Flexible Standards and the Fed

October 11th, 2012 → 4:40 pm @ // No Comments

The Federal Reserve…the elephant in the room no one wants to acknowledge

“Centralization Of Credit In The Banks Of The State,
By Means Of A National Bank With State Capital And
An Exclusive Monopoly”–Fifth Plank of the Communist Manifesto, Karl Marx 1848

The Federal Reserve System is privately owned, and is accountable
to no one.

There remains a significant segment of society that has not gotten
the above memo, so for their sake, let’s take a look at the 12 Federal
Reserve Banks, which make up the Federal Reserve System.
It has been rightly said that, “The Federal Reserve is no more
Federal than Federal Express.” The usual intended meaning being that
like the shipping giant, the shrewdly-named Federal Reserve is not a
government agency, but a private company. It was given its
government agency image invoking name to obscure to the public that
it is a Corporation. It is not a publicly traded corporation, however, and
its privately held stock is owned by the 12 individual regional Federal
Reserve Banks that together comprise the Federal Reserve System. It is
a banking cartel that is owned by its shareholding members. No Federal
agency sells shares in its ownership, demonstrating that the
shareholder-owned Fed is a privately-held corporation. The individual
regional Banks are likewise, in turn, privately held corporations. In
order for other banks to do business with the Fed, they must own a
never-disclosed amount of stock in the Federal Reserve. Some part of
those shares is held by the foreign central banks of all other nations that
do business with the Federal Reserve. It is banks, both foreign and
domestic, that own the central bank. As to which banks own how many
shares, we may never know, since the amount of shares purchased and
their ownership are both kept secret.

The Frequently Asked Questions page of the official Federal Reserve
website does not help to clarify who exactly owns the Federal Reserve
in its statement,
“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.”

The problem with comparisons of the Fed with any other private
corporation is that, by statute, the Federal Reserve enjoys a total
monopoly in its place as the only central bank. It is ensured by law that
buying its shares is a mandatory condition of doing business with it. It
has no competition and it sets its own market conditions.
While the Government Accountability Office (GAO) has the official
onus of audits of the Fed, it is utterly hamstringed in its capacity to do
so. The laws are rigged to give the Federal Reserve a level of secrecy
that the military could only hope for. Specifically, The Government
Accounting Office does not have complete access to all aspects of the
Federal Reserve System. The law excludes the following areas from
GAO inspections:
(1) TRANSACTIONS FOR OR WITH A FOREIGN CENTRAL BANK, GOVERNMENT OF
A FOREIGN COUNTRY, OR NON-PRIVATE INTERNATIONAL FINANCING
ORGANIZATION;
(2) DELIBERATIONS, DECISIONS, OR ACTIONS ON MONETARY POLICY MATTERS,
INCLUDING DISCOUNT WINDOW OPERATIONS, RESERVES OF MEMBER BANKS,
SECURITIES CREDIT, INTEREST ON DEPOSITS, OPEN MARKET OPERATIONS;
(3) TRANSACTIONS MADE UNDER THE DIRECTION OF THE FEDERAL OPEN
MARKET COMMITTEE; OR
(4) A PART OF A DISCUSSION OR COMMUNICATION AMONG OR BETWEEN
MEMBERS OF THE BOARD OF GOVERNORS AND OFFICERS AND EMPLOYEES OF THE
FEDERAL RESERVE SYSTEM RELATED TO ITEMS. From: (31 USCA §714)

When called to testify in 1993 before a House sub-committee on
the reason for the restrictions on GAO access, Wayne D. Angell, then a
member of the Federal Reserve Board of Governors, said,
“By excluding these areas, the [1978] Act attempts to
balance the need for public accountability of the Federal
Reserve through GAO audits against the need to
insulate the central bank’s monetary policy functions
from short-term political pressures and to ensure that
foreign central banks and governmental entities can
transact business in the U.S. financial markets through
the Federal Reserve on a confidential basis.”

When asked about a bill that would lift the constraints placed on
the GAO’s audit authority over the Federal Reserve and would mandate
the timely delivery of the minutes and video of such audits to Congress,
Angell related that it is not important to know about such unnecessary
things that may, if revealed, scare away the Fed’s foreign customers
when he stated,
“The benefits, if any, of broadening the GAO’s authority into the
areas of monetary policy and transactions with foreign official entities
would be small…In this environment, the contribution that a GAO audit
would make to the active public discussion of the conduct of monetary
policy is not likely to outweigh the disadvantages of expanding GAO
audit authority in this area.”
–From H.R. 28: “Federal Reserve Accountability Act of
1993,” Hearing before the Subcommittee on Domestic
Monetary Policy [House], October 27, 1993, U.S. Government
Printing Office, Serial no. 103-86.

The GAO is prevented from audits of Fed transactions with or for
government financing organizations, or with foreign central banks, or
any transactions made under the direction of the Federal Open Market
Committee which is described on the Fed website as follows:
“A MAJOR COMPONENT OF THE SYSTEM IS THE FEDERAL OPEN
MARKET COMMITTEE (FOMC), WHICH IS MADE UP OF THE
MEMBERS OF THE BOARD OF GOVERNORS, THE PRESIDENT OF THE
FEDERAL RESERVE BANK OF NEW YORK, AND PRESIDENTS OF FOUR
OTHER FEDERAL RESERVE BANKS, WHO SERVE ON A ROTATING
BASIS. THE FOMC OVERSEES OPEN MARKET OPERATIONS, WHICH
IS THE MAIN TOOL USED BY THE FEDERAL RESERVE TO INFLUENCE
MONEY MARKET CONDITIONS AND THE GROWTH OF MONEY AND
CREDIT.”

Sort of like the Security Council of the United Nations, the FOMC
has permanent and revolving members. To be accurate, it is the Board
of Governors plus one permanent regional member that is the president
of the New York Federal Reserve Bank, and four which revolve from the
other 11 Regional Reserve banks.

The GAO is further restricted from looking into any internal
monetary policy at the Fed and it is not privy to any communication
from any member of the Federal Reserve’s Board of Governors, or any
employee about any of these transactions. The Fed website attempts to
allay any fears that the Fed operates without oversight by claiming
multiple layers of audits.

The Board of Governors, the Federal Reserve Banks, and the Federal
Reserve System as a whole are all subject to several levels of audit and
review. Under the Federal Banking Agency Audit Act (enacted in 1978
as Public Law 95-320), which authorizes the Comptroller General of the
United States to audit the Federal Reserve System, the Government
Accountability Office (GAO) has conducted numerous reviews of Federal
Reserve activities.

By the 1978 statute the GAO is authorized (it does not say it is
required) to audit the Federal Reserve System. The stone wall of
restrictions on GAO audits of the Fed renders this “level of audit” to be
mere theatrical chicanery, the only purpose of which is to provide an
apparition of the assurance of oversight where there is none. It matters
not how many security checks around the perimeter of the fed the GAO
does if it never is allowed to open up the gates of that stone wall and
investigate the true nature of matters on the inside.
The Fed webpage quoted above also describes layers of internal
audit conducted by the Fed Board on itself. We are told that:
“IN ADDITION, THE BOARD’S OFFICE OF INSPECTOR GENERAL
(OIG) AUDITS AND INVESTIGATES BOARD PROGRAMS AND
OPERATIONS AS WELL AS THOSE BOARD FUNCTIONS DELEGATED
TO THE RESERVE BANKS COMPLETED AND ACTIVE GAO REVIEWS
AND COMPLETED OIG AUDITS, REVIEWS AND ASSESSMENTS ARE
LISTED IN THE BOARD’S ANNUAL REPORT (BEFORE 2002, THE
REVIEWS WERE LISTED IN THE BOARD’S ANNUAL REPORT: BUDGET
REVIEW).”(emphasis added)
Not to leave the door open to criticism that these internal audits
may be prone to what may be diplomatically referred to as
“inaccuracies,” we are further informed that the Board’s internal audits
are looked over by an “independent outside auditor”.
“THE BOARD’S FINANCIAL STATEMENTS, AND ITS COMPLIANCE
WITH LAWS AND REGULATIONS AFFECTING THOSE STATEMENTS,
ARE AUDITED ANNUALLY BY AN OUTSIDE AUDITOR RETAINED BY
THE OIG. THE FINANCIAL STATEMENTS OF THE RESERVE BANKS
ARE ALSO AUDITED ANNUALLY BY AN INDEPENDENT OUTSIDE
AUDITOR.”

The independent outside auditor is contracted annually, not by the
government but by the Fed Board itself. With trillions on the table, it is
fairly easy to guess that the Fed Board would want to hire firms whose
findings would be favorable toward the central bank. It is the services
of the likes of Coopers and Lybrand and Price Waterhouse that
produced many of the legitimizing blessings over the Fed’s internal
oversight like this rubber stamp from Price Waterhouse which was
delivered to be included in the Board’s 1996 Annual Report (nearly
identical ones appear in other Annual Reports):
“We have audited the accompanying balance sheets of
the Board of Governors of the Federal Reserve System
(the Board) as of December 31, 1995 and 1994, and the
related statements of revenues and expenses for the
years then ended. These financial statements are the
responsibility of the Board’s management. Our
responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally
accepted accounting standards and Government
Accounting Standards issued by the Comptroller General
of the United States. Those standards require that we
plan and perform the audits to obtain reasonable
assurance about whether the financial statements are
free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the
amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles
used and significant estimates made by management,
as well as evaluating the overall financial statement
presentation. We believe that our audits provide a
reasonable basis for our opinion.

In our opinion the financial statements referred to
above present fairly, in all material respects, the
financial position of the Board as of December 31, 1995
and 1994, and the results of its operations and its cash
flows for the years then ended in conformity with
generally accepted accounting principles.

As discussed in Notes 1 and 3 to the financial
statements, the Board implemented Statement of
Financial Accounting Standards No. 112, Employers’
Accounting for Postemployment Benefits, effective
January 1, 1994. In accordance with Government
Accounting Standards, we have also issued a report
dated March 25, 1996 on our consideration of the
Board’s internal control structure and a report dated
March 25, 1996 on its compliance with laws and
regulations.”(emphasis added)
The Board is also required by law to deliver an annual report to the
Speaker of the House of Representatives, and to report twice a year to
Congressional Banking committees, and to testify before Congress
whenever requested. The information in these reports to Congress is of
dubious value, considering the above mentioned areas of Fed activity
that are beyond scrutiny.

Basically, anything the Federal Reserve does which is hidden in the
above exclusions can ultimately be called an internal Board policy secret
that cannot be looked into. That is, without a change in the current
statute. Again, from the Fed’s own website
“THE FEDERAL RESERVE’S ULTIMATE ACCOUNTABILITY IS TO
CONGRESS, WHICH AT ANY TIME CAN AMEND THE FEDERAL
RESERVE ACT.” (emphasis added)

Characterized as necessary to national economic security, the
secrecy of the Fed was assured in 1993 when then President Bill Clinton
rejected bi-partisan H.R. 28: “Federal Reserve Accountability Act of
1993,” legislation that would have allowed Congress to get a peek at the
inner workings of the central bank system. Clinton’s argument was that
Fed audit reforms would “run the risk of undermining market
confidence in the Fed.”

This statement is one of a long line of pro-bank double-speak, for it
is impossible that more transparency equals less confidence, but the
other way around. Upon inspection, this statement looks more and
more like another in a long line of Freudian slip admissions of closeted
skeletal remains, which if brought to light, would shock and horrify.
After the Crash of 2008, the calls for auditing the Federal Reserve
have re-intensified. Congressman Ron Paul (R-TX) sponsored the “Audit
the Fed “bill HR1207 in the House of Representatives, and in the Senate,
Bernie Sanders sponsored its companion bill S604, together with 32 cosponsors
which would have amended the code to remove the
restrictions on the GAO audits of the Federal Reserve, and mandated a
full audit. The bill had 319 co-sponsors in the House, with wide bipartisan
support, including Lynn Woolsey (D-CA), co-chair of the
Progressive Caucus; Stephanie Sandlin (D-SD), chair of the Blue Dog
Coalition;, and Pete Sessions (R-TX), chair of the Republican
Congressional Campaign Committee.

During proceedings of the House Committee on Oversight and
Government Reform hearings, under questioning from Representative
John Duncan (R-TN), Federal Reserve chairman Ben Bernanke, who in
February of 2006 had taken over the helm of the Fed from retiring
chairman Alan Greenspan, drew the following line in the sand,
“My concern about the legislation is that if the GAO is
auditing not only the operational aspects of our
programs and the details of the programs but is making
judgments about our policy decisions, that would
effectively be a takeover of monetary policy by the
Congress, a repudiation of the independence of the
Federal Reserve which would be highly destructive to
the stability of the financial system, the Dollar and our
national economic situation.”
–Testimony of Ben S. Bernanke before the House Thursday Jun 25,
2009 http://oversight.house.gov/

Bernanke’s implication was un-mistakable. If the Federal Reserve
was opened up for all to see, and its policies were to actually face
congressional oversight, the result would be the repudiated Fed’s
destruction of the economy. Bernanke called such oversight a “takeover”
of monetary policy by Congress. Perhaps Mr. Bernanke believed
that the powers granted to Congress in the U.S. Constitution are
irrelevant. From Article1; Section 8; Clauses 1-6:
“SECTION 8.
CLAUSE 1: 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;
CLAUSE 2: TO BORROW MONEY ON THE CREDIT OF THE UNITED STATES;
CLAUSE 3: TO REGULATE COMMERCE WITH FOREIGN NATIONS, AND AMONG THE
SEVERAL STATES, AND WITH THE INDIAN TRIBES;
CLAUSE 4: TO ESTABLISH AN UNIFORM RULE OF NATURALIZATION, AND
UNIFORM LAWS ON THE SUBJECT OF BANKRUPTCIES THROUGHOUT THE UNITED
STATES;
CLAUSE 5: TO COIN MONEY, REGULATE THE VALUE THEREOF, AND OF FOREIGN
COIN, AND FIX THE STANDARD OF WEIGHTS AND MEASURES;
2 Flexible Standards and the Fed 71
CLAUSE 6: TO PROVIDE FOR THE PUNISHMENT OF COUNTERFEITING THE
SECURITIES AND CURRENT COIN OF THE UNITED STATES;”

Perhaps it is the above Clause 6 that Mr. Bernanke should be most
afraid of.

HR1207 was passed in the House of Representatives, but fell in the
Senate to overwhelming pressure from the Obama administration and
the Fed.

It was starkly revealing that a movement to audit the fed which was
finding a growing majority in both Houses of Congress was so vigorously
stifled by the entrenched banking interests. The pressures exerted on
Senate lawmakers were related in the following article that appeared in
the online Wall Street Journal.

MAY 7, 2010
PLAN FOR CONGRESSIONAL AUDITS OF FED DIES IN SENATE
By SUDEEP REDDY and MICHAEL R. CRITTENDEN
Last-minute maneuvering in the Senate allowed the Federal Reserve to sidestep
legislation that would have exposed its interest-rate decision-making to congressional
auditors.

Pressure from the Obama administration led Senate lawmakers to alter a provision
pushed by Sen. Bernie Sanders (I., Vt.) that was gaining momentum despite opposition
from the Treasury and the Fed. It would have largely repealed a 32-year-old law that
shields Fed monetary policy from congressional auditors.
European Pressphoto Agency Sen. Bernie Sanders of Vermont
The compromise, endorsed by Senate Banking Committee Chairman Christopher
Dodd (D., Conn.) and the Treasury would require the Fed to disclose more details about
its lending during the financial crisis. It would also require a one-time audit of those
loans and a one-time review of Fed governance. A formal vote was pushed back until
next week.

Thursday’s Senate showdown came after senators on the left and right joined forces
to support Mr. Sanders’ provision.
“At a time when our entire financial system almost collapsed, we cannot let the Fed
operate in secrecy any longer,” Mr. Sanders said. “The American people have a right to
know.”

But Fed Chairman Ben Bernanke, while insisting on a commitment to “openness” at
the Fed, said in a letter to Congress the Sanders measure would “seriously threaten
monetary policy independence, increase inflation fears and market interest rates, and
damage economic stability and job creation.”

Deputy Treasury Secretary Neal Wolin, in a statement, endorsed the revisions to the
Sanders provision, saying they would provide a comprehensive audit of the Federal
Reserve Board’s operations in response to the financial crisis, “while preserving the
existing protections of the Federal Reserve’s independence with respect to monetary
policy.”

A House bill sponsored by Rep. Ron Paul (R., Texas) that passed in December
contains a proposal similar to the original Sanders measure. If the Senate bill passes, it
will need to be reconciled in a conference committee. That keeps the pressure on the Fed
alive for the coming months.

The original Sanders measure stated that it shouldn’t be “construed as interference in
or dictation of monetary policy.” But the Fed and administration warned that would allow
auditors to interview Fed policy makers and staffers about monetary policy, thereby
allowing congressional critics to pressure the Fed and undermine its independence.
Like most other capitalist democracies, U.S. politicians have given the central bank
considerable latitude to control interest rates on the theory that elected politicians are
prone to keep rates too low to get more growth during their terms at the cost of more
inflation later. Although sponsors of legislation insisted that wasn’t their intent, the Fed
and its allies said otherwise.

“It’s a chilling kind of circumstance,” former Fed Chairman Paul Volcker, an Obama
adviser, said in an interview. “The more you have no clear boundaries about what’s
appropriate and what’s inappropriate, you castrate the decision-making process. That’s
true for any organization, but it’s particularly true when you get into the sensitivities of
monetary policy that can generate speculative waves in financial markets and speculation
in people’s minds,” said Mr. Volcker, who also urged lawmakers to eliminate the audit
provision.

Anil Kashyap, an economist at the University of Chicago’s Booth School of
Business, stressed that independent central banks need to be insulated from politics and
make decisions several months ahead of expected trends.
“There are times when you have to start raising interest rates before the economy’s
recovering. If you’re going to get audited while you do that, you know you’re going to be
slower—meaning we’re going to tolerate higher inflation.”
Before the last-minute compromise, the Fed’s foes appeared to be winning, and got a
major boost when Senate Majority Leader Harry Reid (D., Nev.) said he would side with
Mr. Sanders.

Mr. Bernanke, meanwhile, returned to Washington Thursday afternoon after a
morning speech in Chicago to continue pressing for changes to the Sanders bill. In the
past few days, Mr. Bernanke has spoken to at least a half-dozen senators to argue the
Fed’s case that the bill would deeply damage the Fed’s credibility and ability to make
tough decisions about interest rates.

At least half a dozen Obama administration officials joined the blitz, including
Treasury Secretary Timothy Geithner—a former Fed official—and Rahm Emanuel, the
White House chief of staff. Administration aides credited Mr. Dodd with pushing back
against the original amendment and developing an acceptable alternative.

New York Fed President William Dudley also advocated to scale back the scope of
the auditing. He was among those arguing that ongoing reviews of the Fed’s regular
lending to financial institutions would stigmatize the program and cripple the Fed’s role
as the nation’s lender of last resort.

The Senate beat back another amendment with populist tinges, defeating 61-33 a
provision that would have put strict caps on the size of the nation’s banks. Offered by a
bloc of liberal Democrats, it would have capped at 10% the limit on the nation’s total
insured deposits any single bank holding company could carry. It would have also set a
6% leverage limit for banks and capped their non-deposit liabilities at 2% of U.S. gross
domestic product.
—Damian Paletta, Jonathan Weisman and Jon Hilsenrath contributed to this article.

It is amazing how utterly blind the bank cartel mouthpieces like Fed
Chairman Ben Bernanke are to how their arrogance plays off to the
American people. In the WSJ article above, Bernanke warns of the dire
consequences of Congressional peering behind the curtain into the Fed
where he is quoted as saying that the Sanders bill would,
“seriously threaten monetary policy independence”
His complaint is that some of the free-reign of the unfettered
central bank might be curtailed, which coincidentally, is exactly what the
bill called for. Considering the massive currency printing
euphemistically referred to as Quantitative Easing II (QE-2) and the
Fed’s promise to stick to zero to negative interest rates at the discount
window, both of which followed the torpedoing of this bill and both of
which are guaranteed to result in further inflation, it is quite laughable
for Bernanke to have threatened economic Armageddon by adding that
to take a look into the Fed would,
“increase inflation fears and market interest rates, and
damage economic stability and job creation.”
This is as accurate as anyone could have described the scenario
which has, with or without audit oversight of the Fed, unfolded in the
meantime.

The Federal Reserve receives no budget for its activities, and as such
is beyond the reach of congressional purse strings. It is entirely
autonomous, and shielded from scrutiny by a cloak of pro-banking
cultural bias, and legal entitlement.

The Fed is an unchallenged oligarchy of the banking elite. It
operates more like a monarchy than a part of any national interest.
The Chairman of the Board of Governors of the Federal Reserve
serves for a Presidential Administration eclipsing term of 14 years, and
is appointed by the President of the United States. The appointee is
however, from a short list of heirs-apparent that has been provided by
the Fed Board of Governors to the President, as if the President is
merely officiating at the coronation of the named successor of a
departed monarch.

The Federal Reserve System is supposed to be a not-for-profit
institution. For any private company, profit is the prime incentive for all
policy, and so it is for the 12 Federal Reserve Banks. The difference is
the profit created by Fed policy is actually interest paid on the national
debt ($454,393,280,417.03 for fiscal 2011 alone) which does not go directly to
the Fed, but to the private banks (including share-holding member
banks), foreign governments, corporations, and wealthy individuals that
own it in the form of US Debt instruments or securities including
Treasury Bills, Notes, Bonds, TIPS, US Savings Bonds and State and Local
Government Series securities.

These US Bonds are purchased from the Federal Reserve at regular
auction, which is issued them in payment for the US Dollars that the Fed
has created for the US Treasury Bureau of Public Debt. The Treasury
Bureau does not have any public policy decision-making authority but is
reacting to the demands of the Budget of the United States and Federal
expenditures such as for emergency spending measures and other offbudget
spending, including presumably the release into circulation of
stimulus funding as deemed necessary by the Fed’s secretive “security
council,” the FOMC.

The Fed mostly creates US Dollars electronically out of thin air, but
also prints circulation-ready stockpiles of representative Federal
Reserve Notes (FRN’s) actually costing the taxpayer further for printing
expenses, paper, and ink. It is the vast sums of electronic currency
manufactured by the Fed that represent the greatest portion of the
National debt. The Fed has had the capacity to do this since the
installation of computer systems beginning with the first systems
administered by a younger IBM systems programmer Alan Greenspan,
who has ostensibly used aspects of his own software creations while he
took his turn as Fed Chairman.

The money from the bond sales, mostly to foreign governments, as
well as the interest on loans made by the Fed and the interest on US
Bond debt still held or owned by the Fed is all part of the invisible inner
workings at the Fed. So is the legally mandated 6 percent per annum
dividend, which is paid on the untold value of each individual share in
the Corporation to a yet unidentified list of Fed stockholders.
This provides a layer of detachment and anonymity that has thrown
many a watchdog off the scent of which way the money went. Even
direct questioning by Congress gets the “it’s none of your business”
treatment, as in this example of The Chairman of the Federal Reserve
brashly avoiding congressional inquiry into loans of $553 billion dollars
made by the Central Bank.

From Ben Bernanke’s testimony on July 21, 2009 before the House
Financial Services Committee:
Representative Alan Grayson Democrat – Florida’s 8th District asks
Bernanke:
“What’s that (the $553 billion)?”
Federal Reserve Chairman Ben Bernanke’s Reply:
“Those are swaps that were done with foreign central banks…”
Grayson:
“So who got the money?”
Bernanke:
“Financial institutions in Europe and other countries…”
Grayson:
“Which ones?”
Bernanke:
“I don’t know.”
Grayson:
“Half a trillion dollars and you don’t know who got the money?”
Bernanke:
“Um, um, the loans go to the central banks and they then put them
out to their institutions…”
Grayson:
“Let’s start with which central banks?”
Bernanke:
“Well there’s 14 of them…I’m sure they’re listed in here
somewhere.”
Grayson:
“Who actually made that decision to hand out half a trillion
dollars?”
Bernanke:
“The FOMC Federal Open Market Committee.”
Grayson:
“And under what legal authority?”
Bernanke:
“We have a long standing legal authority to do swaps with other
central banks.”
Grayson:
“Anything specific about it?”
Bernanke:
“My counsel says Section 14 of the Federal Reserve Act…”

An even more interesting exchange before Congress took place on
leap day February 29, 2012 between the Fed boss Chairman Bernanke
and Congressman Ron Paul as a ranking member of the House Finance
committee. Congressman Ron Paul represents the 14th district of
Texas. Congressman Paul, who also holds a medical degree, enjoys a
national reputation as the champion of individual liberty.

He is known among both his colleagues in Congress and his
constituents for his consistent record never voting for legislation unless
the proposed measure is expressly authorized by the Constitution. Dr.
Paul is the tireless advocate for limited constitutional government, low
taxes, free markets, and a return to sound monetary policies based on
commodity-backed currency. Paul’s authorship of the “Audit the Fed”
bill HR1207 is likely what precipitated the way he was introduced by
house committee chairman Bachus who said to Bernanke,
“At this time Mr. Paul is recognized…your thorn in the flesh”.
Congressman Paul took the microphone, and in a textbook example
of understatement, agreed that he had “criticized the Fed on
occasion”. In an indictment of the complicity of Congress he added,
“but the Congress deserves some criticism too. The
Federal reserve is a creature of Congress.”

In a political drawing of the saber Congressman Paul highlighted
again the institutional secrecy and poor economic record of the Fed as
he continued,
“and if we don’t know what the Fed is doing, we have
the authority and we certainly have the authority to
pursue a lot more oversight which I would like to see. So
although the Fed is on the receiving end, and I think
rightly so, when you look at the record.” Paul went on
to address Bernanke again, “I mean The Fed’s been
around for 99 years almost a few years before you took
it over…and 99percent…98percent of the dollar value is
gone from the 1913 dollar. So that’s not really a very
good record.”

This is a graph of the official figures of the plummeting
value of the dollar since the creation of the Fed.
Congressman Paul explained the situation as he continued with this
history making address,
“I think what we’re witnessing today is the end stages of
a grand experiment…a philosophic experiment on total
fiat money. Yes they’ve been debasing currencies for
hundreds, if not thousands of years and they always end
badly. They always return to market-based money,
which is commodity money — gold and silver. But this
experiment is something different than we’ve ever had
before and it started in 1971, where we were actually
given an opportunity in many ways to be the issuer of
the fiat currency, and we had way too many benefits
from that than people realize.

But it’s gone on for forty years and people keep arguing
from the other side of this argument that it’s working,
it’s doing well, and yet from my viewpoint and from the
viewpoint of the free market economists that all it’s
doing is building a bigger and bigger bubble. And the
free market economists are the ones who predicted the
NASDAQ bubble… the housing bubbles, but we never
hear from the Keynesian, liberal economists and the
central bankers saying ‘watch out, there’s a bubble out
there…there’s too much credit…too many problems
there…there’s a housing bubble. We have to deal with
it’.

Usually we get reassurance from the Fed…on that. But I
believe there’s a logical reason for this because the
Federal Reserve is given responsibility to protect the
value of the Dollar. That’s what stable prices are all
about. We don’t even have a definition of a Dollar. You
know, we ask about the definition of a Dollar, and it’s
“oh, well whatever it [will] buy.’ Well, every single day it
will buy less… the next day.
To me it’s like building an economy and having
economic planning like a builder that had a yardstick
that changed its value every day. Just think of the kind
of building we would have. This is why we have this
imbalance in our economic system. But it was a system
designed to pyramid debt. We have a debt-based
system. The more debt we have, and the more debt the
Federal Reserve buys, the more currency they can print,
and they monetize this debt. (emphasis added)
No wonder we’re in a debt crisis…it’s worldwide. I think
it’s something we’ve never experienced before. And I
think the conclusion will be a vindication either for
sound money, or if you win the argument and say ‘yes
…we are great managers…we know how to do it…we
want the credit for the good times and we want the
credit for getting us out of those good times.’ I mean I
think in a few years we’re going to know. Of course I’m
betting that the market is smarter…commodity money is
smarter…nobody is smart enough to have central
economic planning.

So I’m anxiously waiting for this day…for the conclusion,
because reforms have to come. They are already talking
about…when you see (World Bank head) Robert Zoellick
talking about monetary reform, and talking about gold,
our time has come for serious discussion on monetary
reform.”

After comments from Representative Barney Frank (D-NY) lauding
Bernanke for the fine job he had been doing, Dr. Paul jumped right back
in and asked Bernanke if he did his “own shopping at a grocery store”.
Bernanke looked down at some offending dust-speck and fiddled with
the boom of the microphone before answering that he did. Paul again
laid into him,
“okay so you’re aware of the prices. You know, this
argument that the prices are going up about 2 percent,
nobody believes it. You know, in the old CPI says prices
are going up 9 percent so they believe this. Now people
on fixed incomes…they are really hurting. The middle
class is really hurting because their inflation rate is much
higher than the government tries to tell them, and that’s
why they lose trust in government.

But you know this whole idea about prices and
debasement of currency…if you loan me a hundred
Dollars and two years from now I gave you 90 back,
you’d be pretty upset. But we pan back on that money
and it’s worth ten or fifteen percent less and nobody
seems able to do anything about it. It’s very upsetting.
But it’s theft if I don’t give you your full $100 back, if you
loaned me $100…somebody… I’m stealing $10 from you.
Somebody’s stealing wealth and this is very upsetting.
But you know, last…in January at one of your press
conferences you said that, uh…You sort of poked a little
bit of fun at people, uh…to down play the 2 percent
inflation rate. But if you say it’s 2 and I say it’s 9, let’s
compromise for the sake of argument and say it’s 5
percent. Uh, you said it doesn’t hurt you unless you’re
one of those people who sticks their money in the
mattress. But, uh…where are you going to put it? Are
you going to put it in a CD, and not make any money at
all? So this…doesn’t make any sense. It doesn’t
encourage savings, and it just discourages people.
But I do want to make a point about prices. Prices go
up. To me that is not the inflation. That is the bad
consequences of the inflation which comes from the
increase of the money supply and that’s one of the bad
effects. But you know, you took over the Fed in 2006. I
have a silver ounce here. (Mr. Paul held up for view a 1
ounce silver US Dollar), and this ounce of silver, back in
2006 would buy over four gallons of gasoline.
Today…today it’ll buy almost 11 gallons of gasoline.
That’s preservation of value, (Paul holds up the silver
ounce again) and that’s what the market has always
said should be money.

Money comes into effect in a natural way. Not in an
edict, not by fiat…by governments declaring it is money.
But why is it that we can’t consider, you know…the two
of us, an option. You love paper money, I think money
should be honest, Constitutional…still on the
books…gold and silver legal tender why don’t we use it.
Why don’t we allow currencies to run parallel. They do
around the world. One of my options, you know, as
much as I would like to do something with the Fed, I say
the Fed’s going to self destruct anyway when the
money’s gone. Why wouldn’t we legalize competing
currencies? Couldn’t people save (holds up coin
again)…put this in a mattress…get four, five times as
much of the value in a few years?

So the record of what you’ve done in the last six years is
to destroy the value of…money…of paper money. At the
same time real money(holds up the silver eagle again) is
preserved. But a competing currency… We already
have a silver eagle. It’s legal tender for a dollar. And
some people say it’s legal tender…it’s a dollar…it’s on
the books, and they use it and they get into big trouble.
The government comes and closes them down and they
get arrested for that. But what would be wrong with
talking about parallel currencies…competing currencies?
This is something that Hayek talked about…something
that I think would be a compromise and that we could
work along those views.”

Chairman Bernanke Replies:
“Uh, First of all…good to see you again, uh Congressman
Paul (audible laughter breaks out to illustrate the irony).
Um…just one word on the inflation. Of course those
numbers are constructed by the Bureau of Labor and
Statistics, not by the Fed. They are independently
constructed and I think they are done in a very serious
and thoughtful way. Um, on alternative
currencies…nobody prevents you from holding the silver
or gold, or whatever you want to…it’s perfectly legal to
do that. And you’re also happy to, uh…it’s also perfectly
fine to, um… hold other currencies… Euros or Yen or
whatever else. So in that respect you can do that, and
I’d be happy to talk to you about it.”
Representative Paul interjects:
“But Mr. Chairman, that is not money. I mean, when
you pay taxes to buy a coin, or you have capital gains
tax… If you have to settle a lawsuit…it’s always settled
in depreciating Federal Reserve Notes. It’s never settled
in the real contract. So that’s nothing near money,
uh…when it’s illegal to use it. But to do it, you’d have to
repeal the legal tender laws…you’d have to legalize
this…you’d have to get over the sales taxes…get rid of
the capital gains tax. In Mexico they are talking about
this. They are trying to have competing currencies.
They’ve been wiped out too many times with inflation.
And it wipe[s] out the middle class. They are allowing
people to start to save in a silver currency. So I hope we
move along in that direction, because there shouldn’t be
any overwhelming changes all of a sudden that there
could be a transition. People could vote on it. Maybe
they would give up on a Federal Reserve Note and vote
for real money.”

Bernanke:
“I’d be very happy to talk to you about it.”
Congressman Paul was on the money (pun intended). It is only a
matter of time until we see the end of the Federal Reserve Note fiat
currency. Bernanke knows it and so do those who are at the helm of
the Regional Federal Reserve banks and all the while they are offering
empty paper, they are loading up on metal.

As the populace increasingly sees how, as Mr. Paul put it, they have
been “stolen” from, confidence in the banks could instantly vaporize
and we see a cascade of fractional reserve deceptions failing at an
accelerated pace, and their assets and debt collectibles coalesced under
the skirts of the ever-bigger, biggest banks. They are not going down
without a fight, and they are entrenched.

By manipulating rigged, cabal-owned markets and borrowing and
bailing themselves out, the bankers will continue on a path which cuts
out the public from profits, yet shoulders them with losses both visible
as in taxation, and invisible as in currency devaluation.
The Fed deposits into “private bank accounts” (read: accounts that
are held by private banks), which are deposits made with Fed created
money (monetary base expansion), which of course the Fed charges the
taxpayer interest for. Said deposits are held as currency devaluating
cash balloons, which generate no GDP stimulus as they are not loaned
out for the use of the public.

We don’t have a free market based upon the exchange of goods and
services for real money in the bank but instead, we have the debt
creation machine of The Fed whose entire existence is based upon the
creation of bigger and bigger debt. The National debt is held primarily
in two arenas of either Public Debt or Intragovernmental Holdings. The
US Treasury Direct website explains these as:
THE DEBT HELD BY THE PUBLIC IS ALL FEDERAL DEBT HELD BY INDIVIDUALS,
CORPORATIONS, STATE OR LOCAL GOVERNMENTS, FOREIGN GOVERNMENTS, AND
OTHER ENTITIES OUTSIDE THE UNITED STATES GOVERNMENT LESS FEDERAL
FINANCING BANK SECURITIES. TYPES OF SECURITIES HELD BY THE PUBLIC INCLUDE,
BUT ARE NOT LIMITED TO, TREASURY BILLS, NOTES, BONDS, TIPS, UNITED STATES
SAVINGS BONDS, AND STATE AND LOCAL GOVERNMENT SERIES SECURITIES.
AND
INTRAGOVERNMENTAL HOLDINGS ARE GOVERNMENT ACCOUNT SERIES SECURITIES
HELD BY GOVERNMENT TRUST FUNDS, REVOLVING FUNDS, AND SPECIAL FUNDS; AND
FEDERAL FINANCING BANK SECURITIES. A SMALL AMOUNT OF MARKETABLE
SECURITIES ARE HELD BY GOVERNMENT ACCOUNTS.

It is really a misnomer to call the resultant indebtedness of the
private transactions of a secretive banking cabal “Public Debt”. They
are called public because the bond instruments created to pay for them
are sold to anyone including the general public. If a member of the
general public wishes to help pay down the debt without charging the
government any interest on a mature debt bond, they can bypass the
bond market altogether and make a payment either online or by mail
directly into the coffers of the US Treasury. This is the recommendation
on the TreasuryDirect.gov site:
YOU CAN MAKE A CONTRIBUTION ONLINE EITHER BY CREDIT CARD, CHECKING OR
SAVINGS ACCOUNT AT PAY.GOV
YOU CAN WRITE A CHECK PAYABLE TO THE BUREAU OF THE PUBLIC DEBT, AND IN
THE MEMO SECTION, NOTATE THAT IT’S A GIFT TO REDUCE THE DEBT HELD BY THE
PUBLIC. MAIL YOUR CHECK TO:
ATTN DEPT G
BUREAU OF THE PUBLIC DEBT
P. O. BOX 2188
PARKERSBURG, WV 26106-2188
The US Treasury Direct website differentiates the Federal deficit
from the National debt and explains how deficits have built up to the
National Debt as:
THE DEFICIT IS THE FISCAL YEAR DIFFERENCE BETWEEN WHAT THE UNITED STATES
GOVERNMENT (GOVERNMENT) TAKES IN FROM TAXES AND OTHER REVENUES, CALLED
RECEIPTS, AND THE AMOUNT OF MONEY THE GOVERNMENT SPENDS, CALLED
OUTLAYS. THE ITEMS INCLUDED IN THE DEFICIT ARE CONSIDERED EITHER ON-BUDGET
OR OFF-BUDGET.

YOU CAN THINK OF THE TOTAL DEBT AS ACCUMULATED DEFICITS PLUS ACCUMULATED
OFF-BUDGET SURPLUSES. THE ON-BUDGET DEFICITS REQUIRE THE U.S. TREASURY TO
BORROW MONEY TO RAISE CASH NEEDED TO KEEP THE GOVERNMENT OPERATING.
WE BORROW THE MONEY BY SELLING SECURITIES LIKE TREASURY BILLS, NOTES, BONDS
AND SAVINGS BONDS TO THE PUBLIC.

THE TREASURY SECURITIES ISSUED TO THE PUBLIC AND TO THE GOVERNMENT TRUST
FUNDS (INTRAGOVERNMENTAL HOLDINGS) THEN BECOME PART OF THE TOTAL DEBT.
FOR INFORMATION ABOUT THE DEFICIT, VISIT THE FINANCIAL MANAGEMENT SERVICE
WEB SITE TO VIEW THE MONTHLY TREASURY STATEMENT OF RECEIPTS AND OUTLAYS
OF THE UNITED STATES GOVERNMENT (MTS).

It is noteworthy that the word “We” is used above, since it is a very
select group that decides how and when the money of the taxpaying
public of the United States is spent. Not all of the National Debt is going
to be paid. The Treasury website goes on to explain the difference
between the Public Debt Outstanding (everything that is owed), and the
Public Debt Subject to Limit (what is not actually slated to get paid, also
referred as debt above the debt ceiling):

THE PUBLIC DEBT OUTSTANDING REPRESENTS THE FACE AMOUNT OR PRINCIPAL
AMOUNT OF MARKETABLE AND NON-MARKETABLE SECURITIES CURRENTLY
OUTSTANDING. THE PUBLIC DEBT SUBJECT TO LIMIT IS THE MAXIMUM AMOUNT OF
MONEY THE GOVERNMENT IS ALLOWED TO BORROW WITHOUT RECEIVING
ADDITIONAL AUTHORITY FROM CONGRESS. FURTHERMORE, THE PUBLIC DEBT
SUBJECT TO LIMIT IS THE PUBLIC DEBT OUTSTANDING ADJUSTED FOR UNAMORTIZED
DISCOUNT ON TREASURY BILLS AND ZERO COUPON TREASURY BONDS,
MISCELLANEOUS DEBT (VERY OLD DEBT), DEBT HELD BY THE FEDERAL FINANCING
BANK AND GUARANTEED DEBT.

It should be noticed that in the above website excerpt, “very old
debt” is classed as “miscellaneous” and is deducted from the total
Outstanding Public Debt. That’s not a good sign if one is looking to the
U.S. for long-term fiduciary trustworthiness.

Battles in Congress over the decision to raise the debt ceiling and
authorize interest payment on ballooning debt which would otherwise
be subject to limits, has been the central issue of recent “shut-downs”
of the federal government. It is a phony fight staged for the mass
audience over whether or not to allow the overweight debt creators to
continue slopping at the trough.

All the while the Fed is protected from scrutiny, while the image of
the very nation it is exploiting gets tarnished. The world now sees in the
United States a picture of a self-absorbed bully and of a squandering
debtor nation which cannot pay its massive bills. Since the nation’s
entire budget now goes only to pay the interest on the massive sums of
money already borrowed, it is unlikely it will ever catch up.
A world-altering change is coming, and for most Americans, it will
be painful—especially for the unprepared.


Tags: , , , , , , , , ,

Leave a Reply