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Federal Reserve Bank’s Pursuit of No Transparency

December 7, 2009

Federal Reserve Bank’s Pursuit of No Transparency

In a follow up to my recent article titled-Federal Reserve one step closer to Transparency, I wanted to discuss what may be lurking behind the wizard’s curtain at the Federal Reserve Bank and why they desire continued secrecy. In a Washington Post article published on Sunday November 29, 2009 by the current Fed wizard, Ben Bernanke we may get some clues. This article was the first of its kind from Bernanke and was a direct response to the November 19th vote in the House Financial Services Committee on amendment H.R. 1207, ‘Audit the Fed’. It read like the same old line- we have prevented catastrophic wholesale collapse of the global monetary system so leave us alone and we will allow more token “consumer protective legislation” and agency oversight creation. Most importantly the article is wrapped again with an all too familiar fear-mongering tone and veiled double speak threats. Here are a couple key quotes in his article-

“And a House committee recently voted (see- H.R. 1207 post) to repeal a 1978 provision that was intended to protect monetary policy from short-term political influence. These measures are very much out of step with the global consensus on the appropriate role of central banks, and they would seriously impair the prospects for economic and financial stability in the United States.”

“Congress, through the Government Accountability Office, can and does audit all parts of our operations except for the monetary policy deliberations and actions covered by the 1978 exemption. The general repeal of that exemption would serve only to increase the perceived influence of Congress on monetary policy decisions, which would undermine the confidence the public and the markets have in the Fed to act in the long-term economic interest of the nation.”

–  Ben Bernanke Chairman of the Federal Reserve Board of Governors

The right reform for the Fed. Washington Post November 29, 2009


So Why all the Secrecy?

Again a brief historical look at the economic financial stability Chairman Bernanke so often refers is not a stellar record since the Federal Reserve’s creation in 1913. Especially in the past 20 years or so, public and market confidence has already been undermined by their very actions. The proposition that by fully auditing the Federal Reserve, would remove their autonomic authority to set monetary policy thus, America’s economic future would be in jeopardy! It is my opinion that for the most part, politically they are not totally autonomous in their actions. Just how much direct political influence and other (Wall Street) directions this influence comes from is really questionable. Most importantly, it is the secretive behind-the-scenes deliberations and actions which warrant scrutiny and public exposure. These activities are those which Chairman Bernanke dearly wants to remain hidden from public scrutiny. Sorry, Ben but the emperor has no clothes and is standing next to the elephant in your room.

Here is a great clip from Congressional testimony showcasing the apparent misgivings the Fed Chairman has about being transparent and accountable to the American public. Bear in mind this is only one of many examples in which information is requested and subsequently not forthcoming. In it we see Representative Alan Grayson asking some very specific questions to Chairman Bernanke about what happened to $500 million dollars handed out in currency swaps to foreign central banks. The swaps in question, totaled a ½ trillion US dollars that was traded for another countries currency with an agreement to reverse this swap (exchange) at some future date at the same exchange rate. The issue is not necessarily the monetary effectiveness of such actions, but that it was done with a somewhat implied authority; again, without any oversight. And most interestingly, Mr. Bernanke claims he does not know which banks or entities ultimately received this purported benefit. Does anyone at the Federal Reserve know the real benefactors? Will the American public benefit from this and similar actions? We are entitled to the answers because this is our currency and our economic viability; or just possibly in the banking elite’s view, it really is not ours to decide. Herein lies the major issue at hand.

Unquestionable Faith in the Unseen

After all the Federal Reserve should belong to the US Citizens and only be controlled by the people through US Treasury directives. I digress, back to my point. Bernanke’s Washington Post article surmised: if the markets (public) had access to the Fed’s behind the scenes policy decisions and actions, economic calamity and the ensuing chaos would engulf the global economic paradigm. This to me simply says: Our fragile monetary system is totally based on fiat faith. And yes, it always has been a system based on a belief system, one of confidence. Well, sorry to say history is replete with cunning deceptions having been foisted upon many the populace unknowingly to their detriment. I believe the winds of change are blowing mightily on this privately held house of cards known as the Federal Reserve Bank. The American public and for that matter other nations with privately held central banks are now forcing the exposure of their activities and ultimately to remove the veil of secrecy altogether.

Just like in the movie Wizard of OZ, the curtain represents a thin veil of secrecy to hide the real actions which create the effects we see. In much the same fashion, words of fear from Federal Reserve Chairman Ben Bernanke are substituted for the thin veil. What we are witnessing is a rapidly dying monetary system which has served its useful purpose and now will be changed with one that serves the majority not a minority. Both you and I are responsible for that change. Our responsibility for the most part is encapsulated within becoming knowledgeable of the issues we face and their root causes. Upon a better understanding of what has happened we then collectively possess an unstoppable force propelling us forward in actions fostering needed monetary reform.

“There comes a time in every economic crisis, or more specifically, in every struggle to recover from a crisis, when someone steps up to the podium to promise the policies that — they say — will deliver you back to growth. The person has political support, a strong track record, and every incentive to enter the history books. But one nagging question remains. Can this person, your new economic strategist, really break with the vested elites that got you into this much trouble?”

–  Simon Johnson MIT Sloan School of Management and former chief economist at the IMF

Quote from: “High Noon: Geithner v. The American Oligarchs.”


Pulling Back the Veil

Now would be a good time to briefly review some Federal Reserve and Wall Street monetary activities which are not understood by both the public and most members of Congress. The old wise statement- “By their deeds shall you know them” is so apropos. With a keen observation of our recent economic history, it clearly shows a cyclic pattern in which very few enjoy the benefits of the Federal Reserves monetary policy for a sustained period of time. One must ask why that is so. And can this pattern be reversed or are we to continue down a path of what clearly appears to be economically engineered boom and bust cycles. If someone was to argue these patterns are not engineered in advance, then now is the time to replace the incompetent individuals and institutions that are responsible for many miserable monetary policies and economic decisions. Boom and bust cycles and their corresponding bubbles can be engineered out but not without a profound change.

Our faith has been tested and now the public has woken up to reality and we are becoming an active participant in the unfolding of our new economic and monetary future. As I so often repeat- knowledge supported through action mandates change. Those few at the food-chain pyramid top exploit this power universally. We need not necessarily seek their personal demise (allow the universe to accommodate the natural order) only the systems they have devised are to be dismantled and that indeed is now happening before our very eyes, to be replaced with an entirely new economic paradigm.

While many discuss the terminal insanity of fiat money mechanics, that is, the authority to create money out-of-thin-air backed by nothing (except faith) and of recent, producing next to nothing, there are many more prosperity robbing schemes that for the most part operate legally and out of thought from the general populace. One fascinating scheme to look into is the Pandora’s Box of the highly leveraged $1+ quadrillion derivative markets of assets that in reality, for the most part do not exist. These speculative trades are created for the sole purpose of leveraging this system and also temporarily saving it from destruction, and in the process, benefiting only a few inside key players.

Could this be one reason why the Fed does not want HR 1207? Possibly as it would help to expose a massive Ponzi scheme they have created in partnership with Fed shareholders like Goldman Sachs, JP Morgan Chase and others. However, it is my contention the fiat money system and fractional reserve banking predominately pulls all the economic levers. So for now, let’s look at the recent example of this money creation process and how it will soon play out.

TBTF- “Too Big to Fail”

The newly tabled concept of having a “To Big to Fail” policy is the result of political power and private capital coercion commingled with the fear of loss. While the Federal Reserve private bank is writing billion dollar checks to shore up balance sheets to hold off collapse of zombie banks, financial insurance entities and propping up failing industries, the American public gets token crumbs. Let’s not forget the Federal Reserve bail out of the US residential mortgage market, as they continue buying mortgage backed securities from Fannie Mae & Freddie Mac adding them to their already inflated balance sheet. I can’t wait to see if they actually cease purchasing these securities as they have said they will do, and if so, what will happen to the residential mortgage market when the two biggest players must resume selling large quantities of MBS securities on Wall Street. On a related note, commercial mortgage backed securities (both performing and non-performing) are still held predominately by the big commercial banks and that sector should become the next victim of devaluations as many existing loans come due for payoff or refinancing in 2010 and 2011.

Remember in the fall of 2008 we were told by then Secretary of the Treasury Henry Paulson of what would happen if Congress did not succumb- he warned that the “system” would collapse and unemployment would skyrocket without $787 billion in taxpayer money infusions. Once again, Congress quickly bowed down and succumbed to the money masters and those select few with powerful knowledge. They got away with it because our leadership and the public don’t have much of a clue what they do. A reality check is in order, the monetary patient is now terminally ill and drastic measures are required to regain economic health. We are to no longer accept this from Washington and as said earlier, we shall rise up to the challenge that faces all of us and play our responsible role. I say it is the fear of the unknown which perpetuates this madness. And that is only a temporary state of mind. An unwillingness to face change, clinging onto a false hope and belief that normalcy will once again return is insanity. I assure you it will not.

So, tell me what is the condition of the US or global economy now? Does it not look like a virtual collapse? While reality for many looks bleak, Wall Street banks and investment houses dole out huge performance bonuses once again this year. Main Street unfortunately has little to show for the generous life saving cash infusions courtesy of the US public. Once again, the public continues to take it on the chin. Case in point: just released 2009 US Courts data on personal bankruptcy filings show that bankruptcy filings are up 104% from 2007. No other economic indicator displays deeper signs of financial hemorrhaging than bankruptcy. According to the records over 85 percent of Chapter 7 filings are “no-asset filings” meaning there are no assets for creditors to go after to recover the debt. Another telling sign is that even with more stringent bankruptcy laws enacted in 2005, with a “means test” now being done to qualify for a chapter 7 discharge, the fillings continue to rise.

A final component of the bankruptcy picture is that of small businesses, the backbone of the US economy. Most recent stats show that small-business bankruptcies rose 44% in the third quarter 2009, from the same quarter in 2008, according to Equifax, a credit-reporting agency. Certainly another very important aspect here in the US, is the real U6 unemployment numbers that are now in mid double digits and could continue climbing higher into 2010. Well to lighten up a very tough subject and for those who are not so keen in checking out the Bureau of Labor and Statistics methodology used to compute the widely publicized “official” (U3) unemployment numbers, here is a humors  clip explaining their math madness-

For a graphic representation of the nationwide U3 unemployment rates from January 2007 to October 2009 this short clip put together by LaToya Egwuekwe is real eye opener and a must see-

Is the American public not big enough to fail? Or has the wealth available now already been extracted from the majority and for the time being, we are no longer a viable asset to those making such decisions? That would be a grave miscalculation. All signs point to the money masters of the universe moving onto more vulnerable prospects leaving behind a devalued US dollar in their wake.

As just shown the real economy still suffers unlike the gains seen on Wall Street since April 2009, which are largely due to cost cutting maneuvers and not much related to real economic growth. It is no surprise that much of the corporate profits came by cost cutting. AKA: payroll reductions, “production efficiency gains.” Of course that form of restructuring for survival or profits cannot continue for much longer. Simple economics dictate that.

It’s the Consumer Stupid!

Much of the ills in the US economy could be tied back to the actual consumer. What a vicious cycle, you know the boom-and-bust cycles they all speak of. One quick look at the typical American consumer and you will notice they are tapped out financially. The last 5 years of consumer spending induced by inflated property values (the last bubble created) has now hit the wall and in effect, virtually evaporated. This does not bode well for many businesses since consumer spending is approximately 75% of the US’ Gross Domestic Production. Without perpetual spending and ensuing personal debt cycle, the consumerism which drives the US economy comes to a halt quickly. Wonder no more as to why we are labeled “consumers.” Gone is the day when America was a real producer nation. No, we traded our production for consumption long ago and now we are paying the price. Some could even argue commerce and trade deals with China have broken down.

It appears that deals were structured in that manufacturing would be shipped to China in turn China would fund US debt through purchasing US Treasury Bonds. Now the Chinese are finding out it wasn’t worth it in the long run with the ongoing dollar devaluations, and are exchanging dollars for real value- commodities, gold, silver and actual infrastructure investments at home and abroad. Many suspect China has discovered that they have been had. That could explain all the recent trips this year to China by the Treasury Secretary Timothy Geithner and President Obama.

This ill-conceived direction is being reversed and a new renaissance is now emerging as we once again return to our foundation which made America great. More and more people are seeking out doing business locally and supporting local economies. Expect this very important trend to continue. We are to move away from Wall Street and return to Main Street for our economic vitality to once again return.

What about how back in the fall of 2008 we where told about the consumer’s benefit of loaning massive sums to failing banks who’s activities and decisions which made them fail becoming insolvent, and the US Government, through our Treasury was to purchase ‘toxic non-marketable assets” removing them from their balance sheets? All that never happened and I believe then Treasury Secretary Henry Paulson knew that was indeed not what was actually going to ultimately happen regardless of his Congressional testimony to the contrary. This action was sold to us under the premise so that banks could be re-capitalized and continue the magical process of debt-money creation. Ok, so we temporarily loan with the intent that the US Treasury would at some future date be repaid, lend banks our money so the banks in turn could loan it to us charging interest and continue on our merry way. Here is where we stand- the banks are still in a large part, profiting from the “toxic” assets on their books. Most have not yet devalued these assets especially their residential and commercial mortgage portfolios on their balance sheets remain and are still earning interest where they can on those assets. By the way, the most recent number shows major money-center banks are hording cash for example, Citigroup with $244 billion and JP Morgan Chase with a whopping $453 billion! We see banks are more reluctant today than ever before to extend credit even to the most creditworthy borrowers despite having adequate capital to do so.

Numbers Don’t Lie

And what has happened to the real economy since all the hot air promises from the money master experts? Fast forward fall of 2009.  Here below courtesy of Global Research, are GDP numbers that may surprise even some economists.

In this past 3rd quarter non-financial corporate profits fell 12%. The result was that $97 billion of $123 billion in profits came from the financial sector. This is not a balanced performance…Lending is not supplying those profits, because loan origination is off 16.2% yoy. Loan defaults were up 10% and a record 5% of loans were not current. Lending fell $2.8 billion, the most since records began in 1984. Ninety percent of loans go to consumers and business, which means consumers consumption of GDP, has had to fall. It’s currently 69.3%, down from 72%. Loans to businesses have fallen 6.5% and small and medium-sized businessmen create 70% to 80% of all jobs. That means improving the employment situation is going to be very difficult. The exceptions are transnational conglomerates, which continue to offshore our production and outsource service jobs. Their profits are up 29%, but they have caused unemployment of 7 million good paying jobs over the past nine years.

If you remove the financials, profits are up 7% off their lows. The financial stocks have appreciated 135% off their March lows, which we believe leaves them very vulnerable. Industrials are up 80%. While this was going on business profits fell 0.4% in the 3rd quarter with no relief in sight. Growth rates are falling at the highest rate in decades. We are hard pressed to believe that 3rd quarter growth was 2.8%. What growth there was came from the federal government (home buying tax credit & Cash for Clunkers program). Not only is employment falling, but wages have been at a standstill and have been for two years. The government says inflation is 1.2%. We say it is 7-1/8%. Without higher wages buying power is falling 5% or so – hardly inducement for consumer consumption.

Continued Secrecy or New Solutions

Although we have accelerated the exposure process we are far from finished. H.R. 1207 still has a few hurdles to jump over on its way to President Obama’s desk for his signature. He should stand up to his campaign promises of change and this one piece of legislation will be very interesting to see play out from Capital Hill to the White House. Of late it appears that many promises he has made have been broken and much remains to be changed. Some of his most ardent supporters are now questioning his actions since inauguration as they seem contrary to his campaign platform. I suspect President Obama may have difficulty sleeping at night now that he is in the inner circle of higher power and has been given critical information along with possibly a different script to follow. As for the public at large, over 75% of Americans want the Federal Reserve fully audited and their secretive actions exposed. You can be assured the powers outside of Washington DC do not want this amendment attached to a new finance bill becoming law. We must let our representatives continually know our displeasure and frustration over the lack of knowledge of the Fed’s activities and just as important, the Federal Reserve apparent inability or lack of competency to provide a sound economy which benefits the majority. I believe the Fed’s actions combined with those entities that benefit from their actions present a moral hazard for the nation.

The real work is now taking place and one should expect this pace to rapidly increase. In the final analysis, both economically and mathematically this monetary system has run it course and as expected, is in the inevitable process of ending. In the interim, viable solutions have been discussed and well researched by brilliant economists, monetary theorists and social scientists which are being brought forth into the public domain for discussion and eventual implementation. As now like no other, is the time of change and what a great opportunity to re-write civilization’s future.

Common Sense Interim Solutions

One consideration that could well be a stop-gap measure is to temporarily engage in the very banking system the elitists so ingeniously employ. Consider this: with the mounting state budget deficits including many of which are now on the verge of insolvency, each state could easily create their own banking institution. By doing so, they would be entitled to the same economic benefits that commercial banks enjoy such as money creation. A worthwhile benefit could be returning income earned to the state treasury to fund further endeavors voted by the state populace. Or, just like publically held financial institutions disburse profits as dividends to residents of the state. State residents would benefit financially due to lower interest borrowing costs and increased returns on interest bearing deposits when compared to commercial banking choices. Also, the state itself would quickly find their deficit gaps closing due to profits generated. All funds from the state and its institutions would capitalize the bank initially and provide future bank deposits from taxes and assessments along with deposits from private citizens being utilized to fund loans ultimately benefiting residents and business alike. A true win-win proposition.

This suggestion may sound all too familiar for those in the banking industry. Reason being, because having a state owned bank has been extremely effective over the last 90 years in the State of North Dakota. They are the only state to have done so. In 1919 just 6 years after the Federal Reserve Act became law, the bank was born and was initially funded through a series of bonds totaling 2 million dollars. The reason for the bank’s formation could be summarized as a desire to balance the financial playing field for the agriculture business within the state. In 2008, Bank of North Dakota’s assets reached over $3.5 billion, with earnings of $57 million. The state began using Bank profits in 1945 when about $1,700 was transferred to the general fund. Over the last decade BND has provided $300 million in Bank profits to the general fund. That is an average of 30 million a year! Imagine what improvement could happen to the finances of a state the size of California with a population of approximately 36,750.000 vs. North Dakota’s 640,000. The sky is the limit and this is simply one suggestion that historically has proved beneficial to the residents of North Dakota. Other voices of reason are now coming forth championing the same such as economist Farid A. Khavari PhD, who is running for Florida Governor in 2010. Here below is a short high-level clip outlining some inherent benefits of a State Bank of Florida.

Well they say common sense is not common; maybe, yet together we each play a definitive role in shaping our future. While chaos may ensue a bit longer, understand a brighter day has already been birthed. Feel it, become a part of the second American Revolution, a revolution of the mind and spirit of all Americans. Now that we have clearly identified what we no longer want, we are returning to a place which all will enjoy a sound and stable economic order by embracing equality through guiding principles and perseverance. Along with the rest of the nations of the world, we are regaining that which we blindly allowed to be removed from our possession. That is, the power to choose and advance change benefiting all. And for that, I’m grateful.

As always- your comments are welcomed and encouraged. If you like what you see and read here at Shift of The Age, be apart of the awareness- share! Be sure to forward, subscribe via RSS feed or email direct to your inbox. Thanks!
2 Comments leave one →
  1. December 8, 2009 11:18 AM

    Good stuff!


  1. Global Debt Saturation- a Final Bubble to Burst « Shift of The Age

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