Alan Greenspan

Federal Reserve – Conspiracy Or Not?

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Conspiracy surrounding the Federal Reserve is a subject of much debate. A controversial topic, yes;  one which stirs the imagination of some, fires the suspicion of others, and provokes the declamation of not too few detractors. 

From G. Edward Griffin/The Creature From Jekyll Island…

“Back in 1910, Jekyll Island was completely privately owned by a small group of millionaires from New York. We’re talking about people such as J. P. Morgan, William Rockefeller and their associates. This was a social club and it was called “The Jekyll Island Club.”

That was three years before the Federal Reserve Act was finally passed into law. It was November of that year when Senator Nelson Aldrich sent his private railroad car to the railroad station in New Jersey and there it was in readiness for the arrival of himself and six other men who were told to come under conditions of great secrecy.

For quite a few years thereafter these men denied that any such meeting took place. It wasn’t until after the Federal Reserve System was firmly established that they then began to talk openly about their journey and what they accomplished. Several of them wrote books on the topic, one of them wrote a magazine article and they gave interviews to newspaper reporters so now it’s possible to go into the public record and document quite clearly and in detail what happened there.” 

The author does a good job of providing details to support the conspiratorial theme. The details include names of prominent historical figures in banking and politics, as well as dates and places. There is also a lengthy section on fundamental monetary and economic theory. The book totals more than 600 pages. It should not be dismissed as a light thing. 

In addition to possible conspiracy, another concern in the origin of the Federal Reserve, is whether there is a Constitutional basis for its existence. 

Ron Paul, former U.S. Representative…

“First reason is, it’s not authorized in the Constitution, it’s an illegal institution. The second reason, it’s an immoral institution, because we have delivered to a secretive body the privilege of creating money out of thin air; if you or I did it, we’d be called counterfeiters, so why have we legalized counterfeiting? But the economic reasons are overwhelming: the Federal Reserve is the creature that destroys value.” (source)

There are those who see the Fed in a different light; critical of them, but not for the reasons above. Danielle DiMartino Booth, author of the book Fed Up, seems to think the Fed is worth saving, but that a reformation is necessary. She also tends to see the Fed as an institution which is supposed to have the people’s interest in mind – a public institution, if you will. 

If the Federal Reserve is a conspiratorial organization, has it done anything  to redeem itself? In other words, is its continued existence justified when looking back at its past accomplishments? Or its potential contributions going forward; if it were to be reformed? 

Regardless of whether or not the Fed is a conspiratorial enclave, and regardless of whatever ‘need’ for its services might be posited, would a lack of constitutional authorization be sufficient justification for abolishing the Federal Reserve? 

For the moment, lets set aside the conspiracy and constitutional arguments. And lets suppose that any reformation needed can be accomplished effectively and efficiently. 

What sort of track record does the Federal Reserve have? What have they done to merit our confidence? 

One of their self-proclaimed objectives is to manage the economic cycle. What they really meant in proclaiming their ability to do this, is that they could ‘manage’ to avoid recessions and depressions and extend the prosperity phase of the cycle. How well have they done?

The word horrible comes to mind. Abysmal failure is another. 

In their initial attempt at managing the economic cycle, the Fed ushered in the most severe depression in our country’s history beginning with the stock market crash in 1929. Even former Fed chairman, Ben S. Bernanke agrees:

“Let me end my talk by abusing slightly my status as an official representative of the Federal  Reserve. I would like to say to Milton and Anna: Regarding the Great Depression. You’re right, we did it. We’re very sorry. But thanks to you, we won’t do it again.”…Remarks by Governor Ben S. Bernanke (At the Conference to Honor Milton Friedman, University of Chicago -Chicago, Illinois November 8, 2002) 

But they did do it again.

Six years after his speech, Governor Bernanke presided over another catastrophe in the financial markets. Cheap credit and ‘monopoly’ money had blown bubbles in the debt markets that popped. 

Alan Greenspan was Chairman of the Federal Reserve at the time Bernanke made the above statement. When testifying before Congress after the credit implosion of 2007-08 and after he had been replaced by Mr. Bernanke, Greenspan had this to say: 

“I discovered a flaw in the model that I perceived is the critical functioning structure that defines how the world works. I had been going for 40 years with considerable evidence that it was working exceptionally well.”

And lets not forget the Fed induced bubble surrounding stocks in the late nineties which was pricked in early 2000. Greenspan was at the helm then, too. 

But is this really any wonder? What can you expect after reading what Danielle DiMartino Booth says…

“The economists were satisfied parsing backward-looking data to predict future events using their mathematical models. Financial data in real time were useless to them until it had been “seasonally adjusted,” codified, and extruded into charts.  Fed employees had no interest in financial news.” 

In addition to not-so-stellar management of the stages of the economic cycle, the Fed has managed to destroy the value of the U.S. dollar, too. 

Since 1913, purchasing power of the U.S. dollar has declined by more than 98 percent. Another way of saying this is that $50,000. 00 today is the equivalent of $1000.00 one hundred years ago. 

The U.S. dollar’s loss of purchasing power is the result of inflation created by the Fed. The Fed creates inflation by expanding the supply of money and credit. 

The  expansion of the supply of money and credit cheapens the value of all money in circulation. The inflation is intentional. And since the inflation is ongoing and cumulative, its effects are unpredictable and volatile. 

Both the Fed and the U.S. Government act complicitly in the creation of money…

“The U.S. Treasury, in conjunction with the Federal Reserve, continually expands the supply of money and credit by issuing Treasury Bonds, Notes, and Bills. The Federal Reserve receives the newly certified Treasury securities and then issues a credit to the U.S. Treasury reflecting the corresponding dollar amount. But where does the Federal Reserve get the money that it  gives to the U.S. government? It is created out of nothing.” 

Does any of this support the view of the Federal Reserve as an institution that is capable of providing value added services? Do you think they care what the media thinks? Or the President? 

After a century of irresponsibility and complete abdication of fundamental economics, we have probably passed the point of no return. Current weakness and volatility in the financial markets are telling us that. 

The US dollar is in a state of perpetual decline (by intention) which will ultimately end in complete repudiation.  Whether or not the Federal Reserve continues to raise interest rates is not the real issue.  They will do – or not do – whatever they think will keep the charade going for a while longer. 

Which is exactly what they did ten years ago. And they succeeded temporarily…  But we don’t really know how much systemic damage was done (i.e. exactly how much money and credit were created, how big is the Fed’s balance sheet and how badly inflated are the numbers, how under-capitalized are the banks). I assure you, it is much worse than anything we have been told.

Similar events today would bring about a price collapse in all markets as well as usher in deflation and a full-scale depression. All of this would be resisted on every front by government and the Federal Reserve. They would literally launch an all-out financial war (and maybe another real war, too) by opening the money and credit spigots full force in a futile attempt to reverse the credit implosion and negative price action of critical assets.

In effect, their efforts and intentions would be similar to those observed during the Great Depression of the thirties. The results would be similar – not productive and inefficient.  The depression would also last much longer than needed. And the price declines which are necessary to correct the excesses of the past and cleanse the system would be countered every step of the way by regulations and programs of dubious value. The efforts of government would actually worsen things and prolong the suffering.

It is more likely, though, that the results would be much worse than anything we could imagine. Even a relatively strong U.S. dollar would be unable to survive the onslaught. In their efforts to stave off the natural effects of their own harmful ways, the government would ‘kill’ the dollar. We would likely find ourselves awash in money and credit created without regard to potential damage. All in order to stave off the inevitable results while ignoring their cleansing effects on a very ill economy.

Federal Reserve conspiracy or not, we are in for quite a ride.

(also see The Federal Reserve And Long Term Debt – Warning!)

Kelsey Williams is the author of two books: INFLATION, WHAT IT IS, WHAT IT ISN’T, AND WHO’S RESPONSIBLE FOR IT and ALL HAIL THE FED

The Fed’s 2% Inflation Target Is Pointless

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FED’S 2% INFLATION TARGET

Within the Federal Reserve sometime in 1996, a discussion took place among FOMC (Federal Open Market Committee) members regarding the subject of inflation targeting. Federal Reserve District Governor (San Francisco) Janet Yellen believed that a little inflation “greases the wheels” of the labor market. Her preferred “target” was 2%. She asked Chairman (at the time) Alan Greenspan his preference.

The Chairman replied.  “I would say the number is zero, if inflation is properly measured.”

On the surface, it might seem that Chairman Greenspan is indicating that no inflation is preferable to “a little” inflation.  But that is contradictory to the actual mechanics of ongoing monetary action by the Fed since its inception in 1913.

The Federal Reserve creates inflation through ongoing expansion of the  supply of money and credit. Our fractional-reserve banking system is intrinsically inflationary – at the very least. And what did he mean by the parenthetical comment, “if inflation is properly measured”.

More likely, he was adopting the role of devil’s advocate and trying to promote further, active discussion among FOMC members. The results seem to indicate this.

In meetings the next day, Greenspan summarized the discussion: “We have now all agreed on 2 percent.” The Federal Reserve now had an internally stated, unofficial inflation target. Their own “guiding light”. But they didn’t want to talk about it publicly.  At least Greenspan didn’t.

He termed their discussion “highly confidential (in) nature” and said: “I will tell you that if the 2 percent inflation figure gets out of this room, its going to create more problems for us than I think any of you might anticipate.”

Ben Bernanke didn’t share Greenspan’s reservations.  He wanted everyone to know that the Fed’s inflation target was 2%.  But why?

One possibility is the need for justification.

Actions by the Federal Reserve are historically unclear as to logic and purpose. That allows for a modicum of privacy and the false descriptive of an independent Fed. It also suggests an aura of ‘special dispensation’ surrounding the Fed.

By late 2010, however, those notions were unravelling quickly as people wallowed in the after effects of the financial crises of 2007-08. Mr. Bernanke and his fellow practitioners of monetary medicine were seen as ineffective, at best, and appeared as if they did not know what they were doing.

Action was, in effect, demanded. And they were not afraid to pull the trigger. But they needed a clear, publicly observable target. How does anyone know you hit the target if they don’t know what you are aiming at?

Having a clearly acknowledged target changes the focus. Judgment is restricted to the new area of focus.  Did you hit the target or didn’t you?

This presumes that the target is justified, of course.  And if an inflation target is justified, why 2%?  Why not a lower number? Or any other number? In truth, it probably doesn’t make any difference.

From the Fed’s perspective, it gives them a license to openly discharge their firearms in the public square. If they miss, they can just reload and fire again.

Should they happen to hit the target, they can either maintain their current posture, or tweak it accordingly so as not to overshoot in the future.

But they will never “hit” their target.  Especially this one.  Why not?

Because it is a moving target, comprised of moving parts. And it is the result of the Fed’s own previous actions.

There is only one cause of inflation: government.  The term government also includes central banks, especially the US Federal Reserve Bank.

What most people refer to as ‘inflation’ or its causes are neither. They are the effects of inflation.   The “increase in the general level of prices for goods and services” is the result of the inflation that was already created.  …Kelsey Williams

Bernanke pushed until he got his way. A formal, precise inflation target rate of 2% was adopted at the FOMC meeting on January 24, 2012.

Five years later…

HEADLINE: The Fed’s Janet Yellen could use some target practice…

Quote: Ever since the Federal Reserve adopted an explicit inflation target of 2% in 2012, the central bank has had limited success in hitting it. Only once, in fact, in the months between April 2012 and today, did the year-over-year increase in the personal consumption expenditures (PCE) price index breach 2%. …MarketWatch/Caroline Baum 12July2017

That shouldn’t be a surprise given that it’s a moving target.  But there is more to it than that.

Right now, the inability to hit the target serves as the Fed’s perfect excuse for not acting more decisively.  This is especially true with respect to raising interest rates. In addition, Ms. Yellen is afraid to do anything. Here’s why.

The bigger risk to the economy and financial stability is another credit collapse.  And they can’t claim ignorance as they did the last time. They know its coming. They just don’t know when.

The levels of debt, the convoluted intricacies of the derivatives market, the interwoven relationships within the shadow banking system are all at hugely more precarious tipping points than ten years ago.

And it is the Fed’s own inability to hit the 2% inflation target that is warning them.

Think of all the hundreds of billions of dollars that went into saving the system from collapse before. And then force feeding the money drug into the patient for another nine years.

The problem is that all of the beneficiaries (i.e patients) of the Fed’s assistance are now hard-core addicts. If the Fed tries to raise rates they could very easily trigger another collapse much worse than before.

The Fed continues to look for the effects of all of those hundreds of billions of dollars to show up in the ‘rate’ of inflation. Supposedly that would be a sign to them of improved economic activity and growth. That isn’t happening.

The reason is because most of the ‘help’ effects showed up in ever higher prices for financial assets (stocks and bonds) and real estate.

And all of those toxic assets (CDOs of every letter and color, and various other esoteric derivatives) have swollen in price to levels far beyond any reasonable value. In addition, far too many of them are resting quietly on the Fed’s balance sheet.

The Fed has actually blown another bubble much bigger than the previous one. Nothing fundamental has changed. The only difference is that the situation is worse than before. Now, out of fear, they are trying to steer a course between action and inaction.

The action, of course, is raising interest rates and offloading their own balance sheet. But their actions could trigger events similar to 2007-08. In which case the Fed’s image would forever be tainted. (I think this is more of a concern for Janet Yellen than her fellow board members.)

The inaction – doing nothing – is pretty much where things are currently. If the Fed maintains ZIRP (zero interest rate policy), the patient could overdose and slip into a coma.

The Fed’s 2% inflation target is an attempt to predict the effects of inflation. That’s impossible. It is also unwise as it reinforces the acceptance of a “little inflation” as normal, necessary. It isn’t.

A “little inflation” is why the U.S. dollar is worth ninety-eight percent less than in 1913 when the Federal Reserve originated.

(Read more about the Federal Reserve here

 

Kelsey Williams is the author of two books: INFLATION, WHAT IT IS, WHAT IT ISN’T, AND WHO’S RESPONSIBLE FOR IT and ALL HAIL THE FED!

Source Of The Fed’s Power

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SOURCE OF THE FED’S POWER

We have become pawns in the game of Chess being played by the Federal Reserve Bank.  Who is their opponent?  Anybody else who makes a move.

We have become pawns in the game of Chess being played by the Federal Reserve Bank.  Who is their opponent?  Anybody else who makes a move.

Week in, week out, everyone’s eyes and ears seem fixed on what the Federal Reserve Board will say or do.  Mostly, it is about what they say. That’s because they can’t really do much of anything.

Except inflate the supply of money and credit.  Which they have been doing for over one hundred years.  And they are good at it, too.  The historic erosion in value of the US dollar should merit more acclaim – or outrage.  Unfortunately, the Fed is good at shifting the focus of concern to their opponent(s).

In their various statements, members of the Federal Reserve Bank often refer to their policies, decisions, and efforts in ways that make them sound sincere about their attempt to “manage the economy”.  And, admittedly, they are sincere in that attempt.  The trouble is, it is an impossible task.

The US Federal Reserve has led us down a primrose path by virtue of their self-proclaimed intention to manage and modify the stages of the economic cycle (prosperity, inflation, recession, depression).

Federal Reserve Bank policies are a repudiation of fundamental economic principles. The consequences of those policies and actions are evident in the historical results and the final resolution will be ugly.

On the face of it, that should be enough to discourage anyone from taking upon themselves such a hopeless task.  But the problem is much worse than that. The inflation created by the Federal Reserve is intentional. And their efforts have brought about a ninety-eight percent decline in the value of our money.

The cumulative effects of their ‘success’ have made their job even more difficult.  Now their efforts are almost solely focused on containing the effects of their own inflation.  The stages of the economic cycle mentioned above are skewed in ways which alter their duration and hugely increase their volatility.

So why does the Fed do the things they do?  For that matter, why does the Federal Reserve Bank even exist?

From my article, The Federal Reserve And Interest Rates – Definitely Not What You Think:

In addition, the Federal Reserve Bank is also charged with ensuring the financial operation of the US Government. Or, in other words, maintaining their (the US Government’s) ability to borrow money by issuing more and more debt in the form of Treasury securities. In my opinion, this is the sole and overriding purpose behind the existence of the Federal Reserve. And it drives every decision they make. It is not about the economic effects of their policies on US citizens (individually or collectively). It is ALL ABOUT KEEPING THE US GOVERNMENT SOLVENT. The US Government is not solvent, of course, but maintaining and reinforcing the confidence in their financial viability is absolutely essential. And nothing else takes precedence.

Alan Greenspan was noted for his verbiage.  Other Federal Reserve Board chairs and members make frequent comments about various things related to the economy and financial matters.  And the official reports and statements given for public consumption are usually crammed with facts and figures deemed to be part of a credible basis for the decisions and actions taken.

But, whereas there is a great deal of information related, you won’t hear anything referring to the above reason for the existence of the US Federal Reserve Bank.

The responsibility of “keeping the US Government solvent” may sound ‘laudable’ to some. I certainly would prefer that the US Government be able to return to solvency and maintain it. But something seems amiss.

It isn’t so much about keeping the government solvent as it is facilitating the government’s ability to borrow more and more money.  This is done  by issuing more and more Treasury bills, notes, and bonds.  When the US Government needs money, the Federal Reserve creates deposits of Treasury securities in the accounts of certain ‘primary’ banks/dealers. Those institutions are then responsible for placing the securities with numerous other dealers and so on, down the line.

The largest amounts are sold to foreign governments and (very) large investors.  Some are held by dealers as part of their investment inventory and some by banks who hold them as part of their reserves.  The proceeds of those placements, of course, flow back to the US Treasury.

Acting for and in behalf of the US Government in the placement of US Treasury securities is the primary role of the Federal Reserve Bank.  And it is the source of their power.

Buying from and selling to certain primary dealers in Treasury securities is an ongoing function of the Fed.  It is done for the purpose of expanding and contracting the supply of money and credit already in the system.  Which is an active way for the Fed to execute their mandate to “manage the economic cycles”  and ‘hopefully’ ensure that economic conditions and operation of the financial system allow for continued issuance of more and more debt by the US Government (i.e., more U.S. Treasury Bonds).

This has supposedly worked reasonably well for several decades. But since the supply of money and credit is always expanding, the value (purchasing power) of the US dollar continues to suffer. Which is precisely why “a dollar today doesn’t buy what it used to” or “doesn’t go as far”.

And therein lies the rub.  Confidence in the dollar is critical to the US Government.  If that confidence is not sustained, then all bets are off.

The US Government must be able to sell enough Treasury securities. Otherwise, they will not have enough money to operate.  If they don’t have the money to operate, they lose control – and power.  And they will do whatever they can to avoid that outcome.

Any policy or ‘action’ by the Fed is always taken with this objective in mind:  Maintain the viability of the market for US Treasury Securities.  This enables the ongoing operation and function of the US Government.

As long as people continue to “look to the Fed” for direction, then they are demonstrating a degree of confidence that keeps things from unraveling.  And it helps the Fed maintain a semblance of status quo.  Which in turn benefits the US Government.

The Fed’s power lies in their manipulation and ongoing expansion of the supply of money and credit.

Unfortunately, expecting, wishing, and hoping that an isolated few individuals can control, avert, or stop the economic consequences that have been brought to bear on their own citizens and the rest of the world is a pipe dream.

Sooner or later, the dam will burst.

Kelsey Williams is the author of two books: INFLATION, WHAT IT IS, WHAT IT ISN’T, AND WHO’S RESPONSIBLE FOR IT and ALL HAIL THE FED!