The Fed Takes Over

Off Topic Politics and World Issues
21

[quote]Headhunter wrote:
Zap Branigan wrote:
Wow you guys hate the Constitution.

[i]
Section 8. The Congress shall have power to lay and collect taxes, duties, imposts and excises, to pay the debts and provide for the common defense and general welfare of the United States; but all duties, imposts and excises shall be uniform throughout the United States;

To borrow money on the credit of the United States;

…

To coin money, regulate the value thereof, and of foreign coin, and fix the standard of weights and measures;

To provide for the punishment of counterfeiting the securities and current coin of the United States;

…

To make all laws which shall be necessary and proper for carrying into execution the foregoing powers, and all other powers vested by this Constitution in the government of the United States, or in any department or officer thereof.

[/i]

I don’t know if these particular measures make sense but it is certainly within the Constitution to regulate the value of money, and keep on eye on securities to make sure they are not being counterfeited (not just on paper).

You are correct. The United States may issue coin, and no state may issue anything that circulates as legal tender. This leads to the question: why doesn’t the US Treasury Dept issue the money? They can’t because paper money can’t be issued by any governmental body.

Lincoln issued treasury paper as a wartime emergency, but that ended with the war.

The Fed is a private consortium of banks. They create money in exchange for debt (T bonds and bills). This allows Congress to spend wildly because there is no Constitutional amendment against debt. It was really a brilliant end run around the Constitution by Paul Warburg and company.

The guys who created the Fed had to meet in secrecy on Jekyll Island, Georgia because they feared lynch mobs, if word got out. Too bad it didn’t.

[/quote]

http://www.nowpublic.com/debunking_gold_standard_myth_legality

http://forum.ebaumsworld.com/showthread.php?t=226144

22

[quote]BostonBarrister wrote:
See, the problem is that if the price of the bad decisions were to lead to a depression, then a lot more people would be paying the price for the bad decisions. [/quote]

Not everyone loses in a depression – but many could be made worse off if a depression leads to greater regulation. This is what I am afraid of.

The “Great Depression” was made worse by mass-unemployment due to price fixing and wage regulations. The depression didn’t happen all at once in one day. Without regulation many people would have still lost jobs (fewer than would have otherwise) but the correction could have happened in a matter of months instead of years.

23

[quote]LIFTICVSMAXIMVS wrote:
Zap Branigan wrote:
I don’t know if these particular measures make sense but it is certainly within the Constitution to regulate the value of money, and keep on eye on securities to make sure they are not being counterfeited (not just on paper).

The value of money cannot be regulated.

Paper/coin can be regulated but it has to be backed by a commodity that gives it value. We haven’t been following the Constitution in that regard since 1913.[/quote]

Read the Constitution.

24

EXCERPT:

[i] What’s really going on? What’s going on is that perhaps $6T of mortgages with a duration of a decade that had been priced at a 1% per year chance of default (with a 1/3 value haircut in the event of default) are now being priced at a 4% per year chance of default. That’s a loss of $600B in market value–and if your share of that $600B is greater than your capital, or is thought to be greater than your capital and so impedes your operations, you are gone.

But truth be told it is a zero-sum game--not a real destruction of wealth. The real rates at which cash flows of constant risk are being discounted haven't changed much: there hasn't been a big redistribution of wealth between the present and the future. What has happened was that a bunch of people believed that the default risk was 1% when it was actually 2% and reported gains of $200B (of which they took 2-and-20 on the hedge fund slice, perhaps $20B, for themselves), and that now a bunch of people believe that the default risk is 4% when it is actually still 2% (unless, of course, the assembled central banks of the world fail and unemployment heads rapidly upward). So in aggregate hedge fund partners have gained $20B, hedge fund investors have paid$20B to their money managers for the privilege of losing another $200B that they never had, and there are $400B of transitory paper losses that will turn into real losses for those overleveraged and caught by the credit crunch and so forced into fire sales, and into real gains for those with steel nerves and liquidity.

[b]Unless, of course, Ben Bernanke and company fail to contain the crisis, and we wind up in a severe depression. But then we would have much, much bigger things to worry about than $600B of missing paper mortgage value. 4 years x 3 percent excess unemployment x Okun's Law coefficient of 2 x $13T economy means a $3.1T cumulative Okun gap in lost real wages, salaries, and profits. That's the thing to worry about.[/b][/i] (emphasis added by me)
25

[quote]BostonBarrister wrote:

skaz05 wrote:
What should have been done about the current mess? I was watching the C-Span this morning, and they were discussing this new Paulson plan. Half the people who called in clearly had no idea what they were talking about, while the other half jsut went on a 30 second diatribe about “OMG FEDERAL RESERVE IS A PRIVATE BANK! 9-11 WAS AN INSIDE JOB!” One guy even went as far as to blame Bush for the current mortgage mess.

I don’t know, what do you think would have heppened if the Fed didn’t bail out Bear Stearns? What if the Fed didn’t do ANYTHING at all? The Fed gets so much criticism, but the same people criticizing the Fed, offer no alternative solutions. It is all loony, tin foil hat, conspiracy theory ranting…

orion wrote:
my alternative:

Do nothing.

Let people pay the price for their bad decisions.

What do you think will happen if TBTF banks fully realize that they can privatize earnings but socialize losses?

They will bleed you try that´s what´s going to happen and people who work hard, lay back a little bit of money and invest it wisely will pay the bill.

It is the same old song, one intervention makes the next intervention necessary, which makes the next intervention necessary…

See Hajeks “Road to Tyranny”.

Plus the Fed is probably the most successful conspiracy ever. It is even defended by its victims because all the little junkies think they need their fix.

See, the problem is that if the price of the bad decisions were to lead to a depression, then a lot more people would be paying the price for the bad decisions. So the Fed and the Treasury had a choice between bad and worse alternatives. I’ve no desire to rehash it again - suffice it to say that most people think a depression/recession would be worse than inflation plus the added moral hazard (and yes, this includes the calculation that people on fixed incomes will be hurt by inflation).

On a separate note, this IBD editorial makes a good argument that the federal government, not the Fed, had a bigger hand in creating the subprime problem:

http://www.investors.com/editorial/editorialcontent.asp?secid=1502&status=article&id=291507506135021[/quote]

Here and now I agree with you.

It is just by preventing a recession now, you invite an even bigger one later-

If banks learn that a mistake kills them but a colossal mistake makes them billions before government bails them out they will make mistakes in the future and make them big enough to have to be helped.

You cannot subsidize economic stupidity and not create more of it than is already there.

26

[quote]orion wrote:
…Here and now I agree with you.

It is just by preventing a recession now, you invite an even bigger one later-

If banks learn that a mistake kills them but a colossal mistake makes them billions before government bails them out they will make mistakes in the future and make them big enough to have to be helped.

You cannot subsidize economic stupidity and not create more of it than is already there.

[/quote]

That is supposed to be the point of all these reforms being proposed.

27

[quote]Sloth wrote:
Why does everyone get so worked up over this branch of our government? The checks and balances between this branch and the others should keep things in check, no?[/quote]

It isn’t a branch of the US government and that’s the problem, it’s a private corporation.

Private shareholders of the Federal Reserve can easily fund both sides of any election, putting deficit spenders into power.

IF the Federal Reserve Bank were owned by the US government, it would be a great improvement over the current situation. At least then when inflationary policies are put into place you know whose heads should roll.

28

[quote]ElbowStrike wrote:
Sloth wrote:
Why does everyone get so worked up over this branch of our government? The checks and balances between this branch and the others should keep things in check, no?

It isn’t a branch of the US government and that’s the problem, it’s a private corporation.

Private shareholders of the Federal Reserve can easily fund both sides of any election, putting deficit spenders into power.

IF the Federal Reserve Bank were owned by the US government, it would be a great improvement over the current situation. At least then when inflationary policies are put into place you know whose heads should roll.[/quote]

But that’s how a free market works!

29

[quote]Zap Branigan wrote:
Read the Constitution.[/quote]

No one can regulate value. Value is determined by individuals, subjectively. The only way to regulate money values is to fix the price of everything.

What Congress does is set a fixed quantity of some commodity to some denomination of paper/coin. This does not determine money’s value. Paper is not money. Only a commodity can be money. Since going off the gold standard that commodity has become credit debt.

30

[quote]ElbowStrike wrote:
Sloth wrote:
Why does everyone get so worked up over this branch of our government? The checks and balances between this branch and the others should keep things in check, no?

It isn’t a branch of the US government and that’s the problem, it’s a private corporation.

Private shareholders of the Federal Reserve can easily fund both sides of any election, putting deficit spenders into power.

IF the Federal Reserve Bank were owned by the US government, it would be a great improvement over the current situation. At least then when inflationary policies are put into place you know whose heads should roll.[/quote]

It is not privately owned.

From the Fed FAQ website:

The Federal Reserve System is not “owned” by anyone and is not a private, profit-making institution. Instead, it is an independent entity within the government, having both public purposes and private aspects. As the nation’s central bank, the Federal Reserve derives its authority from the U.S. Congress. It is considered an independent central bank because its decisions do not have to be ratified by the President or anyone else in the executive or legislative branch of government, it does not receive funding appropriated by Congress, and the terms of the members of the Board of Governors span multiple presidential and congressional terms.

However, the Federal Reserve is subject to oversight by Congress, which periodically reviews its activities and can alter its responsibilities by statute. Also, the Federal Reserve must work within the framework of the overall objectives of economic and financial policy established by the government. Therefore, the Federal Reserve can be more accurately described as “independent within the government.” The twelve regional Federal Reserve Banks, which were established by Congress as the operating arms of the nation’s central banking system, are organized much like private corporations–possibly leading to some confusion about “ownership.” For example, the Reserve Banks issue shares of stock to member banks.

However, owning Reserve Bank stock is quite different from owning stock in a private company. The Reserve Banks are not operated for profit, and ownership of a certain amount of stock is, by law, a condition of membership in the System. The stock may not be sold, traded, or pledged as security for a loan; dividends are, by law, 6 percent per year.

31

Sadly, HH, you are right.

[quote]Headhunter wrote:
Sloth wrote:
Why does everyone get so worked up over this branch of our government? The checks and balances between this branch and the others should keep things in check, no?

Because its not a branch of our government? The government is forbidden by the Constitution from printing paper money — only gold or silver may circulate. Since this prevents hogwild spending and destruction through debt, the Fed was created as a private concern to exchange paper money (now, electronic blips in a computer) for debt (treasury paper). The money gets spent by Congress and future generations get stuck with the tab.

Of course, the criminals who invented this system die before the repercussions impact, but they got to have the fun of exercising power and destroying a great country.

Read ‘The Creature from Jekyll Island’. Or watch the video.

http://video.google.com/videoplay?docid=6507136891691870450

[/quote]

32

[quote]greekdawg wrote:
Sadly, HH, you are right.

Headhunter wrote:
Sloth wrote:
Why does everyone get so worked up over this branch of our government? The checks and balances between this branch and the others should keep things in check, no?

Because its not a branch of our government? The government is forbidden by the Constitution from printing paper money — only gold or silver may circulate. Since this prevents hogwild spending and destruction through debt, the Fed was created as a private concern to exchange paper money (now, electronic blips in a computer) for debt (treasury paper). The money gets spent by Congress and future generations get stuck with the tab.

Of course, the criminals who invented this system die before the repercussions impact, but they got to have the fun of exercising power and destroying a great country.

Read ‘The Creature from Jekyll Island’. Or watch the video.

http://video.google.com/videoplay?docid=6507136891691870450

[/quote]

Actually he is wrong on multiple points as we have already noted.

33

[quote]Zap Branigan wrote:
Wow you guys hate the Constitution.

[i]
Section 8. The Congress shall have power to lay and collect taxes, duties, imposts and excises, to pay the debts and provide for the common defense and general welfare of the United States; but all duties, imposts and excises shall be uniform throughout the United States;

To borrow money on the credit of the United States;

…

To coin money, regulate the value thereof, and of foreign coin, and fix the standard of weights and measures;

To provide for the punishment of counterfeiting the securities and current coin of the United States;

…

To make all laws which shall be necessary and proper for carrying into execution the foregoing powers, and all other powers vested by this Constitution in the government of the United States, or in any department or officer thereof.

[/i]

I don’t know if these particular measures make sense but it is certainly within the Constitution to regulate the value of money, and keep on eye on securities to make sure they are not being counterfeited (not just on paper).[/quote]

Funny you quoted the Constition, but I didn’t see the words “Federal Reserve” in there. I did see “Congress” though. Only Congress has authority to print and coin money. Also, “make any Thing but gold and silver Coin a Tender in Payment of Debts.”

The Fed wasn’t even in existence before 1913.

34

Bullshit. The Fed is not public, and it is for profit. If it is not for profit, then why do they charge interest on the money they lend? Who gets those interest payments? The “member banks” of the Federal Reserve does. Who pays for it? Taxpayers.

Further, why would Congress or the Treasury use a third party to create money when they can just print it themselves? Why do they need to borrow it from the Fed? It makes no sense.

[quote]hedo wrote:
ElbowStrike wrote:
Sloth wrote:
Why does everyone get so worked up over this branch of our government? The checks and balances between this branch and the others should keep things in check, no?

It isn’t a branch of the US government and that’s the problem, it’s a private corporation.

Private shareholders of the Federal Reserve can easily fund both sides of any election, putting deficit spenders into power.

IF the Federal Reserve Bank were owned by the US government, it would be a great improvement over the current situation. At least then when inflationary policies are put into place you know whose heads should roll.

It is not privately owned.

From the Fed FAQ website:

The Federal Reserve System is not “owned” by anyone and is not a private, profit-making institution. Instead, it is an independent entity within the government, having both public purposes and private aspects. As the nation’s central bank, the Federal Reserve derives its authority from the U.S. Congress. It is considered an independent central bank because its decisions do not have to be ratified by the President or anyone else in the executive or legislative branch of government, it does not receive funding appropriated by Congress, and the terms of the members of the Board of Governors span multiple presidential and congressional terms. However, the Federal Reserve is subject to oversight by Congress, which periodically reviews its activities and can alter its responsibilities by statute. Also, the Federal Reserve must work within the framework of the overall objectives of economic and financial policy established by the government. Therefore, the Federal Reserve can be more accurately described as “independent within the government.” The twelve regional Federal Reserve Banks, which were established by Congress as the operating arms of the nation’s central banking system, are organized much like private corporations–possibly leading to some confusion about “ownership.” For example, the Reserve Banks issue shares of stock to member banks. However, owning Reserve Bank stock is quite different from owning stock in a private company. The Reserve Banks are not operated for profit, and ownership of a certain amount of stock is, by law, a condition of membership in the System. The stock may not be sold, traded, or pledged as security for a loan; dividends are, by law, 6 percent per year.

[/quote]

35

[quote]greekdawg wrote:
Zap Branigan wrote:
Wow you guys hate the Constitution.

[i]
Section 8. The Congress shall have power to lay and collect taxes, duties, imposts and excises, to pay the debts and provide for the common defense and general welfare of the United States; but all duties, imposts and excises shall be uniform throughout the United States;

To borrow money on the credit of the United States;

…

To coin money, regulate the value thereof, and of foreign coin, and fix the standard of weights and measures;

To provide for the punishment of counterfeiting the securities and current coin of the United States;

…

To make all laws which shall be necessary and proper for carrying into execution the foregoing powers, and all other powers vested by this Constitution in the government of the United States, or in any department or officer thereof.

[/i]

I don’t know if these particular measures make sense but it is certainly within the Constitution to regulate the value of money, and keep on eye on securities to make sure they are not being counterfeited (not just on paper).

Funny you quoted the Constition, but I didn’t see the words “Federal Reserve” in there. I did see “Congress” though. Only Congress has authority to print and coin money. Also, “make any Thing but gold and silver Coin a Tender in Payment of Debts.”

The Fed wasn’t even in existence before 1913.

[/quote]

If you notice Congress has the right to pass laws pertaining to the subject. They had the right to set up the Federal Reserve. It is only individual states that are prohibited from printing paper money not backed by gold or silver.

36

[quote]greekdawg wrote:
Bullshit. The Fed is not public, and it is for profit. If it is not for profit, then why do they charge interest on the money they lend? Who gets those interest payments? The “member banks” of the Federal Reserve does. Who pays for it? Taxpayers.

Further, why would Congress or the Treasury use a third party to create money when they can just print it themselves? Why do they need to borrow it from the Fed? It makes no sense.

hedo wrote:
ElbowStrike wrote:
Sloth wrote:
Why does everyone get so worked up over this branch of our government? The checks and balances between this branch and the others should keep things in check, no?

It isn’t a branch of the US government and that’s the problem, it’s a private corporation.

Private shareholders of the Federal Reserve can easily fund both sides of any election, putting deficit spenders into power.

IF the Federal Reserve Bank were owned by the US government, it would be a great improvement over the current situation. At least then when inflationary policies are put into place you know whose heads should roll.

It is not privately owned.

From the Fed FAQ website:

The Federal Reserve System is not “owned” by anyone and is not a private, profit-making institution. Instead, it is an independent entity within the government, having both public purposes and private aspects. As the nation’s central bank, the Federal Reserve derives its authority from the U.S. Congress. It is considered an independent central bank because its decisions do not have to be ratified by the President or anyone else in the executive or legislative branch of government, it does not receive funding appropriated by Congress, and the terms of the members of the Board of Governors span multiple presidential and congressional terms. However, the Federal Reserve is subject to oversight by Congress, which periodically reviews its activities and can alter its responsibilities by statute. Also, the Federal Reserve must work within the framework of the overall objectives of economic and financial policy established by the government. Therefore, the Federal Reserve can be more accurately described as “independent within the government.” The twelve regional Federal Reserve Banks, which were established by Congress as the operating arms of the nation’s central banking system, are organized much like private corporations–possibly leading to some confusion about “ownership.” For example, the Reserve Banks issue shares of stock to member banks. However, owning Reserve Bank stock is quite different from owning stock in a private company. The Reserve Banks are not operated for profit, and ownership of a certain amount of stock is, by law, a condition of membership in the System. The stock may not be sold, traded, or pledged as security for a loan; dividends are, by law, 6 percent per year.

[/quote]

Read it again.

37

So it’s a private corporation regulated by Congress, whose “revenue” wind up in private shareholders’ coffers.

If its shares were bought-out 100% by the US government, all of those dividends would wind up in the Federal Treasury. The increased government revenue could be offset by a tax break.

That and all public debt could be replaced by below-market-interest Fed bonds, instead of market-rate financing from private lenders.

The savings on interest payments could be again rolled into spending, or tax breaks.

Final result being either increased revenue for the treasury or lower taxes, depending on who’s in power.

(EDIT)
At least that’s what we did up North to bring the country out of the Depression. Enjoyed low taxes, low debt, and low inflation until the Liberal Party decided to screw it up and adopt a Federal Reserve style system in the 70s.

The result being hyperinflation of the debt from around $20B to over $600B. Now THAT is Liberal Party stupidity.
(/EDIT)

ElbowStrike

38

[quote]Zap Branigan wrote:
orion wrote:
…Here and now I agree with you.

It is just by preventing a recession now, you invite an even bigger one later-

If banks learn that a mistake kills them but a colossal mistake makes them billions before government bails them out they will make mistakes in the future and make them big enough to have to be helped.

You cannot subsidize economic stupidity and not create more of it than is already there.

That is supposed to be the point of all these reforms being proposed.[/quote]

I know.

As I said, regulations that require new regulations, one government intervention begets the next…

39

The Fed has participated in the decisions that brought us where we are, and soon will be. It’s utter stupidity to give them more powers, unless you have a different agenda.

I agree, the best bet is to do nothing. Free markets always sort themselves out, and letting them do it naturally will always yield a better result than any intervention. Of course, the companies that made bad business decisions will be wiped out, which is both expected and desirable. People who have too little savings and too much debt will be hurt, but again, that is as it should be. (They have a safety net called bankruptcy, BTW.) You make bad decisions, you suffer. Then you start over.

The fact is nobody understands world economics well enough to control it. No person, and no organization. Period. A lot of people have the hubris to think they do, but they don’t. Economics is as chaotic as the weather, perhaps more so since people are involved.

If we get lucky, the decisions will be put off, since this is a presidential election year, and nothing will get done.

40

[quote]greekdawg wrote:
Bullshit. The Fed is not public, and it is for profit. If it is not for profit, then why do they charge interest on the money they lend? Who gets those interest payments? The “member banks” of the Federal Reserve does. Who pays for it? Taxpayers.

Further, why would Congress or the Treasury use a third party to create money when they can just print it themselves? Why do they need to borrow it from the Fed? It makes no sense.

[/quote]

Again, because you obviously didn’t read it when I posted it above to HH: