Posted on 02/17/2015 9:35:15 PM PST by entropy12
Rand Paul traveled to Des Moines, Iowa, recently and delivered a sure-fire applause line. “Anybody here want to audit the Fed?” the Kentucky senator asked. “Anybody feel that the Fed’s out to get us?” He followed it up with an op-ed comparing the Federal Reserve to Lehman Brothers and calling it essentially bankrupt. The bash-the-Fed routine, perfected by Paul’s father, former Texas congressman Ron Paul, is political gold with libertarian voters suspicious of all federal authority, especially a central bank with a $4.5 trillion balance sheet.
(Excerpt) Read more at politico.com ...
A dishonest hit piece, peppered with lies.
Sen. Paul will be on Glenn Beck’s program Wednesday morning to answer these charges.
Abolish the Fed.
President Paul? Never happen.
The Fed is so transparent that the little weasel chairman that did all the QE’ing to pump the market and help out his banker buddies, used a pseudonym name of “Edward Quince” on all emails concerning his nefarious activities.
Not only do they need audited but they need to go to prison for robbing the taxpayer and Americans in the value of their dollars and hiding their activity under fake names.
It essentially 'leverages' the future value of the currency. To the extent the economy doesn't grow to meet those promises of future tax collection (what else is any government bond?) the currency must be debased to make up for it. Thereby every earner and saver is robbed to meet the demands of the government.
Therein lies the threat posed by the Federal Reserve and our Federal Government, but I don't expect the echo chamber that wrote that piece to grasp the problem.
“Fed owns $4,500 Billion of Treasury bonds and mortgage-backed securities guaranteed by the Federal government. The Treasury can not pay off these bonds when redeemed because of ongoing budget deficits. “
The Fed doesn’t “own” the Treasury paper in their account, it’s just a tool that they use for adjusting the money supply in the banking system. Any money that is earned on the bonds they hold goes directly back to the Treasury. The Treasury won’t have to “pay them off” because these bonds already belong to the Treasury.
If you feel you need data on the Fed’s balances they are printed every week in Barron’s.
http://online.barrons.com/public/page/9_0210-fedresdatabank.html
It's just a matter of time before Rand Paul goes full "Howard Dean" if you know what I mean.
We're starting to get glimpses and it isn't pretty.
“Abolish the Fed.”
Yeah, let’s go back to what existed before- JP Morgan and a small group of New York City banks did what the Fed now does, but in an even more secretive manner with no outside accountability. There’s an improvement. /s
OK, so where does the Fed get the money to get the bonds from US Treasury? Why go through the pretext of transferring/buying/whatever bonds from the treasury? Why not just print the money and dispense with the bonds nonsense?
You can’t be serious! To quote John McEnroe.
A central bank such as the Fed which has enourmous effect on nation’s money supply should be allowed to operate in total secrecy? No congressional over-site? You can’t be serious or you are unfamiliar with finance.
“OK, so where does the Fed get the money to get the bonds from US Treasury?”
Actually the Fed buys the Treasuries on the secondary market after they have been previously sold to someone else. At least that’s what they used to do before QE. Someone suggested to me that with QE they are currently buying bonds directly from the Treasury, but I can’t say for certain.
IIRC correctly the Fed was ordered not to buy directly from the Treasury back in the 1970s because when they were doing that it was going to pure inflation. Not our problem today, in fact deflation has been lurking in the background since the bubble popped.
Anyway, to answer your question the Fed gets to invent the money to buy bonds out of thin air by granting a credit balance to whomever they are buying the bond from. Usually that’s a retail bank, since what they are doing is adjusting the amount of free reserves available in the banking system.
If the Fed buys a bond they are exchanging loanable money for an illiquid bond held by a bank. If the Fed is trying to reduce the money supply they will sell a bond which has the effect of soaking up liquid money and sticking the bank with an illiquid bond.
“Why go through the pretext of transferring/buying/whatever bonds from the treasury? Why not just print the money and dispense with the bonds nonsense?”
Well they don’t print money of course, the Fed deals entirely in ledger entries. Actual printed money is a very tiny portion of the money supply.
What people often don’t realize is that under a fractional reserve banking system the person who can actually increase the American money supply is your local bank’s loan officer. They just need to have free reserves available for them to loan. The Fed can free up a bank’s money by purchasing illiquid assets from them, Treasury bonds mostly.
When the housing crash occurred thousands of banks were technically bankrupt because they had a ton of mortgage paper that was now becoming worthless. The Fed’s problem was to prevent a replay of 1930-33 when fully one third of America’s banks collapsed, which is what made the Depression what it was. We could have a lot of industries fall apart and that would be sad for them but the rest of us would chug along. If the banking system collapses none of us would escape the disaster except maybe Amish farmers.
So since 2008 the Fed has been doing what it failed to do in the 1930s, and that’s to make sure the banking system survives. And they have bought a lot of paper from banks which now sits on their books.
“A central bank such as the Fed which has enourmous effect on nation’s money supply should be allowed to operate in total secrecy?”
They’re not secret. You can get the Fed’s current data from the New York Fed. The St Louis Fed. Barron’s weekly. It’s not secret. It’s boring if anything.
Back in the late ‘70s Wall Street waited with bated breath for the weekly money supply numbers to be reported. And if the number came in high the bond vigilantes beat the hell out of bond prices.
If you think the Fed is powerful it’s because you weren’t around to watch the bond vigilantes in action. They can put together more firepower than a central bank, the Fed included. If we have another bout of inflation show up you’ll get to see them in action.
If one believes in free enterprise, why would one ever think it’s a good idea to concentrate financial decisions for the entire country in a single authority like the Fed. Where is the free market in that? That’s not a free market, that’s a centralized command and control economy.
” Rand Paul goes full “Howard Dean”.......”
LOL! Remeber Rand is his daddy’s little boy.
I wonder what will happen with his senate seat? If he runs for pres. he has to give up his senate campaign.
This will be fun!
Thanks for lengthy explanations.
So, final question I have is....
since FED can single handedly keep “too big to fail” banks solvent by creating money “out of thin air”, you are OK with elected representatives have no control over FED actions? We are talking about 4 Trillion dollars in just last 6 years. If FED is doing nothing wrong why the resistance to oversight?
There are nuances to that, actually.
His name can’t appear on the KY ballot twice. He can run for President in every other state without isdue.
The workaround is to stay on it for the Senate race and either cede the Presidential nominating delegates and EC votes to someone else, or (and on more murky legal ground) to run a “favorite son” style surrogate who will pledge to throw delegates and EC votes Paul’s way.
But regardless, Paul’s not getting anywhere near the actual Presidential nomination. I think he runs a Primary campaign to show he can, and to influence the direction of the other candidates by injecting his Libertarian ideas into the mix, but bows out before the KY primary.
“If one believes in free enterprise, why would one ever think it’s a good idea to concentrate financial decisions for the entire country in a single authority like the Fed....That’s not a free market, that’s a centralized command and control economy.”
A command and control economy? Do you think that’s what the United States has had for the last 102 years? Don’t be ridiculous.
The Fed is the country’s monetary authority. It’s the lender of last resort to private banks. Its job is to keep the banking system from falling apart. It tries to prevent both inflation and deflation. It can do so only by indirect means and isn’t always successful. The Fed doesn’t have the ability to control the “financial decisions for the entire country” except maybe in some people’s foggy and conspiracy loving imaginations.
Private banks need a lender of last resort when financial crisis hits. An otherwise sound bank can be destroyed by a bank run if it can’t get immediate access to short term funds to satisfy panicking customers. And bank runs spread from bank to bank to bank. JP Morgan’s huge bank used to perform this backstop role before 1913 but Morgan was aware that the US economy had grown too big and he pushed for a central bank after the 1907 financial panic.
We saw what could happen without a Fed in 1930 because they essentially did nothing as the Depression began. They were unsure of what to do and just let nature take its course. The Fed failed to act as lender of last resort and one third of American banks collapsed in three years. The money supply fell by 30% and the country plunged into the Great Depression. A replay of that didn’t happen in 2008 but we certainly could have experienced one if there was no lender of last resort. The Fed has been very active since 2008.
A command and control economy? Do you think that’s what the United States has had for the last 102 years? Don’t be ridiculous.
We’d be better off without the Fed, at least according to the likes of Milton Friedman...
from The Foundation for Economic Education...
(http://fee.org/freeman/detail/the-great-depression-according-to-milton-friedman)
“In fact, Friedman and Schwartz claimed that the depression would not have been a Great Depression if there had been no Federal Reserve in the first place: “[I]f the pre-1914 banking system rather than the Federal Reserve System had been in existence in 1929, the money stock almost certainly would not have undergone a decline comparable to the one that occurred.”
That point was effectively elaborated by Milton and Rose Friedman in Free to Choose:
Had the Federal Reserve System never been established, and had a similar series of runs started, there is little doubt that the same measures would have been taken as in 1907—a restriction of payments. That would have been more drastic than what actually occurred in the final months of 1930. However, by preventing the draining of reserves from good banks, restriction would almost certainly have prevented the subsequent series of bank failures in 1931, 1932, and 1933, just as restriction in 1907 quickly ended bank failures then. . . . The panic over, confidence restored, economic recovery would very likely have begun in early 1931, just as it had in early 1908.”
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