quantitative easing ready, there is no need to face the music.”
That was meant as a criticism, but you could also see it as a very good deal. Why pay interest to foreign central banks when you can get the money nearly interest-free from your own central bank? In eight months, the Fed will own more Treasuries than China and Japan combined, making it the largest holder of government securities outside the government itself.
The Overrated Hazard of Inflation
The objection of the deficit hawks, of course, is that this will be massively inflationary, diluting the value of the dollar; but a close look at the data indicates that these fears are unfounded.
Adding money to the money supply is obviously not hazardous when the money supply is shrinking, and it is shrinking now. Financial commentator Charles Hugh Smith estimates that the economy faces $15 trillion in writedowns in collateral and credit, based on projections from the latest Fed Flow of Funds. The Fed's $2 trillion in new credit/liquidity is therefore insufficient to trigger either inflation or another speculative bubble.
In any case, Chairman Bernanke maintains that QE involves no printing of new money. It is just an asset swap on the balance sheets of the bondholders. The bondholders are no richer than before and have no more money to spend than before.
Professor Warren Mosler explains that the bondholders hold the bonds in accounts at the Fed. He says, “U.S. Treasury securities are accounted much like savings accounts at a normal commercial bank.” They pay interest and are considered part of the federal debt. When the debt is “paid” by repurchasing the bonds, all that happens is that the sums are moved from the bondholder’s savings account into its checking account at the Fed, where the entries are no longer considered part of the national debt. The chief difference is that one account bears interest and the other doesn’t.
What About the Inflation in Commodities?
Despite surging commodity prices, the overall inflation rate remains very low, because housing has to be factored in. The housing market is recovering in some areas, but housing prices overall have dropped 28% from their peak. Main Street hasn’t been flooded with money; the money has just shifted around. Businesses are still having trouble getting reasonable loans, and so are prospective homeowners.
As for the obvious price inflation in commodities -- notably gold, silver, oil and food -- what is driving these prices up cannot be an inflated U.S. money supply, since the money supply is actually shrinking. Rather, it is a combination of factors including (a) heavy competition for these scarce goods from developing countries, whose economies are growing much faster than ours; (b) the flight of “hot money” from the real estate market, which has nowhere else to go; (c) in the case of soaring food prices, disastrous weather patterns; and (d) speculation, which is fanning the flames.
Feeding it all are the extremely low interest rates maintained by the Fed, allowing banks and their investor clients to borrow very cheaply and invest where they can get a much better return than on risky domestic loans. This carry trade will continue until something is done about the interest tab on the federal debt.
The ideal alternative would be for a transparent and accountable government to issue the money it needs outright, a function the Constitution reserves to Congress; but an interest-free loan from the Federal Reserve rolled over indefinitely is the next best thing.
A Bold Precedent
QE2 is not a “helicopter drop” of money on the banks or on Main Street. It is the Fed funding the government virtually interest-free, allowing the government to do what it needs to do without driving up the interest bill on the federal debt – an interest bill that need not have existed in the first place. As Thomas Edison said, “If our nation can issue a dollar bond, it can issue a dollar bill. The element that makes the bond good, makes the bill good, also.”
The Fed failed to revive the economy with QE1, but it could redeem itself with QE2, a bold precedent that might inspire other countries to break the chains of debt peonage in the same way. QE2 is the functional equivalent of what many countries did very successfully before the 1970s, when they funded their governments with interest-free loans from their own central banks.
Countries everywhere are now suffering from debt deflation. They could all use a good dose of their own interest-free national credit, beginning with Ireland and Greece.
Ellen Brown is an attorney and the author of eleven books. In Web of Debt: The Shocking Truth About Our Money System, she shows how the Federal Reserve and "the money trust" have usurped the power to create money from the people themselves, and how we the people can get it back. Her websites are webofdebt.com, ellenbrown.com, and public-banking.com.
WHAT’S REALLY BEHIND QE2?
Ellen Brown, November 19th, 2010
The deficit hawks are circling, hovering over QE2, calling it just another inflationary bank bailout. But unlike QE1, QE2 is not about saving the banks. It’s about funding the federal deficit without increasing the interest tab, something that may be necessary in this gridlocked political climate just to keep the government functioning.
On November 15, the Wall Street Journal published an open letter to Fed Chairman Ben Bernanke from 23 noted economists, professors and fund managers, urging him to abandon his new “quantitative easing” policy called QE2. The letter said:
We believe the Federal Reserve’s large-scale asset purchase plan (so-called “quantitative easing”) should be reconsidered and discontinued. . . . The planned asset purchases risk currency debasement and inflation, and we do not think they will achieve the Fed’s objective of promoting employment.
The Pragmatic Capitalist (Cullen Roche) remarked:
Many of the people on this list have been warning about bond vigilantes while also comparing the USA to Greece for several years now. Of course, they’ve been terribly wrong and it is entirely due to the fact that they do not understand how the US monetary system works. . . . What’s unfortunate is that these are many of our best minds. These are the people driving the economic bus.
The deficit hawks say QE is massively inflationary; that it is responsible for soaring commodity prices here and abroad; that QE2 won’t work any better than an earlier scheme called QE1, which was less about stimulating the economy than about saving the banks; and that QE has caused the devaluation of the dollar, which is hurting foreign currencies and driving up prices abroad.
None of these contentions is true, as will be shown. They arise from a failure either to understand modern monetary mechanics (see links at The Pragmatic Capitalist and here) or to understand QE2, which is a different animal from QE1. QE2 is not about saving the banks, or devaluing the dollar, or saving the housing market. It is about saving the government from having to raise taxes or cut programs, and saving Americans from the austerity measures crippling the Irish and the Greeks; and for that, it may well be the most effective tool currently available. QE2 promotes employment by keeping the government in business. The government can then work on adding jobs.
The Looming Threat of a Crippling Debt Service
The federal debt has increased by more than 50% since 2006, due to a collapsed economy and the highly controversial decision to bail out the banks. By the end of 2009, the debt was up to $12.3 trillion; but the interest paid on it ($383 billion) was actually less than in 2006 ($406 billion), because interest rates had been pushed to extremely low levels. Interest now eats up nearly half the government’s income tax receipts, which are estimated at $899 billion for FY 2010. Of this, $414 billion will go to interest on the federal debt. If interest rates were to rise just a couple of percentage points, servicing the federal debt would consume over 100% of current income tax receipts, and taxes might have to be doubled.
As for the surging commodity and currency prices abroad, they are not the result of QE. They are largely the result of the U.S. dollar carry trade, which is the result of pressure to keep interest rates artificially low. Banks that can borrow at the very low fed funds rate (now 0.2%) can turn around and speculate abroad, reaping much higher returns.
Interest rates cannot be raised again to reasonable levels until the cost of servicing the federal debt is reduced; and today that can be done most expeditiously through QE2 -- “monetizing” the debt through the Federal Reserve, essentially interest-free. Alone among the government’s creditors, the Fed rebates the interest to the government after deducting its costs. In 2008, the Fed reported that it rebated 85% of its profits to the government. The interest rate on the 10-year government bonds the Fed is planning to buy is now 2.66%. Fifteen percent of 2.66% is the equivalent of a 0.4% interest rate, the best deal in town on long-term bonds.
A Reluctant Fed Steps Up to the Plate
The Fed was strong-armed into rebating its profits to the government in the 1960s, when Wright Patman, Chairman of the House Banking and Currency Committee, pushed to have the Fed nationalized. According to Congressman Jerry Voorhis in The Strange Case of Richard Milhous Nixon (1973):
As a direct result of logical and relentless agitation by members of Congress, led by Congressman Wright Patman as well as by other competent monetary experts, the Federal Reserve began to pay to the U.S. Treasury a considerable part of its earnings from interest on government securities. This was done without public notice and few people, even today, know that it is being done. It was done, quite obviously, as acknowledgment that the Federal Reserve Banks were acting on the one hand as a national bank of issue, creating the nation’s money, but on the other hand charging the nation interest on its own credit – which no true national bank of issue could conceivably, or with any show of justice, dare to do.
Voorhis went on, “But this is only part of the story. And the less discouraging part, at that. For where the commercial banks are concerned, there is no such repayment of the people’s money.” Commercial banks do not rebate the interest, said Voorhis, although they also “‘buy’ the bonds with newly created demand deposit entries on their books – nothing more.”
After the 1960s, the policy was to fund government bonds through commercial banks (which could collect interest) rather than through the central bank (which could not). This was true not just in the U.S. but in other countries, after a quadrupling of oil prices combined with abandonment of the gold standard produced “stagflation” that was erroneously blamed on governments “printing money.”
Consistent with that longstanding policy, Chairman Bernanke initially resisted funding the federal deficit. In January 2010, he admonished Congress:
"We're not going to monetize the debt. It is very, very important for Congress and administration to come to some kind of program, some kind of plan that will credibly show how the United States government is going to bring itself back to a sustainable position."
His concern, according to The Washington Times, was that “the impasse in Congress over tough spending cuts and tax increases needed to bring down deficits will eventually force the Fed to accommodate deficits by printing money and buying Treasury bonds.”
That impasse crystallized on November 3, 2010, when Republicans swept the House. There would be no raising of taxes on the rich, and the gridlock in Congress meant there would be no budget cuts either. Compounding the problem was that over the last six months, China has stopped buying U.S. debt, reducing inflows by about $50 billion per month.
QE2 Is Not QE1
In QE1, the Fed bought $1.2 trillion in toxic mortgage-backed securities off the books of the banks. QE1 mirrored TARP, the government’s Troubled Asset Relief Program, except that TARP was funded by the government with $700 billion in taxpayer money. QE1 was funded by the Federal Reserve with computer keystrokes, simply by crediting the banks’ reserve accounts at the Fed.
Pundits were predicting that QE2 would be more of the same, but it turned out to be something quite different. Immediately after the election, Bernanke announced that the Fed would be using its power to purchase assets to buy federal securities on the secondary market -- from banks, bond investors and hedge funds. (In the EU, the European Central Bank began a similar policy when it bought Greek bonds on the secondary market.) The bond dealers would then be likely to use the money to buy more Treasuries, increasing overall Treasury sales.
The bankers who applauded QE1 were generally critical of QE2, probably because they would get nothing out of it. They would have to give up their interest-bearing bonds for additional cash reserves, something they already have more of than they can use. Unlike QE1, QE2 was designed, not to help the banks, but to relieve the pressure on the federal budget.
Bernanke said the Fed would buy $600 billion in long-term government bonds at the rate of $75 billion per month, filling the hole left by China. An estimated $275 billion would also be rolled over into Treasuries from the mortgage-backed securities the Fed bought during QE1, which are now reaching maturity. More QE was possible, he said, if unemployment stayed high and inflation stayed low (measured by the core Consumer Price Index).
Addison Wiggin noted in his November 4 Five Minute Forecast that this essentially meant the Fed planned to monetize the whole deficit for the next eight months. He quoted Agora Financial’s Bill Bonner:
“If this were Greece or Ireland, the government would be forced to cut back. With quantitative easing ready, there is no need to face the music.”
That was meant as a criticism, but you could also see it as a very good deal. Why pay interest to foreign central banks when you can get the money nearly interest-free from your own central bank? In eight months, the Fed will own more Treasuries than China and Japan combined, making it the largest holder of government securities outside the government itself.
The Overrated Hazard of Inflation
The objection of the deficit hawks, of course, is that this will be massively inflationary, diluting the value of the dollar; but a close look at the data indicates that these fears are unfounded.
Adding money to the money supply is obviously not hazardous when the money supply is shrinking, and it is shrinking now. Financial commentator Charles Hugh Smith estimates that the economy faces $15 trillion in writedowns in collateral and credit, based on projections from the latest Fed Flow of Funds. The Fed's $2 trillion in new credit/liquidity is therefore insufficient to trigger either inflation or another speculative bubble.
In any case, Chairman Bernanke maintains that QE involves no printing of new money. It is just an asset swap on the balance sheets of the bondholders. The bondholders are no richer than before and have no more money to spend than before.
Professor Warren Mosler explains that the bondholders hold the bonds in accounts at the Fed. He says, “U.S. Treasury securities are accounted much like savings accounts at a normal commercial bank.” They pay interest and are considered part of the federal debt. When the debt is “paid” by repurchasing the bonds, all that happens is that the sums are moved from the bondholder’s savings account into its checking account at the Fed, where the entries are no longer considered part of the national debt. The chief difference is that one account bears interest and the other doesn’t.
What About the Inflation in Commodities?
Despite surging commodity prices, the overall inflation rate remains very low, because housing has to be factored in. The housing market is recovering in some areas, but housing prices overall have dropped 28% from their peak. Main Street hasn’t been flooded with money; the money has just shifted around. Businesses are still having trouble getting reasonable loans, and so are prospective homeowners.
As for the obvious price inflation in commodities -- notably gold, silver, oil and food -- what is driving these prices up cannot be an inflated U.S. money supply, since the money supply is actually shrinking. Rather, it is a combination of factors including (a) heavy competition for these scarce goods from developing countries, whose economies are growing much faster than ours; (b) the flight of “hot money” from the real estate market, which has nowhere else to go; (c) in the case of soaring food prices, disastrous weather patterns; and (d) speculation, which is fanning the flames.
Feeding it all are the extremely low interest rates maintained by the Fed, allowing banks and their investor clients to borrow very cheaply and invest where they can get a much better return than on risky domestic loans. This carry trade will continue until something is done about the interest tab on the federal debt.
The ideal alternative would be for a transparent and accountable government to issue the money it needs outright, a function the Constitution reserves to Congress; but an interest-free loan from the Federal Reserve rolled over indefinitely is the next best thing.
A Bold Precedent
QE2 is not a “helicopter drop” of money on the banks or on Main Street. It is the Fed funding the government virtually interest-free, allowing the government to do what it needs to do without driving up the interest bill on the federal debt – an interest bill that need not have existed in the first place. As Thomas Edison said, “If our nation can issue a dollar bond, it can issue a dollar bill. The element that makes the bond good, makes the bill good, also.”
The Fed failed to revive the economy with QE1, but it could redeem itself with QE2, a bold precedent that might inspire other countries to break the chains of debt peonage in the same way. QE2 is the functional equivalent of what many countries did very successfully before the 1970s, when they funded their governments with interest-free loans from their own central banks.
Countries everywhere are now suffering from debt deflation. They could all use a good dose of their own interest-free national credit, beginning with Ireland and Greece.
Ellen Brown is an attorney and the author of eleven books. In Web of Debt: The Shocking Truth About Our Money System, she shows how the Federal Reserve and "the money trust" have usurped the power to create money from the people themselves, and how we the people can get it back. Her websites are webofdebt.com, ellenbrown.com, and public-banking.com.
Does the government really deserve Buffett’s thanks for financial rescue?
http://news.yahoo.com/s/yblog_thelookout/20101117/bs_yblog_thelookout/does-the-government-really-deserve-buffetts-thanks-for-financial-rescue
Wed Nov 17, 2010
Does the government really deserve Buffett’s thanks for financial rescue?
Zachary Roth
In an op-ed in Wednesday's New York Times, Warren Buffett offers a belated thank-you to the U.S. government for averting a financial collapse back in 2008. "In this extraordinary emergency, you came through," writes the Oracle of Omaha. "And the world would look far different now if you had not." Buffett praises Fed Chairman Ben Bernanke, current and former Treasury Secretaries Henry Paulson and Tim Geithner, and FDIC Chairwoman Sheila Bair for acting with "courage and dispatch."
The Berkshire Hathaway founder doesn't go into detail about the costs and benefits of the government's various rescue efforts. But his piece takes another high-profile step toward bolstering the emerging consensus among experts that the bailout, despite its extreme unpopularity, was in fact remarkably successful -- saving the economy for what turned out to be a bargain price.
That stance has some merit. But it also glosses over some of the rescue effort's less tangible -- but still enormous -- costs. So it's worth taking a more detailed look at where things stand.
Right now, we simply don't have all the necessary information to do a comprehensive accounting of the final tab for the bailout -- by which we mean not just the Treasury's Troubled Asset Relief Program for banks, but also the efforts to prop up mortgage giants Fannie Mae and Freddie Mac, as well as the flailing automakers at GM and Chrysler, together with additional spending programs by the Federal Reserve. But here's what we can say: To date, the government has spent, invested or loaned $546 billion, according to figures compiled by the nonprofit investigative project ProPublica. Of that amount, $251 billion has been returned. That leaves $296 billion still outstanding -- already far less than the $700 billion price tag that was bandied about for the TARP alone. And it's likely that figure will go down as more banks make repayments.
Back in May, Geithner predicted that just TARP -- including help for GM, Chrysler and homeowners facing foreclosure -- would cost $117 billion, once all repayments were in. Help for Fannie and Freddie would cost $85 billion more, he said. But the government actually stands to make money -- an estimated $115 billion -- on the Federal Reserve's creative finance programs for banks. That gave Geithner a final cost figure for all the government's rescue efforts of $87 billion.
Most people would agree that the price is a bargain for averting financial collapse, which could have caused human misery on the scale of the Great Depression. As Douglas Elliott, a former investment banker now at the Brookings Institution, told the New York Times in September: "This is the best federal program of any real size to be despised by the public like this."
But that's hardly the end of the story. As New York Times financial columnist Gretchen Morgenson has pointed out, the Treasury secretary's tally leaves out the effects of the Fed's near-zero interest rate policy, enacted as a way to spur lending. This policy benefits banks and punishes investors, because it lets the banks earn huge profits on the spread between what they pay for their deposits and what they make from their loans. There's no simple way to calculate a figure for this transfer of wealth to banks, but Morgenson calls it "enormous."
Geithner also overlooked losses suffered when the Federal Deposit Insurance Corp. -- the government entity in charge of winding down failing banks -- has had to enter into loss-sharing arrangements with healthy banks, to get them to take on the troubled assets of failing ones. Again, there's no way to know how much that program might end up costing us, but one widely quoted expert, Christopher Whalen, the editor of the Institutional Risk Analyst, put the figure as high as $400 billion.
And that's not all. TARP was also designed in part to give banks a cash injection that would let them keep bad assets on their books at unrealistic levels -- a setup that Whalen calls "extend and pretend." The banks know that at some point they'll have to assess the value of those toxic assets still on their books. And that's one big reason they're still extremely hesitant to make loans -- which in turn has prolonged the economic slump. Whalen puts that cost at "trillions of dollars," though again, there's really no way to know. And, the government's defenders might say, part of that cost is built into the existence of a crisis in the first place.
You can tell from the vagueness of all these numbers that there's really no reliable way to get a dollar figure for the cost of the government's rescue efforts. And it's also worth noting that even if the cost is in the trillions, a financial Armageddon would probably have cost far more.
But if nothing else, it's worth taking blithe assessments like the government's -- implicitly backed by Buffett's congratulatory op-ed Wednesday -- with the hefty grains of salt they deserve.
Wed Nov 17, 2010
Does the government really deserve Buffett’s thanks for financial rescue?
Zachary Roth
In an op-ed in Wednesday's New York Times, Warren Buffett offers a belated thank-you to the U.S. government for averting a financial collapse back in 2008. "In this extraordinary emergency, you came through," writes the Oracle of Omaha. "And the world would look far different now if you had not." Buffett praises Fed Chairman Ben Bernanke, current and former Treasury Secretaries Henry Paulson and Tim Geithner, and FDIC Chairwoman Sheila Bair for acting with "courage and dispatch."
The Berkshire Hathaway founder doesn't go into detail about the costs and benefits of the government's various rescue efforts. But his piece takes another high-profile step toward bolstering the emerging consensus among experts that the bailout, despite its extreme unpopularity, was in fact remarkably successful -- saving the economy for what turned out to be a bargain price.
That stance has some merit. But it also glosses over some of the rescue effort's less tangible -- but still enormous -- costs. So it's worth taking a more detailed look at where things stand.
Right now, we simply don't have all the necessary information to do a comprehensive accounting of the final tab for the bailout -- by which we mean not just the Treasury's Troubled Asset Relief Program for banks, but also the efforts to prop up mortgage giants Fannie Mae and Freddie Mac, as well as the flailing automakers at GM and Chrysler, together with additional spending programs by the Federal Reserve. But here's what we can say: To date, the government has spent, invested or loaned $546 billion, according to figures compiled by the nonprofit investigative project ProPublica. Of that amount, $251 billion has been returned. That leaves $296 billion still outstanding -- already far less than the $700 billion price tag that was bandied about for the TARP alone. And it's likely that figure will go down as more banks make repayments.
Back in May, Geithner predicted that just TARP -- including help for GM, Chrysler and homeowners facing foreclosure -- would cost $117 billion, once all repayments were in. Help for Fannie and Freddie would cost $85 billion more, he said. But the government actually stands to make money -- an estimated $115 billion -- on the Federal Reserve's creative finance programs for banks. That gave Geithner a final cost figure for all the government's rescue efforts of $87 billion.
Most people would agree that the price is a bargain for averting financial collapse, which could have caused human misery on the scale of the Great Depression. As Douglas Elliott, a former investment banker now at the Brookings Institution, told the New York Times in September: "This is the best federal program of any real size to be despised by the public like this."
But that's hardly the end of the story. As New York Times financial columnist Gretchen Morgenson has pointed out, the Treasury secretary's tally leaves out the effects of the Fed's near-zero interest rate policy, enacted as a way to spur lending. This policy benefits banks and punishes investors, because it lets the banks earn huge profits on the spread between what they pay for their deposits and what they make from their loans. There's no simple way to calculate a figure for this transfer of wealth to banks, but Morgenson calls it "enormous."
Geithner also overlooked losses suffered when the Federal Deposit Insurance Corp. -- the government entity in charge of winding down failing banks -- has had to enter into loss-sharing arrangements with healthy banks, to get them to take on the troubled assets of failing ones. Again, there's no way to know how much that program might end up costing us, but one widely quoted expert, Christopher Whalen, the editor of the Institutional Risk Analyst, put the figure as high as $400 billion.
And that's not all. TARP was also designed in part to give banks a cash injection that would let them keep bad assets on their books at unrealistic levels -- a setup that Whalen calls "extend and pretend." The banks know that at some point they'll have to assess the value of those toxic assets still on their books. And that's one big reason they're still extremely hesitant to make loans -- which in turn has prolonged the economic slump. Whalen puts that cost at "trillions of dollars," though again, there's really no way to know. And, the government's defenders might say, part of that cost is built into the existence of a crisis in the first place.
You can tell from the vagueness of all these numbers that there's really no reliable way to get a dollar figure for the cost of the government's rescue efforts. And it's also worth noting that even if the cost is in the trillions, a financial Armageddon would probably have cost far more.
But if nothing else, it's worth taking blithe assessments like the government's -- implicitly backed by Buffett's congratulatory op-ed Wednesday -- with the hefty grains of salt they deserve.
Saturday, July 3, 2010
RBS tells clients to prepare for 'monster' money-printing
http://www.telegraph.co.uk/finance/comment/ambroseevans_pritchard/7857595/RBS-tells-clients-to-prepare-for-monster-money-printing-by-the-Federal-Reserve.html
RBS tells clients to prepare for 'monster' money-printing by the Federal Reserve
As recovery starts to stall in the US and Europe with echoes of mid-1931, bond experts are once again dusting off a speech by Ben Bernanke given eight years ago as a freshman governor at the Federal Reserve.
Ambrose Evans-Pritchard, International Business Editor
27 Jun 2010
Entitled "Deflation: Making Sure It Doesn’t Happen Here", it is a warfare manual for defeating economic slumps by use of extreme monetary stimulus once interest rates have dropped to zero, and implicitly once governments have spent themselves to near bankruptcy.
The speech is best known for its irreverent one-liner: "The US government has a technology, called a printing press, that allows it to produce as many US dollars as it wishes at essentially no cost."
Bernanke began putting the script into action after the credit system seized up in 2008, purchasing $1.75 trillion of Treasuries, mortgage securities, and agency bonds to shore up the US credit system. He stopped far short of the $5 trillion balance sheet quietly pencilled in by the Fed Board as the upper limit for quantitative easing (QE).
Investors basking in Wall Street's V-shaped rally had assumed that this bizarre episode was over. So did the Fed, which has been shutting liquidity spigots one by one. But the latest batch of data is disturbing.
The ECRI leading indicator produced by the Economic Cycle Research Institute plummeted yet again last week to -6.9, pointing to contraction in the US by the end of the year. It is dropping faster that at any time in the post-War era.
The latest data from the CPB Netherlands Bureau shows that world trade slid 1.7pc in May, with the biggest fall in Asia. The Baltic Dry Index measuring freight rates on bulk goods has dropped 40pc in a month. This is a volatile index that can be distorted by the supply of new ships, but those who watch it as an early warning signal for China and commodities are nervous.
Andrew Roberts, credit chief at RBS, is advising clients to read the Bernanke text very closely because the Fed is soon going to have to the pull the lever on "monster" quantitative easing (QE)".
"We cannot stress enough how strongly we believe that a cliff-edge may be around the corner, for the global banking system (particularly in Europe) and for the global economy. Think the unthinkable," he said in a note to investors.
Roberts said the Fed will shift tack, resorting to the 1940s strategy of capping bond yields around 2pc by force majeure said this is the option "which I personally prefer".
A recent paper by the San Francisco Fed argues that interest rates should now be minus 5pc under the bank's "rule of thumb" measure of capacity use and unemployment. The rate is currently minus 2pc when QE is factored in. You could conclude, very crudely, that the Fed must therefore buy another $2 trillion of bonds, and even more if Europe's EMU debacle goes from bad to worse. I suspect that this hints at the Bernanke view, but it is anathema to hardliners at the Kansas, Richmond, Philadephia, and Dallas Feds.
Societe Generale's uber-bear Albert Edwards said the Fed and other central banks will be forced to print more money whatever they now say, given the "stinking fiscal mess" across the developed world. "The response to the coming deflationary maelstrom will be additional money printing that will make the recent QE seem insignificant," he said.
Despite the apparent rift with Europe, the US is arguably tightening fiscal policy just as hard. Congress has cut off benefits for those unemployed beyond six months, leaving 1.3m without support. California has to slash $19bn in spending this year, as much as Greece, Portugal, Ireland, Hungary, and Romania combined. The states together must cut $112bn to comply with state laws.
The Congressional Budget Office said federal stimulus from the Obama package peaked in the first quarter. The effect will turn sharply negative by next year as tax rises automatically kick in, a net swing of 4pc of GDP. This is happening as the US housing market tips into a double-dip. New homes sales crashed 33pc to a record low of 300,000 in May after subsidies expired.
It is sobering that zero rates, QE a l'outrance, and an $800bn fiscal blitz should should have delivered so little. Just as it is sobering that Club Med bond purchases by the European Central Bank and the creation of the EU's €750bn rescue "shield" have failed to stabilize Europe's debt markets. Greek default contracts reached an all-time high of 1,125 on Friday even though the €110bn EU-IMF rescue is up and running. Are investors questioning EU solvency itself, or making a judgment on German willingness to back pledges with real money?
Clearly we are nearing the end of the "Phoney War", that phase of the global crisis when it seemed as if governments could conjure away the Great Debt. The trauma has merely been displaced from banks, auto makers, and homeowners onto the taxpayer, lifting public debt in the OECD bloc from 70pc of GDP to 100pc by next year. As the Bank for International Settlements warns, sovereign debt crises are nearing "boiling point" in half the world economy.
Fiscal largesse had its place last year. It arrested the downward spiral at a crucial moment, but that moment has passed. There is a time to love and a time to hate, a time for war and a time for peace. The Krugman doctrine of perma-deficits is ruinous - and has in fact ruined Japan. The only plausible escape route for the West is a decade of fiscal austerity offset by helicopter drops of printed money, for as long as it takes.
Some say that the Fed's QE policies have failed. I profoundly disagree. The US property market - and therefore the banks - would have imploded if the Fed had not pulled down mortgage rates so aggressively, but you can never prove a counter-factual.
The case for fresh QE is not to inflate away the debt or default on Chinese creditors by stealth devaluation. It is to prevent deflation.
Bernanke warned in that speech eight years ago that "sustained deflation can be highly destructive to a modern economy" because it leads to slow death from a rising real burden of debt.
At the time, the broad money supply war growing at 6pc and the Dallas Fed's `trimmed mean' index of core inflation was 2.2pc.
We are much nearer the tipping today. The M3 money supply has contracted by 5.5pc over the last year, and the pace is accelerating: the 'trimmed mean' index is now 0.6pc on a six-month basis, the lowest ever. America is one twist shy of a debt-deflation trap.
There is no doubt that the Fed has the tools to stop this. "Sufficient injections of money will ultimately always reverse a deflation," said Bernanke. The question is whether he can muster support for such action in the face of massive popular disgust, a Republican Fronde in Congress, and resistance from the liquidationsists at the Kansas, Philadelphia, and Richmond Feds. If he cannot, we are in grave trouble.
RBS tells clients to prepare for 'monster' money-printing by the Federal Reserve
As recovery starts to stall in the US and Europe with echoes of mid-1931, bond experts are once again dusting off a speech by Ben Bernanke given eight years ago as a freshman governor at the Federal Reserve.
Ambrose Evans-Pritchard, International Business Editor
27 Jun 2010
Entitled "Deflation: Making Sure It Doesn’t Happen Here", it is a warfare manual for defeating economic slumps by use of extreme monetary stimulus once interest rates have dropped to zero, and implicitly once governments have spent themselves to near bankruptcy.
The speech is best known for its irreverent one-liner: "The US government has a technology, called a printing press, that allows it to produce as many US dollars as it wishes at essentially no cost."
Bernanke began putting the script into action after the credit system seized up in 2008, purchasing $1.75 trillion of Treasuries, mortgage securities, and agency bonds to shore up the US credit system. He stopped far short of the $5 trillion balance sheet quietly pencilled in by the Fed Board as the upper limit for quantitative easing (QE).
Investors basking in Wall Street's V-shaped rally had assumed that this bizarre episode was over. So did the Fed, which has been shutting liquidity spigots one by one. But the latest batch of data is disturbing.
The ECRI leading indicator produced by the Economic Cycle Research Institute plummeted yet again last week to -6.9, pointing to contraction in the US by the end of the year. It is dropping faster that at any time in the post-War era.
The latest data from the CPB Netherlands Bureau shows that world trade slid 1.7pc in May, with the biggest fall in Asia. The Baltic Dry Index measuring freight rates on bulk goods has dropped 40pc in a month. This is a volatile index that can be distorted by the supply of new ships, but those who watch it as an early warning signal for China and commodities are nervous.
Andrew Roberts, credit chief at RBS, is advising clients to read the Bernanke text very closely because the Fed is soon going to have to the pull the lever on "monster" quantitative easing (QE)".
"We cannot stress enough how strongly we believe that a cliff-edge may be around the corner, for the global banking system (particularly in Europe) and for the global economy. Think the unthinkable," he said in a note to investors.
Roberts said the Fed will shift tack, resorting to the 1940s strategy of capping bond yields around 2pc by force majeure said this is the option "which I personally prefer".
A recent paper by the San Francisco Fed argues that interest rates should now be minus 5pc under the bank's "rule of thumb" measure of capacity use and unemployment. The rate is currently minus 2pc when QE is factored in. You could conclude, very crudely, that the Fed must therefore buy another $2 trillion of bonds, and even more if Europe's EMU debacle goes from bad to worse. I suspect that this hints at the Bernanke view, but it is anathema to hardliners at the Kansas, Richmond, Philadephia, and Dallas Feds.
Societe Generale's uber-bear Albert Edwards said the Fed and other central banks will be forced to print more money whatever they now say, given the "stinking fiscal mess" across the developed world. "The response to the coming deflationary maelstrom will be additional money printing that will make the recent QE seem insignificant," he said.
Despite the apparent rift with Europe, the US is arguably tightening fiscal policy just as hard. Congress has cut off benefits for those unemployed beyond six months, leaving 1.3m without support. California has to slash $19bn in spending this year, as much as Greece, Portugal, Ireland, Hungary, and Romania combined. The states together must cut $112bn to comply with state laws.
The Congressional Budget Office said federal stimulus from the Obama package peaked in the first quarter. The effect will turn sharply negative by next year as tax rises automatically kick in, a net swing of 4pc of GDP. This is happening as the US housing market tips into a double-dip. New homes sales crashed 33pc to a record low of 300,000 in May after subsidies expired.
It is sobering that zero rates, QE a l'outrance, and an $800bn fiscal blitz should should have delivered so little. Just as it is sobering that Club Med bond purchases by the European Central Bank and the creation of the EU's €750bn rescue "shield" have failed to stabilize Europe's debt markets. Greek default contracts reached an all-time high of 1,125 on Friday even though the €110bn EU-IMF rescue is up and running. Are investors questioning EU solvency itself, or making a judgment on German willingness to back pledges with real money?
Clearly we are nearing the end of the "Phoney War", that phase of the global crisis when it seemed as if governments could conjure away the Great Debt. The trauma has merely been displaced from banks, auto makers, and homeowners onto the taxpayer, lifting public debt in the OECD bloc from 70pc of GDP to 100pc by next year. As the Bank for International Settlements warns, sovereign debt crises are nearing "boiling point" in half the world economy.
Fiscal largesse had its place last year. It arrested the downward spiral at a crucial moment, but that moment has passed. There is a time to love and a time to hate, a time for war and a time for peace. The Krugman doctrine of perma-deficits is ruinous - and has in fact ruined Japan. The only plausible escape route for the West is a decade of fiscal austerity offset by helicopter drops of printed money, for as long as it takes.
Some say that the Fed's QE policies have failed. I profoundly disagree. The US property market - and therefore the banks - would have imploded if the Fed had not pulled down mortgage rates so aggressively, but you can never prove a counter-factual.
The case for fresh QE is not to inflate away the debt or default on Chinese creditors by stealth devaluation. It is to prevent deflation.
Bernanke warned in that speech eight years ago that "sustained deflation can be highly destructive to a modern economy" because it leads to slow death from a rising real burden of debt.
At the time, the broad money supply war growing at 6pc and the Dallas Fed's `trimmed mean' index of core inflation was 2.2pc.
We are much nearer the tipping today. The M3 money supply has contracted by 5.5pc over the last year, and the pace is accelerating: the 'trimmed mean' index is now 0.6pc on a six-month basis, the lowest ever. America is one twist shy of a debt-deflation trap.
There is no doubt that the Fed has the tools to stop this. "Sufficient injections of money will ultimately always reverse a deflation," said Bernanke. The question is whether he can muster support for such action in the face of massive popular disgust, a Republican Fronde in Congress, and resistance from the liquidationsists at the Kansas, Philadelphia, and Richmond Feds. If he cannot, we are in grave trouble.
Friday, May 7, 2010
Former Nazi Bank To Rule The Global Economy
http://www.prisonplanet.com/former-nazi-bank-to-rule-the-global-economy.html
Former Nazi Bank To Rule The Global Economy
The global elite has chosen the Bank For International Settlements, which financed Hitler’s war machine, to boss the financial arm of the new world order
Paul Joseph Watson
Prison Planet.com
Friday, April 30, 2010
European Central Bank chief Jean-Claude Trichet’s announcement that the Bank for International Settlements is to become the primary engine for global governance is a shocking admission given the fact that this ultra-secretive menagerie of international bankers was once controlled by top Nazis who, in collusion with global central banks, funneled money through the institution which directly financed Hitler’s war machine.
During a speech to the elitist CFR organization earlier this week, ECB head Trichet said that the Global Economy Meeting (GEM), which regularly meets at the BIS headquarters in Basel, “Has become the prime group for global governance among central banks”.
The GEM is basically a policy steering committee under the umbrella of the Bank for International Settlements. In its current form, the BIS, which itself is not accountable to any national government, is comprised of banking chiefs from global central banks, most of which are private and also have no responsibility to their nation states or their citizens.
The board of directors who control the BIS include Federal Reserve chief Ben Bernanke and Bank of England head Mervyn King, as well as Trichet himself.
So how did the Bank for International Settlements get started? The BIS was founded in 1930 by Governor of The Bank of England, Montague Norman and his German colleague Hjalmar Schacht, who later became Adolf Hitler’s finance minister.
The bank was initially founded in order to facilitate money transfers related to German reparations arising out of the Treaty of Versailles, but by the start of the second world war, the BIS was largely controlled by top Nazi officials, people like Walter Funk, who was appointed Nazi propaganda minister in 1933 before going on to become Hitler’s Minister for Economic Affairs. Another BIS director during this period was Emil Puhl, who as director and vice-president of Germany’s Reichsbank was responsible for moving Nazi gold. Both Funk and Puhl were convicted at the Nuremberg trials as war criminals.
Other BIS directors included Herman Schmitz, the director of IG Farben, whose subsidiary company manufactured Zyklon B, the pesticide used in Nazi concentration camp gas chambers to kill Jews and political dissidents during the Holocaust. IG Farben worked closely with John D. Rockefeller’s United States-based Standard Oil Co during the second world war.
Baron von Schroeder, the owner of the J.H.Stein Bank, the bank that held the deposits of the Gestapo, was also a BIS director during the war period.
As Charles Higham’s widely acclaimed book Trading With The Enemy, How the Allied multinationals supplied Nazi Germany throughout World War Two points out, several parties at the Bretton Woods Conference in July 1944 wanted to see the Bank for International Settlements liquidated, because its role in aiding Nazi Germany loot occupied European countries during the war. Norway called for the bank to be shut down, a view supported by Harry Dexter White, U.S. Secretary of the Treasury and Henry Morgenthau, but the BIS survived despite its highly contentious Nazi influence.
Higham writes that the BIS became, “A money funnel for American and British funds to flow into Hitler’s coffers and to help Hitler build up his machine,” founded by Nazi finance minister Hjalmar Schacht on the basis that the “Institution that would retain channels of communication and collusion between the world’s financial leaders even in the event of an international conflict. It was written into the Bank’s charter, concurred in by the respective governments, that the BIS should be immune from seizure, closure or censure, whether or not its owners were at war.”
“The BIS was completely under Hitler’s control by the outbreak of World War II,” writes Higham. “Among the directors under Thomas H. McKittrick were Hermann Shmitz, head of the colossal Nazi industrial trust I.G. Farben, Baron Kurt von Schroder, head of the J.H. Stein Bank of Cologne and a leading officer and financier of the Gestapo; Dr. Walther Funk of the Reichsbank, and, of course, Emil Puhl. These last two figures were Hitler’s personal appointees to the board.”
Higham details how the gold looted from countries invaded by the Nazis was packed into vaults controlled by the Bank for International Settlements, and how Nazis who controlled the bank then forbade any discussion of the theft.
“The BIS was an instrument of Hitler, but its continuing existence was approved by Great Britain even after that country went to war with Germany, and the British director Sir Otto Niemeyer, and chairman Montagu Norman, remained in office throughout the war,” writes Higham, explaining how Washington State Congressman John M. Coffee objected to American money being invested with the bank in 1944.
“The Nazi government has 85 million Swiss gold francs on deposit in the BIS. The majority of the board is made up of Nazi officials. Yet American money is being deposited in the Bank,” complained Coffee.
In 1948, the BIS was finally compelled to hand over a mere £4 million in looted Nazi gold to the allies, and thanks to people like Harry Truman and the Rockefeller family, the bank was not dissolved. One of its most influential directors, Nazi banker Emil Puhl was later invited to the United States as a guest of honor in 1950.
Despite its inglorious past, the Bank For International Settlements continues today as a major management arm of the global elite. The bank wields power through its control of vast amounts of global currencies. The BIS controls no less than 7% of the world’s available foreign exchange funds, as well as owning 712 tons of gold bullion, presumably a sizeable portion of which is the bullion which was stolen from occupied countries by the Nazis who controlled the bank during the war.
“By controlling foreign exchange currency, plus gold, the BIS can go a long way toward determining the economic conditions in any given country,” writes Doug Casey. “Remember that the next time Ben Bernanke or European Central Bank President Jean-Claude Trichet announces an interest rate hike. You can bet it didn’t happen without the concurrence of the BIS Board.”
The BIS is basically a huge slush fund for global government through which secret transfers of wealth from citizens are surreptitiously handed to the IMF.
“For example, U.S. taxpayer monies can be passed through BIS to the IMF and from there anywhere. In essence, the BIS launders the money, since there is no specific accounting of where particular deposits came from and where they went,” writes Casey.
The fact that top Nazis were intimately involved in the activity of a global central bank that is now being touted as the primary powerhouse of the economic arm of world government is frightening. Every time we delve into the origins of the march towards world government, we find that top Nazis were instrumental in setting up and managing the same institutions that today seek to manage the imposition of global government.
Just as with the institutions that comprised the embryonic stages of the European Union, Nazi fingerprints are all over the origins of the move towards a global authority ruling the planet with nation states and sovereignty playing second fiddle. This fact demolishes any notion that global government is benevolent, humanitarian or progressive. Centralization of power into the hands of the few is inherently undemocratic, elitist, and to the detriment of the people.
The Nazis who breathed life into the same framework of global authoritarianism being used to set up world government today may have been usurped by an elite altogether more patient in their bid to impose a dictatorship run by banking dynasties, but the ultimate agenda remains the same – world government by consent or conquest.
Former Nazi Bank To Rule The Global Economy
The global elite has chosen the Bank For International Settlements, which financed Hitler’s war machine, to boss the financial arm of the new world order
Paul Joseph Watson
Prison Planet.com
Friday, April 30, 2010
European Central Bank chief Jean-Claude Trichet’s announcement that the Bank for International Settlements is to become the primary engine for global governance is a shocking admission given the fact that this ultra-secretive menagerie of international bankers was once controlled by top Nazis who, in collusion with global central banks, funneled money through the institution which directly financed Hitler’s war machine.
During a speech to the elitist CFR organization earlier this week, ECB head Trichet said that the Global Economy Meeting (GEM), which regularly meets at the BIS headquarters in Basel, “Has become the prime group for global governance among central banks”.
The GEM is basically a policy steering committee under the umbrella of the Bank for International Settlements. In its current form, the BIS, which itself is not accountable to any national government, is comprised of banking chiefs from global central banks, most of which are private and also have no responsibility to their nation states or their citizens.
The board of directors who control the BIS include Federal Reserve chief Ben Bernanke and Bank of England head Mervyn King, as well as Trichet himself.
So how did the Bank for International Settlements get started? The BIS was founded in 1930 by Governor of The Bank of England, Montague Norman and his German colleague Hjalmar Schacht, who later became Adolf Hitler’s finance minister.
The bank was initially founded in order to facilitate money transfers related to German reparations arising out of the Treaty of Versailles, but by the start of the second world war, the BIS was largely controlled by top Nazi officials, people like Walter Funk, who was appointed Nazi propaganda minister in 1933 before going on to become Hitler’s Minister for Economic Affairs. Another BIS director during this period was Emil Puhl, who as director and vice-president of Germany’s Reichsbank was responsible for moving Nazi gold. Both Funk and Puhl were convicted at the Nuremberg trials as war criminals.
Other BIS directors included Herman Schmitz, the director of IG Farben, whose subsidiary company manufactured Zyklon B, the pesticide used in Nazi concentration camp gas chambers to kill Jews and political dissidents during the Holocaust. IG Farben worked closely with John D. Rockefeller’s United States-based Standard Oil Co during the second world war.
Baron von Schroeder, the owner of the J.H.Stein Bank, the bank that held the deposits of the Gestapo, was also a BIS director during the war period.
As Charles Higham’s widely acclaimed book Trading With The Enemy, How the Allied multinationals supplied Nazi Germany throughout World War Two points out, several parties at the Bretton Woods Conference in July 1944 wanted to see the Bank for International Settlements liquidated, because its role in aiding Nazi Germany loot occupied European countries during the war. Norway called for the bank to be shut down, a view supported by Harry Dexter White, U.S. Secretary of the Treasury and Henry Morgenthau, but the BIS survived despite its highly contentious Nazi influence.
Higham writes that the BIS became, “A money funnel for American and British funds to flow into Hitler’s coffers and to help Hitler build up his machine,” founded by Nazi finance minister Hjalmar Schacht on the basis that the “Institution that would retain channels of communication and collusion between the world’s financial leaders even in the event of an international conflict. It was written into the Bank’s charter, concurred in by the respective governments, that the BIS should be immune from seizure, closure or censure, whether or not its owners were at war.”
“The BIS was completely under Hitler’s control by the outbreak of World War II,” writes Higham. “Among the directors under Thomas H. McKittrick were Hermann Shmitz, head of the colossal Nazi industrial trust I.G. Farben, Baron Kurt von Schroder, head of the J.H. Stein Bank of Cologne and a leading officer and financier of the Gestapo; Dr. Walther Funk of the Reichsbank, and, of course, Emil Puhl. These last two figures were Hitler’s personal appointees to the board.”
Higham details how the gold looted from countries invaded by the Nazis was packed into vaults controlled by the Bank for International Settlements, and how Nazis who controlled the bank then forbade any discussion of the theft.
“The BIS was an instrument of Hitler, but its continuing existence was approved by Great Britain even after that country went to war with Germany, and the British director Sir Otto Niemeyer, and chairman Montagu Norman, remained in office throughout the war,” writes Higham, explaining how Washington State Congressman John M. Coffee objected to American money being invested with the bank in 1944.
“The Nazi government has 85 million Swiss gold francs on deposit in the BIS. The majority of the board is made up of Nazi officials. Yet American money is being deposited in the Bank,” complained Coffee.
In 1948, the BIS was finally compelled to hand over a mere £4 million in looted Nazi gold to the allies, and thanks to people like Harry Truman and the Rockefeller family, the bank was not dissolved. One of its most influential directors, Nazi banker Emil Puhl was later invited to the United States as a guest of honor in 1950.
Despite its inglorious past, the Bank For International Settlements continues today as a major management arm of the global elite. The bank wields power through its control of vast amounts of global currencies. The BIS controls no less than 7% of the world’s available foreign exchange funds, as well as owning 712 tons of gold bullion, presumably a sizeable portion of which is the bullion which was stolen from occupied countries by the Nazis who controlled the bank during the war.
“By controlling foreign exchange currency, plus gold, the BIS can go a long way toward determining the economic conditions in any given country,” writes Doug Casey. “Remember that the next time Ben Bernanke or European Central Bank President Jean-Claude Trichet announces an interest rate hike. You can bet it didn’t happen without the concurrence of the BIS Board.”
The BIS is basically a huge slush fund for global government through which secret transfers of wealth from citizens are surreptitiously handed to the IMF.
“For example, U.S. taxpayer monies can be passed through BIS to the IMF and from there anywhere. In essence, the BIS launders the money, since there is no specific accounting of where particular deposits came from and where they went,” writes Casey.
The fact that top Nazis were intimately involved in the activity of a global central bank that is now being touted as the primary powerhouse of the economic arm of world government is frightening. Every time we delve into the origins of the march towards world government, we find that top Nazis were instrumental in setting up and managing the same institutions that today seek to manage the imposition of global government.
Just as with the institutions that comprised the embryonic stages of the European Union, Nazi fingerprints are all over the origins of the move towards a global authority ruling the planet with nation states and sovereignty playing second fiddle. This fact demolishes any notion that global government is benevolent, humanitarian or progressive. Centralization of power into the hands of the few is inherently undemocratic, elitist, and to the detriment of the people.
The Nazis who breathed life into the same framework of global authoritarianism being used to set up world government today may have been usurped by an elite altogether more patient in their bid to impose a dictatorship run by banking dynasties, but the ultimate agenda remains the same – world government by consent or conquest.
Tuesday, January 12, 2010
That 1937 Feeling
http://www.nytimes.com/2010/01/04/opinion/04krugman.html
That 1937 Feeling
PAUL KRUGMAN
January 3, 2010
Here’s what’s coming in economic news: The next employment report could show the economy adding jobs for the first time in two years. The next G.D.P. report is likely to show solid growth in late 2009. There will be lots of bullish commentary — and the calls we’re already hearing for an end to stimulus, for reversing the steps the government and the Federal Reserve took to prop up the economy, will grow even louder.
But if those calls are heeded, we’ll be repeating the great mistake of 1937, when the Fed and the Roosevelt administration decided that the Great Depression was over, that it was time for the economy to throw away its crutches. Spending was cut back, monetary policy was tightened — and the economy promptly plunged back into the depths.
This shouldn’t be happening. Both Ben Bernanke, the Fed chairman, and Christina Romer, who heads President Obama’s Council of Economic Advisers, are scholars of the Great Depression. Ms. Romer has warned explicitly against re-enacting the events of 1937. But those who remember the past sometimes repeat it anyway.
As you read the economic news, it will be important to remember, first of all, that blips — occasional good numbers, signifying nothing — are common even when the economy is, in fact, mired in a prolonged slump. In early 2002, for example, initial reports showed the economy growing at a 5.8 percent annual rate. But the unemployment rate kept rising for another year.
And in early 1996 preliminary reports showed the Japanese economy growing at an annual rate of more than 12 percent, leading to triumphant proclamations that “the economy has finally entered a phase of self-propelled recovery.” In fact, Japan was only halfway through its lost decade.
Such blips are often, in part, statistical illusions. But even more important, they’re usually caused by an “inventory bounce.” When the economy slumps, companies typically find themselves with large stocks of unsold goods. To work off their excess inventories, they slash production; once the excess has been disposed of, they raise production again, which shows up as a burst of growth in G.D.P. Unfortunately, growth caused by an inventory bounce is a one-shot affair unless underlying sources of demand, such as consumer spending and long-term investment, pick up.
Which brings us to the still grim fundamentals of the economic situation.
During the good years of the last decade, such as they were, growth was driven by a housing boom and a consumer spending surge. Neither is coming back. There can’t be a new housing boom while the nation is still strewn with vacant houses and apartments left behind by the previous boom, and consumers — who are $11 trillion poorer than they were before the housing bust — are in no position to return to the buy-now-save-never habits of yore.
What’s left? A boom in business investment would be really helpful right now. But it’s hard to see where such a boom would come from: industry is awash in excess capacity, and commercial rents are plunging in the face of a huge oversupply of office space.
Can exports come to the rescue? For a while, a falling U.S. trade deficit helped cushion the economic slump. But the deficit is widening again, in part because China and other surplus countries are refusing to let their currencies adjust.
So the odds are that any good economic news you hear in the near future will be a blip, not an indication that we’re on our way to sustained recovery. But will policy makers misinterpret the news and repeat the mistakes of 1937? Actually, they already are.
The Obama fiscal stimulus plan is expected to have its peak effect on G.D.P. and jobs around the middle of this year, then start fading out. That’s far too early: why withdraw support in the face of continuing mass unemployment? Congress should have enacted a second round of stimulus months ago, when it became clear that the slump was going to be deeper and longer than originally expected. But nothing was done — and the illusory good numbers we’re about to see will probably head off any further possibility of action.
Meanwhile, all the talk at the Fed is about the need for an “exit strategy” from its efforts to support the economy. One of those efforts, purchases of long-term U.S. government debt, has already come to an end. It’s widely expected that another, purchases of mortgage-backed securities, will end in a few months. This amounts to a monetary tightening, even if the Fed doesn’t raise interest rates directly — and there’s a lot of pressure on Mr. Bernanke to do that too.
Will the Fed realize, before it’s too late, that the job of fighting the slump isn’t finished? Will Congress do the same? If they don’t, 2010 will be a year that began in false economic hope and ended in grief.
A version of this article appeared in print on January 4, 2010, on page A21
That 1937 Feeling
PAUL KRUGMAN
January 3, 2010
Here’s what’s coming in economic news: The next employment report could show the economy adding jobs for the first time in two years. The next G.D.P. report is likely to show solid growth in late 2009. There will be lots of bullish commentary — and the calls we’re already hearing for an end to stimulus, for reversing the steps the government and the Federal Reserve took to prop up the economy, will grow even louder.
But if those calls are heeded, we’ll be repeating the great mistake of 1937, when the Fed and the Roosevelt administration decided that the Great Depression was over, that it was time for the economy to throw away its crutches. Spending was cut back, monetary policy was tightened — and the economy promptly plunged back into the depths.
This shouldn’t be happening. Both Ben Bernanke, the Fed chairman, and Christina Romer, who heads President Obama’s Council of Economic Advisers, are scholars of the Great Depression. Ms. Romer has warned explicitly against re-enacting the events of 1937. But those who remember the past sometimes repeat it anyway.
As you read the economic news, it will be important to remember, first of all, that blips — occasional good numbers, signifying nothing — are common even when the economy is, in fact, mired in a prolonged slump. In early 2002, for example, initial reports showed the economy growing at a 5.8 percent annual rate. But the unemployment rate kept rising for another year.
And in early 1996 preliminary reports showed the Japanese economy growing at an annual rate of more than 12 percent, leading to triumphant proclamations that “the economy has finally entered a phase of self-propelled recovery.” In fact, Japan was only halfway through its lost decade.
Such blips are often, in part, statistical illusions. But even more important, they’re usually caused by an “inventory bounce.” When the economy slumps, companies typically find themselves with large stocks of unsold goods. To work off their excess inventories, they slash production; once the excess has been disposed of, they raise production again, which shows up as a burst of growth in G.D.P. Unfortunately, growth caused by an inventory bounce is a one-shot affair unless underlying sources of demand, such as consumer spending and long-term investment, pick up.
Which brings us to the still grim fundamentals of the economic situation.
During the good years of the last decade, such as they were, growth was driven by a housing boom and a consumer spending surge. Neither is coming back. There can’t be a new housing boom while the nation is still strewn with vacant houses and apartments left behind by the previous boom, and consumers — who are $11 trillion poorer than they were before the housing bust — are in no position to return to the buy-now-save-never habits of yore.
What’s left? A boom in business investment would be really helpful right now. But it’s hard to see where such a boom would come from: industry is awash in excess capacity, and commercial rents are plunging in the face of a huge oversupply of office space.
Can exports come to the rescue? For a while, a falling U.S. trade deficit helped cushion the economic slump. But the deficit is widening again, in part because China and other surplus countries are refusing to let their currencies adjust.
So the odds are that any good economic news you hear in the near future will be a blip, not an indication that we’re on our way to sustained recovery. But will policy makers misinterpret the news and repeat the mistakes of 1937? Actually, they already are.
The Obama fiscal stimulus plan is expected to have its peak effect on G.D.P. and jobs around the middle of this year, then start fading out. That’s far too early: why withdraw support in the face of continuing mass unemployment? Congress should have enacted a second round of stimulus months ago, when it became clear that the slump was going to be deeper and longer than originally expected. But nothing was done — and the illusory good numbers we’re about to see will probably head off any further possibility of action.
Meanwhile, all the talk at the Fed is about the need for an “exit strategy” from its efforts to support the economy. One of those efforts, purchases of long-term U.S. government debt, has already come to an end. It’s widely expected that another, purchases of mortgage-backed securities, will end in a few months. This amounts to a monetary tightening, even if the Fed doesn’t raise interest rates directly — and there’s a lot of pressure on Mr. Bernanke to do that too.
Will the Fed realize, before it’s too late, that the job of fighting the slump isn’t finished? Will Congress do the same? If they don’t, 2010 will be a year that began in false economic hope and ended in grief.
A version of this article appeared in print on January 4, 2010, on page A21
Thursday, December 31, 2009
Bernanke Named Time's Person of the Year
http://online.wsj.com/article/SB126096701015693553.html
Wednesday, December 16, 2009
Bernanke Named Time's Person of the Year
DAVID WESSEL
Time magazine named Ben Bernanke, chairman of the Federal Reserve, as its person of the year.
"The main reason … is that he is the most important player guiding the world's most important economy. His creative leadership helped ensure that 2009 was a period of weak recovery rather than catastrophic depression, and he still wields unrivaled power over our money, our jobs, our savings and our national future. The decisions he has made, and those he has yet to make, will shape the path of our prosperity, the direction of our politics and our relationship to the world," the weekly said in a story posted on its Web site.
Mr. Bernanke was chosen over runners-up Gen. Stanley McChrystal, "the Chinese worker," House Speaker Nancy Pelosi and runner Usain Bolt.
Write to David Wessel at capital@wsj.com
Wednesday, December 16, 2009
Bernanke Named Time's Person of the Year
DAVID WESSEL
Time magazine named Ben Bernanke, chairman of the Federal Reserve, as its person of the year.
"The main reason … is that he is the most important player guiding the world's most important economy. His creative leadership helped ensure that 2009 was a period of weak recovery rather than catastrophic depression, and he still wields unrivaled power over our money, our jobs, our savings and our national future. The decisions he has made, and those he has yet to make, will shape the path of our prosperity, the direction of our politics and our relationship to the world," the weekly said in a story posted on its Web site.
Mr. Bernanke was chosen over runners-up Gen. Stanley McChrystal, "the Chinese worker," House Speaker Nancy Pelosi and runner Usain Bolt.
Write to David Wessel at capital@wsj.com
Friday, December 11, 2009
'You Are The Definition Of Moral Hazard'
http://www.huffingtonpost.com/2009/12/03/senator-to-fed-chair-bern_n_378673.html
Shahien Nasiripour
shahien@huffingtonpost.com
Senator To Fed Chair Bernanke: 'You Are The Definition Of Moral Hazard'
12-3-09
A few hours after Federal Reserve Chairman Ben Bernanke began a spirited defense of his much-maligned tenure leading the nation's central bank, a Republican Senator reached across the aisle to join one of the chamber's more liberal members in declaring his intention to delay Bernanke's likely confirmation.
Sen. Jim Bunning, of Kentucky, told video journalist Mike Stark that he will place a "hold" on the Bernanke's confirmation, joining Bernie Sanders, of Vermont, an Independent who caucuses with Democrats. The video was first posted on the left-leaning blog FireDogLake.
Bunning added that he and Sanders won't be the only ones to pull this procedural delaying tactic. However, unless they get 39 others to join them in opposing Bernanke, he'll likely be confirmed. It'll just take Senate Majority Leader Harry Reid (D-Nev.) a bit more time, as he'll have to round up 60 votes to bypass the "hold."
***
Federal Reserve Chairman Ben Bernanke was scolded Thursday by a group of senators who let the country's top economic official know how angry they are with what they perceive as his multiple failures both before and after the financial markets crashed.
Lead among them was Jim Bunning, a Republican from Kentucky.
The only senator to vote against Bernanke's confirmation four years ago, Bunning ripped into the Fed chair for handing out "cheap money to [his] masters on Wall Street"; referring to him as "the definition of moral hazard"; and stating flatly that it was either "incompetence or a desire to secretly funnel more money to a few select firms" that led Bernanke to not pressure then-New York Fed President Timothy Geithner to demand concessions from AIG's counterparties during the government's massive bailout last fall.
Bunning's prepared remarks are below.
Statement of Senator Jim Bunning as Prepared for Delivery Banking, Housing, and Urban Affairs Committee Hearing on the Nomination of Ben Bernanke
December 3, 2009
Four years ago when you came before the Senate for confirmation to be Chairman of the Federal Reserve, I was the only Senator to vote against you. In fact, I was the only Senator to even raise serious concerns about you. I opposed you because I knew you would continue the legacy of Alan Greenspan, and I was right. But I did not know how right I would be and could not begin to imagine how wrong you would be in the following four years.
The Greenspan legacy on monetary policy was breaking from the Taylor Rule to provide easy money, and thus inflate bubbles. Not only did you continue that policy when you took control of the Fed, but you supported every Greenspan rate decision when you were on the Fed earlier this decade. Sometimes you even wanted to go further and provide even more easy money than Chairman Greenspan. As recently as a letter you sent me two weeks ago, you still refuse to admit Fed actions played any role in inflating the housing bubble despite overwhelming evidence and the consensus of economists to the contrary. And in your efforts to keep filling the punch bowl, you cranked up the printing press to buy mortgage securities, Treasury securities, commercial paper, and other assets from Wall Street. Those purchases, by the way, led to some nice profits for the Wall Street banks and dealers who sold them to you, and the G.S.E. purchases seem to be illegal since the Federal Reserve Act only allows the purchase of securities backed by the government.
On consumer protection, the Greenspan policy was don't do it. You went along with his policy before you were Chairman, and continued it after you were promoted. The most glaring example is it took you two years to finally regulate subprime mortgages after Chairman Greenspan did nothing for 12 years. Even then, you only acted after pressure from Congress and after it was clear subprime mortgages were at the heart of the economic meltdown. On other consumer protection issues you only acted as the time approached for your re-nomination to be Fed Chairman.
Alan Greenspan refused to look for bubbles or try to do anything other than create them. Likewise, it is clear from your statements over the last four years that you failed to spot the housing bubble despite many warnings.
Chairman Greenspan's attitude toward regulating banks was much like his attitude toward consumer protection. Instead of close supervision of the biggest and most dangerous banks, he ignored the growing balance sheets and increasing risk. You did no better. In fact, under your watch every one of the major banks failed or would have failed if you did not bail them out.
On derivatives, Chairman Greenspan and other Clinton Administration officials attacked Brooksley Born when she dared to raise concerns about the growing risks. They succeeded in changing the law to prevent her or anyone else from effectively regulating derivatives. After taking over the Fed, you did not see any need for more substantial regulation of derivatives until it was clear that we were headed to a financial meltdown thanks in part to those products.
The Greenspan policy on transparency was talk a lot, use plenty of numbers, but say nothing. Things were so bad one TV network even tried to guess his thoughts by looking at the briefcase he carried to work. You promised Congress more transparency when you came to the job, and you promised us more transparency when you came begging for TARP. To be fair, you have published some more information than before, but those efforts are inadequate and you still refuse to provide details on the Fed's bailouts last year and on all the toxic waste you have bought.
And Chairman Greenspan sold the Fed's independence to Wall Street through the so-called "Greenspan Put". Whenever Wall Street needed a boost, Alan was there. But you went far beyond that when you bowed to the political pressures of the Bush and Obama administrations and turned the Fed into an arm of the Treasury. Under your watch, the Bernanke Put became a bailout for all large financial institutions, including many foreign banks. And you put the printing presses into overdrive to fund the government's spending and hand out cheap money to your masters on Wall Street, which they use to rake in record profits while ordinary Americans and small businesses can't even get loans for their everyday needs.
Now, I want to read you a quote: "I believe that the tools available to the banking agencies, including the ability to require adequate capital and an effective bank receivership process are sufficient to allow the agencies to minimize the systemic risks associated with large banks. Moreover, the agencies have made clear that no bank is too-big-too-fail, so that bank management, shareholders, and un-insured debt holders understand that they will not escape the consequences of excessive risk-taking. In short, although vigilance is necessary, I believe the systemic risk inherent in the banking system is well-managed and well-controlled."
That should sound familiar, since it was part of your response to a question I asked about the systemic risk of large financial institutions at your last confirmation hearing. I'm going to ask that the full question and answer be included in today's hearing record.
Now, if that statement was true and you had acted according to it, I might be supporting your nomination today. But since then, you have decided that just about every large bank, investment bank, insurance company, and even some industrial companies are too big to fail. Rather than making management, shareholders, and debt holders feel the consequences of their risk-taking, you bailed them out. In short, you are the definition of moral hazard.
Instead of taking that money and lending to consumers and cleaning up their balance sheets, the banks started to pocket record profits and pay out billions of dollars in bonuses. Because you bowed to pressure from the banks and refused to resolve them or force them to clean up their balance sheets and clean out the management, you have created zombie banks that are only enriching their traders and executives. You are repeating the mistakes of Japan in the 1990s on a much larger scale, while sowing the seeds for the next bubble. In the same letter where you refused to admit any responsibility for inflating the housing bubble, you also admitted that you do not have an exit strategy for all the money you have printed and securities you have bought. That sounds to me like you intend to keep propping up the banks for as long as they want.
Even if all that were not true, the A.I.G. bailout alone is reason enough to send you back to Princeton. First you told us A.I.G. and its creditors had to be bailed out because they posed a systemic risk, largely because of the credit default swaps portfolio. Those credit default swaps, by the way, are over the counter derivatives that the Fed did not want regulated. Well, according to the TARP Inspector General, it turns out the Fed was not concerned about the financial condition of the credit default swaps partners when you decided to pay them off at par. In fact, the Inspector General makes it clear that no serious efforts were made to get the partners to take haircuts, and one bank's offer to take a haircut was declined. I can only think of two possible reasons you would not make then-New York Fed President Geithner try to save the taxpayers some money by seriously negotiating or at least take up U.B.S. on their offer of a haircut. Sadly, those two reasons are incompetence or a desire to secretly funnel more money to a few select firms, most notably Goldman Sachs, Merrill Lynch, and a handful of large European banks. I also cannot understand why you did not seek European government contributions to this bailout of their banking system.
From monetary policy to regulation, consumer protection, transparency, and independence, your time as Fed Chairman has been a failure. You stated time and again during the housing bubble that there was no bubble. After the bubble burst, you repeatedly claimed the fallout would be small. And you clearly did not spot the systemic risks that you claim the Fed was supposed to be looking out for. Where I come from we punish failure, not reward it. That is certainly the way it was when I played baseball, and the way it is all across America. Judging by the current Treasury Secretary, some may think Washington does reward failure, but that should not be the case. I will do everything I can to stop your nomination and drag out the process as long as possible. We must put an end to your and the Fed's failures, and there is no better time than now.
Shahien Nasiripour
shahien@huffingtonpost.com
Senator To Fed Chair Bernanke: 'You Are The Definition Of Moral Hazard'
12-3-09
A few hours after Federal Reserve Chairman Ben Bernanke began a spirited defense of his much-maligned tenure leading the nation's central bank, a Republican Senator reached across the aisle to join one of the chamber's more liberal members in declaring his intention to delay Bernanke's likely confirmation.
Sen. Jim Bunning, of Kentucky, told video journalist Mike Stark that he will place a "hold" on the Bernanke's confirmation, joining Bernie Sanders, of Vermont, an Independent who caucuses with Democrats. The video was first posted on the left-leaning blog FireDogLake.
Bunning added that he and Sanders won't be the only ones to pull this procedural delaying tactic. However, unless they get 39 others to join them in opposing Bernanke, he'll likely be confirmed. It'll just take Senate Majority Leader Harry Reid (D-Nev.) a bit more time, as he'll have to round up 60 votes to bypass the "hold."
***
Federal Reserve Chairman Ben Bernanke was scolded Thursday by a group of senators who let the country's top economic official know how angry they are with what they perceive as his multiple failures both before and after the financial markets crashed.
Lead among them was Jim Bunning, a Republican from Kentucky.
The only senator to vote against Bernanke's confirmation four years ago, Bunning ripped into the Fed chair for handing out "cheap money to [his] masters on Wall Street"; referring to him as "the definition of moral hazard"; and stating flatly that it was either "incompetence or a desire to secretly funnel more money to a few select firms" that led Bernanke to not pressure then-New York Fed President Timothy Geithner to demand concessions from AIG's counterparties during the government's massive bailout last fall.
Bunning's prepared remarks are below.
Statement of Senator Jim Bunning as Prepared for Delivery Banking, Housing, and Urban Affairs Committee Hearing on the Nomination of Ben Bernanke
December 3, 2009
Four years ago when you came before the Senate for confirmation to be Chairman of the Federal Reserve, I was the only Senator to vote against you. In fact, I was the only Senator to even raise serious concerns about you. I opposed you because I knew you would continue the legacy of Alan Greenspan, and I was right. But I did not know how right I would be and could not begin to imagine how wrong you would be in the following four years.
The Greenspan legacy on monetary policy was breaking from the Taylor Rule to provide easy money, and thus inflate bubbles. Not only did you continue that policy when you took control of the Fed, but you supported every Greenspan rate decision when you were on the Fed earlier this decade. Sometimes you even wanted to go further and provide even more easy money than Chairman Greenspan. As recently as a letter you sent me two weeks ago, you still refuse to admit Fed actions played any role in inflating the housing bubble despite overwhelming evidence and the consensus of economists to the contrary. And in your efforts to keep filling the punch bowl, you cranked up the printing press to buy mortgage securities, Treasury securities, commercial paper, and other assets from Wall Street. Those purchases, by the way, led to some nice profits for the Wall Street banks and dealers who sold them to you, and the G.S.E. purchases seem to be illegal since the Federal Reserve Act only allows the purchase of securities backed by the government.
On consumer protection, the Greenspan policy was don't do it. You went along with his policy before you were Chairman, and continued it after you were promoted. The most glaring example is it took you two years to finally regulate subprime mortgages after Chairman Greenspan did nothing for 12 years. Even then, you only acted after pressure from Congress and after it was clear subprime mortgages were at the heart of the economic meltdown. On other consumer protection issues you only acted as the time approached for your re-nomination to be Fed Chairman.
Alan Greenspan refused to look for bubbles or try to do anything other than create them. Likewise, it is clear from your statements over the last four years that you failed to spot the housing bubble despite many warnings.
Chairman Greenspan's attitude toward regulating banks was much like his attitude toward consumer protection. Instead of close supervision of the biggest and most dangerous banks, he ignored the growing balance sheets and increasing risk. You did no better. In fact, under your watch every one of the major banks failed or would have failed if you did not bail them out.
On derivatives, Chairman Greenspan and other Clinton Administration officials attacked Brooksley Born when she dared to raise concerns about the growing risks. They succeeded in changing the law to prevent her or anyone else from effectively regulating derivatives. After taking over the Fed, you did not see any need for more substantial regulation of derivatives until it was clear that we were headed to a financial meltdown thanks in part to those products.
The Greenspan policy on transparency was talk a lot, use plenty of numbers, but say nothing. Things were so bad one TV network even tried to guess his thoughts by looking at the briefcase he carried to work. You promised Congress more transparency when you came to the job, and you promised us more transparency when you came begging for TARP. To be fair, you have published some more information than before, but those efforts are inadequate and you still refuse to provide details on the Fed's bailouts last year and on all the toxic waste you have bought.
And Chairman Greenspan sold the Fed's independence to Wall Street through the so-called "Greenspan Put". Whenever Wall Street needed a boost, Alan was there. But you went far beyond that when you bowed to the political pressures of the Bush and Obama administrations and turned the Fed into an arm of the Treasury. Under your watch, the Bernanke Put became a bailout for all large financial institutions, including many foreign banks. And you put the printing presses into overdrive to fund the government's spending and hand out cheap money to your masters on Wall Street, which they use to rake in record profits while ordinary Americans and small businesses can't even get loans for their everyday needs.
Now, I want to read you a quote: "I believe that the tools available to the banking agencies, including the ability to require adequate capital and an effective bank receivership process are sufficient to allow the agencies to minimize the systemic risks associated with large banks. Moreover, the agencies have made clear that no bank is too-big-too-fail, so that bank management, shareholders, and un-insured debt holders understand that they will not escape the consequences of excessive risk-taking. In short, although vigilance is necessary, I believe the systemic risk inherent in the banking system is well-managed and well-controlled."
That should sound familiar, since it was part of your response to a question I asked about the systemic risk of large financial institutions at your last confirmation hearing. I'm going to ask that the full question and answer be included in today's hearing record.
Now, if that statement was true and you had acted according to it, I might be supporting your nomination today. But since then, you have decided that just about every large bank, investment bank, insurance company, and even some industrial companies are too big to fail. Rather than making management, shareholders, and debt holders feel the consequences of their risk-taking, you bailed them out. In short, you are the definition of moral hazard.
Instead of taking that money and lending to consumers and cleaning up their balance sheets, the banks started to pocket record profits and pay out billions of dollars in bonuses. Because you bowed to pressure from the banks and refused to resolve them or force them to clean up their balance sheets and clean out the management, you have created zombie banks that are only enriching their traders and executives. You are repeating the mistakes of Japan in the 1990s on a much larger scale, while sowing the seeds for the next bubble. In the same letter where you refused to admit any responsibility for inflating the housing bubble, you also admitted that you do not have an exit strategy for all the money you have printed and securities you have bought. That sounds to me like you intend to keep propping up the banks for as long as they want.
Even if all that were not true, the A.I.G. bailout alone is reason enough to send you back to Princeton. First you told us A.I.G. and its creditors had to be bailed out because they posed a systemic risk, largely because of the credit default swaps portfolio. Those credit default swaps, by the way, are over the counter derivatives that the Fed did not want regulated. Well, according to the TARP Inspector General, it turns out the Fed was not concerned about the financial condition of the credit default swaps partners when you decided to pay them off at par. In fact, the Inspector General makes it clear that no serious efforts were made to get the partners to take haircuts, and one bank's offer to take a haircut was declined. I can only think of two possible reasons you would not make then-New York Fed President Geithner try to save the taxpayers some money by seriously negotiating or at least take up U.B.S. on their offer of a haircut. Sadly, those two reasons are incompetence or a desire to secretly funnel more money to a few select firms, most notably Goldman Sachs, Merrill Lynch, and a handful of large European banks. I also cannot understand why you did not seek European government contributions to this bailout of their banking system.
From monetary policy to regulation, consumer protection, transparency, and independence, your time as Fed Chairman has been a failure. You stated time and again during the housing bubble that there was no bubble. After the bubble burst, you repeatedly claimed the fallout would be small. And you clearly did not spot the systemic risks that you claim the Fed was supposed to be looking out for. Where I come from we punish failure, not reward it. That is certainly the way it was when I played baseball, and the way it is all across America. Judging by the current Treasury Secretary, some may think Washington does reward failure, but that should not be the case. I will do everything I can to stop your nomination and drag out the process as long as possible. We must put an end to your and the Fed's failures, and there is no better time than now.
Thursday, December 10, 2009
Bernanke Channels Willie Sutton
http://www.huffingtonpost.com/2009/12/03/bernanke-channels-willie_n_378963.html
Ryan Grim
ryan@huffingtonpost.com HuffPost
Bernanke Channels Willie Sutton In Assault On Social Security: 'That's Where The Money Is'
12-3-09
Ben Bernanke has overseen the greatest expansion of the Federal Reserve's balance sheet in its history, pouring trillions of dollars into Wall Street firms at roughly zero interest rates.
His generosity, however, has a limit.
In testimony before the Senate Banking Committee today, where he's seeking re-appointment as the Fed's chairman, Bernanke called for cutbacks in Medicare and Social Security even as unemployment rises and the middle class is endangered.
Citing legendary bank robber Willie Sutton, Bernanke said of the retirement and health care funds that are the legacy of the New Deal: "That's where the money is."
Sen. Bob Bennett (R-Utah) sympathized with Bernanke, saying that, because of entitlement spending, "you're going to be looking at a situation where the Congress will be unable to provide any kind of fiscal discipline because of the mandatory spending. That puts an enormous burden on your plate."
"Well, Senator, I was about to address entitlements," Bernanke replied. "I think you can't tackle the problem in the medium term without doing something about getting entitlements under control and reducing the costs, particularly of health care."
Bernanke reminded Congress that it has the power to repeal Social Security and Medicare.
"It's only mandatory until Congress says it's not mandatory. And we have no option but to address those costs at some point or else we will have an unsustainable situation," said Bernanke.
Story continues below But there are several other obvious options that could make the situation sustainable -- including a transaction tax on Wall Street speculation or a slight tax hike on the wealthiest Americans.
Bernanke talks as if increasing taxes on the wealthy simply isn't an option.
Sen. Jack Reed (D-R.I.) followed Bennett and pointed out that "there's only really two ways you can deflect this deficit, and that's either by cutting expenditures or raising income taxes or other forms of taxes."
Reed asked him if he could think of other ways, but Bernanke returned to entitlement money as the way to balance the budget.
"Willie Sutton robbed banks because that's where the money is, as he put it," Bernanke said. "The money in this case is in entitlements."
There's also money at the very top of the income ladder. Reed asked if Congress would be wise to tax some of it. Full of suggestions when it came to cutting entitlements, Bernanke was suddenly overtaken by a bout of policy modesty.
"Would you take taxes off the table?" Reed asked.
"Those decisions are up to Congress," Bernanke said.
"Well, your predecessor signaled very strongly that the tax cuts in 2000 were appropriate," Reed reminded him.
"I have not done that. I've done my best to leave that authority where it belongs, with the Congress," Bernanke said, just moments after telling Congress to cut entitlement spending.
Sen. Bernie Sanders, an independent from Vermont who has placed a hold on Bernanke's nomination, was apoplectic when HuffPost told him Bernanke was pushing for cuts in entitlement spending. "Bernanke wants to cut entitlement spending? Well, that confirms everything I'm saying," Sanders fumed.
"The CEOs and top people on Wall Street make huge bonuses, and what? We're going to cut back on Social Security and Medicare? That's what we're going to do?"
Bernanke worked to assure the committee he had nothing against old people. "I'm not in any way advocating unfair treatment of the elderly, who have worked all their lives and certainly deserve our support and help, but if there are ways to restructure or strengthen these programs that reduce costs, I think that's extraordinarily important for us to try to achieve," he said.
Bernanke allies in the Senate are working to see he gets his way. Senate Budget Committee Chairman Kent Conrad (D-N.D.) has been pushing hard for the creation of an independent commission that could cut entitlement spending. He has met recently, he said Thursday, with Senate Majority Leader Harry Reid (D-Nev.) and Treasury Secretary Tim Geithner, reiterating his threat to block Senate legislation if the commission isn't created.
"We're on a course that's just unsustainable," Conrad said, but put emphasis on Medicare rather than Social Security.
While the debate about entitlement spending is often masked with high-minded talk about fiscally-responsible policy solutions, it is little more than a struggle between competing classes for scarce resources.
Sanders said he sees it for what it is. "That's the solution? To cut back on the middle class and the elderly? That only adds fuel to the fire," he said. "Look, let's be clear. The middle class in America today is collapsing. Within the confines of the Beltway, we don't talk about that too much. But that is the reality. It's not just unemployment or underemployment. People are working longer hours for lower wages. People are unable to send their kids to college. People are losing their homes. People's jobs are going to China. That is the reality."
Ryan Grim
ryan@huffingtonpost.com HuffPost
Bernanke Channels Willie Sutton In Assault On Social Security: 'That's Where The Money Is'
12-3-09
Ben Bernanke has overseen the greatest expansion of the Federal Reserve's balance sheet in its history, pouring trillions of dollars into Wall Street firms at roughly zero interest rates.
His generosity, however, has a limit.
In testimony before the Senate Banking Committee today, where he's seeking re-appointment as the Fed's chairman, Bernanke called for cutbacks in Medicare and Social Security even as unemployment rises and the middle class is endangered.
Citing legendary bank robber Willie Sutton, Bernanke said of the retirement and health care funds that are the legacy of the New Deal: "That's where the money is."
Sen. Bob Bennett (R-Utah) sympathized with Bernanke, saying that, because of entitlement spending, "you're going to be looking at a situation where the Congress will be unable to provide any kind of fiscal discipline because of the mandatory spending. That puts an enormous burden on your plate."
"Well, Senator, I was about to address entitlements," Bernanke replied. "I think you can't tackle the problem in the medium term without doing something about getting entitlements under control and reducing the costs, particularly of health care."
Bernanke reminded Congress that it has the power to repeal Social Security and Medicare.
"It's only mandatory until Congress says it's not mandatory. And we have no option but to address those costs at some point or else we will have an unsustainable situation," said Bernanke.
Story continues below But there are several other obvious options that could make the situation sustainable -- including a transaction tax on Wall Street speculation or a slight tax hike on the wealthiest Americans.
Bernanke talks as if increasing taxes on the wealthy simply isn't an option.
Sen. Jack Reed (D-R.I.) followed Bennett and pointed out that "there's only really two ways you can deflect this deficit, and that's either by cutting expenditures or raising income taxes or other forms of taxes."
Reed asked him if he could think of other ways, but Bernanke returned to entitlement money as the way to balance the budget.
"Willie Sutton robbed banks because that's where the money is, as he put it," Bernanke said. "The money in this case is in entitlements."
There's also money at the very top of the income ladder. Reed asked if Congress would be wise to tax some of it. Full of suggestions when it came to cutting entitlements, Bernanke was suddenly overtaken by a bout of policy modesty.
"Would you take taxes off the table?" Reed asked.
"Those decisions are up to Congress," Bernanke said.
"Well, your predecessor signaled very strongly that the tax cuts in 2000 were appropriate," Reed reminded him.
"I have not done that. I've done my best to leave that authority where it belongs, with the Congress," Bernanke said, just moments after telling Congress to cut entitlement spending.
Sen. Bernie Sanders, an independent from Vermont who has placed a hold on Bernanke's nomination, was apoplectic when HuffPost told him Bernanke was pushing for cuts in entitlement spending. "Bernanke wants to cut entitlement spending? Well, that confirms everything I'm saying," Sanders fumed.
"The CEOs and top people on Wall Street make huge bonuses, and what? We're going to cut back on Social Security and Medicare? That's what we're going to do?"
Bernanke worked to assure the committee he had nothing against old people. "I'm not in any way advocating unfair treatment of the elderly, who have worked all their lives and certainly deserve our support and help, but if there are ways to restructure or strengthen these programs that reduce costs, I think that's extraordinarily important for us to try to achieve," he said.
Bernanke allies in the Senate are working to see he gets his way. Senate Budget Committee Chairman Kent Conrad (D-N.D.) has been pushing hard for the creation of an independent commission that could cut entitlement spending. He has met recently, he said Thursday, with Senate Majority Leader Harry Reid (D-Nev.) and Treasury Secretary Tim Geithner, reiterating his threat to block Senate legislation if the commission isn't created.
"We're on a course that's just unsustainable," Conrad said, but put emphasis on Medicare rather than Social Security.
While the debate about entitlement spending is often masked with high-minded talk about fiscally-responsible policy solutions, it is little more than a struggle between competing classes for scarce resources.
Sanders said he sees it for what it is. "That's the solution? To cut back on the middle class and the elderly? That only adds fuel to the fire," he said. "Look, let's be clear. The middle class in America today is collapsing. Within the confines of the Beltway, we don't talk about that too much. But that is the reality. It's not just unemployment or underemployment. People are working longer hours for lower wages. People are unable to send their kids to college. People are losing their homes. People's jobs are going to China. That is the reality."
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