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Glenn Beck: Who Owns The Federal Reserve?

I've just discovered there are some great videos on my topic here - National Economic Understanding. Here's another one with Glenn Beck (from Sep 22, 2008):

Glenn Beck: Who Owns The Federal Reserve?

Fundamental Problems of US Economy

Another English article broke it down like this:

Fundamental Problems of US Economy

• National Debt of $10,000 billion [10 trillion] (68% GDP)
• Current Account Deficit $857 billion equivalent of 6.5% of GDP
• Housing Market - House prices have fallen by 30% in some areas.
• Rising [Income] Inequality
• Devaluing Dollar - Loss of Confidence In America and America's economy.
• Record Debt Levels - Past growth has been financed by consumer borrowing
• Credit Crunch - Loss of confidence in banking system due to bad loans

As of this writing, the National Debt is $10,948,502,005,127.63. That's almost $11 Trillion Dollars.

Glenn Beck: Inconvenient Debt

Glenn Beck's Inconvenient Debt



This is great!

Stimulus Plan - Health Provisions Slipped in Without Discussion.

My thanks to RoninPhx for posting a link to this story. I felt I had to say something about it.

Everything's getting so unreal....

(brought over from the Truckalogue)
This Stimulus Bill that passed in the Senate yesterday - $838 billion, just for the record. There's 'hidden legislation' concerning healthcare in the bill that is, according to Betsy McCaughey of Bloomburg.com

"...is virtually identical to what [former Senator and former Health and Human Services secretary nominee] Daschle prescribed in his 2008 book, “Critical: What We Can Do About the Health-Care Crisis.” According to Daschle, doctors have to give up autonomy and “learn to operate less like solo practitioners.” ...

Elderly Hardest Hit

Daschle says health-care reform “will not be pain free.” Seniors should be more accepting of the conditions that come with age instead of treating them. That means the elderly will bear the brunt.

Medicare now pays for treatments deemed safe and effective. The stimulus bill would change that and apply a cost- effectiveness standard set by the Federal Council (464).

The Federal Council is modeled after a U.K. board discussed in Daschle’s book. This board approves or rejects treatments using a formula that divides the cost of the treatment by the number of years the patient is likely to benefit. Treatments for younger patients are more often approved than treatments for diseases that affect the elderly, such as osteoporosis.
In 2006, a U.K. health board decreed that elderly patients with macular degeneration had to wait until they went blind in one eye before they could get a costly new drug to save the other eye. It took almost three years of public protests before the board reversed its decision....

The bill allocates more funding for this bureaucracy than for the Army, Navy, Marines, and Air Force combined (90-92, 174-177, 181).

I said all that to say this: I walked through the living room just now to get a cup of coffee. Mother said, in a scared and amazed tone, "Oh amx, have you heard about this health legislation?" I just nodded and told her I couldn't talk about it. She said, "This is so scary." It's scary to me too.

This whole Stimulus package is so frightening and alarming .... I've thought for a long time now that an age was coming when we would revert to the status of a third world country; and we would see days with limited power and food, etc. I think we are closer to it than I thought.

I need to remind myself of what I told Mike: "When it gets really bad, I'll muddle along with everybody else and we'll survive just like everybody else. What good is my Faith if I don't fully trust in God to take care of me & mine? What good is my Faith if I worry about anything for that matter ... Seriously, I want God to handle this stuff when gets down to affecting me personally, so I have nooo problem "turning it over", so to speak."

Started a new blog yesterday - amx's Quest for National Economic Understanding. Worked on it almost all day.

James West Article Part II

From U.S. Debt Default, Dollar Collapse Altogether Likely - an article written by James West.

James West writes:

Is 2009 the year that the United States formally defaults? And with that, will the dollar collapse be rolled back ten FOR one or more?

There are a lot of reasons to support that theory. To Wall Street economists, such an event is heresy and therefore unthinkable. Yet Wall Street is the very La-la-land that bred the idea of a perpetually indebted nation in the first place.

Number one among the indicators favoring this scenario is what is happening in the U.S. Treasuries auction market.

Last Thursday, an $30 billion auction in five-year notes failed to stir the interest of traditional primary dealers. The auction itself was saved by an anonymous “indirect” bid.

Buyers are discouraged by the prospect of what is expected to amount to $2 trillion total issuance for the full year of 2009. The further out the maturities on notes, the more bearish the sentiment towards them. The only way to entice buyers is through the increase in yields.

But with yields at 1.82 per cent, five-year notes were met with a demand for 1.98 times the amount offered - the lowest bid-to-cover ratio since September. A sell-off in treasuries began in earnest upon the conclusion of that auction.

Ok. What is the "U.S. Treasuries auction market"?
Again, thanks to mike762, who said this: "...when the Treasury gets a budget or spending request from Congress,

they hold an auction to sell bonds and bills to finance whatever portion is not covered by current receipts-taxes, tariffs etc.

Investors buy these bonds/bills at a coupon rate (interest rate) that is dependent upon the level of risk associated with these bonds/bills.

When there are not enough buyers at the auction to cover the amounts required,

the Fed or it's proxies buy the bonds/bills.

This is what is meant by monetization, and it is highly inflationary.

Credit is then placed on the books at the Fed for the Treasury to draw on

to turn into checks and cash to pay for the programs in the budget.

It is a circular process that will continue until the currency and the bond market collapses."

Source - "The biggest reasons that T-Bills are so popular is that they are one of the few money market instruments that are affordable to the individual investors. T-bills are usually issued in denominations of $1,000, $5,000, $10,000, $25,000, $50,000, $100,000 and $1 million. Other positives are that T-bills (and all Treasuries) are considered to be the safest investments in the world because the U.S. government backs them. In fact, they are considered risk-free. Furthermore, they are exempt from state and local taxes."

Off on a tangent.
I found this while I was digging. It's just a Yahoo Answers thing, but I want to keep it: Where does the government get money from to keep paying treasury bond interest? One of the answers included this: : "...In order to establish this, we look at the National Debt relative to the GDP(adjusted for Purchasing Power Parity)...."
I don't understand what this part of the answer meant, but it's the first time I've seen "GDP". GDP stands for Gross Domestic Product.

Who are the "traditional primary dealers"?
According to Wikipedia: A primary dealer is a bank or securities broker-dealer that may trade directly with the Federal Reserve System of the United States. They are required to make bids or offers when the Fed conducts open market operations, ..., and to participate actively in U.S. Treasury securities auctions.

The current list of primary dealers:
As of October 1, 2008 according to the Federal Reserve Bank of New York the list includes:
BNP Paribas Securities Corp.
Bank of America Securities LLC
Barclays Capital Inc.
Cantor Fitzgerald & Co.
Citigroup Global Markets Inc.
Credit Suisse Securities (USA) LLC
Daiwa Securities America Inc.
Deutsche Bank Securities Inc.
Dresdner Kleinwort Securities LLC.
Goldman, Sachs & Co.
Greenwich Capital Markets Inc.
HSBC Securities (USA) Inc.
J. P. Morgan Securities Inc.
Merrill Lynch Government Securities Inc.
Mizuho Securities USA Inc.
Morgan Stanley & Co. Incorporated
UBS Securities LLC.

Three notable changes to the list have occurred in 2008. Countrywide Securities Corporation was removed on July 15 due to its acquisition by Bank of America. Lehman Brothers Inc. was removed on September 22 due to bankruptcy. Bear Stearns & Co. Inc. was removed from the list on October 1 due to its acquisition by J.P. Morgan Chase.

What does "bid-to-cover ratio" mean?
Wikipedia: "Bid-To-Cover Ratio is a ratio used to express the demand for a particular security during offerings and auctions. In general, it is used for shares, bonds, and other securities. It is computed in two ways: the number of bids received divided by the number of bids accepted, or the total amount of the bids is used instead.

The higher the ratio, the higher the demand. A ratio above 2.0 indicates a successful auction comprised of aggressive bids. A low ratio is an indication of a disappointing auction, marked by a wide bid-ask spread.

For example, suppose debt managers are seeking to raise $10 billion in ten-year notes with a 5.125% coupon, and in aggregate the bids are as follows:

$1.00 billion at 5.115%
$2.50 billion at 5.120%
$3.50 billion at 5.125%
$4.50 billion at 5.130%
$3.75 billion at 5.135%
$2.75 billion at 5.140%
$1.50 billion at 5.145%
The total of all bids is $19.5 billion and the number of bids accepted would be $10 billion, therefore leading to a bid-to-cover ratio of 1.95."

Thanks to chuck_tree: "The bid-to-cover ratio shows demand versus supply. That is how many bonds were wanted versus the number of bonds (or notes or bills) that are available."

So what West is really saying is (30 x 1.98) = 59.4 billion was offered for 30 billion in 5yr notes that pay 1.82%.

Mike once more: The higher the demand the lower the rate, the lower the demand the higher the rate. When the Treasury held the auction and didn't have enough demand (bids) to cover the offer, then they had to raise the rate to entice people to purchase. In this case there were no takers, so the Fed bought them at the offer rate, or par. ... It expands the money supply and keeps interest rates artificially low. This helps when servicing the interest on the debt, which is the fourth highest item on the annual budget. ... Investors are looking at our debt level, and the addition of $3T over the last 6 months, and are not willing to buy, because they know they will lose due to devaluation.

What's devaluation again? From Investopedia:

"What Does Devaluation Mean?
A deliberate downward adjustment to a country's official exchange rate relative to other currencies. In a fixed exchange rate regime, only a decision by a country's government (i.e central bank) can alter the official value of the currency. Contrast to "revaluation".

Investopedia explains Devaluation
There are two implications for a currency devaluation. First, devaluation makes a country's exports relatively less expensive for foreigners and second, it makes foreign products relatively more expensive for domestic consumers, discouraging imports. As a result, this may help to reduce a country's trade deficit."

More Keepers

The problem is what happened during the Depression. Banking panics were nothing new -- that is what the Fed was created for. But when banking panics started (as unemployment abruptly jumpted from 6% to 15% at the end of 1930), the Federal Reserve suddenly didn't trust banks enough to back them up. If the banks were insolvent, evidently, they must be allowed to fail. Unfortunately, so many banks were seen as insolvent and allowed to fail that it took the whole United States economy down with it. But the Federal Reserve could be proud of being financially solid itself! This served no purpose, however, beyond bureaucratic ass-covering.

This turns out to be a classic example of bureaucrats who do not have to pay the cost that results from their actions. The banks may fail, the economy may collapse, but they still have their jobs! Indeed, if the Depression could be blamed on "speculators," the bureaucrats could actually see their status, pay, and power increase! In 1907, it is obvious that the banks could work out their own salvation because they actually did not want to fail. Failed banks means bankers out of a job. Perhaps even bankers committing suicide. But among all the Depression stories about window leaps on Wall Street, there don't seem to be any about leaps from the nearby Federal Reserve Bank of New York

Keepers

http://www.treas.gov/


Six Kinds of United States Paper Currency - Although the Treasury had been unable to print money since 1878, it was now given an indirect ability to do so, whenever it could persuade the Federal Reserve to create money by buying United States securities itself, either directly from the Treasury or indirectly off the open market.

Mike - The Constitution in Article 1 Sections 8 and 10 requires that only gold and silver COIN shall be used as legal tender, and that no bills of credit such as our current day Federal Reserve Note shall be emitted. The Constitution was never amended to change this,

When United States Note (Wikipedia): After the death of Abraham Lincoln in April 1865, additional "first charter period" (i.e. banks chartered between 1863 and 1882) National Bank Notes and Gold Certificates of 1865 were issued. The notes were issued until January 1971, after which they were entirely replaced by the Federal Reserve Notes which had circulated alongside them since 1914....
This colorization continued with the later and more widespread United States Notes later in this war, which were not directly redeemable in specie. The still-later Federal Reserve Notes and also gold certificates and silver certificates in the United States, were printed with distinctive green reverse sides to mimic the well-known United States Note.

Fiat Currency (Wikipedia) : Fiat currency (fiat money) is money that exists because an authority or custom declares it to be money. (From the Latin fiat, which means "let it be done"). It achieves value because a government says it can be used to pay debt or buy goods and services and because people trust that the currency will be reasonably stable.[1] Fiat money is a subset of credit money (money backed by promise to pay in goods or services controlled by the creditor) in which a government, often through a central bank or reserve bank, is the major creditor backing the currency.

Federal Reserve Note (Wikipedia): A Federal Reserve Note is a type of banknote issued by the Federal Reserve System and is the only type of U.S. banknote that is still produced today.

Federal Reserve Bank Note (Wikipedia): Federal Reserve bank notes were United States currency banknotes issued by individual Federal Reserve Banks. They were based upon the earlier National Bank Notes. They differed from Federal Reserve Notes in that they could only be redeemed at the Federal Reserve bank that issued them. Federal Reserve notes could be redeemed at any Federal Reserve bank.


Series of 1929 Federal Reserve Bank NoteAs large size notes they were first issued in 1914 with a design that shared elements with the both the National Bank Notes, and the Federal Reserve Notes of the time, but as small size notes they were issued only as an emergency issue in 1933 using the same paper stock used for National Bank Notes. This emergency issue was prompted by the public hoarding of cash because of the many bank failures happening at the time. This also limited the ability of the National Banks to issue notes of their own. They were phased out within 2 years, but served their purpose dutifully. As small size notes, they have brown seals and serial numbers, the same as National Bank Notes of the era.


Keep Yahoo Answer: Does the Federal Reserve print money out of "thin air?" And if so, is it responsible for massive inflation?

Keep How Does the Federal Reserve "Print Money?"

Keep Where can I purchase sheets of uncut money?
2006 seried Dollar Bills - $16.00 costs $32.00 at the The United States Treasury Bureau of Engraving and Printing.

Of course, the Fed doesn't actually print the money. According to the U.S. Department of the Treasury FAQs, "The Federal Reserve Act of 1913 authorized the production and circulation of Federal Reserve notes. Although the Bureau of Engraving and Printing (BEP) prints these notes, they move into circulation through the Federal Reserve System. They are obligations of both the Federal Reserve System and the United States Government...."


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Among suggested viewing was Freedom to Fascism a 2006 film by Aaron Russo. Some of the premises of the film include:
1. The Federal Reserve System is unconstitutional and has maxed out the national debt and bankrupted the United States government.
2. Federal income taxes were imposed in response to, or as part of, the plan implementing the Federal Reserve System.
3. Federal income taxes are unconstitutional or otherwise legally invalid.
4. The use of the Federal income tax to counter the economic effects of the Federal Reserve System is futile.

The film has been critiqued as factually dubious by some reviewers. It has, however, developed a cult following. And if you watch the first few minutes, it's easy to see why I was drawn into it.

In fact, at one point in the thread at 24hourcampfie, I said, "I'm beginning to feel I'm in the Matrix with Keanu Reeves." Frankly, I felt a little sick too.

But as I researched and read on, I came across something about the "Country's available credit" that no one at the "'fire" could explain to my satisfaction. And then there was this:

On August 15, 1971 the U.S. government announced that it was "ending the dollar's convertibility, closing the gold window, cutting the dollar's tie to gold, and allowing the dollar to float."

and this:

... On December 18, 1971 the U.S. government raised the "official gold price" from $35 to $38. This was a devaluation of 8.57%.

And so I asked the intelligent folks involved in that thread: "How was this a devaluation? They raised the price, but gold didn't increase in value? I don't understand." And I asked, "And did the gv't possess all the gold in America? I mean, like, were they the 'Gold Store'? I can see they probably did have A LOT, but now that it no longer backed up the currency, so what? Gold was just for jewelery now, right?"

Nobody could explain that one either. Because this stuff wasn't about the currency in the first place. It was all about gold. And I let myself get caught up in it for a while.

My last post in that thread was

I've about decided I like the Matrix. Still, it's very intriguing how and why Philander Knox played his part in all this. I'd like to find out more about the whole deal because it's such a mystery to me - a cloak and dagger kind of thing.

I appreciate everyone's effort in trying to educate me. But I think I'll stick to Wikipedia for the answers.

The Federal Reserve Prints Money?

Wikipedia: Banks can swap deposit liabilities of the Fed for Federal Reserve Notes back and forth as needed to match demand from customers, and the Fed can have the Bureau of Engraving and Printing create the paper bills as needed to match demand from banks for paper money. The amount of money printed has no relation to the growth of the monetary base (M0).