Tag Archives: Federal Reserve

Bank of Japan announces plan for massive inflation of the Yen, as US Fed curtails dollar monetization (QE). What does it mean for you?

A recent article in the Guardian (UK) reports that the Japanese central bank has announced plans to “inject ¥80tn (£447bn) a year into the financial system, mainly through the purchase of government bonds, in a bid to ward off the threat of deflation.”

Thus, Japan takes over much of the burden of keeping a flawed global money system alive, as the US central bank (the Federal Reserve) ends its own program of dollar inflation.

Bloomberg provides a “quick take” on the FED policy saying, “It was the biggest emergency economic stimulus in history and now it’s over. The U.S. Federal Reserve’s once-in-a-lifetime program to buy immense piles of bonds, month after month, in an extraordinary effort to restart a recession-deadened economy came to an end in October after adding more than $3.5 trillion to the Fed’s balance sheet – an amount roughly equal to the size of the German economy. The bond-buying program, called quantitative easing or QE, had been controversial since its start in 2009, as had the Fed’s decision in 2013 to gradually reduce the monthly economic boost, a plan that became known as the taper. Whether the Fed tapered too soon, given global economic weakness, or too late, given signs of bubbles in some markets, was hotly debated. But even after the taper’s end the Fed continued to pump support into the economy the old-fashioned way, by holding its interest rates near zero.”

As I’ve pointed out before, “Quantitative easing” is simply a euphemism for inflation of the currency (mainly by central banks buying government bonds and other uncollectable debt). Other things being equal, currency inflation eventually leads to price inflation. But other things are not equal. The US has indeed seen significant inflation of prices in some sectors, especially food, but other prices are being kept down, primarily because of layoffs and underemployment, leaving consumers with lower incomes and reduced purchasing power. If income from wages and interest on savings are held down, people must either do without or borrow more money to maintain their levels of spending. The following table from the Federal Reserve shows the growth in consumer credit over the past few years.

Consumer Credit Outstanding ($ Billions)
2009 2010 2011 2012 2013 2014
As of 8/31
2,552.8 2,647.4 2,755.9 2,923.6 3,097.9 3,225.3

These figures cover most short- and intermediate-term credit extended to individuals, excluding loans secured by real estate.

Those figures show a more than a 26% increase in consumer credit just over the past four and one half years, much of it high-interest credit card debt. Although credit card debt has declined somewhat from its 2009 peak, according to nerdwallet.com, falling indebtedness is largely due to defaults rather than repayment.

The same site reports that, in total, American consumers owe:

  • $11.63 trillion in debt, an increase of 3.8% from last year
  • $880.5 billion in credit card debt
  • $8.07 trillion in mortgages
  • $1,120.3 billion in student loans, an increase of 11.5% from last year

Central banks find currency inflation necessary in order to offset the reductions in the money supply caused by charging interest on money that banks create when they make “loans.” There is never enough money in circulation to enable repayment of the aggregate of principal plus accrued interest of money created as bank “loans.” Thus the “natural” tendency of the usury-based debt-money system is toward deflation. Central governments then must become the borrowers of last resort and central banks become the lenders of last resort as bankers and politicians continue their absurd dance that is a death spiral of recurrent and ever more extreme financial crises.

The real solution to our monetary, financial, and economic problems is to end the usury-based debt-money system. But the bankers, the rulers of the world, will not stand for that. By control of the money creation process, they have extended their power to tightly control the political process, as well. Thus, the wealth and purchasing power of the vast majority of people will continue to decline as the system continues to pump up the wealth and power of the few who control the money system, and their minions.

According to the Fed, between 2010 and 2013, “mean (overall average) family income rose 4 percent in real terms, but median income fell 5 percent, consistent with increasing income concentration during this period.” And “Families at the bottom of the income distribution saw continued substantial declines in average real incomes between 2010 and 2013, continuing the trend observed between the 2007 and 2010 surveys.”

So, what can people and communities do to counter these trends and regain control of their economic fortunes and enhance their political power?

Considering the dynamics of power that prevail in the so-called democratic countries today, reliance on the political process to effect systemic reforms seems futile. So, while it is necessary to continue to protest the status quo and reframe the political dialog, it is even more important to take action to rebuild society from the bottom upward. We must reduce our dependence upon the very systems that are being used to disempower us, of which the political money system is foremost.

That is not so daunting as it might first appear, and conceptually it is not very complicated. It is what my work of the past quarter century as been all about. The biggest difficulties have had to do with dispelling erroneous myths about money and banking and helping people to see beyond the orthodox. This, and the lack of adequate tools have retarded the process of taking promising alternatives to scale, but that is quickly changing as new technologies that enable moneyless trading become available.

But don’t sit idly by waiting for things to happen “out there.” Start with your own personal development and empowerment, while working to strengthen your various communities and networks, your city, state, and region. Some tips to get you started can be found here. –t.h.g.

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The emerging market mess and US manipulations

Anyone who wants to understand present-day geopolitical phenomena must pay attention to former Assistant Treasury Secretary, Dr. Paul Craig Roberts. Roberts is one of a handful of people who understands what is going on–and is willing to tell people about it. Explore his website http://www.paulcraigroberts.org/, and be sure to listen to his recent interview with Eric King, here.

In that interview, Roberts tells the story of how and why the US interferes in money and securities markets, and the effects those manipulations have on others around the world. He also predicts that the Federal Reserve will soon be faced with the choice of either saving the banks or saving the dollar, perhaps as early as the end of this year. But I suspect that the Fed may not quite yet have exhausted their bag of tricks. Because banking corporations dominate politics in most of the world, and because the dollar’s role as the global reserve currency has served the purpose of Western dominance, the Fed, in alliance with other central banks, will try to save both the banks and the dollar for as long as they can.

What is actually being protected is the global usury-based debt-money regime, that unholy alliance between politicians and top level banks that enables central governments to spend far in excess of their tax and other revenues, thereby thwarting democratic government and the popular will, while enabling banking institutions to privatize our collective credit and charge us interest (usury) to access it.

So what do the central banks have left in their bag of tricks as they taper off their massive amounts of  “quantitative easing” (currency inflation)? That’s the question to ponder. I think it’s obvious that they will (1) try to corral everyone’s savings and all surpluses into government securities and Wall Street equities (think, privatization of Social Security), and (2) outright confiscation of bank deposits via selective bank failures and assessments on depositors (ala the recent Cyprus trial balloon).

Still, those can only be, at best, delaying tactics, and not without serious social and political repercussions. The real solution will continue to be denied and delayed by the powers that be. Thus it must emerge from the bottom, from the creative instincts and talents of innovators in many fields who are bringing to market better ways of mediating the exchange of value and financing the creation of sustainable, Earth-friendly, and life-supporting products and services. –t.h.g.

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FED: “your gold is safe with us, just don’t ask for it back.”

The global banking farce is becoming ever more hilarious (if you can ignore the tragic consequences of this monumental fraud). Germany is seeking to repatriate its gold that is supposedly held by the US Federal Reserve, but the Fed says, “Nein, you cannot even examine it.”

 Watch this RT report to get the story:

Do Banks Create Money out of Nothing?

One of my correspondents recently referred me to an article and asked for my opinion about it. The article is Creating Money out of Nothing: The History of an Idea, by Mike King, dated April 2012 .

I read the abstract, the conclusions, and part of the body text, but could not bring myself to make a detailed read. “The history of an idea” is not relevant to my interests nor to the debt crisis that plagues civilization. Verbose and tedious, it seems to be an academic exercise that I doubt  will be of interest even to historians.

On the positive side, it did prompt me to write a few words of clarification on the question, words that I think are both pertinent and helpful to those who truly wish to understand the nature of money and the role of banks in today’s world.

The accusation that banks create money out of nothing has, according to King, been made by many famous economists, including Schumpeter, von Mises, and Keynes. I too must admit to having once or twice used that statement as a sort of shorthand criticism of the global money and banking system.

It is surely true that saying that banks make “money out of nothing” is an exaggeration that can be misleading to the uninitiated.

Bank actually create money out of something. The question is, what is that something, and what is wrong with it?

The short answer is that banks create money on the basis of the promises of their borrowers to repay.

Mr. King would have us believe that banks simply take in money from savers and lend it out to borrowers. That is clearly wrong. Even the Federal Reserve, in its own publications, says that,

The actual process of money creation takes place primarily in banks.(1) As noted earlier, checkable liabilities of banks are money. These liabilities are customers’ accounts. They increase when customers deposit currency and checks and when the proceeds of loans made by the banks are credited to borrowers’ accounts.

In the absence of legal reserve requirements, banks can build up deposits by increasing loans and investments so long as they keep enough currency on hand to redeem whatever amounts the holders of deposits want to convert into currency. This unique attribute of the banking business was discovered many centuries ago.–Modern Money Mechanics

As I’ve pointed out in all of my books, banks serve two primary functions. They act as both depositories, reallocating funds from savers to borrowers, and banks of issue that monetize the promises of their borrowers. I’ve explained that in detail in Chapter 1 of my book, Money: Understanding and Creating Alternatives to Legal Tender, and in Chapter 9 of my latest book, The End of Money and the Future of Civilization.

But not all promises provide a proper basis for creating money. As Edward Popp, describes it, banks create both bona-fide and non-bona-fide money. (See Money, Bona Fide or Non-Bona Fide at http://www.reinventingmoney.com/documents/bonafidePopp.pdf).

The vast majority of the non-bona-fide money that banks create, is created on the basis of loans made to national governments (when banks buy government bonds). Further large amounts of non-bona-fide money are created when banks make loans to finance purchases of consumer goods and real estate (see my books for details). This is a violation of the principle that money should be created on the basis of goods and services on the market or soon to arrive there, which includes promises of established producers who are ready, willing and able to sell for money the things they ordinarily offer.

The bottom line remains: the present global, interest-based, debt-money system, is dysfunctional and destructive.

The creation of money on the basis of interest-bearing loans is the cause of the growth imperative, and the creation of non-bona-fide money is the cause of inflation.

If we are to achieve a sustainable society and assure the survival of civilization, we must transcend the present money and banking paradigm and reinvent the exchange process.  – t.h.g.

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Lie more about LIBOR—Giethner’s claims “not credible”

Here’s a video from Yahoo! Screen featuring an interview with Neil Barofsky, former Special Inspector General in charge of the TARP bailout and author of a new book, Bailout: An Inside Account of How Washington Abandoned Main Street While Rescuing Wall Street.

In this interview, Barofsky says that Treasury Secretary Tim Geithner’s claims about his LIBOR whistle-blowing are “not credible,” and that the entire regulatory process has become “captured to the interests of the banks.”

Barofsky says that LIBOR was built into the bailout plan, so the fraud means the taxpayers are being repaid less than they should be, and added “I hope we see people in handcuffs.”

Watch it here.

Who buys US bonds when foreign countries and investors won’t?

Answer: The Federal Reserve

Question: Where does the Fed get the money to buy the bonds?

Answer: It creates it.

That’s right, the Fed has no money, but the Congress long ago empowered the Federal Reserve Bank to create money by buying government (and other) securities. This is known as “monetizing the debt,” which amounts to nothing more than “legalized” counterfeiting of dollars, and it has the same results as the injection of any other form of counterfeit money—the dilution of purchasing power of all the dollars already in circulation and the erosion of the value of all dollar-denominated assets.

Currency inflation must ultimately result in price inflation as those empty dollars (based on empty promises) work their way through the economy. Further, as those Fed-created dollars get deposited in banks, the banks are able to multiply their lending on the basis of these new “reserves.”

In an opinion article that appeared in the Wall Street Journal last Wednesday, a former Treasury official says that:

“The recently released Federal Reserve Flow of Funds report for all of 2011 reveals that Federal Reserve purchases of Treasury debt mask reduced demand for U.S. sovereign obligations. Last year the Fed purchased a stunning 61% of the total net Treasury issuance, up from negligible amounts prior to the 2008 financial crisis.”

You might consider that to be a stealthy form of “quantitative easing.”

You can find out more about that, along with some pretty good analysis in an article that appears on the Money News website.

Hurrah! Free Money once again a topic of debate in U.S. politics

Once more, Congressman and Presidential candidate, Ron Paul has championed the cause of honesty and freedom, this time by introducing a bill (H.R. 1098) that would promote free competition in currency and end the monopoly control of money and finance by the banking and political elite. Seth Lipsky’s article below tells the story.

I’ve not read the bill, so I don’t know the details, and I don’t expect it to get very far in a Congress that is, by and large, bought and paid for by the same interests that the bill seems to challenge, but its very existence and the fact that is getting some media coverage could go a long way toward educating the public about the vital issues and systemic flaws that are involved in the money system.

The survival of democracy and the future of civilization depend on, one way or another, on liberating the credit commons from monopoly control. Action from the bottom up (the organization of private, free exchange alternatives) combined with action from the top down (popular pressure for legislative action) might eventually be sufficient to crack the nut.—t.h.g.

Ron Paul, Upping the Ante in His Campaign for Liberty, Hoists the Flag of Hayek

Offers a Bill To Allow Free Competition in Currencies

By SETH LIPSKY, Special to the Sun | September 29, 2011

http://www.nysun.com/opinion/ron-paul-upping-the-ante-in-his-campaign/87502/

The first time I met Friedrich Hayek was in 1980 at California, where he was staying at the home of another economist. Then a young editor for the Wall Street Journal, I’d asked to call on the Nobel laureate for a book review I was writing. His host invited me for dinner. Before the meal, Hayek and I retreated, alone, to the far end of the host’s living room, for a chat.

We were but a few minutes into our conversation when, suddenly, Hayek clapped a hand over his nose and mouth and started coughing convulsively, before slumping onto the couch. I raced back to the host to exclaim that Professor Hayek seemed to be in trouble, only to be told that it was okay, he was just taking his snuff. A jolt of the divine herb, it seems, and the sage was back on his feet.

Hayek died 12 years later at the age of 93. I never came to know him well. But this week I found myself imagining that were his long-ago collapse-into-a-coughing fit to occur in front of me today, I’d whip out a copy of a new bill in Congress, H.R. 1098, called the Free Competition in Currency Act of 2011, and wave that under the great economist’s nose. It’s hard to think of anything, even a pinch of the strongest snuff, being a greater pick-me-up for his spirits.

For Hayek was an advocate of, among other things, private money — competing currencies — and HR 1098 would end a ban on them that has obtained here in America since the Civil War. The new bill in Congress, introduced in March by Rep. Ron Paul, would repeal the legal tender laws, prohibit taxation of certain coins and bullion, and clean up other sections of our coinage laws.

It is not a measure the Congress is going to pass in a hurry. But it is being nursed by advocates of monetary reform, and it would be unwise to discount it entirely. Few, after all, gave Congressman Paul much of a chance to win passage of a measure to audit the Federal Reserve, but when it eventually passed it was with an overwhelming, bipartisan vote. It may yet be enforced by the courts.

The Free Competition in Currency Act is far more important. It comes amid a historic collapse in the value of the dollar to less than a 1,600th of an ounce of gold. The dollar has gained a bit of value in recent days, but it is still worth less than a sixth of what it was worth as recently as, say, the start of President George W. Bush’s first term.

One of the things the government has done in the face of that collapse is seek to enforce a prohibition against private “uttering” — that is, putting into use — of coins of gold, silver, or other metal as current money and making or even possessing likenesses of such coins. H.R. 1098 would end the ban on private uttering of coins and, presumably, stop any current prosecution of such uttering.

The drive for the bill is animated, if only in part, by the case of Bernard von NotHaus, who was convicted in March of issuing a private medallion called the Liberty Dollar. The government prosecuted von NotHaus even though the coins he issued were made of silver and are today worth much more, in terms of Federal Reserve Notes, than when they were issued.

What the government is doing in the Von NotHaus case is seeking to suppress sound money in order to protect the unsound, fiat money the government has been issuing via the Fed. A federal judge in North Carolina has agreed to consider post-conviction motions to throw out the von NotHaus verdict, partly on the argument that the Constitution does not enumerate a power of Congress to outlaw privately-minted coins, which were widely produced in America’s early decades.

H.R. 1098 would go way beyond the Von NotHaus case, by asserting the virtue of the idea of private money as a system. The idea was sprung by Hayek not long after he won his Nobel Prize, in the mid-1970s. He started with a lecture. He later wrote, in a slim volume called “Denationalization of Money,” that he’d been in “despair about the hopelessness of finding a politically feasible solution to what is technically the simplest possible problem, namely to stop inflation.”

“The further pursuit of the suggestion that government should be deprived of its monopoly of the issue of money opened the most fascinating theoretical vistas and showed the possibility of arrangements which have never been considered,” he wrote. He came to the view that a plethora of privately issued money would enable mankind’s millions to find their own mediums of exchange, and good money would end up driving out bad.

Hayek concluded “Denationalization of Money” by calling for what he termed “a Free Money Movement comparable to the Free Trade Movement of the 19th century.” He came to the view that the gold standard was not the solution, though it was “the only tolerably safe system” if the management of money were going to be the preserve of the government.

The Free Competition in Currency Act got an early hearing in Congress this month in the House Subcommittee on Monetary Policy. The hearing wasn’t widely attended, but there was testimony by the president of the Foundation for the Advancement of Monetary Education, Lawrence Parks, and by a professor at George Mason University, Lawrence White, who talked about how FedEx and UPS’s private competition with the Post Office has brought benefits to American consumers. He extended the analogy to money.

It’s too bad Hayek couldn’t have been at the hearings. He viewed the denationalization of money as the “cure” for “recurrent waves of depression and unemployment that have been represented as an inherent and deadly defect of capitalism.” In other words, as a cure for ills like the current crisis. How Hayek, who once called for a global debate on socialism versus capitalism, would have thrilled to the moment, pausing only for the occasional pinch of his favorite snuff.

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