Audit the Fed – Breaking News

A message from John Tate with C4L:

Dear Friend of Liberty,

Earlier today, the first shot in our battle to pass Audit the Fed through the U.S. Senate was fired on the Senate floor by Senator Jim DeMint of South Carolina.

Senator DeMint, who has a well-deserved reputation for taking the battle to the other side in the Senate, once again proved why he is such a valuable ally in our fight to bring transparency and accountability to the Federal Reserve.

A little while ago, the Senate voted to pass HR 2918, the Legislative Branch Appropriations Act. This $3 billion bill contains, among many other things, provisions for GAO audits on certain agencies.

Seizing on a chance to take quick action to bring Audit the Fed up for a vote, and with the GAO provisions in mind, Senator DeMint attached the full text of S 604, the Senate version of Ron Paul’s Audit the Fed bill, to HR 2918 as Senate Amendment 1367 before it was considered for final passage.

However, Senate Democrats refused to even allow a vote on the amendment!   That’s right.  The internationalist, Fed-loving elite in the Senate used a parliamentary tactic to shut down DeMint’s amendment.

After Senator DeMint brought Audit the Fed to the floor, Senator Ben Nelson of Nebraska raised a “point of order” to prevent a vote, claiming that the amendment violated Senate Rule 16 by “legislating” on an appropriations bill. The Senate president agreed, and the amendment was shot down.

Senator DeMint did not back down, though, and directly challenged Senate leadership by pointing out the other GAO audits contained in the bill. As Senator DeMint listed them off, the Senate president was forced to agree with Senator DeMint that each one he described, all of which would be left in for final passage, also violated Senate Rule 16.

Which tells us at least one thing: the problem wasn’t with “legislating” on the bill or violating Senate Rules (which is commonly done).  Shooting down the amendment was about preventing a thorough audit of the Federal Reserve for the first time in its history!

Senate leadership is hoping this issue will just fade away so they can get on to what they deem to be more “important” business, like dictating what kind of healthcare plan you and I can carry or passing destructive Cap-and-Tax legislation.

But the American people deserve answers on what the Fed has done with trillions of our tax dollars and what they are committing us and future generations to as part of their secret deals with foreign central banks and governments.

The leadership decided today to turn their backs on transparency, but our fight is just beginning.

As Senator DeMint made clear on the floor, the Audit the Fed bill has wide bipartisan support.  He rightly warned the Senate that even if they delay today, they WILL have to deal with the issue on the floor.

It is up to you and me to back up Senator DeMint’s words by making sure the momentum continues to build and the bill comes up for a final vote.

The rejection of the Audit amendment is just the first battle in our war. Now is the time to really put the pressure on the U.S. Senate to Audit the Fed!

Senator DeMint fired the opening salvo and showcased the hypocrisy of the Senate for allowing other GAO audits to be included in the bill while refusing to even allow a vote on Fed transparency.

Again, we’re just getting started. Senator DeMint will keep fighting to pass Audit the Fed on its own or as an amendment, and we need to continue putting pressure on our senators to do everything in their power to achieve a floor vote!

Click here to sign our online petition.  And visit our Audit the Fed action page for contact information to call, write, and fax your senators and urge them to support S 604 and to push for a final vote.

Together, we will finish this fight to Audit the Fed!

In Liberty,

John Tate

President

Here is Jim DeMint in the Senate:

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Ben Bernanke – Nothing but a Miserable Failure

Watch Mish blast Bernanke as he lists his ten “qualifications”:

Ten Qualifications

1) Bernanke is either a liar or has a memory problem. I believe the former. Either way, there is a problem when a Fed chairman cannot recall a conversation with another Fed governor over something as critical as the Bank of America/Merrill Lynch merger. See Bernanke Suffers From Selective Memory Loss; Paulson Calls Bank of America “Turd in the Punchbowl” for my take.

2) Bernanke claims to be a student of the great depression yet amazingly concludes the cause was misguided Fed policy after the stock market crash. This is nonsense. The cause of the great depression and the cause of the current depression (yes we are in a depression), is the massive expansion of credit and debt fostered by the Fed itself. Bernanke is no student of history, he is a dunce.

3) Bernanke has on many occasions promised transparency. This is an outright lie. There is no transparency and Bloomberg has filed freedom of information lawsuits requesting information that should have been disclosed. Moreover, Congress had to subpoena the Fed in regards to the Bank of America / Merrill Lynch shotgun wedding which is how we know about Bernanke’s selective memory loss. What else is Bernanke hiding?

4) Bernanke is creative. Some might think creativity is a positive attribute. It is, for a design engineer. Unfortunately creativity is not a good attribute for a Fed chairman. This whole mess was sponsored by the Fed when Greenspan got creative with interest rate policy. Bernanke is light-years more creative than Greenspan as witnessed by an amazing array of Fed lending facilities and the ballooning of the Fed’s balance sheet swapped for garbage collateral. The unintended consequences of Bernanke’s extraordinary actions are coming down the road. We do not even know what those consequences are. However, we do know that the Fed has no exit policy, and will come up with one by the seat of Bernanke’s pants on the fly. Given there is no need for the Fed at all, the last thing we need is for a creative Fed.

5) Bernanke supports policies of theft. Proof of this is easy to establish. Bernanke favors a policy of 2% inflation, and inflation is theft. How so? Inflation benefits those with first access to money: governments, banks, and the wealthy. Government benefits when property taxes rise more than wages, banks benefit by borrowing money into existence, and the already wealthy benefit by being next in line for access to cheap money. By the time those low on the totem pole have access to cheap money, asset prices are already through the moon. Moreover, those with enough common sense to avoid the bubbles, get nothing for their money sitting in the bank. The middle class has been ravished by inflation, and Bernanke supports that inflation.

Please note that Bernanke cannot even follow his own mandate. Where was Bernanke when property and commodity prices were soaring? The answer is he was ignoring them. Thus we see the one sided nature of Bernanke’s policies. He let home prices soar, and now that they are crashing looks to support them. By the way, this is not just Bernanke, this is a symptom of central bankers in general.

6) Bernanke cannot dissent. As a member of the Greenspan Fed, Bernanke went along with everything Greenspan did. It is clear Greenspan failed. Thus it is clear that Bernanke failed by supporting Greenspan’s policies.

7) Bernanke supports policies of outright fraud. Fractional reserve lending is a fraud. Please consider Murray N. Rothbard and the Case for a 100 Percent Gold Dollar in which Rothbard condemned fractional reserve banking as a violation of contract. “In my view, issuing promises to pay on demand in excess of the amount of the goods on hand is simply fraud, and should be so considered by the legal system. For this means that a bank issues “fake” warehouse receipts — warehouse receipts, for example, for ounces of gold that do not actually exist in the vaults. This is legalized counterfeiting; this is the creation of money without the necessity of production, to compete for resources against those who have produced. In short, I believe that fractional-reserve banking is disastrous both for the morality and for the fundamental bases and institutions of the market economy….”

8) Bernanke could not spot the housing bubble. Amazingly Bernanke thought the housing bubble was “well contained” right before it exploded in his face. Of course there is another possibility: Bernanke is a liar and knew it was not contained but did not want to say so.

9) Bernanke has no idea where interest rates should be. Of course no one else does either. But Bernanke thinks he does. The result is overshooting interest rate policy in both directions, just as Greenspan did. This is the Fed Uncertainty Principle Corollary Number One in action: The Fed has no idea where interest rates should be. Only a free market does. The Fed will be disingenuous about what it knows (nothing of use) and doesn’t know (much more than it wants to admit), particularly in times of economic stress.

10) Bernanke is a power grabbing hack. This is the Fed Uncertainty Principle Corollary Number Two in action: The government/quasi-government body most responsible for creating this mess (the Fed), will attempt a big power grab, purportedly to fix whatever problems it creates. The bigger the mess it creates, the more power it will attempt to grab. Over time this leads to dangerously concentrated power into the hands of those who have already proven they do not know what they are doing.

Summary:

Bernanke is a disingenuous liar with a memory problem. He is also an economic dunce who does not understand the cause of great depression nor could he spot a housing/credit bubble visible to nearly every blogger in the country. However, like his mentor Greenspan, Bernanke believes that every problem can be cured by throwing money at it. Finally, he is a creative, political power grabbing hack who gives memorable speeches about throwing money out of helicopters.

I have to hand it to Caroline. That is indeed a unique set of qualifications.

Bernanke’s four-year term ends in February, let us hope he is gone. Better yet, it’s time to Audit the Fed Then End It!

As I pointed out before, Ben Bernanke is consistently wrong on virtually everything he says:

Let’s see what Bernanke had to say about 1 year ago in April 2008

Mr. Bernanke, testifying before the Joint Economic Committee on Capitol Hill, said the economic situation had weakened since the Fed last reported at the end of January but that it could revive later in 2008 because of the $150 billion spending and tax cut package enacted this year.

There is one thing you can trust Bernanke with – the fact that he is wrong, always and everywhere…In one year from now, when condidtions are worse than now, what do you think he will tell us then? Is anybody still listening to this guy? If so … why?

And here’s Bernanke in May 2007:

All that said, given the fundamental factors in place that should support the demand for housing, we believe the effect of the troubles in the subprime sector on the broader housing market will likely be limited, and we do not expect significant spillovers from the subprime market to the rest of the economy or to the financial system.  The vast majority of mortgages, including even subprime mortgages, continue to perform well.  Past gains in house prices have left most homeowners with significant amounts of home equity, and growth in jobs and incomes should help keep the financial obligations of most households manageable.

And I may point out that Bernanke needs to be tried as a criminal:

For all I know, this means that Paulson all but admitted to performing securities fraud, at the behest of Ben Bernanke. Bank of America shareholders have a clear case here. It’s time to let the indictments begin…

Mr. Bernanke, you need to step down, get ready to be tried in court, stop trying micromanage the economy, and above all Shut the Hell Up.

Meanwhile, Congress needs to Audit the Fed, expose it, and the get rid of it once and for all.

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The Federal Reserve’s Power Grab – The Insanity Knows no Boundaries

Statements from President Obama and the people around him reaffirm a sad fact. They have not learned a single thing. The New York Times writes Behind the Scenes, Fed Chief Advocates Bigger Role:

WASHINGTON — During the debate over financial regulation, the Federal Reserve chairman, Ben S. Bernanke, has been surprisingly quiet.

But behind the scenes, he has been a forceful proponent of giving the Fed more power, both defending his management of the economic crisis and arguing that more authority would help the agency act more decisively to reduce the chances of a recurrence, according to interviews with lawmakers and officials from the Fed, the Treasury and the White House.

I may point out, as I have again and again, that credit expansion and the consumption business cycle were created by none less than the central bank, the Federal Reserve Bank, and the fractional reserve banks under its oversight. Giving the Fed more power will accomplish the opposite of reducing the chance of a recurrence. We need more regulation, not more decrees from a government institution, or an institution that only exists by means of government granted monopoly. More regulation can only be attained through the market place.

Despite criticism by some lawmakers that the Fed failed to anticipate the problems that led to the crisis, Mr. Bernanke has told associates that such critics fail to recognize the extraordinary actions taken by the central bank over the last year.

What the Fed has done over the last year was to get involved in corporate bailouts and an attempt to force lending. How are corporate bailouts a good thing? All they accomplish is to slow down and prolong the correction. What has the lending to banks accomplished? Are banks lending more now than 1 year ago? No, as a matter of fact credit is visibly imploding across the board. And in fact they shouldn’t be making any more loans. Bernanke still hasn’t been able to grasp the fact that lending can’t be forced. He has the wrong objective and on top of that he hasn’t attained it. How can one be any more out of touch with reality? The reality is: People are sick and tired of debt. What has Bernanke done to facilitate a swift liquidation of debt? Nothing.

Mr. Bernanke believes the Fed’s actions have played a major role in averting a possible second Great Depression, according to government officials who know his thinking. Those steps, the Fed chairman has told these people, demonstrate that the agency is up to the larger task assigned to it by the Obama administration.

Of course Bernanke is clueless about The Great Depression. The Fed has imitated virtually everything from the Great Depression playbook.

Mr. Bernanke has one important champion — President Obama. On Tuesday, the president reinforced his preference for an enlarged role for the Fed in a news conference at the White House.

The administration’s proposals for a regulatory overhaul are built around the idea “that there’s got to be somebody who is responsible not just for monitoring the health of individual institutions, but somebody who’s monitoring the systemic risks of the system as a whole,” Mr. Obama said. “And we believe that the Fed has the most technical expertise and the best track record in terms of doing that.”

And Mr. Obama: Would you mind telling us to whom the Fed is accountable? Congress is not allowed to audit their most fundamental operations. I am hoping you are aware of the fact that paragraph 714 of US Code 31 rules out any meaningful audit. I fear that you do not support Ron Paul’s Audit the Fed bill. Could you tell us if you are at least going to sign this transparency act before you give this secret institution any more powers? Who owns the Fed? Who is it accountable to? Right, the very banks it is supposed to oversee and who own member stock that pays 6 percent divident per year. You can read it up right here on the Fed’s own website. At the beginning of the same paragraph where this relationship is explained it says the Fed is not owned by anyone. Which one is it now? But then, is any one of those two options better than the other? If the Fed is not owned by anyone then it is accountable to nobody which is actually worse. If this kind of independence was so good, why don’t we make the military unaccountable to anyone as well. Heck, why don’t we abolish accountability of any government institution to anybody alltogether? What a misguided debate!

He said that while the Fed was not blameless, it was not fair to single it out for failing to avert the crisis.

“I think that the Fed probably performed better than most other regulators prior to the crisis taking place, but I think they’d be the first to acknowledge that in dealing with systemic risk and anticipating systemic risk, they didn’t do everything that needed to be done,” Mr. Obama said.

Unfortunately no, when you are instrumental to creating a crisis it is not permissible to claim that you “performed” in any way before it. In fact you didn’t perform at all if the objective of said performance was to avoid a crisis. As a matter of fact, you have done the exact opposite of “performing well”, you have “failed miserably”. That President Obama would utter such a baseless and false statement is simply deplorable.

The president and Mr. Bernanke do not, however, see eye-to-eye over whether to create a Consumer Financial Protection Agency, part of which would be carved out of the Fed’s existing jurisdiction over mortgages and credit cards.

Breaking ranks with the administration, Mr. Bernanke is expected to tell Congress that the Fed would prefer to keep the responsibility for consumer lending. He is also expected to promise a stronger emphasis on consumer debt issues in the future.

Mr. Bernanke’s surrogate in the debate has been the Treasury secretary, Timothy F. Geithner, who in Congressional testimony, speeches and interviews has praised the Federal Reserve’s performance.

(Mr. Geithner’s views may also have reflected his pedigree. He joined the administration after serving five years as president of the New York Federal Reserve, where he worked closely with Mr. Bernanke.)

I don’t think there is a more clueless person in this administration than Tim Geithner. That he would support Bernanke is only to be expected. That he himself admitted that the Fed kept rates too low for too long is probably just another statement that he has forgotten about, did not quite think through, and/or has no particular context for in his limited and low level mindset on economic theory.

Mr. Bernanke has been reluctant to get involved in the political debate, but has argued to associates and lawmakers that the often-mentioned alternative of a council supervising the largest firms would not be nimble or accountable enough.

And Mr. Bernanke: Would you mind telling us to whom the Fed is … darn, I am beginning to repeat myself.

He also has said that the plan is not a radical departure from the Fed’s current role. The Fed is already the umbrella supervisor of virtually all of Wall Street’s largest institutions, and the Obama plan would add only a handful of new companies to the Fed’s oversight list. The Fed so far has not specified which companies it would add to its purview, but once it decides, it is expected to make the list public.

One simple question: How well has the Fed done in overseeing the nation’s banking system as a whole over the past 10 year? Who is to believe that adding to its purview is a decision that a creature with more than one brain cell can possibly support.

The biggest impact, government officials said, is not in the number of institutions the Fed regulates, but in how it regulates them. It will have to go beyond measuring the financial safety of institutions to examining their connections to other firms and markets, and the dangers those connections could pose.

By possibly requiring the largest institutions to hold more capital against losses or to reduce the amount of debt they carry, for example, the Fed could make firms less profitable and less competitive with their smaller rivals. That in turn could prompt some of the largest institutions to decide to shrink, either by borrowing and lending less, or selling off units.

… how about a fair and free market in banking? You know, that thing where the ones who serve the consumers best prevail, and those who don’t, go out of business. That thing where irresponsible lending is punished. That thing where any bank that does not hold close to 100% reserves against their checking deposits, goes out of business. You know, all the things that the history of money has taught us, things that these clowns in office are obviously completely oblivious to.

If we were so concerned about big institutions with monopoly positions then why did the government by law create the hugest behemoth of all of them and give them exclusive privilege to print fiat money. Why does the President praise this institution so much? Does insanity have any boundaries?

Fed officials said they expected that new capital requirements would be tailored to the risks and strengths of each bank.

They and top administration officials disagree that the Fed’s new authority amounts to overseeing “too big to fail” banks. Under the plan, the government would have explicit authority to seize any faltering institution that was judged an unacceptable risk to the overall financial system. As a result, the government would not have to guarantee creditors 100 cents on the dollar — and “too big to fail” would no longer be the default policy.

That breaks from the practice of last year, when creditors to the American International Group, Fannie Mae and Freddie Mac were repaid in full because Mr. Bernanke and Henry M. Paulson Jr., then the Treasury secretary, did not think the government had the legal authority to shut down nonbank institutions, or to choose which loans to repay in full and which to discount.

I have a very simple solution to this: How the government AND the Fed once and for all stop all corporate bailouts? They are harmful and slow down any potential recovery. They hurt the productive and reward the unproductive. Why not put an end to this circus?

Mr. Bernanke has also told people that he finds it illogical that some lawmakers are citing the Fed’s failure years ago to curtail deceptive or abusive subprime loans as the reason for their objections to the administration’s plan.

This is not the criticism of the Fed. It is the fact that it is a substantially flawed institution, that it has brought about the worst crises in economic history, that we simply don’t need a Fed. These are the issues that Bernanke has to answer to, not some superficial criticisms of its regulatory activities.

In recent months, a series of new regulations issued by the Fed on mortgages and credit card policies issued under Mr. Bernanke have generally been applauded by consumer groups and some lawmakers, although Congress recently passed a law, which President Obama signed, to add some features. The new law requires banks and card companies to give 45 days’ notice before a change in interest rates and prohibits them from raising rates on existing balances unless a card holder falls 60 days behind on minimum payments.

Some critics have raised other concerns — that the Fed is stretching itself too thin, or compromising the political independence that is essential for setting monetary policy.

“The plan does give more power to the Fed and just complicates its job and therefore raises questions about its ultimate mission,” said John B. Taylor, a professor of economics at Stanford and a Treasury under secretary in the Bush administration. His book, “The Road Ahead for the Fed,” (Hoover Institution Press) is being published this week. “If the Fed goes further off its course and doesn’t focus on what it did in the 1980s and 1990s, it will have less control over inflation. It will lose its independence. It will have to become more political.”

Vincent R. Reinhart, a resident scholar at the American Enterprise Institute and former director of the Fed’s division of monetary affairs, said that policy makers needed to be concerned about mission creep.

“The main problem in becoming the systemic risk regulator is that it can be a very diffuse responsibility,” Mr. Reinhart said. “Should the Federal Reserve have been monitoring Enron and Long Term Capital Management and the Hunt brothers when they were involved in silver market manipulation?”

He added: “What is the ideal governor of the Fed supposed to be, someone who understands monetary policy, systemic risk, bank regulation, consumer affairs and Congressional relations? You are reaching the point where the agency is being spread pretty thin.”

Mr. Bernanke’s views, which have evolved as the financial crisis has unfolded, contrast markedly with those of his predecessor. Alan Greenspan, who said last year in his book “The Age of Turbulence” that the idea of the Fed as a systemwide regulator was “mission impossible.”

Of course it is impossible. And we will see it sooner or later. Who knows what problems a new and more powerful Fed will manage to create again down the road. But whatever it is, at some point we will be back to square one, debating how this could have happened, and debating how much more powers to grant to it in order to avert the problems that it itself has brought about.

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Geithner Admits – Austrian Economists Were Right All Along

Tim Geithner confirms what Austrian School economists have been blowing the whistle about all along:

Mr. Geithner: “But I would say there were three types of broad errors of policy and policy both here and around the world. One was that monetary policy around the world was too loose too long. And that created this just huge boom in asset prices, money chasing risk. People trying to get a higher return. That was just overwhelmingly powerful.”

Mr. Rose: “It was too easy.”

Mr. Geithner: “It was too easy, yes. In some ways less so here in the United States, but it was true globally. Real interest rates were very low for a long period of time.”

Mr. Rose: “Now, that’s an observation. The mistake was that monetary policy was not by the Fed, was not . . .”

Mr. Geithner: “Globally is what matters.”

Mr. Rose: “By central bankers around the world.”

Mr. Geithner: “Remember as the Fed started — the Fed started tightening earlier, but our long rates in the United States started to come down — even were coming down even as the Fed was tightening over that period of time, and partly because monetary policy around the world was too loose, and that kind of overwhelmed the efforts of the Fed to initially tighten. Now, but you know, we all bear a responsibility for that. I’m not trying to put it on the world.”

And I fully concur with this conclusion that follows in this WSJ article:

The Washington crowd has tried to place all of the blame for the panic on bankers, the better to absolve themselves. But as Mr. Geithner notes, Fed policy flooded the world with dollars that created a boom in asset prices and inspired the credit mania. Bankers made mistakes, but in part they were responding rationally to the subsidy for credit created by central bankers.

Another former Treasury official just confirmed the same:

The Fed helped to trigger the current financial crisis by keeping rates too low for too long, Taylor said.

“Low interest rates led to the acceleration of the housing boom,” he said. “The boom then resulted in the bust, with delinquencies, foreclosures and toxic assets on the balance sheet of financial institutions in the United States and other countries.”

Taylor said that though policy makers were well intended, they were mistaken in trying to “fine-tune” the economy after about a quarter of a century during which long and deep recessions had been avoided.

For more details see Credit Expansion Policy … always a good read for anyone who wants to understand the root cause of the financial crisis. Back in October 07 I concluded that article with:

As long as the central banks keep pursuing this policy, there is no need to be surprised when the next credit crunch occurs. Neither is there any need to be surprised about the fact that all countermeasures taken by the government will turn out to be utter failures that will accomplish nothing but aggravate the crisis. For if the cause of the problem has been too much government intervention, then more government intervention will only add to it.

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Federal Reserve Balance Sheet – April 30 2009

Treasury notes and bonds $530,623 25.2%
Term auction credit $403,573 19.2%
Mortgage-backed securities $366,153 17.4%
Central bank liquidity swaps $249,513 11.8%
Net portfolio holdings of Commercial Paper Funding Facility LLC $181,795 8.6%
Federal agency debt securities $68,158 3.2%
Other Federal Reserve assets $60,254 2.9%
Credit extended to AIG $45,492 2.2%
Primary credit $45,261 2.1%
Treasury currency outstanding $42,290 2.0%
Net portfolio holdings of Maiden Lane III LLC $27,449 1.3%
Net portfolio holdings of Maiden Lane LLC $26,502 1.3%
Treasury bills $18,423 0.9%
Net portfolio holdings of Maiden Lane II LLC $18,328 0.9%
Gold stock $11,041 0.5%
Term Asset-Backed Securities Loan Facility $6,379 0.3%
Mutual Fund Liquidity Facility $3,699 0.2%
Special drawing rights certificate account $2,200 0.1%
safe $653,790 31.0%
risky $1,453,343 69.0%

Bottom line: At this point, the US “Lender of Last Resort” is holding 70% risky and 30% safe assets. How much do you trust it?

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