In a surprising and underhanded way, yesterday after the market closed the Federal Reserve raised the discount rate from .50% to .75%!  Before we get into what this means, the fact that a major policy change was announced just before the third Friday of the month leaves much to be desired.  This is because all third Fridays are option expiration days and the market always reacts violently to any unexpected decision from the Fed.  Although today's market open looks rather timid overnight futures were showing significant losses and I bet some people who were positioned long were thinking of creative ways to water board Bernanke and set fire to the Federal Reserve building.

So what is the discount rate?  This is the rate that the central banks charge for doing business with the member banks if the member banks need cash.  If you were to imagine the entire Federal Reserve structure it is a giant pyramid.  On top sits the main Federal Reserve and under him are smaller Reserve banks.  Under those are the major commercial banking powers that comprise the reserves of the Reserve banks.  Under the commercial banks are smaller regional banks that do business with the commercial banks.  As money trickles down the pyramid it eventually enters our system in the form of credit and is dispersed into every corner of our economy.  The cost of doing business between the central and commercial banks is known as the discount rate, although it is comprised of smaller individual rates let us keep this definition for now.  Therefore the higher the discount rate the more expensive it becomes for banks to lend to each other assuming they need money from the lender of last reserve (the Fed).   This has nothing to do with your interest rates that you receive from the bank nor does it affect the cost of your loans, this is strictly an inter-banking rate and one that is not used commonly.  Still, it can be beneficial to draw correlations between the discount rate and a general mood of credit expansion. 

Because our economy is primary credit driven the amount of credit outstanding is correlated with economic activity.  As credit expands; investments expands, jobs are plentiful, speculation rises, prices spike, irrational exuberance and general idiocy ensues.  As credit contracts; investments shrink, employers cut, unemployment rises, stocks drop and a general feeling of malaise hits the country.  Some might call it a depression, some might refer to it as a junky going through withdrawal - both would be accurate. 

Below I have superimposed two charts for you.  One is the discontinued discount rate on top of the non-revolving credit.  I could not find the latest discount rate data, but this will suffice (I have taken the liberty of drawing in the last 5 years).  We could have also used any other credit indicator, but you will get the general idea. 

On top is the discount rate and on the bottom is the total non-revolving credit.  I shifted the bottom chart a bit because it takes some time for central bank policy to take effect, there is always a lag before the general economy responds to major shifts.  This is why virtually all government actions are useless as they are delayed for too long to be effective, but I digress.   Look carefully and you will observe that lowering of the discount rate coincides with expansion of credit, the black lines depicting a pause or hike in the discount rate lowering and red lines depicting lowering.  As credit contracts the central bank starts to lower the discount rate as can be seen around the recession periods (gray areas), however rates are lowered and kept low as credit expansion picks up.  Observe what effects the central bank has on our credit behavior.  Notice that rates go up into recessions?   Mind you a more convincing chart would be to tie the interest rates and overall credit (something you can find here), but even this correlation exposes the impact of rates on credit and credit's impact on the gengeral economy.

Reason being is that we have central planning when it comes to the price of money.  Because our economy is run by a select group of elite and powerful people they sometimes overstay their welcome and make mistakes.  The reason that rate hikes coincide with recessions is because the amount of credit in the system exceeds what is truly needed and this excess was often created by the Federal Reserve during it's previous rate lowering campaign.  By the way, it should be of no surprise to you that since 1980s the amount of effort needed to stimulate the credit creation process has been increasing.  As an aggregate rates have been going lower and lower and have stayed at unreasonably low rates for longer periods of time.  The 1970s were somewhat of an anomaly because the dollar went completely fiat and inflation was out of control, this is why you see such massive spikes in rates.  However since the 1980s and largely under Greenspan's new economy, the answer to all recessions and contractions was to flood the system with more cheap money. 

So what does the recent rate hike tell us?  If you look at the chart again, it would appear that expanding overall credit was a failure in the past several years.  This is why you continue to see high unemployment, bankruptcies and a sluggish economy despite what the bobble heads on TV are trying to say.  Instead the only thing our Federal Reserve accomplished was to ignite another asset bubble in the stock market.  This is a rather common occurrence during prolonged periods of credit expansion, money flows into speculative areas like stocks and real estate.  It happened in the late 20s, 80s, 90s and today, and each time the market collapsed as the credit rug gets rudely yanked out.  Some of the ruling elite has realized this and began to change their posture from easy to money to tighter money.  Unfortunately for them our economy is still in the dumps and possibly getting worse, the only reason why a full blown depression/contraction has not set in is because it is being propped up by funny money.  Yet this funny money is accomplishing diddly squat and instead is poised to cause more damage!  Hoover and FDR tried desperately to direct credit to areas of growth while demonizing Wall St, yet they were trying to do the impossible.  History is repeating itself as Obama and the Democrats are desperately seeking more money for businesses in a futile attempt to experience another expansion.  Sorry folks, does not work like that.  You can't make banks lend when there is NOBODY TO LEND TO and you can't make people take on more debt when they are neck deep in debt already.

To me, this change in policy signifies that at least somewhere someone gets it.  Liquidity has failed and any further liquidity will only threaten to make the asset bubble bigger.  Of course a .25% discount rate hike is small potatoes compared to what the Fed SHOULD be doing.  We need the general interest rate to go up starting now and we need a massive reduction in government spending and we sure as hell cannot monetize any more debt.  Yes this will be more pain, more unemployment and more bankruptcies, but it absolutely has to happen if America wants to escape from these socialist shackles that have been imposed upon her.

Note: If you are wondering what the hell happened in 2000s and why there is a big OOPS in the chart, it basically comes down to the Fed intervening badly into what should have been a contracting economy.  As you can see credit was shrinking and it was doing so because it was trying to work the excess out of the economy (a chart showing total credit accumulation can be found here).  A contraction is painful as we discussed and Greenspan decided to kick the can down the road.  Unfortunately most of the money and credit went into housing creating a bubble of insane proportions, but affected school loans, cars and appliance sectors as well.  This is why everyone felt that life under Bush became worse!  They were very much correct in their feeling, but many have no idea where the hardship is coming from.   A mass education and taking control of our banking and finance sector is absolutely imperative to restore sanity.

Reagan changed the country in multiple ways and is regarded to this day by conservatives and Republicans as the best president America ever had.  Reagan's legacy is easy to admire given his eloquent and charming ability to present and convince the public that smaller government is better.  However his policies have created some confusion among politicos and has left many people preaching and pushing for Reagan style policies while failing to understand the underlying economic principles.  I will try to present to you that Reagan's policies were eclipsed by a much larger and powerful force and unfortunately according to the data, Reagan's legacy consists mostly of rhetoric and little substance.  While the Reagan revolution inspired many to appreciate the free market and love small government it also inspired a legion of economically ignorant individuals. 

Let us begin with the positive impact Reagan had on human activity.  Through several tax reforms beginning in 1981 the overall tax rates dramatically decreased across all brackets.  In 1981, top tax rate dropped from 70% to 50% and in 1986 dropped from 50% to 28%.  Most people regard these powerful moves as the panacea that finally restored employment and many fondly remember the economic boom during most of Reagan's tenure.  This kind of impact positively benefits human action as it inspires personal consumption and allocation of private funds into the economy which is always better than allocation of public funds.   It is extremely difficult to determine just how much positive impact an economy experiences when people spend money the way they see fit as opposed to a government agency.  However what is easy to determine is that Reagan's tax cuts were NOT the driving force behind the economic boom of the 1980s, let me show you why.

First of all, let us use a broad measure of economic health.  Employment.  Most people would agree employment drives the economy, generates private capital, allows for investment and yes, even generates more income for our beloved government. 

As you can see Reagan's first year were rough and unemployment was high, peaking in late 1982.  However unemployment quickly dropped and continued to drop after Reagan's departure only increasing during the early 90s, the recession that cost Bush Sr. a second term.  Please ask yourself at this point, what caused the early 80s recession?  Or the early 90s recession?  (Keep reading for the answer)

Now this is where you must pay attention.  Forget all the feel-good punditry that may have been drilled into you head, tax cuts cannot by themselves solve every economical problem.  Especially when at the very same time, federal government spending is increasing at a rapid rate.  Now most have accepted that under Reagan our debt and deficit went up, but this debt/deficit increase has been justified as the cost of destroying Communism.  While my family is extremely thankful for Reagan's committed fight against the USSR, the following table suggests that spending was not limited to defense, not even close.

	1980	1981	1982	1983	1984	1985	1986	1987	1988	1989
Total Spending	591	678	746	808	852	946	990	1,004	1,064	1,144
Pensions	134	158	176	189	196	206	217	226	238	253
Health Care	55	66	74	81	88	99	106	115	123	133
Education	33	35	28	28	29	31	32	31	33	38
Defense	168	194	222	247	269	295	314	320	330	343
Welfare	55	64	68	81	70	85	74	75	78	83
Source: http://www.usgovernmentspending.com/#usgs302a							(In Billions)

As you can see, government spending went up everywhere!  Even as Reagan joked about the war on poverty being a lost cause and pledged to privatize social security and dismantle the department of Education; welfare, pension and education spending skyrocketed.  In fact the idea that defense spending drove this country into some deficit hole is not entirely true, defense spending as a percentage of total spending barely increased.   The problem of course with all this spending is that it either requires tax income or the issuance of debt, which simply means that future taxes will be levied on unsuspecting Americans. 

So did tax cuts really create this boom and lead to government spending?  If tax cuts were so effective, then why was there a recession in the early 1990s?  For that matter, why was there a recession of the 1980s?   Let's address the latter.  Many bitterly recall the Jimmy Carter years, the stagflation and the general economic malaise where the misery index went through the roof.  Yet the later 1970s has employment rates that were significantly better than Reagan's early years, so what happened there?  Did Carter cut taxes?  No.  There is a much more powerful force in America, a force that most people do not understand or sorely underestimate.   This force is our central bank or better known as the Federal Reserve.  Observe the following:


This chart represents non-revolving credit or straight up loans held by the consumer.  Loans are driven by banks and certain conditions that promote lending.   Before we discuss conditions for lending, compare and contract this chart with the employment chart.  Notice that the two charts are almost mirror images of each other and notice that recessions coincide with drops in loans.  That is, the more loans held by the public the better the economy and vice versa.   Notice also as the loans increase, unemployment drops.  Observe that the late 1970s high employment coincided nicely with a credit expansion.  Similarly, mid 1980s had an even greater expansion and unemployment dropped even faster.

So what kind of environment is especially conducive to loan generation?  First and foremost, short term interest rates.  Our interest rates are centrally planned and controlled by the Fed Chairman and the governors of the respective federal reserve banks.  Below is the short term rate during the 1980s.


As you can see, the late 1970s and early 1980s experienced some of the highest rates in history.  This also coincides with high unemployment and depressed lending activity.   It should be no surprise that lending increases as rates drop as it becomes cheaper for banks to lend, but of course there is always a price to pay.  The problem with any centrally planned economy is that humans make serious mistakes and when artificially managed rates produce too much lending, booms occur and are always followed by busts.  Politicians, public educators and most economists will call this the business cycle.  Of course when they screw up it's always the fault of the free market, as if the free market can possibly exist in a land where the rates are centrally planned, banks are insured from failure and money has no actual value.  But interest rates are not the only way to flood an economy with money. 

There is another way to increase lending and one of the primary methods of inflation in this country; creation of credit.  This is done via the commercial banks and are always backstopped by the lender of last resort - the Federal Reserve.  Below is the chart that depicts total money supply, known as M2.


What you see above is critically important.  This essentially shows the expansion and contraction of the amount of money, the one thing we really hate to see expand.  Because as the amount of money increases prices invariably go up!  What you see above is an example of inflation and deflation.   Note:  This is a chart representing yearly change, the higher the peaks the higher the rate of change.  Our total money supply continues to grow, as can be seen by significant price jumps in both the 70s and 80s.

You can see that combined with total money supply and low interest rates, the amount of credit available is at it's highest.  This high amount of credit then promotes an economic boom, high employment and general happiness.  Sadly this boom is not generated due to real and meaningful reasons and will invariably result in a bust.  This is a nutshell explains the boom of the 1980s and the subsequent bust, caused a recession, forced Bush Sr. to raise taxes and brought in Bill Clinton.  Hopefully you are realizing that presidents and their policies are not the driving force, instead as they say, it's the economy stupid. 

As a final indication that America's economy revolves around the expansion of credit, observe the total loans issued by commercial banks. 

Although we could infer from previous charts that some kind of expansion fueled the non-revolving credit, the above chart demonstrates clearly what drives our economy.  You can see clearly what caused the recession of the early 80s and 90s and the massive expansion of loans during the Reagan boom time. 

At this point you may be thinking, expansion of credit is pretty good!  Just from the charts above it would appear that contraction of credit is bad, expansion is great and why don't we just expand all the time?  Well, despite the fact that it has been tried and failed we do not live in a land of unicorns.  Expansion of credit and low interest rates create inflation, that is the expansion of money which invariably leads to higher prices.   Worse yet the money expansion cannot be directed, it acts like water and flows wherever it pleases.  At times this capital flows to employers who invest and expand, hire more people and create growth.  But there is a capacity to this and if the money flow is not stemmed it flows into assets.  Assets that often tend to be speculative in nature, like stocks or real estate!  Notice that the rapid expansion of credit in the 1980s also caused a violent and nasty stock market correction of 1987.  Like a volcano the excesses get built up and in time will explode in a violent fashion.   Worse yet, the entire economy begins to function like Bernie Madoff's private account, requiring more and more debt to sustain itself.  Each bubble blown has to be larger than the previous bubble in order to avoid the much needed and welcomed contraction. 


What inspired me to write this, is the constant and incessant push by Republicans and conservatives for a revival of the Reagan economic policy.  A local talk show host by the name of Jay Severin today mentioned that Scott Brown's ascension into the US Senate will finally offer salvation in the form of across the board tax cuts.  How sad it is when such a respected "libertarian" voice lacks what appears to be basic economic knowledge.  You see, Reagan's tax cuts were primarily driven to accomplish one thing and one thing only.  Promote consumption.  While Reagonomics can be best described as Monetarist stemming from the Chicago school of thought, they are still Keynesian in nature.  That is to say, both schools rely on consumer spending to lift the economy out of whatever centrally planned hole it finds itself in.  Difference being that Keynesians foolishly rely on government spending, while Monetarists rely on consumer spending via employment investments and tax cuts.  Former being Statist, evil and broken and the latter being partially correct provided economic expansion is driven by real investments and not more debt.  A credit expansion like the one starting in the early 1980s worked very well given the high concentration of savings that occurred during the 1970s (high interest rates promoted that), so while the dramatic expansion did invariably lead to a boom/bust cycle the foundation was "solid".  It is absolutely paramount to understand however that all subsequent booms were launched with cheap credit and loose monetary policy from the Federal Reserve.  This is the catch and the hallmark of the past several decades.  Our ruling class refused to accept and experience a natural contraction and instead preferred the good times of the boom that were no longer based on solid savings (like late 1970s), but cheap and easy to obtain credit. 

The problem is further exacerbated by a government that sees economic expansion and ramps up the spending putting more and more pressure on future generations to clean up the mess.  Unfortunately spending that is a function of debt can only go so far and will eventually have to be corrected via debt defaults, contraction and recessions.  Sadly when the taxpayer gets demolished during a recession, our government fails to understand that it's previous spending was merely a function of a credit boom and instead of reigning in spending levies more taxes and expands social welfare! 

What you see above is not sustainable, not real and HAS to be corrected and you can also get a glimpse of why this time it is quite different.  An economy built on a house of credit cards will not stand.  Furthermore a political base that failed to understand and comprehend the Reagan era, fails to understand the chart above will never lead us out of our impending economic hardships.

Ironically the economic ignorance behind pushing for a Reagan style across the board tax cut will have the opposite effect!  All extra money will be used to pay down outstanding consumer leverage, further contract credit and put the federal government further into debt! 

We need to be the party of REAL fiscal sanity and push for fundamental changes that will fix our ailing financial sector.  Instead of implementing economic policies that only made sense 30 years ago, we should instead push for more transparency of the federal reserve system, break down the insanity of the FDIC, talk about sound money and how to restore value to our currency.  This is the path to economic salvation, we can no longer operate under economic ignorance and hope that another cheap credit boom can buy us a few more years of happiness.

This topic may sound mundane, but understanding the history behind this controversial act is important to absorb as talks about it's reinstatement heat up.  Glass-Steagall was repealed in 1999 by the Gramm-Lichey-Bliley act and has been blamed by many as the primary cause of the 2008 Housing Crisis.  Recently John McCain and ex-Fed chairman Paul Volcker proposed the return of Glass-Steagall along with many Democrats and prominent bloggers including Karl Denninger of Market Ticker fame.  However without examining the history of Glass-Steagall and the cause of it's existence can lead to needless legislation and shift the conversation away from the true root cause of our financial system.

To begin with, we need to zoom back in time to 1933 during the midst of the Great Depression.  We know tensions were running high, people were angry and rightfully demanded retribution.   Starting with Herbert Hoover and continuing with FDR, banks and Wall St. were used as whipping boys for the country's problems. This tradition has continued to this day and is largely responsible for the grave misunderstanding of why the Great Depression began in the first place.   Multiple banking reforms were passed in the next several years including Glass-Steagall which among other things performed the following:  Separation of commercial and investment banking and the implementation of the FDIC, our country's most beloved insurance program.   This very separation has been credited with preventing a crisis and it's demise in 1999 is used as proof of the 2008 collapse.  One can argue that this is a case of causation versus correlation, but I digress.

We now turn to Alexander Tabarrok's piece on The Separation of Commercial and Investment Banking: The Morgans vs. The Rockefellers which draws heavily form the biographer Ron Chernow and his important work the House of Morgan.  While much of the paper concentrates on the inner workings of the two most powerful families in America at the turn of the century, one fact remains clear, virtually everything was touched by either the Morgans or the Rockefellers.  In fact the Federal Reserve was conceived, drafted and put in place by Morgan/Rockefeller interests with the help of a powerful senator, Nelson Aldrich, whose political success was funded largely by Rockefellers. While the Federal Reserve is hailed by many as an institution that stopped banking panics, stabilized the markets and helped unemployment the truth behind the Federal Reserve's formation was purely for the empowerment of America's most powerful families and it's failure has been neglected, under-reported and undocumented. These two families competed fiercely over market share and used the Congress as a heavy bludgeoning tool, a tool that many large corporations have since utilized to stifle competition.  In 1930s the Rockefellers launched a massive offensive against Morgan interests and the powerful New York Federal Reserve which was governed by Morgan man Benjamin Strong during the 1920s and responsible for one of the greatest monetary inflations in America's history.

These attacks took shape in the Pecora-Glass Subcommittee hearings lead by Rockefeller sympathizer Ferdinand Pecora at the insistence of FDR himself.  Pecora already harbored anti-banking views stemming from Hoover's administration and Hoover's misguided view that credit expansion caused the heated stock market, as if cheap money could be somehow controlled (it cannot).  These hearings proved devastating for the House of Morgan as the public learned about Morgan's preferred stock sharing lists and the shocking revelation of not paying any income taxes in 1931.  Even though this income tax loophole was perfectly legal on the account of massive losses the American public was furious.  Furthermore the Pecora hearings concluded that banks with combined commercial and investment interests were extremely risky and hazardous to the public.  Unfortunately all follow-up research on these hearings failed to produce any evidence to support this assertion!  In fact, as Tabarrok writes:

White(1986) has examined the failure rate in 1930-1933 of national banks without security affiliates and national banks with security affiliates.  He finds that banks without security affiliates were four times as likely to fail as were those with affiliates.

Interestingly enough, unified banks (those with investment arms) from 1927 to 1930 greatly increased their issuance of bonds, solid proof their businesses were strong and more trusted than just purely commercial or investment banks alone.   Another study quoted in Tabarrok's research suggested that unified banks simply issued higher quality securities than exclusive Investment banks.  So if there was no empirical reason for separating the commercial and investment banks, then what is the explanation behind Glass-Steagall?

For this we examine Winthrop Aldrich, the son of Nelson Aldrich who by 1933 was a powerful banker and president of Chase National (a Morgan/Rockefeller merger).  Under Aldrich his bank suspiciously split it's commercial and investment banking arms and he threw his support behind Glass-Steagall.  Aldrich then proposed that all private banks be heavily regulated and forced to separate their commercial/investment interests while banning interlocking directorates (especially damaging to Morgans, as Morgan men dominated boards of multiple banks).   In hindsight it is now clear these separations would gravely hurt Morgan banking interests despite causing some frustration to Rockefeller interests, the damage done to Morgans far outweighed the damage done to Rockefellers.  At the time New York Times published stories with headlines describing Aldrich and Rockfeller interests striking at JP Morgan and Company.  In fact, Carter Glass who was a friend of Morgans had no intention of separating the private banks with the original bill only including provisions pertaining to national banks.  His private letters later indicated that he went along with Aldrich's lobbying efforts due to "being pressured by the administration".  As Rothbard writes in his epic A History of Money and Banking in the United States:

"It is a tragic irony that Carter Glass and his theoretician H. Parker Willis were lured into this alliance with the Rockefellers and the New Dealers to clobber the Morgans by coercively dividing commercial and investment banking....Hence the luring of Glass and Willis into uncongenial schemes of socializing and carterlizing Wall Street and helping the Rockefellers destroy the Morgans."

This tragedy stems not only from an example of powerful money interests controlling our politicians, a problem that continues to this day, but because Carter Glass/Willis despite being hard money conservative Democrats misjudged at the time the machinations of the banks.  They believed that banks were buying up corporate securities or lending money to the stock market, while ignoring the more simpler and devastating problem of bank credit expansion.   Bank credit expansion fueled by cheap money from the central bank  propelled a massive economic expansion during the 1920s culminating in a gigantic stock bubble and real estate speculations in parts of the country.   This is one of the primary causes of the stock market crash and immediate contraction that began in 1929.   So not only were the causes of the immediate contraction misunderstood by observers during that time, but as can be seen, much of the legislation passed in the early years centered around private interests or to appeal to an angry public whose anger was constantly stoked by Hoover and FDR himself.

So here we are in 2010 and not much has changed.  Once again the public is provoked into focusing it's anger on failed free market principles and corporations while public servants act as modern day Robin Hoods waging war on the familiar scapegoats.  Yet much of New Deal's legacy centers around destroying the free market, not only by coercive separation of banking interests, but by one of the least understood and most vile aspects of Glass-Steagall, the FDIC.  Federal Deposit Insurance has essentially transformed the already ailing banking industry, already being centrally managed and controlled by a Federal Reserve, into an industry where failure was no longer an option.   One of the key components of a healthy and vibrant free market is the exchange and communication of information between customers and producers, where customers voice their discontent by taking their business elsewhere.  Yet the FDIC strips that piece of information away and transforms banks from a legitimate business into puppets of government's credit expansion mechanism.  There is no reason why a bank should be prevented from failing and yet after the Great Depression people grew accustomed to be shielded from failure, a transformation that has numbed and dumbed down people's understanding of banking and finance.  Failing banks were once the only way to determine if credit expansion went too far and a signal to the public to act preemptively and punish bad banks, now a thing of the past.  Did the repeal of Glass-Steagall exacerbate the problem and expedited failure?  Of course it did, but in lieu of a healthy banking system we should be grateful that we can at least be exposed to our broken financial system and we should under no circumstance fight to patch it back up.

Once again we are ignoring grave changes to our financial system over the past several decades while continuing to misunderstand the implications of fractional reserve credit lending backstopped eternally by the Federal Reserve and the US Government able to create money out of thin air.   When people clamor for the return of a piece of legislation that was designed by powerful interests for their own agenda, they shift the discussion in the wrong direction.  We need to be discussing our broken monetary system and our perplexing reliance on a Federal Reserve to pump liquidity into an economy functioning solely based on the continued expansion of debt to uphold the growingly fragile Ponzi financing.   Virtually all the New Deal programs were band-aids on top of problems that were not properly understood and yet we continue to promote the same kind of approach time and time again.  As discussed earlier in the example of Shays' Rebellion, our politicians and lobbyists have a chronic misdiagnosing problem that manifests itself in prohibitive pieces of legislation that either cause new sets of problems or fail to address the old ones.  People like McCain and Volcker would be true public servants if they educated the public in actual causes of some of our biggest problems, instead of pandering to an ailing public while invoking archaic and useless band-aids to solve our nation's critical issues.

Certainly good news, although doubtful this will translate into anything meaningful.  Three brave Republicans are delaying man of the year's reconfirmation as they seek out documents pertaining to the bailouts of 2008.

First of all, where is the public outrage?  Why is it that when Democrat voters justify their votes, they do so based on some odd perception that Democrat politicians fight for the "little guy" and against the big corporations.  Yet the biggest corporation of them all, Federal Reserve, gets a free pass and yet these same voters do not bat an eyelash?  Is it because the Federal Reserve's presence and function is unclear to people or is this just another case of electorate ignorance.   Just this past election in Massachusetts I personally heard justifications for defending Coakley even though she is completely swimming in corporate money, how is it not blatantly obvious as to where the loyalties of these politicians truly lie?  How can she protect citizens from corrupt corporations when these same corrupt corporations got her elected in the first place?  Isn't this obvious?

So for those not following Bernanke is entirely complicit and responsible for the trillions of dollars that he personally put us on the hook for.  Not only did he illegally purchase almost a trillion dollars worth of rapidly depreciating mortgage backed securities he is refusing to disclose to Congress the details of his operations. Yes, he did so illegally because the original Fed charter never allowed the Fed to purchase these types of instruments let alone be the sole market for them.

So I ask once again, where is the outrage?  Why is it that only Republicans seem to care about this financial atrocity?  In case you are not convinced which party has our back and which party has the banking interest in mind, examine the voting on the Fed audit .  A vote taken in the House finance committee and the results are alarming at best.  21 Democrats voted against a fed audit, against transparency against showing to the American taxpayer where our FUTURE money is being directed.    Nothing could be simpler than this vote and with the exception of two individuals the Republicans seem to have understood that.   Yes there are senators Bernie Sanders, have also voiced their objection, but it is unclear to me why it takes a minority party to actually raise the alarm.

So now we have three Senators, DeMint, Vitter and Bunning who have pitted themselves against the likes of Chris Dodd to attempt at least some kind of truth extraction.  I applaud these three and you should too, because reigning in our central bank and bringing to light trillions of dollars in direct payments, bailouts and debt monetization is the FIRST and ONLY step we should be doing right now.  Nothing else matters if Congress has a mechanism by which it can freely spend on any program while burdening our future generations with the payment of it all. 

If you want to stop the advance of socialization and central planning, then fight to break the centrally planned monetary monopoly in our country.   Bernanke getting denied further opportunity to damage this country is a fantastic first step.

Update:  If Bernanke fails to get confirmed and is replaced with Larry Summers, then we are not any better off. Unfortunately because the entire system is inherently broken any chairman with the exception perhaps of Paul Volcker could be in the same heap of trouble. 

It is quite a shame that a great senator like Jim Bunning is retiring, I guess he is a rare breed in these times.  This video might be a tad long, but I recommend you watch it to get a better understanding of why the Federal Reserve plays such a significant role in our economy, why the policies of the past twenty years have been a failure and  how the banking elite/Wall St. are screwing every single person in America. 

My only note would be on the matter of Bunning's next bubble assertion.  In theory, Bernanke is indeed trying to create a new bubble as that is the only theoretical way we can beat off the coming depression - but unfortunately this bubble must exceed the size of the previous.  In order for the banks to continue functioning and mop up their losses is to create another frenzy.  This is the story of America since the late 1980s, but it is a story built on cards and this story will inevitably collapse.

Ben Bernanke our illustrious Federal Reserve chairman is going through the process of being reconfirmed for a second term.  Rumors have been circulating that several senators strongly object to Bernanke given the failures over the past several years.  Below is a video showing Jim DeMint and Bernanke, DeMint does more of the talking.

Most of the questions asked were poignant and really serve to illustrate the overall problem and deficiency of the Federal Reseve system.  We have in this country, a county that boasts the utilization of free market, a market whereby the supply and demand of money is controlled through a central authority.  This monetary policy coupled with a highly leveraged fractional reserve banking system can and had created violent gyrations in our economy.  Worse yet the soundness of our currency has also been significantly compromised by an institution that can at any given time create money out of thin air.

My only objection to DeMint's otherwise perfect questions is the neglect to mention the purchase of over 1 trillion dollars worth of MBS and FHA paper over the past year.  This is precisely why a full audit of the Fed is required, such that every single person in America is aware of the breach the Federal Reserve has committed in the name of economic stabilization.

Prescient question, no?  Have you ever actually wondered what the worth of our money really is?  At one point, not so long ago (about 200 years) a dollar used to be worth it's weight in gold - literally - about 17g of gold or between 371 and 416 grains of silver.   We of course don't use dollars, we use Federal Reserve Notes and if you don't believe me then pull out a "dollar" from your pocket and examine the text on top.  Yes, it also mentions the world dollar, but only because the Federal Reserve deemed it so - and the once equivalent 17g of gold is long gone.   Although it is no longer backed by precious metal it is backed by the full faith and credit of the US Government, a hefty promise indeed.  In more simple terms, it simply means that the Federal Reserve Notes are backed by you and other American's ability to produce and pay taxes.  

The problem arises when the full faith and credit of an institution is in question and regrettably the time has come.  I am not trying to sound alarmist, but if money makes the world go round and suddenly something happens such that this "money" is no longer valuable, then the world stops.  Yes? 

Below I present a picture, courtesy of ZeroHedge and it would behoove you to study this simple picture for a few minutes.  It is a graphical representation of what the Federal Reserve is currently holding and how many federal reserve notes are currently in circulation.


What do you see?  The right numbers represent mortgage backed securities and Agency paper or in more simple terms, pieces of paper representing the value of mortgages in the United States originating from Fannie Mae, Freddie Mac and the FHA.   On the left is the circulation of FRNs, the total monetary base (depends on one's definition) and the "reserves" of the banks that comprise the Federal Reserve system.

We can deduce the following from this picture.
Total money in circulation:  920 billion
Total "value" of MBS/Agency paper: 997 billion
Total amount of reserves in banks:  Over 1.06 trillion!  (Required minimum reserves: 60 billion)

Therefore we can conclude.

Virtually every dollar that is out in circulation is backed by the "full faith and credit" of rapidly dwindling mortgage backed securities/FHA issued agency paper!   Let that sink in for a moment.  Our money is backed by mortgages of houses whose current value only exists because the Federal Reserve wishes it to be and whose real free-market value is considerably lower because an item's value can only be measured by what someone is willing to pay for it.   We have a massive supply of houses and an equal bigger shortage of people able to buy these houses, yet due to the ILLEGAL actions of the Federal Reserve these houses are now tied to the only medium of exchange that we know of; the Federal Reserve Note.  We can also conclude that the value of the dollar has dropped (as can be seen my the monetary base) and the banks are NOT lending. 

Needless to say ladies and gentlemen this is a very precarious situation and this is putting it lightly.  Not only has the Fed overstepped it's original charter and purchased something it was never allowed to purchase, but has compromised the integrity of our currency!   We are currently in unchartered territory and while history always repeats itself, there is absolutely no precedent in American history for this type of situation. 

The only solution is to immediately provide Americans an ability to buy/sell goods and services via another medium of exchange, whether it be gold/silver or another commodity is not relevant.  A society cannot function when the value of it's currency can be modified at will and systematically destroyed by a quasi-government institution.  Our constitution protected us from this kind of peril by explicitly prohibiting the use of paper money and preventing Congress from monopolizing the creation of currency.  We need to establish a free market banking system and free market commodity money creation with Congress ensuring correct weights and measures or we will plunge into chaos.   Oh wait...

After yesterday's passing of the Paul/Grayson amendment and the fledgling optimism beginning to dissapate, some questions have arisen as to which party supports the auditing of the Fed.  The amendment passed in a bi-partisan fashion, however the list of those voting NO is quite telling.  I have prepared the list with party denomination for your viewing pleasure.

The list of those voting NO on the Paul/Grayon amendment:

(D) CA-35 Rep. Maxine Waters
(R) CA-42 Rep. Gary G. Miller
(D) CA-43 Rep. Joe Baca
(D) CT-04 Rep. Jim Himes
(D) FL-22 Rep. Ron Klein
(D) IL-04 Rep. Luis V. Gutierrez
(D) IL-08 Rep. Melissa L. Bean
(D) IL-14 Rep. Bill Foster
(D) IN-02 Rep. Joe Donnelly
(D) IN-07 Rep. Andre Carson
(D) KS-03 Rep. Dennis Moore
(D) MA-04 Rep. Barney Frank
(D) MA-08 Rep. Michael E. Capuano
(D) MA-09 Rep. Stephen F. Lynch
(D) MN-05 Rep. Keith Ellison
(D) MO-05 Rep. Emanuel Cleaver
(D) NC-12 Rep. Melvin L. Watt
(D) NC-13 Rep. Brad Miller
(D) NY-05 Rep. Gary L. Ackerman
(D) NY-06 Rep. Gregory W. Meeks
(D) NY-14 Rep. Carolyn B. Maloney
(D) OH-06 Rep. Charles Wilson
(D) OH-15 Rep. Mary Jo Kilroy
(D) TX-09 Rep. Al Green
(D) WI-04 Rep. Gwen Moore
(R) WV-02 Rep. Shelley Moore Capito

That is odd.  Of the 23 people objecting to a Fed audit, 21 are Democrats while only 2 are Republicans.  Why is this odd?  Because Democrats are often the ones leading the charge against corporations and enterprises large enough to compromise the American taxpayer.  At the same time, Republicans are usually corporatist thugs more occupied with preserving their special interests, yet in this particular instance the divide is painfully obvious. 

While both parties are painfully misguided as to the dangers the Federal Reserve presents this country and the incessant flow of cheap money, some brave individuals (Grayon, Paul & those that voted YES) do get it or at the very least are uncomfortable with secrecy the Fed maintains. 

To all those reading this, seriously ask yourself about the integrity of the politicians and the Party you support and whether we need to seriously and fudamentally change course in this country.

Exit question:  Alan Grayson has been an outspoken critic of Republicans and their position on health care while advocating ObamaCare.  Does he not realize that by supporting legislation that could compromise the Fed's ability to monetize further debt?  Without the printing press Congress will have to suddenly make-as-they-spend thus contradicting ObamaCare and other entitlement programs?

Everyone in America admires Warren Buffet, after all, the man is a genius so why not listen to everything he says?  Because he doesn't care about you, that is why.  In fact, he is perfectly comfortable with what appears to be a systematic looting of the middle class perpetrated by the Federal Reserve.   In case you have not noticed, yesterday's Paul/Grayson amendment to audit the Fed was met with great cheer for those wishing to return to some kind of normalcy in this country.   Despite the objections of corrupted and bribed politicians like Barney Frank, Mike Capuano, Mel Watt, Maxine Waters and other enemies of state - the amendment passed.   

When all the bullshit melts away and push comes to shove, you will plainly see who can or cannot be trusted.  Warren Buffet unfortunately is on top of the pile as this CNBC interview proves.

Buffett: Well, I think there is nothing more important in the economic future of the country than to have an independent Fed. And I think that’s been demonstrated over the years. I think it was demonstrated even particularly last fall. But we do not want to fool around with the independence of the Fed.

Buffett: I think it’s done a good job over the years. I think it’s had good leadership most of the time. I think it has terrific leadership now. And I think that curbing the independence of the Fed could lead to a lot of mischief.

The first point is just laughable.  On what historic precedent is this being based on?  Considering the Federal reserve is the exact cause of the Great Depression why is Buffet willing to give so much benefit of the doubt?  

The second point should raise a lot of questions.  First of all, what kind of mischief could we possibly raise beyond all the mischief we already have?  The Fed has trillions of dollars on his books and due to some idiotic secrecy we are not privied to this information?  This is our money we are talking about on what absurd ground can you possibly protect this.  This is the equivalent of Congress collecting our taxes, but not actually telling us what the taxes are used for.  More succintly I could argue, we do not even need a central bank and were perfectly fine without one for many decades.  To suggest that tampering with an optional institution could lead to problems is misleading at best and deceitful at worst.  (Spare me the banking panic crap, because the recessions we have had since the Fed were just as bad if not worse than the panics).

Second of all, how can anyone in their right mind possibly say the Fed has done a great job?  The Fed has created every bubble in the past 20 years.  Has caused multiple recessions.  Crushed the US Dollar and now, systematically looting the middle class.  While all the big banks that should have failed are being propped up by the existence of a "lender of last resort", the rest of us poor schmucks are living with stagnant or reduced wages and higher taxes.  Great deal!

Banks like Goldman Sachs whose only existence can be attributed to the American taxpayer are posting massive profits and allocating over 20 billion dollars for BONUSES.  Average GS employee makes 775,000 as of 2008!   Goldman Sachs is also fighting the auditing of the Fed and should this be surprising?

So Mr. Buffet, who side are you on?  The struggling middle class or your friends at the Federal Reserve and the modern robber barons at Goldman Sachs.  I am curious by the way, does your investment totaling 5 billion dollars into Goldman Sachs have anything to do with your perplexing choice of words today? 

Nah, must be a coincidence. 

Mike Capuano of the eight Congressional District here in Massachusetts talks a slick game and feels he belongs in the Senate.  This is ironic because he does even deserve his current post. 

Besides ignoring emails from his constituency on the matters most pertinent to our economy, Mike has the following to say on his page (emphasis are his).

When it comes to TARP and other emergency lending programs, Mike continues to speak out to the Federal Reserve and the Treasury Department regarding the need to protect taxpayers.

So far so good, yes?  Yesterday, Mike Capuano had a unique opportunity to protect the taxpayers by voting on an amendment for a bill designed to Audit the Fed.  Because Mike Capuano serves on the finance committee in the house, he has foremost knowledge of the efforts undertaken by the Federal Reserve to remain secret and resist auditing.  Currently the Federal Reserve has a unique position of being able to print money at will, bail out banks and buy toxic paper under the cover of secrecy - actions that exceed the original charter and are grossly unconstitutional. 

The amendment proposed by Alan Grayson and Ron Paul would be the first step in at least exposing to the American public what the Federal Reserve is doing and who is the recipient of OUR money (current and future).

Mike Capuano voted NO on the Paul/Grayson amendment. 

Why?  Who exactly are you serving Mike?  Because it sure as hell NOT the American taxpayer despite your blatant lies to the contrary, furthermore as a Congressman you swore to uphold and protect our constitution and you have failed that duty spectacularly.  Your only remaining option now, is to resign.

Grayson may be a maniac when it comes to distribution of wealth or understanding what makes actual health care reform, but damn, he got this spot right and ad hominem attacks should not be used to discredit or undermine noble action. 

"Capitalism requires rewarding success and punishing failure.... So far we have seen plenty of reward for success on Wall Street but no punishment for failure, not when the Fed is handing out blank checks"

Eliot Spitzer then chimes in and basically vocalizes what so many of us have been saying and thinking all along.  Greenspan got it wrong, got it wrong many times and Bernanke is continuing the failed policies. 

Today the house finance committee passed what will surely be a historic amendment 43-26.  This a very straight forward amendment, allow the Federal Reserve to be audited without question.  One would think that such a simple request should pass without objection, right?  After all, why would we want a highly political organization such as the Federal Reserve possibly hide anything from the American Public?   Congress created the Fed and Congress can destroy the Fed (technically speaking).  Examine who voted to maintain the status quo and against auditing the engine of inflation, credit and virtually every single recession including the Great Depression.  You may not understand this yet, but the Fed absolutely and without question created the Great Depression and while FDR exacerbated the situation - without a central bank injecting credit the economic collapse of 1929-1932 would not have happened.  We are now on the brink of exactly the same collapse or a Japanese style multi-decade malaise.

Those who have voted to continue destroying this country:

(D) CA-35 Rep. Maxine Waters (Also voted against regulation of Fannie/Freddie, "fannie/freddie has been outstanding")
(R) CA-42 Rep. Gary G. Miller
(D) CA-43 Rep. Joe Baca
(D) CT-04 Rep. Jim Himes
(D) FL-22 Rep. Ron Klein
(D) IL-04 Rep. Luis V. Gutierrez
(D) IL-08 Rep. Melissa L. Bean
(D) IL-14 Rep. Bill Foster
(D) IN-02 Rep. Joe Donnelly
(D) IN-07 Rep. Andre Carson
(D) KS-03 Rep. Dennis Moore
(D) MA-04 Rep. Barney Frank (Was against Fannie/Freddie regulation) - Chairman
(D) MA-08 Rep. Michael E. Capuano (Running for Senate now, promising to impose financial regulation)
(D) MA-09 Rep. Stephen F. Lynch
(D) MN-05 Rep. Keith Ellison
(D) MO-05 Rep. Emanuel Cleaver
(D) NC-12 Rep. Melvin L. Watt (Top contributors campaign include every giant bank in the US)
(D) NC-13 Rep. Brad Miller
(D) NY-05 Rep. Gary L. Ackerman
(D) NY-06 Rep. Gregory W. Meeks (Was against Fannie/Freddie regulation, "pissed off at regulation")
(D) NY-14 Rep. Carolyn B. Maloney
(D) OH-06 Rep. Charles Wilson
(D) OH-15 Rep. Mary Jo Kilroy
(D) TX-09 Rep. Al Green
(D) WI-04 Rep. Gwen Moore
(R) WV-02 Rep. Shelley Moore Capito
-------------

There you have it folks, plain and simple.  There is absolutely NO reason why any of these people should have supported an institution whose practices enable and enrich all the big banks while destroying the middle class.  This is disgusting, deplorable and all of these people should be ASHAMED including those that have been tied to the Housing Crisis, truly begs the question as to how these people get re-elected.  Please do your patriotic duty and voice your anger.  Below is the original video demonstrating unequivocally who is on the side of the American people and who is on the side of banksters.   Notice that some of SAME bastards who voted against the amendment today, blocked all regulation against Fannie/Freddie and were belligerent and nasty in the process. 

Wow, tempers are flying high in Washington DC as demonstrated by this exchange.  Tim 'TurboTax' Geithner almost evokes a bit of sympathy as he is barraged by a relentless attack by Brady.

Before you feel too bad, Geithner's answer amounts to "This is all Bush's fault".  Yet Geithner was the president of the NY Fed and the NY Fed being the most powerful of the Fed's member bank is entirely complicit in the monumental monetary expansion undertaken by the Federal Reserve in the last 20 years.

Geithner may try to save face by suggesting that the 700 billion TARP saved us from a financial collapse, except that a financial collapse is precisely what we need.  Banks that have given too much credit and too many loans via artificially engineered interest rates set by the Federal Reserve have not only ruined the businesses and lives of those people to whom they lent money to, but also destroyed their balance sheets.  Therefore bailing out an institution that has made repeated errors while operating with outrageous leverage is precisely the opposite of what should be done.  Yes, it would have been painful, but it is the only possible solution for a country saturated in so much debt!

Finally, Geithner's admission that his role of preserving the strength of the dollar while in reality doing everything he can to destroy it is insulting and grounds for dismissal.  I would only be chagrined in realizing that Geithner stepping down only to be replaced by an equally inept stooge while diverting the attention of the public's growing discontent.

I do agree with Geithner on one point.  The Federal Reserve WAS established by Congress and coincidentally has the privilege to revoke it, something that needs to be done as soon as we can establish an alternative medium of exchange. 

From the Financial Services Committee, the debate can be seen live from their website.

Currently the discussion is between the Paul-Grayson ammendment versus the corrupt Mel Watt amendment.

Regardless of your political affiliation and regardless of how much knowledge you have of financial and economic details of our country - this is crucial!

"The Mel Watt amendment will obliterate everything HR 1207 is trying to do and in fact the Watt amendment will make the situation worse" - Ron Paul

Unlike proposals that target the Fed’s 13(3) facilities, the Paul/Grayson amendment opens up the entire $2 trillion Federal Reserve balance sheet to a GAO audit. The Fed’s recent purchases of nearly $800 billion in mortgage-backed securities (MBS) have occurred under the MBS Purchase Program, authorized under section 14(b) of the Federal Reserve Act. This program, which is expected to reach a size of $1.25 trillion, would remain exempt from audit even if all the current 13(3) audit proposals were to go into effect. Targeting facilities that are in the process of being drawn down and that are authorized under a specific subsection of the Federal Reserve while allowing other facilities to spring up in their place is counterproductive to true transparency. All purchases and loans that appear on the balance sheet should be subject to audit, without loopholes for the Fed to evade scrutiny.


Update:  The plan is to vote for the Paul-Grayson amendment at 4pm today.
Update:  The plan is to vote for the Watt amendment right after.  (Although they seem to entirely contradict each other)
Update:  Voting delayed by 45 minutes.
Update:  43-26 for the Paul-Grayson amendment, bringing this bill back to legitimacy.  I would just like to note, for anyone reading this in Massachusetts.  Michael Capuano (MA-8) currently running for Senate, voted 'NO' on this critical amendment.  This is the same individual who is claiming to be on the side of the consumer and for tougher financial regulation.  There you have it, typical snake.

Assuming the bill passes as is and clears the House, we might be potentially looking at the first major dent against the invisible and secretive Federal Reserve despite the corruption of Mel Watt and Barney Frank whose tenure hopefully will come to do an abrupt end come 2010.


Final bill will be voted at a later date.

If you care about the direction of this country and are "fed up" (pun intended) with what is happening with the US Dollar, inflation and corruption then support the following Congressmen in their fight against the Fed.  As you may know, Ron Paul's audit the bill fed has ran into a massive roadblock, by the name of Mel Watt (North Carolina 12th) who is PURPOSELY trying to protect the federal reserve for audit in order to support his biggest donors.  This guy is epitome of everything wrong with Congress and special interests.

As a reminder, Mr. Watt's biggest donors are: Bank of America ,Wachovia Corp, American Express, American Bankers Assn.  Do you suppose Mr. Watts is representing the American people or the banksters who without the Fed would not even exist anymore.  

Ron Paul's bill, HR 1207, currently has a 99% approval rating from opencongress.org and a whopping 310 co-sponsors.  This should not be in committee at all, but instead should go to the House floor to be voted on.  A bill with such popular support to be held up by corrupt thieves like Mel Watts is a travesty. 

A letter written to Barney Frank (who is also the recipient of massive bank contributions) is looking to examine the entire structure of the Federal Reserve and a full public audit.   This letter is signed by the following people and they need your support.  Raise awareness.

Elijah Cummings 
Lloyd Dogget
Maurice Hinchney
Tim Walz
Alan Grayson (yeah, the crazy one)
John Tierney
Peter Welch

This could just be a show trial, but the language in the letter indicates that they are interested in a full congressional oversight and that is a great start.

If you want to send an email, please head over the members page of the House Financial Services Committee and email your representative urging them to pass a comprehensive Fed Audit bill.

No, this has nothing to do with liberals or conservatives or socialism or any of the other crap that we are used to hearing.  I present to you a video of one, Dr. Edwin Vieria Jr, a Harvard educated expert in the matters of money and how money works in America.  It is becoming apparent to me as I explore in more detail some of the profound historical changes that have taken place in America and their root causes.  Somehow, it all tends to lead to the exact same source.  While we can certainly discuss until the cows home the merits of government intervention, policy and how much of a social safety net we should, none of it means a damn bit when you realize that our government has the power to create money and put us in debt. 

This may sound rather superfluous, but it is important in more ways you can imagine.  To get directly to the point, we are being held hostage by our Federal Reserve, but you do not need to believe me.  You don't even need to believe Edwin although I encourage you to listen, but just take a look around you.  Was life better 5 years ago?  How about 10?  How about 20?  Why is it that your father working on a single salary could support the entire family 35 years ago?  What has changed?   Much more importantly, do you think life in America will be easier or harder in 5 years?  What about 10?  What about your children's future?   If you have to work twice as hard to buy the same thing, how does that make you feel?  If you realized that Government armed with the unconstitutional Federal Reserve that they created to prevent "panics" have systematically robbed virtually every citizen of this nation - how would it make you feel? 

This will be discussed in further detail, but in the mean time keep in mind that a massive systematic distribution of wealth is happening under your own nose.   Not just the distribution from the productive members to the non-productive members, but a massive distribution from 99% of Americans to a powerful group of elite financiers. 

Some bad news from Bloomberg this morning, suggesting that the bill proposed by Ron Paul has been gutted.  It has been gutted notably by two specific people, one being the enabler and perpetrator of the housing crisis our own Barney Frank and the other being Mel Watts from North Carolina. 

Paul, a member of the House Financial Services Committee, said Mel Watt, a Democrat from North Carolina, has eliminated “just about everything” while preparing the legislation for formal consideration. Watt is chairman of the panel’s domestic monetary policy and technology subcommittee.

Fascinating.  EconomicPolicyJournal.com has a piece on this very subject and exposes Watt's plausible motivation for destroying and gutting one of the most important pieces of legislation in Congress right now. 

Most of the top industries donating to Watt are major beneficiaries of Fed money printing. His top industry donors are at #1 the commercial bankers industry, at #3 the building trade unions (All that Fed money printing benefited the building trade unions probably more so than anyone else), and at #5 the securities and investment industry. The current #1 corporate donor to Watt is Citigroup Inc.

During 2007-08 his top contributors were:

#1 Bank of America
#2 Wachovia Corp
#3 American Express
#4 American Bankers Assn

Overall in 2007-08, he received $187,359 from the Finance/Real Estate sector, more than double the amount of money he received from any other sector. Outside of North Carolina, his home state, Watt received the most contributions from Washington D.C. and New York City. Hmm, NYC donations for a North Carolina boy.

This is heartbreaking to read, where a clear case of corruption and bribery is postponing the one possible opportunity for us to escape the shackles of financial servitude.  Not to be outdone though, there is equally incriminating information on Frank.

Many of Frank's donors are clear beneficiaries of Fed money printing activities. The top donor to Frank, so far, in 2009/10 is FMR Corp (the parent name for Fidelity). Others in the top 20 donors for Frank include the American Bankers Association, the American Financial Services Assn, the Independent Community Bankers of America and, one of the greatest beneficiaries of past easy money policy, the National Assn of Home Builders. Did Frank have a guilty conscience and mistakenly think that Woods was referring to him?

Guess what, you do not have to sit by while these corrupted sleaze bags destroy our way of life!  First of all, come 2010 throw those two out of office.  I am looking at you Newton, MA and you 12th district of North Carolina.  The rest who care, can pick up the phone and give them a piece of your mind!

The thirteen Democrats on the House Financial Services Committee:

Rep. John Adler, NJ (202) 225-4765
Rep. Travis Childers, MS (202) 225-4306
Rep. Steve Driehaus, OH (202) 225-2216
Rep. Alan Grayson, FL (202) 225-2176
Rep. Rubén Hinojosa, TX (202) 225-2531
Rep. Suzanne Kosmas, FL Toll Free: 1-877-956-7627
Rep. Dan Maffei, NY (202) 225-3701
Rep. Brad Miller, NC (202) 225-3032
Rep. Walt Minnick, ID (202) 225-6611
Rep. Ed Perlmutter, CO (202)-225-2645
Rep. David Scott, GA (202) 225-2939
Rep. Brad Sherman, CA (202) 225-5911
Rep. Jackie Speier, CA (202) 225-3531
Mel Watt. DC: Tel. (202) 225-1510, Fax (202) 225-1512
Charlotte, NC: Tel. (704) 344-9950, Fax (704) 344-9971
Greensboro, NC: Tel. (336) 275-9950, Fax (336) 379-9951

Recently there have been a flurry of economic reports and activity suggesting that the next months and years ahead will be arduous.  As an amateur student of the economy there is one persistent underlying theme that can be found as the central issue of virtually every debacle today.  Whether it be a seemingly benign issue like cash for clunkers, to continuing escalation in Iraq and Afghanistan to the crippling housing crisis it can all be explained in one form or another by monetary policy.

While I am no fan of Ron Paul due to his inexplicably strange following and tendency to over simplify and even skew issues, he has been championing a most noble and righteous cause for many decades now.  What Paul understands and many do not is the inherent power structure of Congress and individuals who will do anything to retain this power.  There is a way however, in fact there are two ways to actually end the Fed and you can read my recent articles pertaining to the economy to understand why this should be the issue of our time.  Do not take this lightly, if you are reading this and thinking to yourself how bad can the fed be or wondering if this is merely an exaggeration to prove a point - stop, this is not.  Crippling the Fed's ability to function is as important now as was ending slavery in the 19th century.  In fact the analogy may be crude, but both unleash a form of servitude that is the entire antithesis of freedom and liberty yet slavery was at least visible while the Fed operates in ways that most people fail to understand.

We absolutely must raise awareness and educate the masses, because if the demand is there then representatives will arise and take the fight to Congress.  Remember, Congress can end the Fed RIGHT now, but most Congressmen are either too ignorant or too drunk with the power the Fed provides - a blank check to do anything.  People like Ron Paul are absolutely essential to have in Congress and while I would never endorse him as president I wish him luck with this cause.

Cutting to the chase, there are two bills worth mentioning.  One called the Federal Reserve Board Abolition Act and will do what it sounds.   There are 0 co-sponsors and is not particularly well known even among the politicos.  This is an unlikely proposition and is akin to writing legislation to End Communism in Soviet Union Act.

The second bill is called the Federal Reserve Transparency Act of 2009 (HR 1207) and proposes to audit the Federal Reserve and break down the secrecy, open the books and expose to the public what our central bank is going.   This is akin to Glasnost or Perestroika and we all know what the final result of those programs ultimately was.  This bill has a whopping 308 co-sponsors, a truly bipartisan effort and due to it's overwhelming support will at the very least see the light of day.  You can and should absolutely call your representative and urge them to do everything they can to pass this bill.  This could very well be the path toward ending the institution that has caused so much hidden damage to our country and could usher in a new wave of economic appreciation among the public.  Watch the committee hearings held on September 25th, 2009.

We live in precarious times and only the near collapse our financial system, melting dollar and diminished global power can raise the proper questions.  Auditing the Fed would have been impossible to do tens years ago as Greenspan's aura trandescended into god-like status, but times have changed.  If we do not rescue ourselves from the grips of Statist monetary fascists, we will cease to exist.

While the complexity of this topic can span pages, ZeroHedge has a fantastic synopsis.  Unfortunately much of the language is geared for people who understand the inner workings of our financial system, but an attempt to at least acclimate oneself is required.  I am currently working through the material myself and suffice it to say the intervention perpetrated by the Federal Reserve will have lasting effects and pain for many years to come.  What should have been a jolt to the system will now turn into a stagnant mess that may end in one violent fashion or another many years down the road.

This is not an article about the housing collapse although securities are mentioned, but rather the financial run up to what most Americans know as the housing crisis of 2008.  In reality the housing bubble was nothing more than a subset of the much larger global credit crisis foisted upon the people of the world by benevolent central banks.  Do keep in mind that our free market system, the system so many people are proud of us has long been tainted and riddled with reprehensible amounts of intervention.   It is crucial to understand the difference between how a free market capitalist system would operate versus a system whose entire existence is under the mercy of powerful financial moguls and equally powerful politicians enabling each other to what amounts to financial genocide.  A Nuremberg proceeding for the guilty parties would be the only logical step after the inevitable collapse and suffering of so many innocent people.

And here is the liquidity crunch in its full flow-chart glory:

1. If can not obtain short-term (overnight or term) funding in repo market, go to Eurodollar market
2. If can not obtain short-term funding in Eurodollar market (LIBOR), go to asset sales
3. If asset sales are impossible due to lack bids, illiquid markets, and collateral consists of toxic MBS and CCC-rated junk bonds, yet margin calls are streaming and repo counterparties are demanding their cash back, go to bankruptcy
4. File for bankruptcy

This would be natural chain of events in a normal capitalist country. However, America in times of stress is anything but - which is why enter 3.5 (after 3 and before 4): the Federal Reserve.

A video has been circulating around the web and is currently available on YouTube. This is an absolute must watch and demonstrates the complete ineptitude of our government officials. In the video you see the inspector general of the federal reserve board being questioned. She is asked a very simple question, that is - can she explain why the federal reserve balance sheet expanded by one trillion dollars and where that money went. In other words, in the past half a year our federal reserve borrowed roughly one TRILLION dollars and the sole agency responsible for auditing this money has absolutely no clue as to where it is.

We are talking about a devastating amount of money that will forever enslave this and further generations with crippling debt. Keep in mind that the entire existence of the federal reserve starting with the creation of this semi-private institution has been questioned for decades now. Due to the work of brilliant men like Milton Friedman and to a lesser extent the admission of blame by current chairman Ben Bernanke we now know that the Great Depression was largely a creation of the federal reserve. More currently, former chairman Greenspan has been blamed and rightfully so for keeping the interest rates too low for too long and thereby potentially instigating the housing collapse. The entire purpose of the federal reserve and it's creation was to stymie and prevent the inevitable ebb and flow of the business cycle. Various banking panics in the United States prompted the Woodrow Wilson administration to control something that no human has the capacity to understand - a complex free market economy. This intervention by humans into the lifeblood of our economy has now caused unparalleled damage and continues to do so TO THIS DAY!

Please watch this video and pass the information along. Americans must know that our entire existence as a country is being threatened by a few men with noble intentions, ivy league educations and the perception that they simply know better.