Tag Archives: The Fed

Thomas Sowell: could a Cyprus-style confiscation of private savings happen here?

Thomas Sowell, an economist for the people
Thomas Sowell, an economist for the people

Surprise! It already is happening here. Thomas Sowell explains in the American Spectator.

Excerpt:

One of the big differences between the United States and Cyprus is that the U.S. government can simply print more money to get out of a financial crisis. But Cyprus cannot print more euros, which are controlled by international institutions.But could similar policies be imposed in other countries, including the United States?

Does that mean that Americans’ money is safe in banks? Yes and no.

The U.S. government is very unlikely to just seize money wholesale from people’s bank accounts, as is being done in Cyprus. But does that mean that your life savings are safe?

No. There are more sophisticated ways for governments to take what you have put aside for yourself and use it for whatever the politicians feel like using it for. If they do it slowly but steadily, they can take a big chunk of what you have sacrificed for years to save, before you are even aware, much less alarmed.

That is in fact already happening. When officials of the Federal Reserve System speak in vague and lofty terms about “quantitative easing,” what they are talking about is creating more money out of thin air, as the Federal Reserve is authorized to do — and has been doing in recent years, to the tune of tens of billions of dollars a month.

When the federal government spends far beyond the tax revenues it has, it gets the extra money by selling bonds. The Federal Reserve has become the biggest buyer of these bonds, since it costs them nothing to create more money.

This new money buys just as much as the money you sacrificed to save for years. More money in circulation, without a corresponding increase in output, means rising prices. Although the numbers in your bank book may remain the same, part of the purchasing power of your money is transferred to the government. Is that really different from what Cyprus has done?

I noticed that Brian Lilley had an article about whether Cyprus-style confiscations could happen in Canada. The short answer: yes – for amounts above $100,000 Canadian.

Michele Bachmann questions Ben Bernancke

Awesome:

Partial transcript:

BACHMANN: So the Fed wouldn’t need to be buying all these treasuries then. We could find other buyers of our debt. Is that true?

BERNANKE: Yes.

BACHMANN: So then why are we doing it?

BERNANKE: To keep rates a little bit lower, to help support housing, automobiles, and other parts of the economy that need support.

BACHMANN: But if there are other buyers, why the FED?

BERNANKE: To get rates a little bit lower.

BACHMANN: So if my 18-year-old daughter was spending 40 percent more than what my husband and I were giving her, and she didn’t just do it this month but she did it the next month and the next month and the next month — and finally my husband and I said, ‘We’re just not going to bail you out anymore, we’re not going to continue to finance that overspending that you’re doing,’ and she said to me, ‘Mother, we need to align our solution with the problem,’ — in other words, you need to keep giving me that money because it’s really not a problem yet — I would say, I think you have a problem today.

And the reason why I would say that is because the analogy with the federal government, in January of 2007, our debt was 8.67 trillion. That debt today is closer to 16.5 trillion with the intra-government debt, according to your calculation.

Do you think that’s a problem, that in six years, we’ve gone from 8.67 trillion to 16.5 trillion?

BERNANKE: Certainly I think it’s a problem, and I think it’s important we have measures to bring down it down over time.

BACHMANN: But you said we need to align the solution with the problem. It seems to me we have a big problem. and I’ll tell you why. When I was home this last week and talking to a lot of women, they were telling me, ‘I don’t get this — gasoline at Christmastime was $2.99 a gallon, now it’s $4 a gallon.’ They say, ‘I can’t keep up with the price increases at the grocery store. And we just got our health insurance premium and its going to be $300-a-month more than what it was.’

And so all I want to say Mr. Chairman is that what I’m hearing from people is that they are having to deal with the inflationary pressure.

Inflation is nothing but a hidden tax on people who save their money so that they can be independent in their old age. It’s nice to see Michele looking out for savers like me.

Egan Jones cuts U.S. credit rating again, this time from AA to AA-

Story from CNBC.

Excerpt:

Ratings firm Egan-Jones cut its credit rating on the U.S. government to “AA-” from “AA,” citing its opinion that quantitative easing from the Federal Reserve would hurt the U.S. economy and the country’s credit quality.

The Fed on Thursday said it would pump $40 billion into the U.S. economy each month until it saw a sustained upturn in the weak jobs market.

In its downgrade, the firm said that issuing more currency and depressing interest rates through purchasing mortgage-backed securities does little to raise the U.S.’s real gross domestic product, but reduces the value of the dollar.

In turn, this increases the cost of commodities, which will pressure the profitability of businesses and increase the costs of consumers thereby reducing consumer purchasing power, the firm said.

In April, Egan-Jones cuts the U.S. credit rating to “AA” from “AA+” with a negative watch, citing a lack of progress in cutting the mounting federal debt.

Moody’s Investors Service currently rates the United States Aaa, Fitch rates the country AAA, and Standard & Poor’s rates the country AA-plus. All three of those ratings have a negative outlook.

Could this have anything to do with the decision to print $40 billion a month to “stimulate” the economy? Once you’ve given up on letting businesses create jobs by lowering their taxes and removing burdensome regulations, then printing money is all you have left. But no one mistakes that for economic growth, least of all credit rating agencies.

QE3: Obama ushers in hyperinflation with more “quantitative easing”

Investors Business Daily explains Obama’s latest desperate ploy to cover up his economic failures.

Excerpt:

The Federal Reserve announced a third round of quantitative easing Thursday afternoon, and it is big: A net $40 billion a month in additional purchases of mortgage-backed securities. And policymakers said additional accommodation will continue “for a considerable time after the economic recovery strengthens.”

[…]Ordinary Americans can expect to see higher gasoline prices. Quantitative easing also pushes up commodity prices — both by boosting demand for financial assets and by weakening the dollar.

Crude oil prices have been trending higher, and were up $1 to nearly $98 a barrel in mid-afternoon trade.

That will quickly filter down to gasoline prices at the pump. Gas prices moved back to $3.847 a gallon last week, the highest since April. They’ve risen for 10 straight weeks in part on anticipation that QE3 was coming. Gas prices could once again threaten the $4 level — it’s already well over that mark in California. And that’s with no major supply issues or feared disruptions around the world.

Higher oil and gas prices also could push food prices higher, by encouraging more corn burning to produce ethanol, as IBD’s Jed Graham recently noted. Corn prices are near record highs due to this summer’s historic drought.

The producer price index shot up 1.7% in August — the biggest jump in three years — on higher food and energy costs. Gasoline prices at the wholesale level exploded 13.6%. Food costs rose 0.9%, the most in nine months.

With job growth and wage gains so weak, higher food and gas prices will cut into consumers’ buying power on everything else. That will offset much of the modest QE3 benefits.

First and second round of quantitative easing:

Third round of quantitative easing:

It means they are going to print the money. There really is no difference between Barack Obama and Robert Mugabe when it comes to economic policy. The only thing stopping him is the Republican House and the conservative alternative media.

Republican platform adds resolution to audit the Federal Reserve

From San Francisco Chronicle.

Excerpt:

 The Republican Party platform promises to replace what it criticizes as President Barack Obama’s debt-swollen entitlement society with “a roaring job market to match a roaring economy.”

The platform reflects the influence of presidential candidate Mitt Romney, offering as the remedy for the nation’s economic ills a familiar recipe of low taxes, light regulation, expanded oil drilling and free enterprise. It vows to reduce personal and corporate taxes, repeal Obama’s health-care law, promote small businesses and avoid taxpayer bailouts of troubled financial institutions.

The 62-page roadmap, approved by a voice vote of the delegates yesterday at the party’s national convention in Tampa, Florida, promotes expanded trade and accuses the Obama administration of “a virtual surrender” to commercial rival China. The Asian country is stealing American trade secrets, manipulating its currency to make its exports cheaper, and hampering U.S. firms trying to sell to Chinese customers, the Republicans say.

Republicans call for banks to be “well-capitalized” and pledge to repeal the 2010 Dodd-Frank financial-regulation law.

Along with major economic policy shifts, the Republicans vow to transform the size and scope of government. Trillion- dollar annual budget deficits and mounting debt are harming job growth, they say. “The massive federal government is structurally and financially broken,” the platform says.

[…]Echoing a longtime demand of libertarian Representative Ron Paul of Texas, the platform calls for an annual audit of the Federal Reserve. And it proposes a commission to investigate “possible ways to set a fixed value for the dollar,” a reference to a potential revival of the gold standard.

The campaign document labels Fannie Mae and Freddie Mac, government-sponsored mortgage financiers, as “a primary cause of the housing crisis because their implicit government guarantee allowed them to avoid market discipline and make risky investments.”

That view, though widely held among conservatives, has been rejected by the Federal Reserve and three of the four Republicans on the government commission that investigated the 2008 financial meltdown.

Note that both Mitt Romney and Paul Ryan support auditing the Federal Reserve.

Presumptive Republican nominee Mitt Romney called for increased transparency at the Federal Reserve Monday, voicing his strongest support yet for an audit of the country’s central banking system.

“The answer is yes to that, very plain and simple,” Romney responded, when asked by a supporter at a New Hampshire town hall whether it was time to audit the Fed. “The Federal Reserve should be accountable. We should see what they’re doing.”

The mark aligns Romney with a growing cadre of conservatives championing an audit of the Federal Reserve, a group led by Romney’s primary opponent Ron Paul and his acolytes. Earlier this month,Paul’s “Audit The Fed” bill passed the House of Representatives with overwhelming bipartisan support.

After taking a more measured stance on the issue during the Republican primaries, Romney has slowly moved to embrace a Federal Reserve audit as support for the issue grows with voters across the political spectrum. Romney’s new running mate, Wisconsin Congressman Paul Ryan, has been a vocal critic of the central banking system, and is listed as one of 268 co-sponsors of Paul’s bill. 

Romney has also said that he will not reappoint Ben Bernanke if he is elected. I think that Ron Paul supporters should be able to decide who to support in the general election based on this information.