Explaining the Fed

Wow man, you got the short column again

3.5 minutes to explain the Federal Reserve and add tongue-in-cheek humour… tell you what while you do that I’m going to grab my trusty safety razor and go bear hunting.

And I’m sorry that you’re getting crazy e-mails. I don’t blame people for being real angry with the Fed and demanding change. But if you watch Ron Paul’s Daily Show interview, I’m not sure that I’d put him and the wheel of my ship of change. Maybe he can be the figurehead, but definitely not the captain.

Me, I love the list. But I’d like to know if any of the books actually propose some good solutions to the current problem: i.e.: the Fed has not the tools to do its job, nor does it do the job that people really want it to do..

I’m definitely open for reading suggestions

Great clip. No question in my mind but that Bernanke is doing his job well and Congress should keep their hands off the Fed. And I have read Secrets of the Temple.

Heeeey: Money walks, B-S talks. Or no wait, it’s…something like that.

Justin,
Since you apparently dont have the time to read the anti-fed book Creature from Jekyll island and would rather read the sycophantic Lords of Finance, I’ll boil it down for you and the others here:
1) The Federal Reserve is not totally a federal organization nor is it a bank. It is simply the only organization in the US with the authority to create the fiat money we use.
2) The FED was created by the largest banks in the US to operate as a cartel. It, above all else, uses its monopoly power to create money and “loan” this money to the largest banks in the US (the same ones that created it). Those banks in turn lend the money to everyone else (banks, govts, ect) at market interest rates. The FED typically lends this money to the member banks at much lower than the market rate. IE right now those banks can get their money for 0-.25%. However a cursory check of mortgage rates yields around 4-5% for a 30 year fixed mortgage to someone with excellent credit.
3) In times of stress in the banking system, a possibility caused by fractional reserve banking, the FED is the primary instrument to ensure liquidity at member banks. However, they rarely use this power since it is perceived as a bailout. This is precicely what they have been doing for the last 2 years. A member bank gets in trouble due to bad loans, so the FED throws money at the banks (and sometimes non banks like AIG which threaten the banking system). Since the FED is buying “toxic” assets from these banks at a premium, this is truly the gift which keeps on giving since the banks would have been unable to sell the assets into any market at the prices the FED is paying.

All this money they create to supply these loans, liquidity, and asset buys, dilutes the purchasing power (eventually, often the effect is delayed for months) of every person who uses dollars as their medium of exchange. So when it comes down to it, the FED is an instrument of wealth transfer from dollar users to the banks, particularly in times of stress. Thus the power of having a monopoly on money creation and the mechanism of the cartel.

For most of their history the FED has quietly executed this power in the shadows and the amount of wealth transfer has been low enough to not draw attention. But the events of the last two years proved every assertion Mr Griffin makes with his work.

I have read all the books listed in this forum, and Creature is by far the best book at explaining what the FED does, why it does it, and how it does it. Secrets is good, but most of the others are sycophantic to say the least. If you dont read and understand Creature or one of Rothbard’s many books on the FED you will never truly understand why the FED really exists.

The Science of Debt Dependent Saturation Macroeconomics

Terminal Quantum Fractal Progressions – Identifying the Wilshire’s 11 October 2007 Secondary High

The exact high for the Wilshire on October 11 2007 was prospectively predicted by the science of saturation macroeconomics. The science of saturation macroeconomics as defined by quantum fractal growth and decay of macroeconomic system’s countervailing debt, on the one hand, and commodity and equity, on the other ‘investment’ instruments has now retrospectively indicated the final secondary high for the Wilshire.

Speculative money rotating from equity and commodity speculative instrument that flowed into global debt instruments driving the US ten year note, as way of a sovereign debt proxy, to its 150 year low at 2.04 percent on 18 December 2008 well matched the Wilshire’s initial nodal low at 7400 on 21 December 2008. With the 150 year low long term interest, speculative money began flowing back into equities which had lateral growth and thereafter downward growth until 6 March 2009, completing a 7/16 week x/2-2.5x fractal sequence.

With the US central bank’s counterfeiting 350 billion dollars in the short term treasury market to incrementally absorb short term US roll over debt that had insufficient real economy buyers, the US equity market and the entire global equity markets achieved growth valuations beyond that which would have occurred if competing short term debt instruments were placed on the existing capital market table.

Since 6 March 2009 the Wilshire completed a fractal sequence formed by the earlier 7/16 week first and second fractal series. A 7/16/19 week fractal series completed the first of two final fractal growth periods.

The 19 weeks of the 7/16/19 first fractal series were composed of a daily fractal series of 17/38/35 days :: x/2-2.5x/2x with a nonlinear drop seen on the minute unit charts on the 38th day of the second fractal.

The second fractal series is composed currently of 6/12/7 weeks :: x/2x/1x or 27/55/33 days. The 27th day of the third fractal is nested in a cup 5 days from the likely secondary Wilshire high on 4 December and the secondary high on 16 December 2009.

Since 9 December 2009 the Wilshire has followed a 15/32/15 hour :: x/2-2.5x/x fractal growth series ending on Friday 18 December 2009 with the characteristic nonlinear drop on the 31st hour of the second fractal. The final 15 hour is composed of a 3/8/6 hour fractal x/2.5x/2x or a 12/24/20 :: x/2x/1.6x 15 minute fractal.

On Friday 18 December the Wilshire reached its second and (relatively) final lower high of a 27/55/27 day x/2x/x fractal followed by a 15/32/15 hour : x/2x/x
fractal. Incipient nonlinearity of a major degree is expected on Monday 21 December 2009.

Possible fractal decay progressions using the 6/12/7 week fractal sequence (decay is confluent with and begins in terminal apical growth) are: 6/12/12 weeks or 6/12/12/9 weeks with the third fractal (of the latter fractal series) 12th a final third much lower high.

We shouldn’t need an advanced degree to understand how our government works:

http://www.whatchannelareyouwatching.com/archives/499

Love to hear your thoughts on this.

“Ninety percent of socializing a country is to form a central bank” -V.I. Lenin.

And I think we see the type of socialization that entails!? Privatized profits, and socialized costs! The Fed exists to serve their main shareholders C, JPM, GS etc…not the economy in general, that is, unless it’s beneficial to the banks! Definitely read Greider’s book Secrets of the Temple, or even the House of Rothschild: Money’s Profits, or the Pujo Hearings, or the House Stabilization Hearings of 1928 (which get into how the Great Depression really happened) $500,000,000 in gold was transferred to Europe creating a tight money policy.

Mr. Fox’s column of December 14, “Furious at the Fed”, blatantly ignored the consensus among serious Economists working in academia, which is that mr. Paul’s proposals to audit the Fed are extremely ill-conceived and harmful.

Mr. Fox would do well to either inform himself better about Economics, or limit himself to columns on more down to earth topics. As it is, Time magazine has contributed to misinforming the public about the nature of mr. Paul’s proposals.

Justin, I have read all the books you mention, although, like yourself, I haven’t read every word of the Friedman, but I did learn something from the Ron Paul book, which was excellent. I was disappointed by the Lords of Finance, which you seem to have liked.

Okay, okay, I’ll read the Ron Paul book, Hunter. But I still have to read your book first.

“Explaining the Fed’s policies of Inflation & the Causes”

Inflation is an increase in the quantity of money and credit.
Its chief consequence is soaring prices. Therefore inflation—if we misuse the term to mean the rising prices themselves—is caused solely by printing more money. For this the government’s monetary policies are entirely responsible.

The most frequent reason for printing more money is the existence of an unbalanced budget. Unbalanced budgets are caused by extravagant expenditures which the government is unwilling or unable to pay for by raising corresponding tax revenues. The excessive expenditures are mainly the result of government efforts to redistribute wealth and income—in short, to force the productive to support the unproductive. This erodes the working incentives of both the productive and the unproductive.

The causes of inflation are not, as so often said, “multiple and complex,” but simply the result of printing too much money. There is no such thing as “cost-push” inflation. If, without an increase in the stock of money, wages or other costs are forced up, and producers try to pass these costs along by raising their selling prices, most of them will merely sell fewer goods. The result will be reduced output and loss of jobs. Higher costs can only be passed along in higher selling prices when consumers have more money to pay the higher prices.

Price controls cannot stop or slow down inflation. They always do harm. Price controls simply squeeze or wipe out profit margins, disrupt production, and lead to bottlenecks and shortages. All government price and wage control, or even “monitoring,” is merely an attempt by the politicians to shift the blame for inflation on to producers and sellers instead of their own monetary policies.

Prolonged inflation never “stimulates” the economy. On the contrary, it unbalances, disrupts, and misdirects production and employment. Unemployment is mainly caused by excessive wage rates in some industries, brought about either by extortionate union demands, by minimum-wage laws (which keep teenagers and the unskilled out of jobs), or by prolonged and over generous unemployment insurance.

To avoid irreparable damage, the budget must be balanced at the earliest possible moment, and not in some sweet by-and-by. Balance must be brought about by slashing reckless spending, and not by increasing the tax burden that is already undermining incentives and production.

Even the caveman can do it…

Government and business reports indicate that the United States has an estimated $53 trillion money supply. Three entities – the U.S. government, the Federal Reserve and commercial banks share legal authority in issuing money.

Government monetary system issues debt-free money. Although the US government has full sovereign authority to issue all of the nation’s money, it issues only coins. According to a recent US Coin and Currency Report, coins in circulation are valued at about $40.1 billion and constitute a trivial 0.08% of the money supply.

Privately owned reserve monetary systems, like the Federal Reserve, hold something of recognized value such as gold, silver, or in the case of the FED, government securities as reserves, and issue money as loans of that value. Using US government bond as security, the Federal Reserve issues $1.1 Billion in Federal Reserve Notes, about 1.8% of the money supply. Using fractional reserve lending procedures, commercial banks issue intangible checkbook and saving account money valued at $52 trillion and making up 98.1% of the money supply. Combined, the Federal Reserve and its member commercial banks issue 99.92% of the total natonal supply as loans that must be repaid with interest.

Because the banking system creates only the principal of the loans, and no one creates the money to pay as interest, the system is grievously flawed. Viewed as a whole, if all the principals of the loans are repaid, there will be no money to pay the required interest. On the other hand, if the interest is paid from the money supply, there will be insufficient money to repay the loans. In either case, honoring all the loan contracts is impossible.

In a classic pyramid scheme pattern, the banking system continually expands the nation’s debt by making new and larger loans and using the newly created money to satisfy old loan contracts. That is the only way to give a reserve monetary system an appearance of solvency.

The sad truth is, The Federal Reserve banking system is a gigantic Ponzi scheme.

[...] copies of the book. I gave one to my colleague Stephen Gandel, and started reading the other. I had told Hunter Lewis that I was going to read his Where Keynes Went Wrong first, but when I saw how short End the Fed [...]

[...] of the Milton Friedman Free To Choose floating currency regime; very much a Jekyll Island creature, writes Justin Fox, in Time article Explaining The Fed. Money has taken its value from the sovereign [...]