Quantitative Easing for Dummies

The Fed's printing press, explained by a cartoon.  Awesome.

Mesirow Financial Backs Bernanke

(Link if video won't play: http://www.chicagobusiness.com/cgi-bin/multiMedia.pl?mmId=978)

In an argument that amounts to, "well, what was he supposed to do?" Chief Economist at Mesirow Financial, Diane Swonk, discusses why she thinks anybody deriding Ben Bernanke is simply trying to use him as a scapegoat.

An interesting little interview with Crain's Chicago Business here, that gives us a glimpse into the mindset of those interested in rolling with the status quo. Henry Bee would be proud.

It's Costing the World a Fortune

Yesterday, I posted a video of Peter Schiff lambasting Ben Bernanke for never getting anything right. In and of itself, this is nothing new. What made it fun, however, was the fact that he was part of a panel discussion with St. Louis Fed President James Bullard and Fed Vice Chair Alan Blinder, who both attempted, quite weakly, to defend Bernanke.

Today, a new clip from the same roundtable, as Schiff gets technical and dismantles Bullard's weak sauce theory that other countries will for some unknown reason return to the dollar during times of crisis. Schiff also goes on to make a strong bet with Blinder on the continued reserve status of the US Dollar. As prescient as the man is, his forecast is nonetheless chilling.

Never Gotten Anything Right

Peter Schiff appears on a panel with St. Louis Fed President James Bullard and Fed Vice Chair Alan Blinder. This was fireworks waiting to happen, and it doesn't fail to deliver, as Schiff drops a bomb on Bernanke that his cohorts are laughably unable to defend. Enjoy!

A Dollar Implosion?

Jim Rickards, Senior Managing Director of Market Intelligence for Omnis, appeared on CNBC to discuss what the recent developments at the G-20 mean for the US Dollar. Among the items he discusses are the UN's call for moving away from the dollar as the world's reserve currency, which comes alongside Federal Reserve Governor Kevin Warsh's Op-Ed in the Wall Street Journal, entitled The Fed's Job is Only Half Over. Warsh's piece was published as the G-20 was in session, and Rickards argues that it could not possibly have been coincidence.

Rickards discusses the idea that we, as a world economy, will likely be moving to the International Monetary Fund's Special Drawing Rights as a the reserve currency. Pay particular attention to his explanation of exactly why this is necessary. Basically it boils down to the fact that the Fed as inflated us to such a great extent, that we have no option but to go broke as a country. Pushing our inflated dollar off onto the IMF is the only possible option the Fed has to deflate the dollar quietly enough in the background to avoid completely destroying the economy. There is no heed paid to the notion that the IMF will use SDR's, backed by nothing, printed out of thin air, to run the world economy. Sound familiar?

The only other option he feels the Fed has is to further inflate the dollar by another 50% over the next 14 years. That means if you have a dollar today, it's only worth 50 cents fourteen years from now. The problem with this is that if the market gets ahead of the inflation, and people begin buying commodoties like gold, it could cause a full on collapse of the dollar.

Will we risk destroying the dollar and our economy, or will we trade our nations sovereignty for stability? I think that's a question that's easily answered. We have yet to see anybody with our government or the Federal Reserve make the hard decisions and carry them out correctly since Volcker presided over the last deflationary Fed. I doubt we'll see the hard decision made now.

Remember this video, and remember these upcoming events happening around the dollar. We are in the process of trading our country's sovereignty for the comfort of the world's banking elite.

The Time Is Now

Back in April, I began to take notice of bubbles forming in the bottom of our great melting pot. Anticipating the rolling boil that would come to pass over this past great summer, I wrote about HR 1207, the Federal Reserve Transparency, and called it History in the Making. In five short months, the bill has gone from 91 cosponsors (a significant number on any bill to begin with) to 290 cosponsors. It is accompanied by a sister-bill in the Senate, S 604, which has garnered 27 cosponsors.

HR 1207 has garnered widespread support for one very simple reason. The Federal Reserve is accountable to no one. Whether one is of an Austrian leaning economically, and wants this country to follow the moral path of sound money, or one is a ruthless big government zealot foolishly hoping for more political control of monetary policy (as if this were possible), the attraction for transparency is universal.

Some, like Henry Bee, argue that an open and transparent audit of the Federal Reserve would be "economic suicide." I have countered those arguments, and subsequently gone on to have a comment-battle with Mr. Bee over the issue in this post.

All of the talk, all of the Tea Parties, all of the grass-roots activism pulling in support for HR 1207 has worked. The time is now for HR 1207. Tomorrow, Friday morning, September 25th, the House Committee on Financial Services is holding hearings on HR 1207.

The show begins at 9:00 AM EST and will be broadcast live on the web. Go here to check it out. Even if you don't really care about it, think of it as a gameshow hosted by Barney Frank. Then you can laugh on a Friday morning!

What's Ten Years?

When you have this kind of power?

WASHINGTON — The Federal Reserve acknowledged Wednesday that an economic recovery was under way, but signaled that it was still much too early to start raising interest rates.

In a statement following a two-day meeting by the Fed’s policy makers, the central bank repeated that it would keep its benchmark overnight interest rate at virtually zero for “an extended period.” That almost certainly means until at least some time in 2010.

Lost Decade, here we come.

The Lost Decade (失われた10年, ushinawareta jūnen) is the time after the Japanese asset price bubble's collapse (崩壊, hōkai), which occurred gradually rather than catastrophically.

The Lost Decade consists of the years 1991 to 2000. [1]

The strong economic growth of the 1980s ended abruptly at the start of the 1990s. In the late 1980s, abnormalities within the Japanese economic system had fueled a massive wave of speculation by Japanese companies, banks and securities companies. A combination of exceptionally high land values and exceptionally low interest rates briefly led to a position in which credit was both easily available and extremely cheap. This led to massive borrowing, the proceeds of which were invested mostly in domestic and foreign stocks and securities.

Recognizing that this bubble was unsustainable, the Finance Ministry sharply raised interest rates in late 1989. This abruptly terminated the bubble, leading to a massive crash in the stock market. It also led to a debt crisis; a large proportion of the debts that had been run up turned bad, which in turn led to a crisis in the banking sector, with many banks being bailed out by the government.

Michael Schuman of Time Magazine noted that banks kept injecting new funds into unprofitable "zombie firms" to keep them afloat, arguing that they were too big to fail. However, most of these companies were too debt-ridden to do much more than survive on further bailouts, which led to an economist describing Japan as a "loser's paradise." Schuman states that Japan's economy did not begin to recover until this practice had ended.

Refuting "Economic Suicide"

Inflation is always and everywhere a monetary phenomenon. These are the words of Milton Friedman in A Monetary History of the United States. The meaning of those words is that no matter what, inflation is a function of the amount of money available. Inflation occurs when more money is introduced into the supply. When this happens, the real value of the money goes down. This is the reality. The face value perception is that things begin to "cost more." Physical things actually still hold their same value, it is the money, due to inflation, that has lost its value, meaning that it takes more of that money to buy the same thing. Nowhere was the phenomenon of inflation, and indeed hyperinflation, more evident than in the Weimar Republic, where we find the famous historical incident of it costing a wheelbarrow full of money to buy a loaf of bread.

I bring up a brief discussion on the nature of inflation in response to possibly one of the most foolish articles I have seen lately. At Seeking Alpha, Henry Bee writes that Auditing the Fed is Economic Suicide. In an incredible feat of intellectual gymnastics, Bee lays down the accusation that somehow the public knowing what is happening with the money supply will be the end of the free market:

The free market understands that auditing the fed is a very dangerous line to cross. If crossed, U.S. inflation will likely skyrocket over the next decade to unseen levels. U.S. economy tanks. Bond investors lose money as interest rates rise. Stock investors earn negative real return as equity risk premium rises and aggregate PE ratio tank. The US Dollar erodes due to higher domestic inflation relative to foreign inflation. Gold and commodity prices rise.

Perhaps we can forgive Mr. Bee for being Canadian, and therefore not understanding the history of the Federal Reserve and monetary policy in the United States. Or perhaps we can direct him to the aforementioned Milton Friedman, or maybe Murray Rothbard, or F.A. Hayek, for some simple education on monetary policy. Remember, "gold and commodity prices rise" only in terms of the value of the money itself. They are physical, tangible things. They always retain the same value, and it is the value of the money itself that changes due to inflation. After beginning with the Vault, Bee continues and moves on to the Balance Beam:

How Does Auditing the Fed Cause Inflation?

Inflation is caused by a central bank that loses control of its money supply. There are two ways that a politically compromised central bank can lose control of its money supply.

I'll interrupt Mr. Bee while he's still doing some of his simple posing, and before he really gets going with the tumbling. Inflation is caused by a central bank that loses control of its money supply? I think not. Remember, inflation is always and everywhere a monetary phenomenon. Inflation is caused by the introduction of more money into the supply. Who introduces more money into the supply? The central bank. The Federal Reserve is our central bank. Incidentally, Mr. Bee might be interested to know that since its inception, the Federal Reserve has practiced nothing but inflationary monetary policy and, in about 100 years, has managed thereby to devalue the dollar by approximately 97%. It would seem then, that the Federal Reserve itself has been the cause of inflation all along. But I will allow Mr. Bee to continue:

Road to Inflation #1: Repeating the Political Cycle

When the central bank is not independent, politicians have historically pumped up the money supply (for temporary economic boost) shortly before an election to buy votes with a lower unemployment rate. After the election, the effects wear off, returning the economy to its natural rate of unemployment but at a higher inflation rate than before. Because it is hard to fight off inflation quickly, by the time the next election rolls around the economy has not been squeezed back to its original inflation rate. Politicians pump up the money supply again, this time from a higher base inflation. As this cycle repeats itself, the central bank loses control of the money supply.

Bee makes a good point here in defending the separation of church bank and state. However, akin to a balance beam backflip, Bee here asserts that an audit of Federal Reserve will allow politicians direct control of the money supply. Since the discussion surrounding HR 1207 has been one of simply getting a look at the books, Bee's arguments, while valid conceptually, are unfounded in reality. Indeed, both Barney Frank and Ron Paul have agreed with Bee's own argument, and intend to be disciplined in making the audit one that trails real time by enough that exactly what Bee purports to be the danger will not happen.

That said, I would like to ask Mr. Bee a simple question. What makes you suppose, Mr. Bee, that the Federal Reserve is not already unduly influenced by politicians? As I have explained in the past, the Fed is largely a conglomeration of private banking institutions, overseen by a Board of Governors, headed by the Chairman of the Federal Reserve, currently Ben Bernanke. The Board of Governors is a seven-member panel appointed by the President of the United States. This means, Mr. Bee, that seven people who, through their appointment, answer to the President, and the President alone, control all that is our monetary policy, all that is our money supply, and therefore all that is our inflation. If Ben Bernanke and six others answer only to the President, how exactly is the Federal Reserve not influenced by politics in the manner you suggest already?

Bee goes on to discuss a second road to inflation:

Road to Inflation #2: Financing Government Spending

A central bank that lacks independence from politicians makes it tempting for the government to finance an inappropriately large portion of its spending through printing money. A central bank that promises to finance too much government spending also loses control of the money supply.

Now honestly, there is only just so much we can forgive of Mr. Bee for his being Canadian. This really represents a complete lack of attention to current events. Inside of a four month period, the Federal Reserve just financed a $700 billion bailout of the US Financial industry through TARP, an effort, mind you, that resulted in all that money going to the noble purpose of, well, nobody really knows, followed by the $800 billion stimulus package. Based on Barney Frank's admission in the video found in this post, Ben Bernanke indicated to him when the bailouts began with AIG, that he had $800 billion to play with. Well that covered TARP. The only logical inference then is that the Fed printed the rest to finance the stimulus. Our central bank is already following this road, Mr. Bee. The only question is, how much have they inflated the money supply?

Well the answer from the Fed has been, to this point, simple. Silence.

When seven men who answer to one man control the entire money supply, and hold no accountability, they can do as they please. Adding a check to this highly centralized power by making their actions transparent to the public cannot be a bad thing.

Trick or Treat Helicopter Ben!

Fast on the heels of Bloomberg's lawsuit against the Federal Reserve to disclose the failing entities to which it lended vast amounts of money, now comes word of when we can expect to see HR 1207, Ron Paul's bill to Audit the Federal Reserve, hit the floor of the House. When I first wrote about this bill and why it is so important in late April, urging people to get on board and contact their representatives, the bill had 91 co-sponsors, and stood alone as the first effort in tackling the Fed. A mere four months later, HR 1207 now enjoys 282 co-sponsors, and it's companion bill in the Senate, S 604, has attracted 23 co-sponsors.

Meanwhile, responding to the Judge Preska's verdict in US District Court, the Fed is hapless:

Fed lawyer Kit Wheatley told Preska in a conference call today that she did not know how long it would take for the Fed board to search the New York Fed for records.

“We really don’t know what’s in New York,” Wheatley said. “We don’t control the system of record-keeping in New York.”

The Standard

The Fed’s lawyer went on to say that she did not know what records would fall under a “delegated function,” which would be a task assigned to the New York Fed.

Preska interrupted Wheatley, saying that “Ms. Wheatley, I held that’s not the standard. You didn’t search under the regulation. You’re supposed to search under the regulation.”

While their bumbling lawyers stumble about searching for ways to continue to allow the organization to operate in the shadows, other representatives of the Federal Reserve offer nothing but excuses as defense for their existence.

“Experience in the banking industry has shown that when customers and market participants hear negative rumors about a bank, negative consequences inevitably flow,” Norman Nelson, vice president and general counsel for the group, said in the document.

You don't say, Norman? You mean to tell us that when businesses factually and functionally operate as failures, there are negative consequences? We are not talking about rumors here. We are talking about institutions receiving funds from the Fed for the purpose of even remaining in business at all. They made decisions that the free market dictated should end their businesses, and the Fed gave them the money to stay alive, whether they could show a capacity to be a profitable business venture in the future or not. The Fed did this by increasing the money supply, staging the market for de facto inflation, thus devaluing everyone's money. To save businesses they very likely should not have been saved, the Fed robbed us all. This is why this is public interest.

“Our argument is that the public interest in disclosure outweighs the banks’ interest in secrecy,” said Thomas Golden, a lawyer with New York-based Willkie Farr & Gallagher LLP who represents Bloomberg.

Preska’s Aug. 24 ruling rejected the Fed’s argument that the records should remain private because they are trade secrets and would scare customers into pulling their deposits.

“What has the Fed got to hide?” said Senator Bernie Sanders, a Vermont independent who sponsored a bill to require the Fed to submit to an audit by the Government Accountability Office. “The time has come for the Fed to stop stonewalling and hand this information over to the public,” he said in an e- mail.

Rest assured, the Federal Reserve will be appealing the ruling. But no matter what, time is most definitely not on its side. For even if the Fed can manage to delay disclosing these records due to court order, it appears to be merely a matter of time until they must disclose all of their transactions as a matter of law. In fact, given Barney Frank's recent meeting below (HT: BTB), the idea of trick-or-treating as Helicopter Ben might not seem so far fetched.

Bernanke Worse than Greenspan?

Peter Schiff seems to think so.

Ending the Fed: A Crack in the Ice

The Federal Reserve has been ordered by U.S. District Court Judge Loretta Preska to disclose information related to its "emergency lending" program.

If you'll recall, when the bank bailouts began happening, we were treated to some pretty juicy quotes when the bankers themselves were asked exactly how they were utilizing the funds they received:

"We're not providing dollar-in, dollar-out tracking."

-- SunTrust Banks spokesman Barry Koling on the receipt of $3.5 billion

"We manage our capital in its aggregate."

-- Regions Financial spokesman Tim Deighton on the receipt of $3.5 billion

"We've lent some of it. We've not lent some of it. We've not given any accounting of, 'Here's how we're doing it.'"

-- JPMorgan Chase spokesman Thomas Kelly on the receipt of $25 billion

Almost unimaginably, Bloomberg was unsatisfied with these types of responses, and filed a Freedom of Information Act request aimed at the Fed, which has since become a lawsuit.

The Fed has refused to name the financial firms it lent to or disclose the amounts or the assets put up as collateral under 11 programs, most put in place during the deepest financial crisis since the Great Depression, saying that doing so might set off a run by depositors and unsettle shareholders. Bloomberg LP, the New York-based company majority-owned by Mayor Michael Bloomberg, sued on Nov. 7 on behalf of its Bloomberg News unit.

“The Federal Reserve has to be accountable for the decisions that it makes,” said Representative Alan Grayson, a Florida Democrat on the House Financial Services Committee, after Preska’s ruling. “It’s one thing to say that the Federal Reserve is an independent institution. It’s another thing to say that it can keep us all in the dark.”

The judge said the central bank “improperly withheld agency records” by “conducting an inadequate search” after Bloomberg News reporters filed a request under the information act. She gave the Fed five days to turn over documents it told the reporters it located, including 231 pages of reports, and said it must look for more at the Federal Reserve Bank of New York, which runs most of the loan programs.

While I will imagine that the Fed is going to appeal this as far as it possibly can in order to stall the process, if not turn it back, this is a fantastic blow to the shadowy organization. The Bloomberg article calls it what it is: a wake-up call to the American people.

“The public deserves to know what’s being done with the money,” said Lucy Dalglish, executive director of the Arlington, Virginia-based Reporters Committee for Freedom of the Press. “This ought to be a wake-up call for the public that they need to be far more educated about this.”

I've been educating myself about the Federal Reserve more and more since I began writing this blog back in January, following primarily the effort to begin the process by Auditing the Federal Reserve via HR 1207. Will you educate yourselves?

Here are some of my posts about the Fed to get you started:

America: Freedom to Fascism
Change We Can Believe In
Truth on Taxation
Federal Reserve: WTF?
History in the Making: HR 1207
Our Monetary Policy is Eroding Our Freedom

Start Googling. The history of the Federal Reserve is fascinating enough in and of itself to keep you interested. And if you have even the tiniest stream of desire for a true republic, for actual liberty, you will begin to devour information about this organization and our monetary system voraciously. Who knows, you may even look into the book many are saying will be one of the most important of our time.

America: Freedom to Fascism

One of the most important documentaries you will ever see. Enjoy!

A Message from Russia

Leave it to the Russian press to provide better news coverage of the United States than or own press...

Enjoy the Video!



Hat Tip (C4L)

Change We Can Believe In

What if we put up a giant roadblock in front of the speeding roadster that is our fractional reserve centralized banking system? What if our inflationary monetary policy crashed headlong into the side of a building and exploded, never to be heard from again? Quite simply, what if we, as a country, actually followed our own laws? Would we return to a more sensible way of interacting with each other? Would we regain some level of our freedom?

I think we would, and this video provides a very basic look as to how restoring our monetary policy to within the realm of the constitution would do so. Enjoy.

Ron Paul on HR1207

Ron Paul discusses the excellent momentum behind HR1207, and introduces some temperance into expecations regarding what seems like the most realistic avenues toward improvement in our dealing with the Federal Reserve. Excellent video. Enjoy!

(Hat Tip: Lew Rockwell)

Time Has Come: Bernanke Worried About Audit!

Back on April 27th, I wrote the following:

The Federal Reserve, it's mere seven member Board, and the President of the United States have, for 100 years, enjoyed the power to manipulate the economy as they so choose. The situation has become so dire as to recognize the complete collapse of the Dollar itself as an inherent possibility, something recognized even abroad, with multiple countries calling for a new, universal currency at the recent G20 conference. The basic tenents of our society: Capitalism, Liberty, and ultimately our Freedom depend on our ability to show each other a mutual respect through our transactions. As the Fed continues to manipulate our money, it continues to call into question the true value of our money. When we can no longer properly understand the value of a Dollar, we can no longer determine in what way we should trade with each other, in what way we should respect each other.

The time has come to bring the Fed out of the shadows and into the light. The time has come to bring the true free market back to the forefront of our economy. The time has come that We the People begin again to forge a new history.

When I wrote that summation to my look at the history of the Federal Reserve, the bill that spawned that post, HR 1207, the Federal Reserve Transparency Act, had just been introduced by Ron Paul into Congress, and had been referred to the House Committee on Financial Services, disturbingly enough headed by Barney Frank. At the time, the bill had gained 91 cosponsors, and I wrote of a grassroots effort to garner further support for the bill.

Less than two months later, the official count of cosponsors sits at 190, with an unofficial count topping 200 representatives!

The truly grassroots movement to drag the Federal Reserve forth from the darkness in which it resides has been largely bolstered by members of Campaign for Liberty and Young Americans for Liberty and are highlighted by stories just like that of this man from Iowa, who, along with others, managed to convince his representative, a Democrat, to cosponsor the bill. As it stands now, all but three Republican members of the HCFS are cosponsors to the bill, along with several Democrats. On the whole, nearly half of the members sitting on the committee are cosponsors to the bill.

It is little, if any wonder then, that a report has trickled along from Congress that Ben Bernanke, the Chairman of the Federal Reserve, is "worried about an audit of the money supply." The man finds himself in a position to be the first man to answer for the consequences of his actions in a role that has had to answer to no one in 100 years. Not only that, he finds himself having to answer to the collective will of the American People.

Truth on Taxation

Former IRS Agent Sherry Jackson discusses the fraud that is the IRS.

Render unto Caesar.

Federal Reserve: WTF?

I am speechless... just watch I guess.

History in the Making: HR 1207

Since the day the likes of John Adams and Thomas Jefferson sat to forge our founding documents, ours has been a country built on the Capitalist ideal that every man is free to work at whatever he may so choose, to keep what he has earned, and to make of himself whatever he can. This has been bolstered by the value of Liberty, wherein every man is free from the shackles of government interference in his affairs, so long as he abides by the Rule of Law.

The beauty of Capitalism, when practiced by honorable people, within the Rule of Law, is that it rewards all parties involved equally. Two parties enter into an agreement to exchange goods or services for other goods or services, or more commonly, money. Both parties are driven into a relationship of mutual respect via the necessity to receive equal value for the value they have provided.

Things may not seem so much different to many people these days. We are still able to go to work, to pursue the work that suits our desires, and to make of ourselves what we can. We still believe that the money we receive in return for the services we provide, represents an equal value to those services. However, for nearly the past 100 years, our country has slowly been abandoning that one value, Capitalism, that allowed it to become the world's foremost superpower, and we now find ourselves standing at the precipice of a potential turning point in our history.

I refer, of course, to the practice of central banking, and the Federal Reserve System (the Fed). Established in 1913, the Fed is largely a conglomeration of private banking institutions, overseen by a Board of Governors, headed by the Chairman of the Federal Reserve, currently Ben Bernanke. The Board of Governors is a seven-member panel appointed by the President of the United States.

It is principally important to recognize that when the Fed was established in 1913, the United States Dollar was strictly tied to gold. One troy ounce of gold at the time was worth approximately $20.67. This is important because the intent of the Federal Reserve Act of 1913 was to ensure that banks would retain enough reserves on hand to stem the tide of an economic downturn. This was not entirely a bad idea. The last thing an economy needs in a downturn is the sources of the money itself being unable to supply that money to the people who need it. In that the money itself was tied to real, physical gold reserves, the money always held a true value. Dollars could be exchanged as currency, as could physical gold coins.

In 1933, Franklin Delano Roosevelt and the Federal Reserve set in motion the process of untying the Dollar from a physical asset. Roosevelt confiscated the country's gold currency, and arbitrarily reset the value of a troy ounce of gold to $35. This had the real effect of immediately devaluing the dollar by 75%. Though this took place, the Dollar remained tied to gold, and was soon also tied to silver, in a bimetallic currency. One was able to exchange paper notes for physical gold or silver. This lasted until 1971, when Richard Nixon dropped the hammer that Roosevelt had initially raised, and terminated this convertibility, cancelling US participation in the Bretton Woods System, an international agreement where all countries involved were required to keep their currencies tied to gold. Since this happened, the US Dollar has, unconstitutionally, been a fiat currency. Its value is essentially arbitrary, based only on a combination of manipulation of interest rates by the Fed, and what it the Dollar is commonly viewed to be worth around the world.

When Nixon severed the Dollar's ties to tangible assets, it was essentially a panic reaction to the fact that the US was overleveraged as a country, against multiple foreign countries calling in our debts. Moving to a fiat currency was the only way out of the continuing devaluation of the dollar against other foreign currencies at the time, whether or not it was a good long term plan.

And given where we sit today, in the midst of the worst recession since the Great Depression, with the Fed trapped between the rock of its own inflationary monetary policy, and the hard place of an irresponsibly overspending federal government, it has not been a good long term plan. This is outlined beautifully in a piece by Gary North:

The FED has increased the monetary base to such an extent that there is now way to turn back without risking not merely a recession, which we are in, but a depression, which the FED has inflated to avoid.

This is clear to anyone who understands the Austrian theory of the business cycle. The FED has moved into panic mode. Yet it has been unsuccessful so far in stemming the tide of recession.

The Federal deficit is now out of control. When Congress consents to a $1.8 trillion deficit, it no longer exercises the power of the purse.

The FED will have to fund whatever the private markets will not fund, which now appears to be whatever foreign investors refuse to fund. They sold a quarter of a trillion dollars in Treasury debt in February and March. These debt certificates constituted an increase in supply on the capital markets. These unexpected sales would have raised Treasury interest rates had the FED not intervened to buy more Treasury debt.

The question of questions now is this. When banks at last decide that this economy is safe enough to lend into, the excess reserves that they hold at the FED will flow into the economy. This will put the FED's balance sheet into play. The fractional reserve banking process will take over. M1 will increase by 100%. It will not be offset by a decline in the M1 money multiplier.

The fun will begin.

Bernanke understands this.

He knows what will happen to the money supply unless the FED increases reserve requirements to offset the increase in the monetary base. The FED can do this, of course. But then it is back to square 1: the recession that its increased spending will have overcome will return.

In short, the federal government and the Fed have overspent and inflated us into what appears to be a potentially permanent cycle of recession. North points out that Bernanke and the Fed have discussed some mythical "tools" with which they will be able to rescue the United States from this recession. But North sees through the smokescreen, providing us with the important translations of Bernanke's high level financial non-speak (emphasis mine):

Translation: "The money we have created to bail out the financial system will return to the FED and be mopped up. It will not be lent out again." The word "many" means "we aren't saying how much, and we will not tell you if you ask."

Translation: "The FED can adopt a policy of monetary deflation for as long as it takes to revert back to the monetary base that prevailed in . . . we aren't saying." The FED will deflate. We will enter the Twilight Zone.

Translation: "The Treasury, which will run a $1.8 trillion deficit in 2010, will somehow come up with enough money -- not from the FED -- to buy back these loans. I am not at liberty to say how the Treasury will accomplish this. Trust me."

So let us go back to the beginning. The Fed, a conglomeration of private banks, is controlled by a seven-member Board of Governors, appointed by the President. It operates with no other oversight, and no obligation to disclose its activities to the public. We now find ourselves in a state of complete economic calamity, due to a combination of the Dollar having no tangible physical value, and a federal government that has spent more recklessly than even the most egregiously overleveraged private citizen, and that continues to overspend. Ben Bernanke says the Fed knows how to get us out of this. But he won't say how.

Enter HR 1207, the Federal Reserve Transparency Act.

The bill has been introduced by Ron Paul, and calls for the full audit of the Federal Reserve by the end of 2010. It seeks to bring transparency to what has been the most cloak-and-dagger setup around for nearly 100 years. It seeks to make the people manipulating our currency, and ultimately our very daily lives and our liberty, accountable again to the people.

HR 1207 has been referred to the House Committee on Financial Services, chaired by everybody's favorite, Barney Frank. As of Friday, April 24th, the bill has gathered wide bipartisan support, and enjoys 91 co-sponsors. There is a massive grassroots effort underway to push the bill through committee and onto the floor, of which I am proud to be a part. I would ask that anyone who has taken the time to read this, would please visit this site, and take but a few minutes to contact your representatives urging them to support and cosponsor this bill.

The Federal Reserve, it's mere seven member Board, and the President of the United States have, for 100 years, enjoyed the power to manipulate the economy as they so choose. The situation has become so dire as to recognize the complete collapse of the Dollar itself as an inherent possibility, something recognized even abroad, with multiple countries calling for a new, universal currency at the recent G20 conference. The basic tenents of our society: Capitalism, Liberty, and ultimately our Freedom depend on our ability to show each other a mutual respect through our transactions. As the Fed continues to manipulate our money, it continues to call into question the true value of our money. When we can no longer properly understand the value of a Dollar, we can no longer determine in what way we should trade with each other, in what way we should respect each other.

The time has come to bring the Fed out of the shadows and into the light. The time has come to bring the true free market back to the forefront of our economy. The time has come that We the People begin again to forge a new history.

Nostra-Paul-us?

Ron Paul discusses the economic crisis that he felt was impending due to the Federal Reserve and our fiat monetary system.

In 1988.

No doubt he was dismissed as a marginal doomsayer back then. Perhaps given the timeframe he was projecting for a depression made him so, but he could only speculate, after all.

The prediction hardly makes him a Nostradamus-type mystical soothsayer, however. Basing his projections on the solid ground of Austrian Economics, he was merely predicting what had to happen.

Pretty poignant stuff in retrospect. Hindsight is 20/20 after all.

Enjoy.

Hat Tip: Below the Beltway