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Posts Tagged ‘Federal Reserve System’

Cutting Through All The Bullshit About the Fed

November 23, 2010 Leave a comment

In 1935, Cret designed the Seal of the Board o...

In 1935, Crest designed the Seal of the Board of Governors of the Federal Reserve System.

If you’re not familiar with the controversy surrounding the Federal Reserve System (“the Fed”), here it is in a nutshell:

Many people are concerned that the Fed is, instead of the benign central banking system its presented to be, a predatory system designed to fleece the American people.

Others say this is just baseless conspiracy theory.

Who’s right?

I really have no bloody idea.

When it comes to the Fed, there is so much conflicting information … It’s quite hard to tell fact from fiction.

After combing through tons of data, talking to dozens of people (including a former Fed employee), and spending hours of my free time trying to get to the bottom of it all …

Well, I don’t feel I’m any more educated on the subject today than I was when I began this journey.

So, what does one do?

One crowdsources, that’s what one does.

Translation: I need your help.

I’ve boiled the issue down to several key questions I believe will help get to the heart of the matter.

I may ask more questions in a follow up post. Either way, at the end of this process I’ll take what is learned and turn it into a short factual primer on the subject (with primary source backing up each point).

First, here are some facts that I do believe are verifiable …

(My apologies for not sourcing these points, I’ll include that in the final follow up along with all important facts discovered and/or debunked … if you can dispute any of the following, please do so.)

1. The Fed is not a department of the U.S. government in the way that, say, the Department of Defense is. It has “public and private aspects.” It is a system comprised of 12 privately owned “reserve banks.” Congress does appoint the members of the governing Federal Reserve Board, and it does control how much each of the board members earn as salary. It also grants the Fed its statutory authority. However, unlike the Department of Defense, the Fed acts completely independent of any branch of the U.S. government. None of the 3 branches of government have the authority to overturn or dictate any of the Fed’s decisions or actions, but congress can change the statutory authority of the Fed. (The Federal Reserve Act has been amended 200 times since it was passed in 1913.)

2. When the U.S. needs money, the Fed creates money out of thin air in the form of electronic deposits, interest on which the Treasury pays to the Fed. (gross simplification here – but the general idea is correct)

3. A portion of those interest earnings are refunded to the Treasury.

If anyone can dispute or source the above facts, please do so in the comments below.

Now, here are the questions …

Note that some of these questions are a re-verification of the points above. Others are completely separate.

1. Who are the owners (shareholders) of the 12 Reserve Banks?

2. Besides appointing the members of the Federal Reserve Board, does the U.S. government have any other oversight over the decisions made by the Fed? That is, can any of the 3 branches of Federal Government overturn any decisions made by the Fed?

Put another way: if the people are not happy with any of the actions taken by the Fed is our only recourse to change the statutory authority of the Fed after the fact?

3. What is the net profit the Fed earns on its loans to U.S. government per annum?

4. What percentage of the Fed’s interest-earnings are returned to the Treasury and what percentage are kept?

5. It states on the Fed website that the 12 Reserve Banks are not for-profit institutions. However, it is hypothesized by some that not all of the interest-earnings the Fed collects are returned to the Treasury. If the 12 Reserve Banks are not for-profit, where then does this profit go?

6. Or am I mistaken, and is it that all of the interest-earnings are in fact returned to the Treasury? It indeed says on the Fed website that “all” of the earnings after “expenses” are returned to the Treasury. Do we then have a full line-by-line accounting of all of these expenses?

7. Does the Fed earn additional interest on its other holdings? If so, where does this interest go?

8. The Fed stopped producing an M3 report in 2006. Why, and will it generate this report again in the future?

9. When Bloomberg asked the Fed to disclose the recipients of $2 trillion dollars in “emergency loans” made using taxpayer dollars, they refused. Where did that money go?

10.
It’s stated on the Fed website that the reason for its independence is to “keep politics out monetary policy.” By that same logic, shouldn’t the Department of Defense be independent so we can “keep politics out of military policy?” And so on … What makes monetary policy so special that it is exempt from the usual oversight and control?

Before answering, here are some guidelines:

– Include primary source in your response when possible.

– Pass this post on to anyone you know who you feel can contribute meaningfully.

Thanks in advance for your support.

As you can see the issue is not as simple as presented in many of the conspiracy sites, books, and films that are popular today. For example, many of these rather hysterical conspiracy screeds talk about fiat currencies, electronic deposits, interest made on those deposits, etc – but fail to disclose that (at least) some of it is returned to the Treasury. (Indeed, according to the Fed website, “all” of it is.)

What’s really irksome is the manner in which many of these conspiracy theorists operate. They present their theories as verifiable fact and then respond angrily when pressed for primary source. All the while they do their best to whip people up into a frenzy. An effort that is usually followed up with a pitch to order a video.

Now, conspiracies do exist, of course. Any time people collude in private that is technically a “conspiracy.” Such intrigues have occurred throughout history, no one could dispute.

And some of the people who write on these subjects do so quite rationally and thoughtfully. Certainly such thoughtful and rational voices exist among those who write about the Fed. I’d like to find them … and the truth.

P.S. Thank you to Gene Simmons, Director of the National Debt Awareness Center for spreading the word about this project. The NDAC site is full of extremely useful information.

There is a lot of work left to be done and we need your support. Please spread the word to other scholars who can support this effort.

If you’re not familiar with the controversy surrounding the Federal Reserve System (“the Fed”), here it is in a nutshell:

Many people are concerned that the Fed is, instead of the benign central banking system its presented to be, a predatory system designed to fleece the American people.

Others say this is just baseless conspiracy theory.

Who’s right?

I really have no bloody idea.

When it comes to the Fed, there is so much conflicting information … It’s quite hard to tell fact from fiction.

After combing through tons of data, talking to dozens of people (including a former Fed employee), and spending hours of my free time trying to get to the bottom of it all …

Well, I don’t feel I’m any more educated on the subject today than I was when I began this journey.

So, what does one do?

One crowdsources, that’s what one does.

Translation: I need your help.

I’ve boiled the issue down to several key questions I believe will help get to the heart of the matter.

I may ask more questions in a follow up post. Either way, at the end of this process I’ll take what is learned and turn it into a short factual primer on the subject (with primary source backing up each point).

First, here are some facts that I do believe are verifiable …

(My apologies for not sourcing these points, I’ll include that in the final follow up along with all important facts discovered and/or debunked … if you can dispute any of the following, please do so.)

1. The Fed is not a department of the U.S. government in the way that, say, the Department of Defense is. It has “public and private aspects.” It is a system comprised of 12 privately owned “reserve banks.” Congress does appoint the members of the governing Federal Reserve Board, and it does control how much each of the board members earn as salary. It also grants the Fed its statutory authority. However, unlike the Department of Defense, the Fed acts completely independent of any branch of the U.S. government. None of the 3 branches of government have the authority to overturn or dictate any of the Fed’s decisions or actions, but congress can change the statutory authority of the Fed. (The Federal Reserve Act has been amended 200 times since it was passed in 1913.)

2. When the U.S. needs money, the Fed creates money out of thin air in the form of electronic deposits, interest on which the Treasury pays to the Fed. (gross simplification here – but the general idea is correct)

3. A portion of those interest earnings are refunded to the Treasury.

If anyone can dispute or source the above facts, please do so in the comments below.

Now, here are the questions …

Note that some of these questions are a re-verification of the points above. Others are completely separate.

1. Who are the owners (shareholders) of the 12 Reserve Banks?

2. Besides appointing the members of the Federal Reserve Board, does the U.S. government have any other oversight over the decisions made by the Fed? That is, can any of the 3 branches of Federal Government overturn any decisions made by the Fed?

Put another way: if the people are not happy with any of the actions taken by the Fed is our only recourse to change the statutory authority of the Fed after the fact?

3. What is the net profit the Fed earns on its loans to U.S. government per annum?

4. What percentage of the Fed’s interest-earnings are returned to the Treasury and what percentage are kept?

5. It states on the Fed website that the 12 Reserve Banks are not for-profit institutions. However, it is hypothesized by some that not all of the interest-earnings the Fed collects are returned to the Treasury. If the 12 Reserve Banks are not for-profit, where then does this profit go?

6. Or am I mistaken, and is it that all of the interest-earnings are in fact returned to the Treasury? It indeed says on the Fed website that “all” of the earnings after “expenses” are returned to the Treasury. Do we then have a full line-by-line accounting of all of these expenses?

7. Does the Fed earn additional interest on its other holdings? If so, where does this interest go?

8. The Fed stopped producing an M3 report in 2006. Why, and will it generate this report again in the future?

9. When Bloomberg asked the Fed to disclose the recipients of $2 trillion dollars in “emergency loans” made using taxpayer dollars, they refused. Where did that money go?

10.
It’s stated on the Fed website that the reason for its independence is to “keep politics out monetary policy.” By that same logic, shouldn’t the Department of Defense be independent so we can “keep politics out of military policy?” And so on … What makes monetary policy so special that it is exempt from the usual oversight and control?

Before answering, here are some guidelines:

– Include primary source in your response when possible.

– Pass this post on to anyone you know who you feel can contribute meaningfully.

Thanks in advance for your support.

As you can see the issue is not as simple as presented in many of the conspiracy sites, books, and films that are popular today. For example, many of these rather hysterical conspiracy screeds talk about fiat currencies, electronic deposits, interest made on those deposits, etc – but fail to disclose that (at least) some of it is returned to the Treasury. (Indeed, according to the Fed website, “all” of it is.)

What’s really irksome is the manner in which many of these conspiracy theorists operate. They present their theories as verifiable fact and then respond angrily when pressed for primary source. All the while they do their best to whip people up into a frenzy. An effort that is usually followed up with a pitch to order a video.

Now, conspiracies do exist, of course. Any time people collude in private that is technically a “conspiracy.” Such intrigues have occurred throughout history, no one could dispute.

And some of the people who write on these subjects do so quite rationally and thoughtfully. Certainly such thoughtful and rational voices exist among those who write about the Fed. I’d like to find them … and the truth.

P.S. Thank you to Gene Simmons, Director of the National Debt Awareness Center for spreading the word about this project. The NDAC site is full of extremely useful information.

There is a lot of work left to be done and we need your support. Please spread the word to other scholars who can support this effort.

By Mark Joyner

BACK to margotbworldnews.com

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Letter from the Editor

November 19, 2010 Leave a comment

Logo of General Motors Corporation. Source: 20...

Logo of General Motors Corporation. Source: 2007_business_choice_bro_en.pdf (on GM website).

George Bernard Shaw once said: “I showed my appreciation of my native land in the usual Irish way: by getting out of it as soon as I possibly could.”

This week many of his fellow countrymen may have been considering joining the centuries-old diaspora from the Emerald Isle as a joint EU/IMF delegation arrived to negotiate a bail-out of its stricken banks.

At least some of the banks would die if not kept alive by cheap unlimited European Central Bank funding – the same easy money delaying the almost inevitable debt restructurings in Ireland, Greece and possibly elsewhere. It also drags the ECB firmly into the political realm and makes it easier for politicians to dodge difficult decisions – just like their dreaming Californian cousins.

Meanwhile the Fed was robustly defending its own QE2 programme designed to drive down US bond yields, but they stubbornly decided to rise instead as the latest data on mortgages showed a still-moribund housing market.

Amidst the general confusion the spectre of looming Chinese price controls to fight inflation cooled the commodities rally, but counter-intuitively may have shown evidence of a maturing market in Shanghai.

It is understandable that at such times cautious investors like Abu Dhabi’s investment vehicle sought the safety of developed markets. But despite the relative success of the largest IPO in US history for General Motors’ owners (don’t mention the taxpayers), the rulers of the Arab emirate are hardly likely to want to give up their German and Italian cars anytime soon.

There is hope for the eurozone yet.

John Casey, Lex publisher

http://www.ft.com/lex/best

BACK to margotbworldnews.com

POOR, HELPLESS BERNANKE

November 18, 2010 Leave a comment

By Judith A. Klinghoffer (bio)

The battle over the Fed QE2 (quantitative easing) is raging. Sarah Palin is not the only one who asked Ben Bernanke to cease and desist his latest bout of money printing.

“The planned asset purchases risk currency debasement and inflation, and we do not think they will achieve the Fed’s objective of promoting employment,” said the letter, signed by 23 people including Cliff Asness, who runs AQR Capital Management LLC, one of the world’s biggest hedge funds; Stanford University Professor John Taylor, creator of a monetary-policy formula used by the Fed; and Douglas Holtz-Eakin, a former Congressional Budget Office director.

Ben Bernanke embarked on QE2 to devalue the dollar to help American exports, to long term interest rates to help the housing market and to increase inflation to buoy the stock market, make Americans feel richer and spend more.

Alas, the global economy refuse to cooperate. Bond vigilantes are gunning for Ireland, the Euro teeters and the dollar rises. Stocks retreat on Asian inflation, Euro debt fears. And long term interest rates are rising instead of declining.

Poor Bernanke, the American economy is tied to the global economy and the world economy refuses to march to the beat of his drum.

May I just add that it is absurd not to include food and fuel in the inflation rate. It does not feel like zero inflation to me. Not when I have to pay 90 cents for a bagel.

For more, see my HNN blog Deja Vu

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Posted by Judith A. Klinghoffer on November 16th, 2010
Permanent link: POOR, HELPLESS BERNANKE 

 

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Benjamin Rothschild: The United States is finished!

November 11, 2010 Leave a comment


Here’s a quote from a recent interview with Baron Benjamin de Rothschild published on the haaretz.com website today.

What stage of the crisis are we now in – the beginning, the end, the middle?

“I don’t have a clue in hell. You tell me. Anyone who answers that question is either a genius or a fraud. The American economy is still in the grip of a serious crisis; they have an employment problem that is going to get worse. One of the strengths of the United States lay in people’s ability to move from one job to another. That has now come to a halt. They can’t relocate because they can’t sell their home. The United States is finished, at least for the moment. There will be more oversight, but people will always come up with new financial products that are not amenable to oversight. What’s happening is that the firefighters keep arriving after the fire.”

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The Fed and the Debased “Imperial Dollar”

November 10, 2010 Leave a comment

Official portrait of Federal Reserve Chairman ...

Official portrait of Federal Reserve Chairman Ben Bernanke.

Tuesday, November 9, 2010

Future Inflation,

Timid Economic Growth and

Higher Interest Rates Ahead

by Rodrigue Tremblay


“Under a paper money system, a determined government can always generate higher spending and hence positive inflation.”

Ben Bernanke, future Fed Chairman (in 2002)

“My thesis here is that cooperation between the monetary and fiscal authorities in Japan could help solve the problems that each policymaker faces on its own. Consider for example a tax cut for households and businesses that is explicitly coupled with incremental BOJ purchases of government debt – so that the tax cut is in effect financed by money creation. Moreover, assume that the Bank of Japan has made a commitment, by announcing a price-level target, to reflate the economy, so that much or all of the increase in the money stock is viewed as permanent.”

Ben Bernanke, future Fed Chairman (in 2002)

“The Fed, in effect, is telling the markets not to worry about our fiscal deficits, it will be the buyer of first and perhaps last resort. There is no need – as with Charles Ponzi – to find an increasing amount of future gullibles, they will just write the check themselves. I ask you: Has there ever been a Ponzi scheme so brazen? There has not.”

Bill Gross, PIMCO’s managing director

On Wednesday, November 3rd, the Bernanke Fed announced that it stands ready to resume money printing to stimulate the economy through quantitative money easing, an euphemism for printing more dollars. Indeed, it intends to buy $600-billion of longer-term Treasury securities until the end of the second quarter of 2011, plus some $300 billion of reinvestments, on top of the some $1.75 trillion of various types of securities, many of which were mortgage backed securities, that it has added in 2009 to its balance sheet, currently standing at a total of $2.3 trillion. There could even be additional increases in newly printed money as the Fed intends to “regularly review and adjust the program as needed to best foster maximum employment and price stability.”

After the election of fiscal conservatives on November 2nd, it seems that printing money is the only instrument left for the Obama administration to stimulate the economy. I fail to see, however, what is “conservative” about that. Actively debasing a currency to stimulate an economy used to be a Third-World economic recipe, —A recipe for disaster. Now, the United States government feels that is the only way to get out of the economic doldrums.

But U.S. economic problems are essentially structural in nature, and are due to a bad housing mortgage policy, a bad industrial policy, a bad financial policy, a bad fiscal policy, a bad foreign investment policy, too much entitlement debt, severe demographic problems related to the aging baby-boomers, and to very costly hegemonic wars abroad. Relying exclusively on monetary quick fixes to correct them misses the mark and may have serious unintended negative consequences down the road.

In fact, it is likely that in the long run, this extreme monetary policy risks exacerbating rather than correcting the problems. Economic structural problems cannot be corrected with monetary means. They rather require real economic solutions. That means correcting the housing mortgage mess and devising an industrial strategy, a fiscal strategy, and an investment strategy that can put the economy back on its tracks of economic growth.

But, for better or worse, the Federal Reserve Board (Fed) seems to be the only branch of the U.S. government left that can still function properly, i.e. that is not caught in a permanent political gridlock. As a consequence, for the time being at least, bankers are in charge of the U.S. economy. Since they are the ones who created many of the current problems, this is not very reassuring.

Let’s remind ourselves that the Fed is a semi-public, semi-private organization that has a long history of creating financial asset price bubbles in the U.S and around the world, essentially because the U.S. dollar is an international key-currency widely used around the world and is an important part of other central banks’ official reserves.

Thus, the real danger is that the Fed will again overdo it and create unmanageable financial and monetary bubbles in the coming years. —It did it in the past. It did it in the late 1960’s and early ’70s, and we witnessed the same scenario unfolding with the Greenspan Fed in the late 1990s, when excessive easy money helped inflate the Internet and tech stock market bubble. We saw this again in the early 2000s, when easy Fed money helped inflate the housing bubble. And now, we’re seeing it again with the Bernanke Fed. As a general rule, a central bank should not push the monetary gas pedal to the floor and be obliged to slam on the monetary brakes later, thus placing the real economy on a roller-coaster of booms and busts. That is not the way to run a large economy.

But because of the circumstances, the Fed may be at it again. This time it is busy creating a massive bond bubble, some important currency misalignments and a massive gold and commodity price bubble. We should also not forget that abnormally low interest rates and lower bond yields increase the present value of pension liabilities of most defined benefit pension plans.

Therefore, I would not be surprised to see a pension crisis developing in the coming years under the current Fed monetary policy. Of course, all of these bubbles are interrelated but when they come crashing down, four or five years down the road, maybe sooner, the economy may then be in worse shape than it is today. My most likely scenario is for the Fed to keep the monetary gas pedal way down until the 2012 election, and then slam on the monetary brakes thereafter to salvage what will be left of the imperial dollar.

If so, this could be a partial repeat of Japan’s experience in mismanaging its economy in the early 1990’s until 2000, a period known as the lost decade.

The current Fed’s monetary policy is to flood financial markets with liquidity, i.e. newly created dollars, and, in the process, devalue the U.S. dollar, spur American exports and prevent deflationary expectations from taking hold and from making already high debt loads even heavier. For this, the Fed has been engaged since 2009 in round after round of money creation and interest rate reductions to the point of pushing short-term monetary rates close to zero and keeping short-term real rates negative. But if the economy is in a liquidity trap, as it is fair to assume it is, although a central bank can print all the money it wants, this is unlikely to stimulate the real economy for very long. —This is like pushing on a string. Printing money, if it is an emergency temporary measure, can help mitigate the effect of having too much debt and debt-service costs relative to income, as is the case today with many debtors in a debt liquidation mode. However, if this becomes a feature of monetary policy for too long, it can have disastrous consequences.

In general, it can be said that the Fed can manipulate short term interest rates by artificially increasing demand for short term securities, but inflation expectations are a big component of long term interest rates and are much less influenced by the Fed. Therefore, if the Fed’s intention of printing large amounts of new money raises fears of future inflation, long term interest rates may rise rather than fall, and this is bound to hurt long-term productive investments.

Moreover, make no mistake, with globalized financial markets, a large chunk of the newly created dollars is flowing out of the United States and is invested in higher interest rate countries, pushing the dollar further down and these countries’ currencies further up. Of course, some of the newly created money will immediately find its way in the stock market, but there is no certainty that this will induce already stretched banks to increase their banking loans to businesses.

Another consequence is this: The current outflow of U.S. dollars helps keep the dollar exchange rate low, but when the Fed is forced to aggressively raise interest rates, as it will inevitably be forced to do later on, the reverse will happen and the U.S. dollar will likely overshoot and then become overvalued. This is the case today with the Japanese yen which became unduly strong when the Japanese carry trade (too much cheap money invested abroad returns home) collapsed.

What counts for most people, however, is that the Fed’s zero-interest rate policy has not cured the structural housing mortgage crisis, since home foreclosures are still very high. The Fed now places most of its hopes on a currency devaluation, which is the old trick of the “beggar thy neighbor” policy, i.e. trying to export one country’s unemployment to its trading partners by devaluating the currency. This was a form of protectionism much relied upon during the 1929-39 Great Depression. This may work for a while, at least as long as other countries can absorb American exports without launching their own money printing process in order to prevent an appreciation of their currencies.

Indeed, is it likely that countries which see their currencies being revalued by the Fed will remain passive? The Fed is implicitly making the bet that these countries will not retaliate, and that the international dollar-based currency system will remain intact. But for how long? Sooner or later, some central banks around the world will have no choice but to impose capital controls in order to slow down the inflow of unwanted outside money and the onslaught of imported inflation, and prevent their exchanges rates from rising too high too fast. If they do, the entire process of economic globalization may begin to unravel.

Meanwhile, foreign central banks, for example, could accelerate their rush to dump the U.S dollar and to accumulate gold and other more stable currencies such as the euro, the Swiss franc, the British pound, the Canadian dollar and the Australian dollar. China has already begun to do just that. The share of dollar official reserves would then decline from about 60 percent presently to perhaps less than 50 percent. That may signal the beginning of the end for the “imperial dollar” which has dominated the international monetary system since the Bretton Woods conference of 1944.

This is to be followed closely.

_____________________________________

Rodrigue Tremblay

is professor emeritus of economics at the University of Montreal

and can be reached at rodrigue.tremblay@yahoo.com. He is the author of the book “The Code for Global Ethics” at: www.TheCodeForGlobalEthics.com/

The book “The Code for Global Ethics, Ten Humanist Principles”, by Dr. Rodrigue Tremblay, prefaced by Dr. Paul Kurtz, has just been released by Prometheus Books.

Please visit the book site at:

www.TheCodeForGlobalEthics.com/

See it on Amazon USA:

See it on Amazon Canada:

See it on Amazon UK:

or, in Australia at:

Please ask your favorite bookstore and your local library to order

the book: The Code for Global Ethics, Ten Humanist Principles,

by Dr. Rodrigue Tremblay, prefaced by Dr. Paul Kurtz, Prometheus Books, 2010, 300 p. ISBN: 978-1616141721.

*****The French version of the book is also now available. See:

www.lecodepouruneethiqueglobale.com/

or on Amazon Canada

_____________________________________

Posted, Tuesday, November 9, 2010, at 5:30 am

Email to a friend:

http://www.TheNewAmericanEmpire.com/tremblay=1129.htm

or click on Blog at: www.TheCodeForGlobalEthics.com

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Obama returns fire after China slams Fed’s move

November 8, 2010 1 comment

p>By Patricia Zengerle and Krittivas Mukherjee Patricia Zengerle And Krittivas Mukherjee Mon Nov 8, 8:59 am ET

NEW DELHI (Reuters) – President Barack Obama defended the Federal Reserve’s policy of printing dollars on Monday after China and Russia stepped up criticism ahead of this week’s Group of 20 meeting.

The G20 summit has been pitched as a chance for leaders of the countries that account for 85 percent of world output to prevent a currency row escalating into a rush to protectionism that could imperil the global recovery.

But there is little sign of consensus.

The summit has been overshadowed by disagreements over the U.S. Federal Reserve‘s quantitative easing (QE) policy under which it will print money to buy $600 billion of government bonds, a move that could depress the dollar and cause a potentially destabilizing flow of money into emerging economies.

“I will say that the Fed’s mandate, my mandate, is to grow our economy. And that’s not just good for the United States, that’s good for the world as a whole,” Obama said during a trip to India.

“And the worst thing that could happen to the world economy, not just ours, is if we end up being stuck with no growth or very limited growth,” he said.

European Central Bank President Jean-Claude Trichet said all participants at a meeting of the world’s central bankers in Basel, Switzerland had insisted they were not pursuing weak currency policies.

“We’re attached to avoiding excessive volatility. It’s very counterproductive for global growth and global stability,” he told a news conference.

CHINA, RUSSIA ATTACK FED MOVE

Washington has frequently criticized China, saying it deliberately undervalues its currency to boost exports.

China says the United States, via the Fed, is engaged in the same thing that it stands accused of, and some emerging nations have already acted to curb their currencies’ rise.

Resentment abroad stems from worry that Fed pump-priming will hasten the U.S. dollar’s slide and cause their currencies to shoot up in value, setting the stage for asset bubbles and making a future burst of inflation more likely.

“As a major reserve currency issuer, for the United States to launch a second round of quantitative easing at this time, we feel that it did not recognize its responsibility to stabilize global markets and did not think about the impact of excessive liquidity on emerging markets,” Chinese Finance Vice Minister Zhu Guangyao said on Monday.

The Fed’s quantitative easing policy was unveiled last week to jeers from emerging market powerhouses from Latin America to Asia. Russia renewed its assault on Monday.

“Russia’s president will insist …. that such actions are taken with preliminary consultations with other members of the global economy,” said Arkady Dvorkovich, a Russian official who is preparing the country’s position in Seoul.

Bank of Japan Deputy Governor Hirohide Yamaguchi said on Monday that it too was ready to boost its asset-buying scheme if it saw clear signs of a downturn. Worth 5 trillion yen ($62 billion), it is so far just a tenth the size of the Fed’s.

U.S. DROPS KEY DEMAND

India is Obama’s first stop in a 10-day trip to Asia that will include Indonesia and Japan.

He will arrive in Seoul for the November 11-12 summit weakened by a crushing congressional election defeat for his Democratic Party and under fire from all sides. Germany described U.S. economic policy as “clueless” last week.

The U.S. has already all but dropped its centerpiece proposal for the G20 — a measure that would cap current account balances at 4 percent of gross domestic product, something economists said was clearly aimed at China.

At the weekend, U.S. Treasury Secretary Timothy Geithner backed away from the numerical target that had been rejected by China, Germany, Japan and others in a sign that global financial power had slipped from U.S. hands.

On Monday, he was putting on a brave face, saying China was supportive of the G20’s framework for rebalancing the global economy, and that he expected broad consensus on it at the summit.

The risk of a negative outcome in Seoul appears to be increasing, or at the very least, an agreement that merely papers over the huge gaps and allows countries to pursue their own economic policies whether it be intervening in currency markets like South Korea and Japan or printing dollars.

“Judging by the critical response of emerging market governments to QE, the likelihood of a ceasefire in the currency war is slim,” RBC Capital markets said in a report published on Monday.

(Writing by David Chance and Mike Peacock; editing by Stephen Nisbet)

How Ben Bernanke Sentenced The Poorest 20% Of The Population To A Cold, Hungry Winter

November 8, 2010 1 comment

Source article

The following chart prepared recently by JPMorgan demonstrates something rather scary, and makes it all too clear how the Chairman’s plan to “assist” the US population via some imaginary “wealth effect” due to QE2, is about to backfire. As is now becoming all too clear, the prices of energy and food products are about to surge, and in many cases have already done so, but courtesy of some clever gimmicks (Wal Mart selling what was formerly 39 oz of coffee as a 33.9 oz product for example) the end consumers haven’t quite felt it yet. They will soon.

There is a limit to how much every commodity can open limit up before it appears on the SKU price at one’s local grocer. And while a marginally declining “core CPI” is irrelevant for this exercise as it measures only items that are completely outside of the scope of everyday life, what will be far more important to end consumers will be the push higher in food and energy costs.

The problem, however, is that for the lowest 20% of Americans, as per the BLS, food and energy purchases represent over 50% of their after-tax income (a number which drops to 10% for the wealthiest twenty percentile). In other words should rampant liquidity end up pushing food and energy prices to double (something that is a distinct possibility currently), Ben Bernanke may have very well sentenced about 60 million Americans to a hungry and very cold winter, let alone having any resources to buy trinkets with the imaginary wealth effect which for over 80% of the US population will never come.

Here is how JPM explains the phenomenon:

When the Fed considers the possible consequences of a falling dollar resulting from QE2, it should perhaps focus on food and energy prices as much as on traditionally computed core inflation.  First, the food/energy exposures of the lower 2 income quintiles are quite high (see chart).  Second, the core  CPI has a massive weight to “owner’s equivalent rent”, which suggests that the imputed cost of home occupancy has gone down.  Unfortunately, this is not true for families living in homes that are underwater, and cannot move to take advantage of it (unless they choose to default and bear the consequences of doing so).   Due to the housing mess, there has perhaps never been a time when traditionally computed core inflation as a way of measuring changes in the cost of things means less than it does right now.

Since nothing else appears to have jarred America from its prime time TV/iPad hypnosis yet, perhaps this is for the best, and a few hungry months in subzero temperatures is precisely what several tens of millions of Americans need to finally march on Constitution avenue.

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