View Single Post
Old 12-13-2018, 03:58 PM
Danny B Danny B is offline
Platinum Member
Join Date: Oct 2012
Location: L.A. Ca.
Posts: 4,892
Blame it all on the FED

Any economy is subject to occasional panics. When banks do fractional reserve lending, they are subject to collapse from blanket withdrawals. The finance community created the panic of 1907.
Investopedia, "The Bank Panic of 1907 was a set of bank runs and bankruptcies that led industry leaders to draft the first version of the Federal Reserve"
So, a panic in 1907 and, the creation of the FED in 1913. No single private bank could withstand a run on the bank. The FED was created and owned by private banks as a sort of mutual insurance system.
Armstrong, "The creation of the Federal Reserve was with the power to create money in times of crisis to meet the demand for withdrawals without having to dump assets in a panic. Then World War I came and instead of the Fed stimulating the economy by buying the corporate paper to directly create jobs, politicians instructed the Fed to buy ONLY government bonds. "

Private banks have a mismatch of maturities. They borrow short (deposits) and, loan long. The idea of a backstop is logical.
"The Fed operates as a central bank, controlling fiscal and monetary policy. Its three goals are to promote maximum employment, keep prices stable (ie. control inflation) and to moderate long-term interest rates."
So, the bankers created an agency to serve the bankers interests.
"The Fed began with approximately 300 people, representatives of banks who became owners (stockholders purchased stock at $100 per share) of the Federal Reserve Banking System. 100% of its shareholders are private banks; the stock is not publicly traded and none of its stock is owned by the US government."

"Commercial banks borrow from the Fed to meet reserve requirements established in law (set up after the 1929 stock market crash to avoid another run on the banks which caused many to become insolvent). This is known as the discount window. Borrowing from the Fed is quicker and easier than borrowing from another bank, but it is more expensive"

Central Banks were originally created to supply war finance.

It is suspicious that the U.S. congress approved the central bank in 1913 AND the U.S. entered WW I in 1917. The FED was tasked with buying war bonds. After WW I, the mandate was never changed. An agency that was created for the logical purpose of backstopping private banks (remember the maturity mismatch) was commandeered to finance wars. The FED has bought State debt ever since. Where does the money come from?
The FED is mandated with maintaining price stability. The FED has taken it upon itself to maintain 2% inflation. This is, of course, a contradiction.
The FED buys State debt and, re-sells it on the open market. The State pays interest on this money.

"In 2017 the Fed reported $115 billion in income, including $113 billion in interest received from $4.2 trillion in Treasuries and mortgage-backed securities it accumulated during its quantitative easing programs. It also paid out $784 million in dividends to shareholders - the financial institutions that own the 12 Federal Reserve Banks."

Typically, the Central Bank makes money from the State. The State raises taxes. A small, private mutual insurance agency was hitched up to the State to supply funding for perpetual war. Not just warfare.

"In 1966, Congress gave the Federal Reserve authority to purchase the debt of agencies guaranteed or owned by the federal government. This same authority has enabled the Fedís purchases of mortgage-backed securities (MBS) and debt of government-sponsored enterprises (GSEs) Fannie Mae and Freddie Mac since 2008 in support of the housing market. In a little-known episode, the Fed shied away from exercising this authority in the 1960s but eventually conceded under political pressure and perceived threats to its independence"

The FED was also hitched up to finance the welfare state.
"Between 2008 and 2015 the Fed bought trillions of dollars worth of T-bills and mortgage-backed securities, keeping interest rates near zero percent, but making the US debt balloon from $900 billion to $4.5 trillion."
Wages haven't risen in 40 years as America has steadily lost manufacturing. The State doesn't want a shrinkage in it's income. The wars must go on. Just how high can the public debt go?
" USA Today notes that as of Sept. 30, the US deficit was $779 billion - 17% higher than last year."
" $1,110 billion for the Department of Health, $576 billion for Defense, and $540 billion for the Treasury. "
Ahead of The Herd

Everybody throws rocks at the FED but, it wasn't the FED that created the welfare-warfare state.
It wasn't the FED that promised unsustainable pensions.
Merkel promised that there would be NO State bailouts for banks. Deutsche bank promised to leave a crater half the size of Germany. She relented.
Reply With Quote