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The United States could easily print her own money, and maintain control of both, the money supply, and interest rates.  Instead, every (paper) dollar in circulation is borrowed from commercial banks (at interest), who are linked to the Fed, or Central Bank.

The Fed is a very secretive private institution.  The Fed came into being in 1913 in the aftermath of market manipulation by JPMorgan which resulted in the 1907 financial crisis.  The banking cartels basically bought off some members of Congress, and also bankrolled the campaign of president Woodrow Wilson, who promptly signed The Federal Reserve Act, which had been written in secrecy by the most powerful bankers of the time (Morgan, Rothschild, Rockefeller).

In order to understand how damaging to the country the creation of the Fed was, one only has to consider the following quote by Congressman Louis T. McFadden on the Federal Reserve Corporation during a speech in Congress in 1934:

Mr. Chairman, we have in this Country one of the most corrupt institutions the world has ever known. I refer to the Federal Reserve Board and the Federal Reserve Banks, hereinafter called the Fed. The Fed has cheated the Government of these United States and the people of the United States out of enough money to pay the Nation's debt. The depredations and iniquities of the Fed has cost enough money to pay the National debt several times over.

This evil institution has impoverished and ruined the people of these United States, has bankrupted itself, and has practically bankrupted our Government. It has done this through the defects of the law under which it operates, through the maladministration of that law by the Fed and through the corrupt practices of the moneyed vultures who control it.

Some people who think that the Federal Reserve Banks United States Government institutions. They are private monopolies which prey upon the people of these United States for the benefit of themselves and their foreign customers; foreign and domestic speculators and swindlers; and rich and predatory money lender. In that dark crew of financial pirates there are those who would cut a man's throat to get a dollar out of his pocket; there are those who send money into states to buy votes to control our legislatures; there are those who maintain International propaganda for the purpose of deceiving us into granting of new concessions which will permit them to cover up their past misdeeds and set again in motion their gigantic train of crime.

The emphasis is mine

Here's how the century-old scam works... Because the Fed can print (fiat) money at will, it can control both the money supply and the interest rates.

So at certain intervals, it engages in quantitative easing or enlarging of the money supply, which results in a fast expansion of credit (debt being the principal mean by which this private banking cartel exploits the society).

When the level of debt (both, private and public) has reached a saturation point, historically what the Fed has done has been to contract the money supply, which brings about recessions of depressions.

This is very important... The banksters, the member banks, the FED, have the power to print as much money as they want, and to set interest rates.

They then push this money unto the economy through various loans and financial instruments (to government, municipalities, individuals).

Then at certain intervals, the Fed diminishes the money supply (among other actions), which precipitates economic recessions/depressions.

This then sets the stage for the banksters to acquire real assets for pennies on the dollar (once entire sectors of the economy collapse).

Here's how Charles A. Lindbergh saw it...

The new law will create inflation whenever the trusts want inflation. It may not do so immediately, but the trusts want a period of inflation, because all the stocks they hold have gone down... Now, if the trusts can get another period of inflation, they figure they can unload the stocks on the people at high prices during the excitement and then bring on a panic and buy them back at low prices.…The people may not know it immediately, but the day of reckoning is only a few years removed.”

(Congressman Charles A. Lindbergh, referring to the Federal Reserve Act. Congressman Lindbergh stated this a few years prior to the stock market crash in 1929 which ushered in the Great Depression Congressional Record, Vol. 51, p. 1446. December 22, 1913.)

The emphasis is mine

These folks saw the writing on the wall as soon as this corrupt entity, the FED, was created (given its structure, secrecy, and private ownership).

Are you going to let these thieves get off scot free? Is there one law for the looter who drives up to the door of the United States Treasury in his limousine and another for the United States Veterans who are sleeping on the floor of a dilapidated house on the outskirts of Washington?

-- Congressman, Louis T. McFadden / Remarks in Congress, 1934

And even during the squalor, the looting continued in the aftermath of the Great Depression, when the Fed spearheaded the end of the gold standard, and everyone had to turn in their gold.
Executive Order 6102 is an executive order signed on April 5, 1933, by U.S. President Franklin D. Roosevelt "forbidding the Hoarding of gold coin, gold bullion, and gold certificates within the continental United States". The order criminalized the possession of monetary gold by any individual, partnership, association or corporation.

The order was rationalized on the grounds that hard times had caused "hoarding" of gold, stalling economic growth and making the depression worse.[1] The New York Times, on April 6, 1933 p. 16, wrote under the headline "Hoarding of Gold", "The Executive Order issued by the President yesterday amplifies and particularizes his earlier warnings against hoarding. On March 6, taking advantage of a wartime statute that had not been repealed, he issued Presidential Proclamation 2039 that forbade the hoarding 'of gold or silver coin or bullion or currency,' under penalty of $10,000 and/or up to five to ten years imprisonment."

And so once the gold standard was abolished, money became just legal tender not backed up by any real asset (i.e., gold).  This in turn cemented "debt" (to governments, businesses, and individuals) as the most important product of the central banking system.

Of course, after the Great Depression, some safeguards (Glass–Steagall Legislation) were put in place to protect the nation against this type of predatory behavior by banksters, and for the next 40-plus years things were pretty stable... Until Clinton repealed it by signing the Gramm–Leach–Bliley Act (Financial Services Modernization Act of 1999).

And the rest, as they say, is history... The repeal of the Glass–Steagall Act set the stage for another round of looting by the Fed and the Wall Street criminal racketeering cartel...

This lead to the 2008 financial crisis following the same formula of first flooding the market with easy money (in the form of collateralized debt obligations), and then when the inevitable market collapse happened, once again the banksters swooped in and took millions of people's homes (real assets) on the cheap.

On top of that, the banksters held the country hostage, and lied to justify their demand for $700 billion with a 3-page ransom letter.

But that's not all; on top of that, the Fed printed at least $13 trillion dollars and sent that over to the criminal banks almost interest-free, secretly.  Remember, fiat money; they can just print it and send it over to the banks... While the rest of the country remains in economic depression, and while real assets have been looted and transferred over to the banks.

And they are not done yet... This is why I've been arguing for some time now that to these criminal bansksters, default on the U.S. national debt would only means more profit as borrowing interest rates will skyrocket.

And if a default brings about an actual economic depression, it would just mean more opportunity for them to acquire more real property/assets on the cheap, helping bring about some sort of neo-feudal system.

Finally, remember, the U.S. Fed is only one of 60 central banks that are members of Bank for International Settlements, another highly secretive and unaccountable organization controlled by some of the most powerful banking families in the world.

Regarding the current situation with the government shutdown, and the looming debt ceiling crisis, of course we don't know how's going to unfold.  We are all hoping that cooler heads prevail so get resolved.

But my point here is that if the past is prologue, any cataclysmic financial collapse brought about by a series of events, like an extended government shutdown, and a default on the government debt, would ultimately benefit what is in the final analysis are supra-national financial cartels (the FED, Bank of America, JPMorgan Chase, Goldman Sachs).

Also, the panic and social unrest it would cause would bring about the perfect conditions for activating the surveillance police state that has been built during the last fifteen years or so.

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Market For The People |Ray Pensador | Email List | Twitter | Facebook

Originally posted to Ray Pensador on Fri Oct 04, 2013 at 01:10 AM PDT.

Also republished by ClassWarfare Newsletter: WallStreet VS Working Class Global Occupy movement.

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Comment Preferences

  •  Are the Tea Baggers, Koch Addicts and GOP in (3+ / 0-)
    Recommended by:
    Shockwave, a2nite, Ray Pensador

    general this sophisticated?  I guess Cruz, the Koch shil could be.  His quasi-demonic, humorless style which trys to dazzle with sharp tongued repartee may harbor world wide ambitions.  He is after all the hand picked pol of the Texas billionaires club and I bet they see some good social control asserted via economic shocks and big profit deals as prices rise from a slow down or worse, again, as in 2008.  And we are still clawing our way out of the 2008 title wave of economic shock so another hit could be the Republican's goal or they would make a deal instead of burning down the country and crashing the world's economy.

    •  They are not that sophisticated but... (2+ / 0-)
      Recommended by:
      3rdOption, Ray Pensador

      ...they are part of a power structure with its own meta-conscience that may be.

      Can we offer an anti-thesis?

      Daily Kos an oasis of truth. Truth that leads to action.

      by Shockwave on Fri Oct 04, 2013 at 01:44:06 AM PDT

      [ Parent ]

      •  Critics of Ray must read "The Shock Doctrine"... (7+ / 0-)

        ...before they attack the thesis of this diary, and they first must disprove and disparage the author, Naomi Klein, before any of that gets pointed at Ray.

        Here's a little help:

        "The Shock Doctrine: The Rise of Disaster Capitalism"

        Here's an excerpt from the Publishers Weekly review:

        The neo-liberal economic policies—privatization, free trade, slashed social spending—that the Chicago School and the economist Milton Friedman have foisted on the world are catastrophic in two senses, argues this vigorous polemic. Because their results are disastrous—depressions, mass poverty, private corporations looting public wealth, by the author's accounting—their means must be cataclysmic, dependent on political upheavals and natural disasters as coercive pretexts for free-market reforms the public would normally reject. Journalist Klein (No Logo) chronicles decades of such disasters, including the Chicago School makeovers launched by South American coups; the corrupt sale of Russia's state economy to oligarchs following the collapse of the Soviet Union; the privatization of New Orleans's public schools after Katrina; and the seizure of wrecked fishing villages by resort developers after the Asian tsunami.
        all emphasis mine

        Sound familiar?

        I look forward to your diaries disputing Ms. Klein's thesis. And once you're done with her work, we'll see you in one of Ray's future treatises.


        "Politeness is wasted on the dishonest, who will always take advantage of any well-intended concession." - Barrett Brown

        by 3rdOption on Fri Oct 04, 2013 at 02:33:22 AM PDT

        [ Parent ]

        •  Yes, however, his assertion that Tsy borrows (2+ / 0-)
          Recommended by:
          Shockwave, hester

          from commercial banks in not correct:  Tsy borrows only from The Fed Reserve, which creates dollars out of thin air.

          Tsy Bonds are invested in using existing dollars.

          Also, QE is pumping reserves into banks, not dollars.

          Yes, it's a boon to banks, as the reserves are buying their toxic assets, but reserves are not dollars, and do not circulate outside of banks.

          •  So how do the banks show these inflows of (0+ / 0-)

            "reserves, not dollars" on their balance sheets?

            How do these banks show their "toxic assets" on their balance sheets?

            What is the relationship between the inflows of "reserves, not dollars" and the dollars these banks use in making loans and making trades in stocks?

            Are not the balance sheets of all these banks, and of all banks in the United States, expressed in dollars?

            By making your assertion that there is a difference between reserves and dollars haven't you made a distinction that is meaningless, and haven't you inadvertently contributed to the loose Fed-speak that serves to confuse and distort how our banking system really works?

            And won't you, upon reading my questions, answer them, if you answer them at all, in dismissive tones?

            Might and Right are always fighting, in our youth it seems exciting. Right is always nearly winning, Might can hardly keep from grinning. -- Clarence Day

            by hestal on Fri Oct 04, 2013 at 06:17:33 AM PDT

            [ Parent ]

            •  Our currency is made up of coins, bonds, dollars (3+ / 0-)
              Recommended by:
              Shockwave, Mikey, RUNDOWN

              and reserves.

              Reserves are part of our currency, which are different than dollars, just as coins and bonds are different than dollars.

              All are denominated in dollars, ie, our unit of account.  But they each serve a specific purpose.

              I don't know what you mean by: "How do these  banks show their 'toxic assets' on their balance sheets?"  MBSs went toxic when the housing market crashed.  Don't know if this gets to your question, but I show a toxic asset on my balance sheet when my mortgage is underwater.

              Banks create loans out of thin air.  If they want to create a dollar denominated loan to you so you can bet on Wall Street, they will.

              They make loans first, then find reserves, first through inter-bank lending, then if that fails, through The Fed acting in it's role of lender of last resort.

              But banks do not loan out their store of dollars.  Deposits do not create loans.  Rather, the opposite:  Loans create deposits.

              There just  IS  a distinction between reserves and dollars.  Just as there is a distinction between reserves, dollars, coins and bonds.

              The Tsy creates coins and bonds out of thin air.

              The Fed creates reserves and dollars out of thin air.

              Tsy spends coins into existence, but must borrow dollars into existence via The Fed.

              The Fed issues reserves to banks, and reserves act as payment clearing tools for banks.  They do not circulate in the economy.  In this sense, while they are part of our currency, they are not money.

              To learn more about our our currency tools work, the relationship between Tsy and Fed, and between Tsy and Fed, and private banks, see Modern Monetary Theory wiki

              Warren Mosler has a free PDF book available at his blogs, "Seven Deadly Sins of Economic Policy"

              Frank Newman -- not an MMTer, has a book "Freedom From The National Debt"  -- Newman is ex 2nd at Tsy, former CEO and Chairman of 2 large American Banks, and on Chinese Bank.  Synopsis available at Amazon.

              •  Your thinking is glibly superficial. (1+ / 0-)
                Recommended by:
                Dianna

                You are confusing dollars with the uses of dollars. Reserves are merely another use of dollars.

                "Toxic assets" should be expressed in terms of dollars. It makes no sense to do otherwise. In fact, part of the banking problems in the Bush Crash was the inability of the insolvent banks to express their toxic  assets in actual dollar terms. This great difficulty naturally spilled over into how much money, dollars, these banks would have for other uses.

                I have read the books and the blogs of the MMT experts including Mosler and Joe Firestone. In my view Firestone is one the few MMT experts who attempts to explain MMT in clear terms. He is doing a very good job of trying to communicate with ordinary people.

                On the other hand, the chief MMT experts are so bound up in their economic profession's terminology and weird ways of reasoning that they are unable to sell their ideas.

                So, in the words of the Eagles, "I have news for you, and you will soon find out it's true." Unless and until the matriarchs and patriarchs of MMT stop arguing with other economists, and unless and until they stop trying to educate and persuade government officials they will continue to get nowhere, they will keep on spinning their wheels. And again in the words of the Eagles, they will let sounds of their own wheels drive them crazy.

                And another point about MMT. It ain't news. I first heard about the idea in 1949, and I have been waiting  for you current theorists to catch up with those theorists from long ago.

                If you MMT'ers produce no real changes then what good have you done? What is your goal? To elaborate and defend a pretty theory, or to build a better world. Theorizing is easy, building a better world is hard. So rather than trying to educate and correct people like me, maybe you should develop a better way to sell your ideas. After all nothing worthwhile happens in this world until somebody sells something to somebody else. You may think you are selling, but you are not. The best salesmen listen to their prospective customers. That is a moral that runs at large, you can take it, it's free, no extra charge.

                Might and Right are always fighting, in our youth it seems exciting. Right is always nearly winning, Might can hardly keep from grinning. -- Clarence Day

                by hestal on Fri Oct 04, 2013 at 07:41:07 AM PDT

                [ Parent ]

                •  Hestal, reserves are part of our currency. They (3+ / 0-)

                  are not coins, they are not dollars, they are not Tsy Bonds.

                  They are reserves.  And reserves serve  ONLY  one purpose: To clear payments between banks.

                  They do not circulate outside of banks.

                  The rest of your rant is just odd.

                  Many of the ideas are indeed old.  MMT does not deny this in any way.

                  The only real new thing is the fact that our currency is now electronic, so that makes a difference in lots of different ways.

                  One of the potential real impacts that insight into our monetary system could have is a sound argument for a Guaranteed Jobs Program.

                  And BTW, Frank Newman is not associated with MMT, but he knows how our monetary system works.

                  Same with Jamie Galbraith, Stiglitz, Dean Baker, and others.

                  Sorry you don't like the writing style of a lot of MMT, but why complain to me?

                  And Mosler's pretty clear, as is Bill Mitchell, Stephanie Kelton, and others, but whatever.

            •  All our currency is denominated in our unit of (3+ / 0-)
              Recommended by:
              Shockwave, Ray Pensador, Mikey

              account.  But banks use reserves, dollars, bonds and coins.

              Reserves are not dollars.

              What makes it confusing is that we also talk about "having reserves of dollars", ie, dollar savings.

              And then banks and China both have reserve accounts at The Fed, but in the case of banks, their reserve accounts hold both reserves and dollars, while in the case of China, their reserve account holds dollars.

              We use the word "reserve" in different ways.

              •  Who is this "we" you speak of? (0+ / 0-)

                I imagine they must be people who agree with you. This is not unusual, many people who have an authoritarian bent imagine that their personal ideas must be shared by anyone "in the know." But I am not included in your "we."

                I think that you have gone a long wqy to defend your indefensible, artificial, meaningless, confusing distinction between reserves and dollars. Even the Federal Reserve expresses its own balance sheet in dollars.

                Might and Right are always fighting, in our youth it seems exciting. Right is always nearly winning, Might can hardly keep from grinning. -- Clarence Day

                by hestal on Fri Oct 04, 2013 at 07:06:29 AM PDT

                [ Parent ]

            •  What effect do reserves have on banks (2+ / 0-)
              Recommended by:
              Ray Pensador, JeremySchro

              in regard to making loans and making trades in stocks?

              The most direct effect is that by buying up their toxic assets, the banks are on life support to do what ever it is they want to do.

              When The Fed buys up Tsy Bonds, also part of QE, it is encouraging banks to hold reserves rather than Tsy Bonds, which are the most secure asset.

              So, banks look for more risky investments.

              This has an impact on the Stock Market.

        •  One of the most important books (5+ / 0-)

          Naomi Klien is a very good writer and thinker, this was her best work so far.  Now she is working on one focusing on the climate change debate.

          Here is her latest article in the Nation, Capitalism vs the Climate.

          To the NSA douchebag who is reading this: "Those who give up essential liberty to purchase a little temporary safety deserve neither liberty nor safety."

          by Indiana Bob on Fri Oct 04, 2013 at 04:09:27 AM PDT

          [ Parent ]

  •  Ray, I usually like what you have to say, (11+ / 0-)

    but I think you are astray on the Fed.

    The Fed has a very important role to play in stabilizing the economy. Free market economies, as you know, have a habit of going off the rails rather disastrously if they aren't provided with a counterweight. By adjusting prime interest rates and the money supply from time to time, the U.S. government can help to prevent wild swings that damage the whole economy, with great harm to people.

    It is true that any monentary system is nothing but a complex system of promises made by a myriad of people to each other. Very complex in this day and age.

    But the gold standard is not a magic fix, just another kind of promise and one that is not very suited to the economic system of today, in my opinion.

    There are three things about the Fed that do make it less effective than it might be.

    One is the state of economic science. Although we know some things, we really have established an economic system so complex that it can be very difficult to manage in such a way that everyone is protected. For instance, the "stagflation" of the Carter era was a puzzle that benefited nobody, yet economists could not agree on the cause.

    A second is boneheaded adherence to silly political ideas, like the idea that reducing federal debt is in and of itself a Good Thing, analogous to reducing household debt. Wrong. This too is oversimplified, but to compare business practice instead, no business operates on the basis that its prime economic directive is to reduce its debt. Just the opposite, as a business grows it expects to increase its borrowing. So try that analogy on someone sometime. It too is ovesimplified, of course, because as the garantuor of the monetary system, the federal government has a balancing role for everyone, it ought to be borrowing more in order to stimulate growth. But this analogy of government debt = household debt is what I mean by a silly political idea. It is also why we ought to have quality professionals running the Fed, not political idealogues.The Ayn Rand crew has had charge of the Fed for too long. That does not make the institution itself a bad idea.

    The third is corruption, which can happen to any institution. And has. Again, that does not make the institution itself a bad idea, althoug it does argue that some people ought to be in charge at the Fed other than than the usual suspects.

    Finally, the Fed is not and cannot be the sole stabilizing fore. We really need to restore the financial regulatatory system that, so to speak, once divided the hull of our economic ship into several, if not watertight, at least meaningfully separate compartments.  

    The horsemen of the apocalypse here--galloping along with locked arms, to stretch a metaphor--are, in my opinion, not the existence of the Fed but: 1) deregulation, removing safety mechanisms put in place that were based on harsh experience; 2) the casino-ization of Wall Street, in which the most savory rewards are now just from gaming the system, rather than from identifying and investing in the most promising business ventures; 3) oligopoly; and 4) regulatory capture.

    At this point the financial game seems to be almost more powerful than the economy and society it is supposed to serve, the "tail wagging the dog." It is difficult to know what to do about it, but it is not the fault of having a Fed.

    To use another metaphor, if we are worried about the train crashing, and the brakes are not capable of holding it on a long, steep slope, the answer is not to dismantle the braking system we do have. The answer is to put the braking system back in shape.  

     

  •  While it doesn't really affect your argument much, (3+ / 0-)

    I think you should check out  Louis T. McFadden's bio. Maybe you have--I don't know.

    For time and the world do not stand still. Change is the law of life. And those who look only to the past or the present are certain to miss the future. (JFK)

    by begone on Fri Oct 04, 2013 at 02:45:40 AM PDT

  •  Louis T. McFadden (10+ / 0-)

    From the speech you quoted:

    Roosevelt did what the International Bankers ordered him to do!

    "Do not deceive yourself, Mr. Chairman, or permit yourself to be deceived by others into the belief that Roosevelt's dictatorship is in any way intended to benefit the people of the United States: he is preparing to sign on the dotted line! He is preparing to cancel the war debts by fraud!...

    The International Bankers set up a dictatorship here because they wanted a dictator who would protect them. They wanted a dictator who would protect them. They wanted a dictator who would issue a proclamation giving the Fed an absolute and unconditional release from their special currency in gold, or lawful money of any Fed Bank....

    But FDR will not permit the House of Representatives to investigate the condition of the Fed. FDR will not do that. He has certain International Bankers to serve....

    International Bankers? I wonder what he meant by that? Maybe something like this from January 1934?
    Do you not see in this ‘kitty’ bill the identical features outlined in the Protocols of Zion ? Do you not see the Protocols of Zion manifested in the appointment of Henry Morgenthau as Secretary of the Treasury ? It is not by accident, is it, that a representative and a relative of the money Jews of Wall Street and foreign parts have been so elevated ?
    One might conclude that McFadden isn't a reliable or reputable source.

    "I am not sure how we got here, but then, I am not really sure where we are." -Susan from 29

    by HudsonValleyMark on Fri Oct 04, 2013 at 02:56:40 AM PDT

    •  Not to mention Charles Lindbergh (7+ / 0-)
      We can have peace and security only so long as we band together to preserve that most priceless possession, our inheritance of European blood, only so long as we guard ourselves against attack by foreign armies and dilution by foreign races
      We must limit to a reasonable amount the Jewish influence ... Whenever the Jewish percentage of total population becomes too high, a reaction seems to invariably occur. It is too bad because a few Jews of the right type are, I believe, an asset to any country
  •  Are you actually arguing for the re-implementation (10+ / 0-)

    of the Gold Standard?

    The chimera of commodities of "real value" or "intrinsic value" as a backing for currency is one which I had thought was put to rest a long, long time ago. The value of any currency is based on the trust - faith, if you will - that you will be able to redeem it for commodities and services that are of value to you, at such time as you need them. That is true whether the currency is backed by gold, by the integrity of a particular bank or merchant/trader, or by nothing at all except common practice.

    If you trust nothing and no one and put no faith in past performance, then you cannot trust any currency, or any institution. Welcome to Glenn Beckistan. (I believe he is quite happy to be paid in US Dollars, even while he pushes hoarding gold for the rest of us.)

    At least half the future I've been expecting hasn't gotten here yet. Sigh.... (Yes, there's gender bias in my name; no, I wasn't thinking about it when I signed up. My apologies.)

    by serendipityisabitch on Fri Oct 04, 2013 at 04:01:01 AM PDT

    •  It's kind of strange that out of the entire diary (0+ / 0-)

      you would determine that I'm arguing for the re-implementation of the gold standard, as that issue only plays a minor role in the theme of the diary.

      The context in which I refer to it is to compare it to what happens after every financial shock (which I argue are manufactured)...

      If you notice, the banksters, the financial criminal racketeering cartel pushed the government to take everybody's gold in the midst of the Great Depression.

      Likewise, the looting that caused the 2008 shock, was followed by more looting by the taking of millions of homes on the cheap.

      And they are not done yet... I argue that we are at the beginning stages of another real estate bubble, and when it burst, the results are going to another wave of foreclosures (i.e., taking more homes form people on the cheap).

      Here's the key argument: The Fed, and its financial criminal racketeering cartel can print money out of thin air.  They use that power to create debt, both for governments and people.

      They purposely create bubbles and when those bubbles burst, the financial criminal racketeering cartel takes real property and assets.

      It is a scam; a multi-generational scam.

      People wrote, spoke, and were against it one hundred years ago, and people are doing the same now.

      It is just very obvious.

      •  People were out in the street calling for the (1+ / 0-)
        Recommended by:
        Onomastic

        return of Lincoln's Greenback, ie, to increase the money supply.

        And if not Greenbacks, then silver.

        Greenbacks would have ended the fed reserve system.

        so, the compromise FDR created was a Greenback via the treasury borrowing greenbacks from the fed reserve.

        I find the issue of replacing people's gold holdings with fiat dollar holdings to be a mixed bag of some of the public rejoicing, while others being very angry.

        And banks mostly fearing the creation of a tsy issued greenback, and a Public Bank acting as a utility.

      •  Ray, all money, everywhere, from every (7+ / 0-)

        civilization, has been created "out of thin air". It isn't a thing in itself, it is the medium of exchange for goods and services (well, among other things, which have been much more fully discussed in the comments and in the Money entry in Wikipedia).

        Just as mathematics has no content in and of itself, money is a facilitator for the exchange of wealth, not wealth itself.

        (For those who think, justifiably, that I have oversimplified that last statement - I know)

        At least half the future I've been expecting hasn't gotten here yet. Sigh.... (Yes, there's gender bias in my name; no, I wasn't thinking about it when I signed up. My apologies.)

        by serendipityisabitch on Fri Oct 04, 2013 at 08:17:26 AM PDT

        [ Parent ]

        •  But the theme of the diary is not about that (1+ / 0-)
          Recommended by:
          Dianna

          truism, regarding fiat money.  That's a diversion from the theme.

          The theme of the diary is about financial cartels colluding to defraud the country.

          Again, it is interesting to see you going off on these tangents.

          •  I was replying specifically to: (5+ / 0-)
            Here's the key argument: The Fed, and its financial criminal racketeering cartel can print money out of thin air.  They use that power to create debt, both for governments and people.
            If that is your key argument, then my comment is not a diversion from the theme, because it speaks to your key argument.

            At least half the future I've been expecting hasn't gotten here yet. Sigh.... (Yes, there's gender bias in my name; no, I wasn't thinking about it when I signed up. My apologies.)

            by serendipityisabitch on Fri Oct 04, 2013 at 09:16:17 AM PDT

            [ Parent ]

            •  It is because you are attempting to show some (0+ / 0-)

              kind of faulty logic on my part by creating a straw man that says that I don't even know that all money is created out of thin air, i.e., it is fiat money... And if I would not even realize that, how come anybody would take any other part of my argument seriously.  Right?

              Here's the quote:

              Here's the key argument: The Fed, and its financial criminal racketeering cartel can print money out of thin air.  They use that power to create debt, both for governments and people.
              So the issue about fiat money is really not central to the argument, is it?  That's going off on a tangent, which diverts from the central theme.

              The issue is the nature of what I (and many others) call a financial criminal racketeering cartel, i.e., the Fed system.

              Because they have the power to create as much money as they want, they use it to manipulate the monetary system and create boom-bust cycles that end up extracting actual tangible assets from the population, i.e., "a great vampire squid wrapped around the face of humanity."

              The Great American Bubble Machine

              From tech stocks to high gas prices, Goldman Sachs has engineered every major market manipulation since the Great Depression -- and they're about to do it again

              The first thing you need to know about Goldman Sachs is that it's everywhere. The world's most powerful investment bank is a great vampire squid wrapped around the face of humanity, relentlessly jamming its blood funnel into anything that smells like money. In fact, the history of the recent financial crisis, which doubles as a history of the rapid decline and fall of the suddenly swindled dry American empire, reads like a Who's Who of Goldman Sachs graduates.

              By now, most of us know the major players. As George Bush's last Treasury secretary, former Goldman CEO Henry Paulson was the architect of the bailout, a suspiciously self-serving plan to funnel trillions of Your Dollars to a handful of his old friends on Wall Street. Robert Rubin, Bill Clinton's former Treasury secretary, spent 26 years at Goldman before becoming chairman of Citigroup — which in turn got a $300 billion taxpayer bailout from Paulson. There's John Thain, the asshole chief of Merrill Lynch who bought an $87,000 area rug for his office as his company was imploding; a former Goldman banker, Thain enjoyed a multi-billion-dollar handout from Paulson, who used billions in taxpayer funds to help Bank of America rescue Thain's sorry company. And Robert Steel, the former Goldmanite head of Wachovia, scored himself and his fellow executives $225 million in golden-parachute payments as his bank was self-destructing. There's Joshua Bolten, Bush's chief of staff during the bailout, and Mark Patterson, the current Treasury chief of staff, who was a Goldman lobbyist just a year ago, and Ed Liddy, the former Goldman director whom Paulson put in charge of bailed-out insurance giant AIG, which forked over $13 billion to Goldman after Liddy came on board. The heads of the Canadian and Italian national banks are Goldman alums, as is the head of the World Bank, the head of the New York Stock Exchange, the last two heads of the Federal Reserve Bank of New York — which, incidentally, is now in charge of overseeing Goldman — not to mention …

              So I'm just keeping it real, bringing it back to the topic at hand, and pointing out the distractions; that's all.

               

              •  But that has more to do with the ability of (2+ / 0-)
                Recommended by:
                FrugalGranny, mahakali overdrive

                private banks to create as much credit as they would like, for nearly what ever purpose they like.

                Also, the ability of corporations to create nearly as many stocks as the system will buy.

                Etc.....

                Again, fed gov created money is a small fraction of our money supply.

                Money is credit, and credit is always out of thin air, so needs to be managed in some way to reflect real output to some degree.

                Harping only on The Fed Reserve, which creates Tsy's dollars out of thin air, and thus provides the private sector with net financial assets, ie, incomes, seems a bit one sided.

                Would you prefer to have fewer dollars in the private sector?  Or would you prefer that private banks issue less private bank credit, which is the private sector's debt?

                Is your issue with easy money, or with how easy money is used?

                Personally, I'd like more dollars and fewer units of credit created within the private sector.

          •  Serendipity's response seems right on the mark to (2+ / 0-)
            Recommended by:
            mahakali overdrive, Ray Pensador

            me, as I read your diary, even if you don't mean it to be, and indictment of money as credit, which all money is, so must be out of thin air.

            And the cartel thesis, sort of rests on whether The Tsy borrows dollars via private banks, or The Fed, acting as Tsy's depository bank and partner.

            The Fed is a weird public/private hybrid, and the fed sometimes acts very much in partnership with Tsy, sometimes more in partnership with private banks.

            I would argue that it has tended towards working for the benefit of private banks since at least the early 70s.

            But it still remits all it's profits to Tsy, etc...

            And could be dissolved through an act of Congress, just as it was created through an act of Congress.

            I'm a fan of the idea of having a Public Bank to serve Public Purpose, and reflect the fact that The Constitution granted a Public Monopoly on our money supply, and being forced to utilize private banks to use our national currency isn't right in my mind.

            •  Maybe I should have expanded on that point (1+ / 0-)
              Recommended by:
              katiec

              for clarification.  I didn't think some people would focus on the fiat money subject.

              The theme of the diary is not about the fiat money vs. gold standard.

              Insofar as the argument goes, I'm pointing out that because Congress gave this private cartel the power to print fiat money, and because this cartel is not benevolent, acting for the benefit of the citizenry, and instead is acting for the benefit of private (powerful) interests, it has misused the power to create money...

              The Fed should be either abolished, and Congress should take on the responsibility of monetary policy, or it should be totally revamped and converted into a public entity which is audited on a regular basis.

              It is my understanding that to this day, the Fed has never been audited, and it has resisted calls for it.

              •  But the Fed was set up when we were on the gold (0+ / 0-)

                standard, so fiat has nothing to do with it.

                And it actually functioned the best, in my opinion, when we went off the gold standard in 1932, with Fed support.

                The head of the Fed at the time, Merriner Eccles, was actually a pretty cool guy, and tried to educate people what the advantages were:  Being able to afford The New Deal, even supporting the idea of making a job, housing, and health care a national right.

                And I'm not so sure he wouldn't have supported the idea of a basic income, as Nixon proposed when he took America off of the gold standard for international settlement.

                But, the main point:  We were on the gold standard when the fed was created in 1913.

                And did a good job in promoting public purpose for some
                time after The Great Depression.

                Now?  I don't think so, and think it has indeed failed in it's public purpose, and there's no longer a good argument to be made that Treasury coulnd't do a better job.

      •  And, actually, I didn't determine that you had (1+ / 0-)
        Recommended by:
        WB Reeves

        argued for its re-implementation, I asked if you did, because your diary wasn't really clear on that point. I did put it as a question, I believe.

        At least half the future I've been expecting hasn't gotten here yet. Sigh.... (Yes, there's gender bias in my name; no, I wasn't thinking about it when I signed up. My apologies.)

        by serendipityisabitch on Fri Oct 04, 2013 at 11:20:57 AM PDT

        [ Parent ]

    •  Some people do argue for a re-implementation (6+ / 0-)

      of gold, most notoriously and recently, the rather Libertarian Ron Paul.

      Click the ♥ to join us on the Black Kos front porch to review news & views written from a black pov - everyone is welcome.

      by mahakali overdrive on Fri Oct 04, 2013 at 08:26:40 AM PDT

      [ Parent ]

  •  Tsy ONLY borrows from The Fed, not commercial (5+ / 0-)

    banks.

    Tsy creates coins and Tsy Bonds out of thin air.

    The Fed creates dollars and reserves out of thin air.

    When Tsy issues Bonds, investors use existing dollars to invest in them.  Tsy Bonds, since we went off the gold standard, are now merely a safe savings vehicle, which pay interest  --  to banks and other large investors.

    Tsy, not being able, by law, to spend dollars into existence as it does with coins, must borrow dollars into existence via The Fed reserve.  Not commercial banks.

    Also, QE is not pumping dollars into banks, but reserves, which do not circulate outside of banks.  Reserves are payment clearing tools for banks only.

    It's a boon to banks because the reserves are clearing banks of their toxic assets.  And now The Fed is paying a small interest rate on reserves -- .25%, in, I believe, dollars rather than reserves.

    The issue isn't one of gold vs. fiat, but corruption vs. not corruption.

    If gold is manipulated, then it's not a cure for corruption.

    The take away concerning our fiat monetary reality is, in my mind, that the fed gov can never run out of dollars, and we can afford to have nice things at home.

    And fed finances are NOT like a household, as households don't deficit spend to fund a nation's income.

    BTW: Going off the gold standard was how FDR afforded The New Deal, and people we in the streets calling for the return of The Lincoln Greenback.  As a compromise, they got fiat via The Tsy borrowing dollars from The Fed Reserve.

  •  Ray, I like you a lot, however, this diary is (5+ / 0-)

    simply not a correct description of how our monetary system works.

    If you want to advocate for the return of a gold standard, fine.

    But the mis-representations of our current system is one of the reasons we are in the mess we're in.

    You might want to read the Modern Monetary Theory wiki.

    Warren Mosler has a free PDF book at his blogs called "The Seven Deadly Innocent Frauds of Economic Policy" -- resulting from not understanding how our fiat monetary system works and our national accounting practices account for it.

    Also, he promotes A Guaranteed Jobs Program, and anchoring our fiat to labor hours.  Something I think you'd like.

    Also, fed gov money accounts for about 3-7% of our money supply, so the Fed has only weak control/influence over our money supply.

    The rest of our money supply is private bank credit.  And banks make loans first, then find the reserves.  So, our money supply is much more a matter of what private banks do  than what the Fed does.

    The Fed mostly controls the price of money by setting short term interest rates.

  •  Another book: "Freedom From The National Debt" (1+ / 0-)
    Recommended by:
    Onomastic

    by Frank Newman, synopsis at Amazon.

  •  wonder how much longer until we (5+ / 0-)

    get diaries about the Bilderberg Group?

    Sorry, not buying that the Fed is a secretive cabal of rich banking groups dating back to the turn of the 20th Century.

    Dawkins is to atheism as Rand is to personal responsibility- mperiousRex.

    by terrypinder on Fri Oct 04, 2013 at 05:06:47 AM PDT

  •  Several factual disagreements (21+ / 0-)

    Here are several factual disagreements from my mainstream left-liberal-progressive consensus reality perspective:

    The United States could easily print her own money, and maintain control of both, the money supply, and interest rates.  Instead, every (paper) dollar in circulation is borrowed from commercial banks (at interest), who are linked to the Fed, or Central Bank.

    The Fed is a very secretive private institution.

    It is true the US can "print" its own money supply. It's also true that it does. The Fed is an agency of the US federal government and when the Fed "prints" money (actually creates it electronically), the US is in fact creating and regulating its own money supply.

    There is a fringe libertarian view that the Fed is a private institution. It isn't. Although its structure is complicated, the Fed earns a profit most years and deposits that profit in the US Treasury as profit from government operations.

    Dean Baker is one of the leading left-progressive economists in the country, a severe critic of the Obama administration's economic policy and a fierce critic of the Federal Reserve system -- both its structure and performance. Yet in many of his talks, he explains to audiences who have been influenced by the view that the Fed is private, that the Fed is a federal government agency. He criticizes it in terms of "regulatory capture" and the fact that corporate banks sit on the Open Markets Committee, but in this video he describes the Fed as a government agency several times; in fact, his main his prescription is that because it is a federal agency, its operations should be less secretive and its structure reformed. In other interviews, Baker has described the idea that the Fed is private, as a "conspiracy theory."

    Because the Fed is a government agency, much of the rest of the argument in the diary falls apart.  Nevertheless ...

    In order to understand how damaging to the country the creation of the Fed was, one only has to consider the following quote by Congressman Louis T. McFadden on the Federal Reserve Corporation during a speech in Congress in 1934:
    Mr. Chairman, we have in this Country one of the most corrupt institutions the world has ever known. I refer to the Federal Reserve Board and the Federal Reserve Banks, hereinafter called the Fed ...
    It's not helpful to understand the Fed through quotes by Rep. McFadden without explaining who he was and what his biases were. McFadden was a right wing conservative member of Congress who hated Franklin D. Roosevelt (whom most liberals and progressives consider a hero) and tried to impeach him, hated the New Deal, and hated Federal Reserve oversight of the banking system. That was because McFadden was himself a banker, president of a regional (Pennsylvania) bank.

    McFadden was also a vicious anti-Semite who believed that "the Jews" controlled the Fed and cited the Protocols of the Elders of Zion as the basis for his opposition to the Fed and Roosevelt. The fact that he was an anti-Semite and conspiracy theorist, however, doesn't necessarily mean he was wrong about other aspects of the Fed, but he was.

    To understand his materialist opposition to the Fed, it is perhaps worth understanding his main legislative achievement, the McFadden Act, a banking law. While it is a bit of inside baseball, it basically allowed nationally chartered banks to have branches within states on the basis of the same rules as state chartered banks. While that may seem arcane, it is easiest to understand by reference to the movie, "It's a Wonderful Life"-- a movie that is remarkably accurate about what banking was like.  (See also below.) McFadden represented the Mr. Potters of America -- commercial depository bankers who were used to ruling over their small towns. The McFadden Act allowed the Mr. Potters to compete against the George Baily's Savings and Loans, while also protecting them against competition from the even larger Chases and Citibanks of the world. He was opposed to the idea of the Fed regulating the Mr. Potters of America.

    As even the Wiki article on him points out, toward the end of his career in Congress, McFadden was considered by his own Republican colleagues to be a conspiracy theorist who should be ignored by the party and treated as though he had died:

    The Central Press Association reported that he was “virtually read out of his party…[had] his committee posts…taken away from him…was ostracized by Republicans [and] called crazy…”.[8] Sen. David A. Reed (R-PA) said “We intend to act to all practical purposes as though McFadden had died”.[9]
    Citing McFadden on the Fed proves nothing because McFadden was biased, an anti-Semitic conspiracy theorist, self-interested as a banker, and as his colleagues eventually concluded, "crazy."
    When the level of debt (both, private and public) has reached a saturation point, historically what the Fed has done has been to contract the money supply, which brings about recessions of depressions.

    This is very important... The banksters, the member banks, the FED, have the power to print as much money as they want, and to set interest rates.

    They then push this money unto the economy through various loans and financial instruments (to government, municipalities, individuals).

    Then at certain intervals, the Fed diminishes the money supply (among other actions), which precipitates economic recessions/depressions.

    This then sets the stage for the banksters to acquire real assets for pennies on the dollar (once entire sectors of the economy collapse).

    Again, mainstream progressive criticism of the Fed holds that the Fed did make grave errors leading up to 2007-2008, but also contends that the Fed played an important role in stabilizing the economy and monetary system from the New Deal through the Carter years. No one in the mainstream believes that it is deliberate Fed policy to destabilize the monetary system so that bankers can buy assets.

    Another reason this strains credulity is that during the major banking crises since the Reagan era, many banks have gone bankrupt. Almost all of what was traditionally considered Wall Street (big investment banks) was killed off during 2007-2008 leaving only Goldman Sachs, which converted itself into a depository bank, and the depository banks. The diary's theory would have to explain how it was helpful to Lehman Brothers for Lehman Brothers to go bankrupt and take down much of the banking system with it, while placing the survivors under partial government ownership (which they vociferously opposed).

    And so once the gold standard was abolished, money became just legal tender not backed up by any real asset (i.e., gold).  This in turn cemented "debt" (to governments, businesses, and individuals) as the most important product of the central banking system.
    There's not much to say in favor of the gold standard. Two counter arguments: assuming governments are at least partially rational, it should be noted that not a single major government adheres to the gold standard; and (2) if the US returned to the gold standard, the economy would have to shrink to such a tiny size that the trillions and trillions of transactions undertaken annually now, would have to be represented by a block of gold (all the reserves) about the size of a large suburban house.

    All the steel, buildings, and electrical energy, all the paychecks of teachers and firefighters, all the medical services, all the corn, wheat, soy, meat, and fish, all the musical performances, books, plays, in essence everything produced, would have to shrink to the value of a big hunk of gold.  

    I have never understood the thinking of gold bugs and never will. Even before the creation of the Fed, nineteenth politics revolved around getting off the gold standard, with farmers and progressives demanding coinage of silver, which was plentiful, as a way of increasing the money supply. Now left libertarians side with J.P. Morgan -- not the bank, the actual person -- in demanding a return to the gold standard.

    The only winners would be owners of gold and gold mines -- like Ron Paul and several South African mining companies.

    some safeguards (Glass–Steagall Legislation) were put in place to protect the nation against this type of predatory behavior by banksters, and for the next 40-plus years things were pretty stable... Until Clinton repealed it by signing the Gramm–Leach–Bliley Act (Financial Services Modernization Act of 1999).

    And the rest, as they say, is history... The repeal of the Glass–Steagall Act set the stage for another round of looting by the Fed and the Wall Street criminal racketeering cartel...

    This misrepresents both chronology and causation. The diary left out the savings and loan crisis of the 1980s and early 1990s. Obviously the right likes to bash Clinton and shift blame from Republican administrations to Democratic administrations, but ironically so does part of the "critical" left -- hence the shift in blame from Reagan to Clinton.

    The S&L crisis was caused by a law signed by Ronald Reagan, the Garn–St. Germain Depository Institutions Act, which many critics seem to want to erase from history. Again, it's inside banking baseball, but it allowed nationally chartered banks to compete against savings and loans, and allowed savings and loans to act like commercial banks. Before that, "thrift institutions" -- savings banks, savings and loan associations, and the like, the George Baily savings and loan assocations -- acted like local financial cooperatives, taking in small deposits and exclusively making loans for home mortgages. (It's a small detail, but in IAWL, George mentions that the regular folks rushing to withdraw during the panic aren't only depositors but owners of his bank.) Depositors of most  thrifts were owners or members. The Act allowed S&Ls to make risky (non-residential housing) investments and market pressures required them to do so. The effect was George Baily's savings and loan coop was turned into a corporation that made bad investments like the infamous White Water investment that almost derailed the Clintons.

    The S&L crisis and bailout, enacted by Bush senior, cost federal taxpayers about $340 billion or about 10 times the likely projected net cost of TARP.

    The S&L crisis also set the stage for the 2007-2008 crisis by changing the mortgage industry from one controlled by local, mostly cooperative thrift institutions to one controlled by for profit giant banks and corporations, and investment banks churning out mortgage backed securities.

    The repeal of the Glass–Steagall Act set the stage for another round of looting by the Fed and the Wall Street criminal racketeering cartel...

    This lead to the 2008 financial crisis following the same formula of first flooding the market with easy money (in the form of collateralized debt obligations), and then when the inevitable market collapse happened, once again the banksters swooped in and took millions of people's homes (real assets) on the cheap.

    While the repeal of Glass Steagall was a bad idea, it had less impact on what happened in 2007-2008 than is generally believed. For the G-S to have been a factor, a large depository commercial bank would have had to have been taken down because it owned or was owned by an investment bank. That didn't generally happen. What happened was that commercial banks were almost bankrupted and had to be bailed out because they bought triple A rated mortgage backed securities (MBS) from investment banks, not because they were owned by investment banks. The crisis of 2008 would have happened with or without G-S.

    Moreover, the description of colleralized debt obligations (CDOs) is just plain wrong. Again, it's a bit of inside baseball, but here's what a CDO actually is: Investment banks were able to create triple A rated MBS by "structuring" payouts from trusts holding mortgages. The MBS that got paid first could then be rated triple A (because there could be lots of mortgage defaults and they would still get paid on time) and these triple A MBS could be sold to the public, including banks, which were legally required to hold only the most high quality securities for certain purposes. This structuring, however, created crap MBS that got paid last, which generally could not be sold to banks or the public, and were generally sold only to high risk investors as a sort of gamble. CDO's were invented as a kind of sausage -- a way of taking crap trimmings and slapping a triple A rating on them as well. Basically a CDO is issued by a trust that holds, not mortgages (like MBS), but holds other MBS, especially low quality MBS. By stuffing these low quality, left over MBS trimmings into a trust, and by over collateralizing them (putting far more crap MBS than was required for the triple A payout), the investment banks could get a triple A rating for a trust full of non-triple A MBS. Like sausage, CDOs were a way of getting rid of low quality "meat."

    CDOs should have been illegal under the Investment Company Act -- which forbids the issuance of "securities of securities" but the Bush SEC looked the other way.

    When crap turned out to be crap, they helped bring down the system, but they weren't the only problem with the MBS market. But the idea that CDOs "flooded the market with easy money" makes little sense.  

    Also most bankers did not swoop in and acquire assets; many went bankrupt and hence were unable to swoop in and do anything, and the rest simply stopped functioning, requiring the Fed to step in and become America's retail banker. If you had a mortgage, car loan, student loan, or credit card in 2009-2010, there's a high probability that you were getting credit indirectly from the Fed, which was unprecedented since the New Deal. As the Grayson-Paul audit of the Fed commercial paper program revealed, if you flipped burgers or worked on the Harley assembly line during that period, there's a good chance Ben Bernanke was funding your paycheck.

    On top of that, the banksters held the country hostage, and lied to justify their demand for $700 billion with a 3-page ransom letter.
    Again, this misrepresents both the facts and the chronology.

    Treasury Secretary Hank Paulson proposed a 3 page bill that would have provided him with about $700 billion to use at his discretion to bail out the banks mostly by buying their MBS assets. Most of Washington rejected that idea.

    Then some really interesting things happened and three unsung heroes stepped in: Senator Barney Frank, UK Prime Minister Gordon Brown, and some unnamed, unknown official in the US Treasury.

    Despite the urgency of the situation, Sen. Frank's staff spent a few days turning the 3 page bill into a 100 plus page bill that came to be TARP. Sen. Frank built in lots of checks and safe guards and made sure that the overall purpose of the bill was for the US to both save the financial system AND make a profit for the Treasury. By the time the bill was published, Paul Krugman called it a good bill despite the awful circumstances. I read the entire bill at the time and thought they did a pretty good job.

    But the basic model was still the same: the Treasury would buy bad assets, until the panic ended and then try to resell them for a profit -- basically a gamble that might turn into a money gift to the banks.

    Then PM Gordon Brown, who had been Chancellor of the Exchequer for many years and understood the banking crisis better than most, decided that the UK would directly invest in failing banks, rather than buy their assets -- in other words, partial nationalization.

    This gave the US Treasury the courage to do the same, and someone at Treasury used TARP to draft a roughly 100 page Preferred Stock purchase agreement -- which I also read at the time, and thought was really, really brilliantly executed. This is what Paulson forced on the big banks in a coercive meeting in the middle of the crisis. Instead of buying bad assets, the new TARP stock deal forced banks to sell newly created preferred stock to the Treasury. Despite being issued, by the banks, the terms of the preferred stock were decided entirely by the Treasury's stock purchase agreement. The stock carried 5% interest. It also required the banks to sell warrants for their common stock. (Because the common stock prices of the banks had collapsed, a bailout would cause their stock prices to rise, giving a gift to the banks and their shareholders. The warrants recaptured billions of dollars of that price rise by forcing the banks to sell common stock to the Treasury at the depressed price even after the common stock prices had recovered.)

    As a result, TARP was largely profitable, especially with respect to the biggest banks. TARP has lost money mainly on the sectors that could not be saved -- Fannie and the auto industry. If you don't believe me, believe ProPublica, the left progressive critics of TARP who have obsessively followed its outcomes, here:

    http://projects.propublica.org/...

    I urge everyone who has heard all manner of urban myth about TARP to read this list closely.

    Moreover, I would urge anyone reading ProPublica's list to click on the column, "Disbursed" to sort the list from biggest recipient to smallest recipient. There you will see that the losses are mostly from Fannie and the car companies, and that the biggest private banking recipients, Bank of America, Chase, Wells Fargo, Citigroup, etc., paid TARP back with interest and profit on warrants. It's also instructive to scroll to near the bottom of the list to see the many, many small mainstreet banks that were bailed out, such as credit unions and state/local housing authorities. Please note that the fact that some of the institutions are listed in red (ie no return) doesn't mean that the government has lost money; it means that the institution hasn't bought back the preferred stock, but according to ProPublica may still do so. By contrast, the red listings at the top have been largely written off.

    But my point here is that if the past is prologue, any cataclysmic financial collapse brought about by a series of events, like an extended government shutdown, and a default on the government debt, would ultimately benefit what is in the final analysis are supra-national financial cartels (the FED, Bank of America, JPMorgan Chase, Goldman Sachs).
    This is the most egregiously incorrect assertion of the entire diary and goes to the very core of the diary's argument.

    Unlike most regular people who use cash money (even if it's in a bank), banks use Treasury bills as their cash. They are required to hold trillions of them as reserves.

    A default on treasuries would instantly wipe out the assets of every bank in the US and many in the world. No bank in the world would benefit from a default. This is what happened in 2008 when MBS, which were up to then used as a cash equivalent, were suddenly valueless. A default on US treasuries would make 2008 look like a picnic, and without a perfect credit rating, the US would be unable to borrow to bail out the system.

    It would be an economic catastrophe of unprecedented proportions, even by the standards of 1929 and 2008 and the banks know this.

    While many people may find this diary useful, I think the DK community has a right, in the spirit of factual political and economic debate, to a well researched rebuttal, because much of what is asserted here is misleading and factually incorrect.

    •  Thank you. This is the reply I would like to (9+ / 0-)

      have written if I had enough knowledge to do it. I, however, was reduced, in the main, to saying "But..., but..., but that's not right", and crossing my fingers that someone with more solid financial knowledge would come along and take it on.

      At least half the future I've been expecting hasn't gotten here yet. Sigh.... (Yes, there's gender bias in my name; no, I wasn't thinking about it when I signed up. My apologies.)

      by serendipityisabitch on Fri Oct 04, 2013 at 07:07:59 AM PDT

      [ Parent ]

      •  He's wrong in this respect, however: Banks (3+ / 0-)

        use as their cash all forms of our currency:  Tsy Bonds, dollars, coins and reserves.

        Reserves are used to settle inter-bank payments.

        And right now, The Fed is encouraging banks to hold reserves more than Tsy Bonds, as The Fed is buying up Tsy Bonds using reserves to do it.

      •  The reply by HamdenRice is totally off-base. nt (1+ / 0-)
        Recommended by:
        River Rover
        •  Please be just a bit more specific - are you (6+ / 0-)

          saying that each and every paragraph is incorrect, or just that he is disagreeing with your presentation and conclusions?

          At least half the future I've been expecting hasn't gotten here yet. Sigh.... (Yes, there's gender bias in my name; no, I wasn't thinking about it when I signed up. My apologies.)

          by serendipityisabitch on Fri Oct 04, 2013 at 08:09:41 AM PDT

          [ Parent ]

          •  Here's my answer: (1+ / 0-)
            Recommended by:
            River Rover

            I stand by the theme of the diary: The Fed is a private institution that works mainly in the interest of bankers.  It is corrupt to the core and it manipulates the economy by manufacturing crisis at certain intervals.  In the aftermath of those financial shocks, the bankers and certain powerful individuals swoop in to buy/take over real assets at pennies on the dollar.

            They control the government through campaign contributions/bribery, and that's why they've been able to get away with the reign of criminality for decades.

            The last example was the 2008 crisis in which a massive fraud was committed; fraud that resulted in average people losing trillions of dollars in assets, all of it which went to the bankers and powerful individuals.

            And they are not done yet... The current "manufactured" crises is more of the same.  If or when there another financial shock, the looting and pillaging is going to be even bigger.

            When the dust is settled, the ruling elite (banksters, etc.) would be much more wealthy and powerful, and the population would be more impoverished, our rights would have been undermined, as we move towards neo-feudalism.

            •  You haven't said where HamdenRice is (8+ / 0-)

              off base, you've just restated your original premise. I'm assuming, then, that it's his general disagreement with your premise you're arguing, not any specific details. Specifics make for much better discussion.

              At least half the future I've been expecting hasn't gotten here yet. Sigh.... (Yes, there's gender bias in my name; no, I wasn't thinking about it when I signed up. My apologies.)

              by serendipityisabitch on Fri Oct 04, 2013 at 08:26:16 AM PDT

              [ Parent ]

              •  Yeah, I always bring the argument back to the (1+ / 0-)
                Recommended by:
                serendipityisabitch

                theme of the diary, i.e., a general re-statement of my premise.

                When an argument is put forward, people putting forward a counterargument usually take two tracks: One is putting forward a counterargument against the actual premise.  A second approach is to go off on thinly related tangents, thus distracting from the actual theme and premise of the original argument.

                Speaking of, and on an unrelated subject... I notice that you have an extraordinary interest in my diaries.  I just make that observation given the sometimes multiple messages you post.

                This is a very basic question.  When I scan diary posts, and check out the rec list, I usually read stuff from people I think are serious writers, and avoid clicking on links to diaries of people I don't think have much to contribute.

                For example, I would never click or comment on any of your diaries (except once).

                So I find it a little strange that since it seems you don't have a good opinion of my writing style, and my arguments, that you would show such an extraordinary interest.

                What is the motivation or reason behind your relentless interest in what I write?

                And just to clarify, this has nothing to do with the fact that we should all expect anybody that wants to, to visit and comment in our diaries.  That's a given.

                I'm just asking because I do find it kind of odd for someone to relentlessly visit diaries of a person one doesn't value as a writer.

            •  Give 'me He'll Ray ! n/t (1+ / 0-)
              Recommended by:
              Ray Pensador

              Rivers are horses and kayaks are their saddles

              by River Rover on Fri Oct 04, 2013 at 08:28:34 AM PDT

              [ Parent ]

            •  Aren't rebuttals supposed to address (6+ / 0-)

              the other persons arguments?

              To me, that's the beauty of science: to know that you will never know everything, but you never stop wanting to.

              by JeremySchro on Fri Oct 04, 2013 at 08:32:49 AM PDT

              [ Parent ]

              •  I argue that the other person's argument is not (0+ / 0-)

                valid since it goes off into a tangent that distracts from the theme of the diary.  I'm just bringing the argument back to the theme of the diary:

                1. The Fed is a private cartel of banks
                2. The CDOs were a scam (criminal activity)
                3. There is a pattern of this happening for over 100 years

                •  No, your main points were (5+ / 0-)

                  that the Fed deliberately causes financial and monetary disruptions in order to profit private banks; and that during crises like 2008, the banks profited by buying assets.

                  You have not and cannot provide evidence of that point based on reality based sources of either the right or the left, almost all of which support the idea that the Fed's main mission, as it sees it and as it has operated, has been to create financial stability -- even though it has failed at that goal from time to time -- and that banks lost trillions of dollars of value and did not scoop up assets.

                  •  I provided plenty of proof in the body of this (0+ / 0-)

                    diary.  And yes, that is my argument, and I stand by it 100%:

                    No, your main points were that the Fed deliberately causes financial and monetary disruptions in order to profit private banks; and that during crises like 2008, the banks profited by buying assets.
                    •  What is your evidence that (4+ / 0-)
                      Recommended by:
                      JeremySchro, Diogenes2008, hester, poco

                      the bankers at Lehman, Bear Stearns, Merrill Lynch, et al profited from the crisis (rather than going out of existence as institutions) or went on an asset buying spree?

                      Or that the Fed promoted the crisis -- as opposed to all the mainstream evidence that the Fed worked desperately to contain it?

                      Can you provide a link for those assertions?

                      If not, why shouldn't I believe credible sources like Paul Krugman and Dean Baker rather than you?

                      •  Google Greenspan -- The Great Moderation, the (0+ / 0-)

                        housing bubble being a "bit frothy", but nothing to worry about, banks should be their own police - the fed shouldn't act as a regulatory force and interfere with free markets, etc...

                        Greenspan certainly supported what was going on, and Bernenke hasn't really made a good argument against Greenspan's Ayan Rand views.

    •  Banks also use reserves as their payment clearing (3+ / 0-)

      tool.

      Right now, they are being encouraged to hold reserves instead of Tsy Bonds.

    •  Banks use as their cash dollars, coins, Tsy Bonds, (0+ / 0-)

      and reserves.

      Tsy Bonds are their most secure assets, as the fed gov creates our currency out of thin air, so can not default on them, unless The Tea Party forces a default -- which is a political act, and certainly not a monetary necessity.

      But it's not the case that Tsy Bonds are the only thing banks use as cash.  They use coins, dollars, Tsy Bonds and reserves.

      Right now The Fed is using reserves to buy Tsy Bonds, thus moving banks to hold reserves rather than Tsy Bonds.

    •  Fantastic reply. Tyvm (8+ / 0-)

      "Say little, do much" (Pirkei Avot 1:15)

      by hester on Fri Oct 04, 2013 at 07:36:42 AM PDT

      [ Parent ]

    •  I totally disagree with your conclusions. The (0+ / 0-)

      way I described the 2008 financial shock is really nothing new; many other respected writers have done the same.  It was basically a scam.

      Banks flooded the market with easy loans to sub-prime lenders.  They then package those loans into collaterized mortgage obligations, knowing full well that those loans ware trash.

      They sold those "investment" to unsuspecting "investors" including pension funds, with the help of corrupt rating agencies.

      When the house of cards collapse, millions of people lost their homes, the biggest economic recession (depression?) ensued, and no banker was held accountable due to their control of our government.

      They demanded and got $700 billion from the tax payers, and in additional the Fed send them at least $13 trillion in almost interest-free loans.

      And this is a pattern we've seen throughout the entire history of private central bank, including precursors of the Fed.

      Those are just the facts.

      •  What are your specific disagreements? (11+ / 0-)

        I've explained mine.

        You still are incorrect about CDOs. If you want to argue that MBS inflated the housing market or put lots of cash in homeowners' hands (refinancing) or homesellers' hands, that's one thing. But you don't seem to know what a CDO is.

        They then package those loans into collaterized mortgage obligations, knowing full well that those loans ware trash.
        Mortgage loans were packaged into MBS, not CDOs. CDOs were packages of MBS. In other words, they were secondary -- securities backed by securities, not securities backed by mortgages. As a result, they didn't put cash in the hands of borrowers; they put cash in the hands of investment banks and investors who were stuck with low grade MBS.

        Also, the sub prime mortgage crisis was just part of the mortgage crisis. Prime loans and commercial loans also went into default.

        Worst of all, there was a system feedback that hadn't been present during the S&L crisis, because banks issued guarantees to MBS trusts, and when the MBS began to go bad, the banks' credit worthiness (which was based on owning MBS as reserves and collateral) dropped, which meant their guarantees were no good, which made more MBS and CDO go bad, etc., in a cycle. In other words, 2008 was a systemic, feedback crisis, and panic, not just a mortgage default crisis. That's why 2008 was so much worse than 1988-90.

        So what in my comment was incorrect?

        Was McFadden not an unreliable source on the Fed?

        Did the Garn-St. Germain Act not contribute to both the S&L and 2008 crisis?

        Did or did not Barney Frank and the Treasury Dept. replace Paulson's three page bill with over 200 pages of detailed legislation and stock purchase agreement terms?

        Also, your basic premises are all wrong:

        1. The Fed is not private.

        2. It is not the policy of the Fed to cause financial crises so that banks can buy assets.

        3. The 2008 crisis was not a boon to banks.

        4. A default on the debt now would not be a boon to banks, but instead would destroy the banks.

        •  Agree w/everything, except: I do think the Fed (3+ / 0-)
          Recommended by:
          Onomastic, Knockbally, poco

          has failed in it's dual mandate of full employment and price stability over the course of the last 30/40 years.

          And that it has increasingly bent to the will of the financial sector, and has followed a policy of promoting the ever increasing financialization of the economy.

          •  I disagree on one point (4+ / 0-)
            Recommended by:
            Onomastic, Knockbally, hester, poco

            I would agree that over the years, the Fed was not focused enough on full employment.

            But Bernanke has been the best Fed chairman in my lifetime, and he's seen his main goal as achieving higher employment because Congress won't use fiscal policy to achieve that goal.

            I was especially impressed by the commercial paper program. I'm not exaggerating when I say that people who work in MacDonalds and on the Harley motorcycle assembly line were getting paid by Ben Bernanke.

            It turned out that after the audit, when many thought the Fed was purchasing just bank commercial paper, on the list there were companies like Mickey D and Harley. The critics were like, wot? McDonalds? Harley  -- and it wasn't Mickey D corporate, it was a branch of Mickey D that funds Mom and Pop franchisees. So it is no exaggeration to say that Bernanke was paying hamburger flipper paychecks. Also something like 90% of consumer credit was coming from the Fed. No Fed Chair had done anything like that since the New Deal.

            •  I'm torn on Bernanke, I get what you're saying (3+ / 0-)
              Recommended by:
              Onomastic, HamdenRice, Knockbally

              regarding the fed having to work extra hard since Congress won't do it's job, and instead engages in fairy tales about how national finances are just like a household, and must balance a check book, or something.

              As if households deficit spend by creating dollars out of thin air to provide a nation it's incomes.

              But the fed also has regulatory functions, which it's not overly keen in performing.

            •  If Bernenke can buy MBSs, then they can (2+ / 0-)
              Recommended by:
              serendipityisabitch, Knockbally

              buy the underlying mortgages too.

              That would be a bottom up rescue of the banks, rather than expecting banks to rescue Main Street, which they have no intention of doing.

              •  Great point (4+ / 0-)

                I read a lot of Fed documents about the asset purchase programs. The Fed always put an intermediary, often several, between themselves and consumers.

                My guess is that they didn't want the public to know how dire the situation was and the extent to which private corporate banking had simply come to a standstill and remained at a standstill for years.

                But the middle man fees was a huge price to pay for misdirection and PR. They should have just said, the private sector has failed and we're the new Citibank.

                •  Maybe in part to "protect the public from the (3+ / 0-)

                  truth", but also as a way to serve banks against public purpose.

                  And the Fed is supposed to serve public purpose.  That's it's mandate.  I think it has failed, even if what it's done has "saved the banks, thus our economy".

                  Mostly, it has saved the banks at the expense of public purpose, which, as you say, would have entailed saying:  "we're the new Citibank", and will buy your underwater mortgages, thus saving both you and the banking sector.

        •  The Fed is private entity in the final analysis. (0+ / 0-)

          It is made up of private bankers, and it serves their interests first and foremost.

          Here's this from my reply above:

          I stand by the theme of the diary: The Fed is a private institution that works mainly in the interest of bankers.  It is corrupt to the core and it manipulates the economy by manufacturing crisis at certain intervals.  In the aftermath of those financial shocks, the bankers and certain powerful individuals swoop in to buy/take over real assets at pennies on the dollar.

          They control the government through campaign contributions/bribery, and that's why they've been able to get away with the reign of criminality for decades.

          The last example was the 2008 crisis in which a massive fraud was committed; fraud that resulted in average people losing trillions of dollars in assets, all of it which went to the bankers and powerful individuals.

          And they are not done yet... The current "manufactured" crises is more of the same.  If or when there another financial shock, the looting and pillaging is going to be even bigger.

          When the dust is settled, the ruling elite (banksters, etc.) would be much more wealthy and powerful, and the population would be more impoverished, our rights would have been undermined, as we move towards neo-feudalism.

          Here's this from WikiPedia:
          Controversy about the Federal Reserve Act and the establishment of the Federal Reserve System has existed since prior to its passage. Some of the questions raised include: whether Congress has the Constitutional power to delegate its power to coin money or issue paper money, whether the Federal Reserve is a public cartel of private banks (also called a banking cartel) established to protect powerful financial interests, and whether the Federal Reserve's actions increased the severity of the Great Depression in the 1930s (and/or the severity or frequency of other boom-bust economic cycles, such as the late-2000s recession).
  •  Anyone who quotes Charles August Lindbergh or (10+ / 0-)

    his vile son has lost me.

    "Say little, do much" (Pirkei Avot 1:15)

    by hester on Fri Oct 04, 2013 at 07:52:54 AM PDT

    •  Here's the context in which I'm quoting (0+ / 0-)

      people in this diary... I've conducted some research, and used those distinct quotes from people who were involved in the debate back then.

      I'm strictly focusing on the issue at hand, and nothing else.  What these people were reporting back then supports what I found in my research, and not only that, there many others who were reporting and opining along the same vein.

      Now, if there are any other issues that may rancor people, I was not aware of.

      The only thing that comes to mind that given the historical era, it would be very difficult to find contemporary critics of the central bank, and international bankers who did not have something to say about other topics they saw as related.

      And as we all know, when it comes to ascribing malicious characteristics to people based on race or ethnicity, it is always wrong to do so.

  •  I would prefer to see an argument against (3+ / 0-)
    Recommended by:
    nickrud, jlynne, serendipityisabitch

    The Fed Reserve Act based on the oddity of Congress, against how at least I read the Constitution, having outsourced part of it's public mandate as specified in The Constitution, through setting up a public/private hybrid system.

    As Benjamin Franklin understood, democratic freedom relies upon having both control of, and being independent in, one's money supply.

    Having Treasury alone issue our currency into existence by spending it into existence, seems the best way to maintain both control and independence.

    It has the huge bonus feature of making clear to people how money is created, without the confusion of Tsy borrowing dollars into existence via the Fed, thus seeming to be borrowing in the same way household borrow.

    Believing fed government finances are like a household's is one of the most pernicious beliefs out there today.

    And frankly, I think more pernicious than having a Fed Reserve itself is.

    •  a thousand recs (2+ / 0-)
      Recommended by:
      katiec, serendipityisabitch

      just for this:

      Believing fed government finances are like a household's is one of the most pernicious beliefs out there today.
      although you did make several other great points in your comments here.

      "None are more hopelessly enslaved than those who falsely believe they are free." - Goethe

      by jlynne on Sat Oct 05, 2013 at 12:21:11 AM PDT

      [ Parent ]

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