Restoring The Legitimacy Of The Federal Reserve

By Simon Johnson

The Federal Reserve has a legitimacy problem. Fortunately, a potential policy shift is available that offers both the right thing for the Fed to do and a way to please sensible people on both sides of the political spectrum: raise capital requirements for megabanks.

As the election season progresses, Republican politicians are increasingly criticizing the monetary policy of Ben Bernanke and his colleagues on the grounds that they are exceeding their authority, particularly by buying assets and trying to lower interest rates in what is known as “quantitative easing.”

There is growing concern in Republican circles that the Fed is tipping the election toward President Obama, and Mitt Romney repeated unambiguously in August that he would not reappoint Mr. Bernanke (a Republican originally appointed by President George W. Bush).

At the same time, a significant number of people on the left of American politics are concerned about how the Fed acted in the period leading up to the crisis of 2008 – blaming it for a significant failure of regulation and supervision – and about how much support it currently provides to big banks.

If the right and the left were ever to come together on this issue, they might enact legal changes that would reduce the independence of the Federal Reserve, making it more subject to Congressional pressures. At the very least, the implicit buffers that protect the Fed from political interference could easily weaken, depending on the outcome of the November election. The Fed has no special constitutional protection, from either the original Constitution or any subsequent amendment. The Federal Reserve System was created in 1913 by an act of Congress and its mandate, functions and authority have been amended by Congress over the years. Most recently, some small but potentially significant changes were enacted as part of the Dodd-Frank financial legislation in 2010.

The Fed has been unpopular before, most notably when under Paul A. Volcker, its chairman, it tightened monetary policy to bring down inflation in the early 1980s. And some tension is built into the very objectives of the organization. Section 2A of the Federal Reserve Act, as amended, now reads:

“The Board of Governors of the Federal Reserve System and the Federal Open Market Committee shall maintain long-run growth of the monetary and credit aggregates commensurate with the economy’s long-run potential to increase production, so as to promote effectively the goals of maximum employment, stable prices and moderate long-term interest rates.”

(This so-called dual mandate came from the Full Employment and Balanced Growth Act of 1978, sometimes known as the Humphrey-Hawkins legislation. This language was not in the Federal Reserve Act of 1913 or the 1946 Employment Act).

Most of the previous political concerns were from the left of the political spectrum and concerned with whether the Fed placed too much weight on low inflation and not enough weight on achieving a high level of employment. Strong voices from the left currently assert that Mr. Bernanke’s team should have done more, earlier and faster, to speed the economic recovery.

But now the brunt of the attack comes from the right, where trouble for the Fed has been brewing for some time.

Open season on the Fed was declared last year by Rick Perry, governor of Texas and then a Republican presidential candidate. On the campaign trail in summer 2011, he remarked memorably:

“If this guy prints more money between now and the election, I don’t know what you all would do to him in Iowa, but we would treat him pretty ugly down in Texas. Printing more money to play politics at this particular time in American history is almost treacherous – treasonous, in my opinion.”

Mr. Perry was picking up on longstanding themes from that part of the Republican right that feels the very existence of the Federal Reserve undermines the Republic. Ron Paul’s book on the subject is titled “End the Fed.” Mr. Paul is sometimes regarded as a fringe figure, but anti-Fed sentiment is no longer a marginal view within the Republican Party – see, for example, the range of voices quoted by Politico this week.

(Mr. Paul’s and, to some extent, Governor Perry’s intellectual predecessor was Wright Patman, a populist Democrat from Texan who served in the House for almost 50 years and was a regular bête noire of Fed chairmen from William Martin to Arthur Burns. In one hearing on the Fed’s monetary policy, for example, Mr. Patman opened the session by caustically asking Mr. Burns, “Can you give me any reason why you should not be in the penitentiary?” Mr. Patman, it should be noted, was described by the historian Robert Caro as to the left of Lyndon B. Johnson.)

Fortunately there is a way for the Fed to reaffirm its legitimacy: the Board of Governors should strengthen capital requirements for the largest United States banks and other systemically important financial institutions. Ideally it should move policy in a direction that is responsible and that would be welcomed on both sides of the political spectrum.

The best way to do this would be to increase capital requirements for very large banks and other financial institutions that the Fed deems to be systemically important. Both sides of the aisle increasingly show some understanding that higher capital requirements for megabanks would make them generally safer and more resilient in the face of really big unusual shocks – and therefore reduce the degree of public subsidy they receive, implicitly, because they are too big to fail (and therefore able to get support, when needed, from the Fed).

(The Dodd-Frank Act constrained the ability of the Fed to help individual financial institutions. but in my assessment left the door open to various kinds of broader assistance to classes of assets or groups of companies – either through the Fed discount window for lending to banks or through some mechanism to be specified later.)

The recent letter to Mr. Bernanke by Senators Sherrod Brown, Democrat of Ohio, and David Vitter, Republican of Louisiana – which I wrote about recently – is a perfect example of the emerging cross-partisan consensus. In private, I hear strong voices from right and left echoing the sentiments of this letter.

The megabanks, naturally, are opposed. They contend that higher capital requirements would be bad for the economy. That is a myth, fully exploded by the Stanford professor Anat Admati and her colleagues (if you have not already seen their Web site, you should look at it now.)

The Fed has the ability and the opportunity to make a move on capital requirements for systemically important financial institutions – we are currently in a comment period that runs until Oct. 22 on exactly this issue. Higher requirements would make the financial system safer. They would also represent an important step toward rebuilding the political legitimacy of the Federal Reserve System.

An edited version of this post appeared this morning on the NYT.com’s Economix blog; it is used here with permission.  If you would like to reproduce the entire column, please contact the New York Times.

57 responses to “Restoring The Legitimacy Of The Federal Reserve

  1. Let me remind that Ron Paul’s attack on the Federal Reserve is ultimately rooted in a belief in metallic currency and in”conspiracy of bankers” theories which are partly rooted in anti-semitism–in other words, in nothing rational.

    You propose a reform which, if I understand it correctly, would be sensible. But I doubt anything positive is going to come of attempting to implement the right-wing critique of the Fed.

    Croak!

  2. Fixed interest rates, and a sensible tax policy would go along way to abolishing the fed, and reigning in politicians bad habits.

  3. One of the most enlightening books on the Fed (and other like Central banks, globally) was Web of Debt. I don’t agree with all of Paul’s positions, but when it comes to the Fed he’s not all wrong. There does need to be greater accountability for an entity that’s not even part of government, a money ‘making’ organization that’s effectively run by banks (it’s like the foxes running the hen house and it’s happened for far too long). Americans are so vehemently opposed to socialism or anything ‘smelling’ like it, but their giant money creation machine is effectively that, socialized monetary policy (though run by a kleptocracy for ‘its’ overall benefit).

  4. What political legitimacy? This is a private consortium of banks and nothing to do with “federal” or “reserve”, and would best be nationalized. We could then have a non-debt based monetary release system, that would negate most inflationary pressures on the USD $$$, with a host of other salutary effects as byproducts. Presidents who put forth such bold ideas were gunned down in office, however, pointing to a suggestion of where the real power in this sordid world resides….the money changers.

  5. @Bond Man, Blasphemy! LOL

    The FRB has basically claimed SUPERhuman powers, haven’t they? Think about it…and when you pull the curtain, they are SUBhuman – liars, thieves and murderers. War mongerers, slave owners, drug pushers, constantly harping on how stupid everyone else is because they allow themselves to be exploited – which then becomes their rationale for why it is okay to exploit someone who allows themselves to be exploited – it’s endless misery.

    More misery for others = more $$$$$ for ME ME ME

    No better documentary to put things in the proper historic and COMMON SENSE perspective than “The Secret of Oz”. Now there’s a video that should have gone viral….

    Every human being has the right to make their lives less miserable through honest work.

    The Federal Reserve Board EXISTS as a superhuman attempt (delusional monkey brain “ism”) to keep all of humanity in the worst possible position to be so much LESS than we were meant to be. It’s not going to last because at 7 billion, collective humanity is the SUPERhuman force. And no one likes the psychos and their monkey brain “isms”.

  6. Why should I be in favor of increasing reserve requirements?

    I am in favor of a significant tax on banks’ excess currency reserves!

  7. And how cynical! Now that they got rich from leveraging 100 to 1 and stole everything via that predatory leveraging, who else has the “currency reserves”? So now they are saints for proposing that they hold more currency??!!

  8. Annie the fed is none of that. They are though a very desperate and powerful force will to use all the tools of time, and negotiation, in their favor and shut out the opposing forces. The big problem is that their maps are not current, or maybe accurate. So the growth booty eludes them, and their blood pressure rises in order to hide the fiscal edge they have created for themselves. It’s haircuts all around I say, conserve as best you can, for it only gets worse from here.

  9. Why is it being anti-Mafia is not anti-Italian but being anti-banker is anti-Semitic?

  10. The Fed should be abolished . It a private cartel of bankers permitted by congress in 1913 to create money out of nothing. It is thee cause of all our economic difficulties

    • It is incapable of accomplishing its stated objectives.
    • It is a cartel operating against the public interest.
    • It is the supreme instrument of usury.
    • It generates our most unfair tax.
    • It encourages war.
    • It destabilizes the economy.
    • It is an instrument of totalitarianism.

    It is is not abolished the fourth collapse of the three previous Central banks of the United is imminent and unavoidable.

    Historians seeking to justify governmental control of the monetary system have claimed the booms and busts that occurred during the Civil War through the 1920’s were the result of free and competitive banking. But these destructive cycles were the direct result of the creation and then extinguishing of fiat money through a system of federally chartered banks, dominated by a handful of firm on Wall Street which constituted a half-way house to central banking. None of these banks were truly free of state control nor were they competitive in the traditional sense of the word. They were in fact subsidized by the government and had many monopolistic privileges. From the perspective of bankers on Wall Street however there was a great deal more to be desired. For one thing, America still did not have a “lender of last resort:. That is banker language for a full blown central bank with the power to create unlimited amounts of money which can be rushed to the aid of any individual bank that is under siege by its depositors wanting their money back. Having a lender of last resort is the only way a bank can create money out of nothing and still be protected from a potential “run” by its customers. In other words , it is the means by which the public is forced to pay a hidden tax of inflation to cover the shortfall of fractional-reserve-banking. That is why the so-called virtue of a lender of last resort is taught with great reverence today in virtually all academic institutions offering degrees in banking and finance. It is the means by which the system perpetuates itself.

    The banks could now inflate more radically and more in unison than before the war but, when they pushed too far and too fast their bank generated booms still collapsed into recessions. While this could be highly profitable to the banks, it was also precarious. (more about this on pages 432 and433 of The Creature From Jekyll Island (5th edition September 2010)

    Between 1900 and 1910 seventy percent of American Corporate growth was funded internally, making industry increasingly independent of the banks. What the bankers wanted– and what many businessmen wanted also — was a more “flexible” or “elastic” money supply that would allow them to create enough of it at any point in time so as to be able to drive interest rates downward at will. That would make loans to businessmen so attractive they would have little choice but to return to the bankers’ stable.

    One more problem facing Wall Street was the fact that the biggest investment houses, such as Morgan & Company and Kuhn Loeb & Company, although they remained as competitors, were by this time so large they ceased doing serious battle against each other. The concept of trusts and cartels had dawned in America and, to those who already had made it to the top. joint ventures, market sharing, price fixing, and mergers were far more profitable than free-enterprise competition as Ron Chernow explains on pages 433 and 434

    This trend was not unique to the banking industry, Ron Paul and Lewis Lehrman provide the historical perspective on pages 434 and 435. The challenge no longer was how to overcome one’s adversaries, but how to keep new ones from entering the field. When John D, used his enormous profits from Standard Oil to take control the Chase national bank, and his brother, William, bought th national City Bank of new york, Wall Street, had ye tone more gladiator in the financial arena. Morgan found that he had no choice except to allow Rockefellers into the club but, now that they were in, they all agreed that the influx of competitors had to be stopped. And that was to be the hidden purpose of federal legislation and government control which Gabirel Kolko explains on page 435. Writing in the year 1919 , from the perspective of an inside view of Wall Street at that time, John Moody completes the picture on pages 435 to 437

    And the event of the Aldrich-Vreeland Act of 1908 as well as the creation of a national Monetary Commission to study the problems of the American banking industry and make recommendations to Congress finally brings us to he Jekyll Island plan for convincing Congress and the public that the establishment of a banking cartel was ,somehow, a measure to protect the public.

    The Jekyll Island strategists laid down the following plan of action.

    1. Do not call it a cartel or even a central bank
    2. Make it look like a government agency
    3. Establish regional branches to create the appearance of decentralization, not dominated by Wall Street banks
    4. begin with a conservative structure including many sound banking principles knowing that the provisions can be quietly altered or removed in subsequent years
    5. Use the anger caused by recent panics and bank failures to create popular demand for monetary reform
    6. Offer the Jekyll Island Plan as though it were in response to that need
    7. Employ university professors to give the plan the appearance of academic approval
    8 Speak out against the plan to convince the public that Wall Street banker do not want it.

    The American public would never have accepted the Federal reserve System if they had known it was half cartel and half central bank. Even though the concept of government protectionism was rapidly gaining acceptance in business and academic circles, of cartels, trusts, and restraints of free competition was still quite alien to the average voter. And within the halls of Congress, any forthright proposal for either a cartel or a central bank would have been soundly defeated. This is further described on page 439 through 449.

    Banking in the period immediately prior to the passage of the Federal Reserve Act was subject to a myriad of controls regulations, subsidies and privileges at both the federal and state levels. Popular history portrays this period as one of unbridled competition and free banking. It was in fact, a half-way house to central banking. Wall Street, however, wanted a “lender of last resort to create unlimited amounts of fiat money for their use in the event they were exposed to bank runs or currency drains. They also wanted to force all banks to follow the same inadequate reserve policies so that more cautious ones would not draw down the reserves of the others.. The first draft of the Federal reserve Act was called the Aldrich Bill and was co-sponsored by Congressman Vreeland, but it was not the work of either of these politicians. It was the brainchild of banker Paul Warburg and was eventually written by bankers frank Vanderlip and Benjamin Strong. Aldrich’s name attached to a banking bill was bad strategy because he was knwn as a Wall Street Senator. His bill was not politically acceptable and was never released from committee. The groundwork had been done, however, and the time had arrived to change labels and political parties. The measure would now undergo minor cosmetic surgery and reappear under the sponsorship of a politician whose name would be associated in the public mind with anti-Wall Street sentiments

  11. I think the comments here have more than validated my original croak.

    Slackmo, try entering “federal reserve” and “rothschild” into Google and see what pops out. I suggest keeping an airsickness bag close at hand.

  12. Those of you who favor ‘restoring Glass-Steagall’ (and are resistant to the fact that it was never repealed in the first place) might ponder that prior to GS bank shareholders had ‘double liability’. I.e. a bankruptcy referee could come after them for more funds to make depositors whole if the bank failed.

    Which is effectively a doubling of capital requirements.

  13. Also keep in mind that the Basel Accords weakened the capital standards of American banks. Are these going to be the same people who now get to decide what a ‘megabank’ is (or, is not), and what their capital standards should be?

  14. Shades of Andrew Jackson, and James K Polk. Of course the counter example is the US between 1836 and 1863 when free banking existed, and currency detectors were needed to see if a note was legitimate. Further the farther away from the issuing bank you were the less a note was worth.
    We had busts in 1837 (caused by the demise of the bank and in the late 1850s so that the act of 1863 is not the cause. Interestingly if you go back to the central bank less period from 1836 on you find that some states heavily regulated and some did not. In fact a few states did what North Dakota did later set up a state bank and that was the only bank allowed (not in ND however). So we do have a selective reading of history as always. Of course the irony is that the republican right is now taking the platform of that raving liberal democrat Andrew Jackson, it must be that when a party is dominated by the south it goes against commerce.

  15. The title is wrong. The FED has never had ANY legitimacy. It is a banking cartel, and it should be shut down, just as RP stated in his brilliant book.

  16. @Patrick: RE: Basel Accords – Per Kurkowski would argue that the risk-weighted capital requirements regime of Basel was a major cause of the present crisis and should have never been implemented. Smarter regulations would concentrate on minimizing the effects of systemic failure instead of optimizing leverage ratios. As long as there is an international banking system, there need to be international accords to keep the playing field level, but there need to be new and wiser voices.

  17. Indeed, although I favor a basic capital requirement between 8 and 10 percent, it is really not so much about it being high or low, but more about the need of getting rid of capital requirements that discriminate based on perceived risk.

    The truth is that we´ve got ourselves a much ignored class-war, carried out by the “not risky” against the “risky”, under the cover of bank regulations.

    It is the action of the “risky”, small businesses and entrepreneurs, which normally builds the muscles of an economy. Those “not risky” slowly, or fast, over time, most often turn into flabby fat.

    I am putting together a Stupid Bank Regulations 101, for the benefit of those who like Martin Wolf of FT do not get it. Perhaps Simon Johnson and James Kwak would also like to take advantage of it.

    http://subprimeregulations.blogspot.fr/2012/09/educating-martin-wolf-and-others-course.html

  18. This is a quote from the web of debt. http://www.amazon.com/Web-Debt-Shocking-Truth-System/dp/0983330859/ref=sr_1_1?s=books&ie=UTF8&qid=1348225362&sr=1-1&keywords=the+web+of+debt
    “No more taxes!

    Assume that all Federal Reserve had used its greenback issuing power to buy back the entire outstanding federal debt, and that it had acquired enough bank branches (either by purchase or by FDIC takeover in receivership) to service the depository and credit needs of the public. What impact did these alterations have on the federal income tax burden? To explore these possibilities, will use U. S. Data for FY 2005 (the physical year ending September 2005), the last year for which M3 was reported:

    Total income taxes and FY 2005 came to $927 billion.

    Taxpayers paid $352 billion in interest. That year on the federal debt. If the debt had been paid off. The sensors could have been cut from the national budget, reducing the tax burden by that some.

    Total assets in the form of bank credit for all you capital. As capital. Commercial banks in F Y 2005 were reported at $7.4 trillion. Assuming in the average collective interest rate on the bank loans of about 5%, approximately $370 billion or thus paid in interest that year. If roughly half the sound had gone to the new leaf form national banking system for loans made at the federal funds rate to private lending institutions, interest on credit card debt, loans to small businesses, and so forth the government could have earned around $185 billion in FY 2005.

    Adding these two adjustments together, the public tax bill might have been routed deuced by around $537 billion in FY 2005. Deducting this some from $927 billion lease $390 billion. This is the approximate sum, the government would have had to generate a new greenbacks to eliminate federal income taxes altogether and FY 2005.

    What would adding fit 390 billion due to the money supply and consumer prices? In 2005, M3 was $9.7 trillion. Adding 390 billion would have disbanded M3 by only 4% Milton Friedman’s modest target rate and far less than the money supply actually grew in 2006. This was the year the Fed quick reporting M3, but the figures have been calculated privately by other sources. Economist John Williams has a website called shadow Government statistics, which exposes and analyzes the flaws in the current US government data, and reporting. He states in July 2006, the annual growth in M3 was over 9%. We’ve seen that this growth must have come from Fiat money created but as loans by the Federal Reserve and the banks. Thus, if new debt-free greenbacks had been issued by the treasury instead inflation of the money supply could actually have been reduced from 9% to a modest 4% without cutting government programs are adding to a burgeoning federal deficit.”

  19. If currency’s are indeed part of a global banking system, then they must have a common denominator, and not just a random computer generated algorithm either. Now since many country’s leverage the exact same denominator over and over again, and then leverage that same denominator in the same fashion. They should actually be using the same currency rather than justifying the algorithm with perceived eternal time on their side. When the time comes, this just can’t end well for many worldly citizens.

  20. @beene: I love smartphones’ auto-complete feature.

  21. @filth – the FRB most certainly is claiming that it has SUPERhuman powers!

    Upon closer inspection, it’s only SUBhuman behaviour. But “percepyion is reality”, right?

    Great greed is always followed by great violence.

    Got an epic in history where that is not the case?

  22. ‘Smarter regulations….’

    Yes, that always seems to be the problem. The regulation we had wasn’t smart enough, but next time it will be.

  23. Got an epic in history where that is not the case?

    Yea, right here, right now. You been spewin the same chit for some time now, and nothing on the streets looks any different to me. Especially the pain and filth coming from your mouth over time. Some people never figure it out, even the simplest of things, go back to my chart of failure and see where you wrong, it could be all of the above in your case.

    And oh yea, I never forget a face, but in your case, I will make an exception.

  24. Ah, Simon:

    “… and therefore reduce the degree of public subsidy they receive, implicitly, because they are too big to fail (and therefore able to get support, when needed, from the Fed).”

    How about *eliminate* public subsidy? Why should I have any interest in paying megabuck salaries to these dolts who couldn’t change a tire or hang a picture? What good are they?

    How about taking a hammer and smashing the megabanks into shards of their former selves?
    …Lady in Red
    PS: Good article in The Atlantic.

  25. Mr Johnson, I agree that higher capital requirements should be imposed on mega banks. I am a very liberal Democrat. What the Fed is doing is robbing savers like me to prop up Big Banks, many of which are run as criminal enterprises. The Fed is their accomplice. Andrew Jackson was correct that an institution with the power to print money becomes a tyrant. The Fed should be abolished. Jim Emison

  26. In this context, I want to note that the former Under-Secretary-General of the UN Antonio Costa who was responsible for the drug problem mentioned that in 2008-2009, in the midst of the global financial crisis, US$352 billion from selling drugs was pumped into the world’s leading banks. This means that a certain global level determines or sets the demand for drugs turnover, and ultimately, a political order for this production.

    http://rt.com/news/hundreds-drug-money-pumped/

  27. The first law of war Anonymous, is stay out of Afghanistan. Secondly, your drug issue has been addressed, and we found you to be on the wrong side of nature on this one. Proper education is the answer to that. And when it came to that issue, we found that you will have be sold down the river in order to allow proper education to exist. You see, right now its your peoples way, or the highway, we know that, and we know you want to prescribe your success to the rest of world. Keep being mystified why your false premises don’t result in the conclusions which seem so obvious to your like minded friends and you. There is a reason for it, and as I said, you are on the wrong side of nature on this one. And its been proved and not published because it is not in your best interests, imagine that.

  28. I said, “Got an epic in history where that is not the case?”

    filth sez, “…Yea, right here, right now. You been spewin the same chit for some time now, and nothing on the streets looks any different to me….”

    You mean all those shuttered Main Streets rotting all over the country give you a warm and fuzzy good feeling of security that “nothing looks any different to me”?

    As for my “spewing”, in case you haven’t noticed the topic is RESTORING the legitimacy, which means my RIGHT to First Amendment Free Speech was exercised in the same time frame as this endless yaddayadda from you ass kissers of Global War/Drug/Slave Lords. Now there’s some smelly filth…

    Indeed, the Middle East streets don’t seem any different to me, though. Might as well be footage from 1979 that got poor ol’ Jimmy the political boot so that the actor playing eliza doolittle could channel your kind of crap about “what is” inside the monkey brain high on imagination – the “ism” that isn’t.

    What possible moral high ground can you claim over others???!!! Absolutely ridiculous!

  29. http://rt.com/news/drugs-fines-corporations-crime-671/

    That’s what the “educated” drug pushers have been up to – and it gets worse. Check out how the “legits” are “pushing”:

    http://www.pharmalot.com/2012/09/the-op-ed-mental-health-rights-pharma-and-the-election/#comments

    Looks like restoring “legitimacy” needs to trickle all the way around – after all, the same hand full of self-proclaimed geniuses were helping each other in all the TBTF “industries” with the “arithmetic”.

  30. Another river of denile candidate, you shall be SOLD down the river, in due time my not so intelligent fiend.

  31. And Anonymous, after you finish at sunset grill, join me at the matt.

  32. 50 bucks to anyone who knows what filbt is talking about

  33. “Strategic Culture” is the name that some whacko internet site gave itself as it aims to turn earth into a man-made hell with depraved cretins in charge?

    THIS is what people do with billions of $$$$ in unearned wealth in their TEMPORARY unimatrix control?

    @filbt – your lust for power over others just so you can sell anyone down the river who you RECOGNIZE as being eons ahead of you in basic human development puts you on a “list”, too. No doubt we’ll have that party and the teams are being picked….

  34. You said exactly what I thought you would say. How about I trade you a big mac for your money.

    And Annie, I have no lust for power, unless you call logical conclusions power, then i’m all for it. No one knows whys God gave power to the children, unrecognizable and unreal as it may seem.
    This stands for Rapid Eye Movement annie, I’m throwin ya some clues here, see if you can pick up on some easy ones.

  35. @filth – Of course I am consistent in what I say – wow. Every child left behind must have been something you logically promoted. Which is what you do, isn’t it? The opposite of what I always state – the TRUTH – that every HUMAN BEING has the right to make their lives less miserable through HONEST WORK. The only interest YOU have in HONEST WORK is how to make sure slaves do it.

    But then CRIMINALS are dumb. And they’re so dumb that they think that anyone who isn’t lying, cheating, stealing or murdering to get their hands on $$$$ doesn’t know “how the world works”. And you are a liar – either to yourself and/or to eveyone else. You are not even beneath trying to use “religion” to lay hold of power over others! You CRAVE the use of fear and brute force to control the “economy”, war games, sickness delivered at will to others, etc. etc. etc.

    So BFD that you can “predict” my behaviour. Ditto back at you. Although I must admit, your brand of mental insanity is far more unpredictable – so you must be taking something, just like the recent parade of young men who go into a crowd and start shooting – they were all on meds also.

    If I get access to YOUR portfolio of “investments”, I’m sure I could chip away every day at it until there was nothing left, just like was done to the Middle Class from the day The Patriot Act was passed. Still, you never know who is reading along on this website, do you?

  36. That and a dictionary will buy you a 5th grade mentality, I just hate to see full grown adults in such pain.[ but your advisors obviously don’t mind] So someone took away your fairy dust and now you have no abilities to recover and feel like shit, ya we’ve heard that story over and over again. No pick me up today so i’m gonna rank on the same ones whom are in line with me waiting for that fatal day. You are so in denile annie, or perhaps over medicated, ( I don’t know which is worse) and unfortunately I DON”T feel your pain, I have no remorse for you and/or your future, and tell your psychiatrist he or she can bend over for the public education lords too.

  37. Free speech, filth. Best thing ever – LOL

  38. Last update on Nov 6, 2009 – cut and pasted from their website:

    http://www.federalreserve.gov/aboutthefed/mission.htm

    Today, the Federal Reserve’s duties fall into four general areas:
    •conducting the nation’s monetary policy by influencing the monetary and credit conditions in the economy in pursuit of maximum employment, stable prices, and moderate long-term interest rates
    •supervising and regulating banking institutions to ensure the safety and soundness of the nation’s banking and financial system and to protect the credit rights of consumers
    •maintaining the stability of the financial system and containing systemic risk that may arise in financial markets
    •providing financial services to depository institutions, the U.S. government, and foreign official institutions, including playing a major role in operating the nation’s payments system

    I don’t see anything in this statement about never running out of fiat dollars to fund perpetual war in the Middle East where the sands are constantly shifting – a puerile “bachelor pad” series of “alliances” – now the alliance is what has been so successful in Iraq – the christians were killed if they didn’t leave the country. Hmmmm, now who wins the most from the Moslems and Christians “at war”…?

  39. Conscience of a Conservative

    Let’s face it as a buyer of Treasury debt and a important setter of interest rates the Fed is a great asset to those that believe i big government.. What we don’t discuss enough is the market manipulation, picking of winners and losers, risk of future bubbles, risk of lost purchasing power of Americans, and the pain felt by those that are on fixed incomes that depend on the interest income of past savings to carry them through retirement. The bottom line is that the Fed has grown to be a very powerful institution with little oversight.

  40. I have had enough about sharks and hedge funds in general. What happened to Main Street, you know those poor sods —taxpayers who are paying for the ongoing bailout in many forms that naturally end up in the parasitic hands of the banks? When, just when does anyone in position to actually effectively act, do in fact act? Maybe Main Street — working people will slowly but surely end up like those poor citizens of Greece, blame for everything a small group of so called elites did, and now are left in the streets suffering—right that is why the name Main Street because that is where they will finally end up. Those people are in fact the only mass group whom make the whole global system really work. So talk softly and carefully because they may appear powerless but they none the less are still capable of at least listening closely.

  41. P.S. Given the number of comments I am pretty sure my few words will not be read?

  42. Not that they won’t be read, but its not to difficult to determine where things went wrong.

    1978, Marquette vs. First of Omaha – Supreme Court allows banks to export the usury
    laws of their home state nationwide and sets off a competitive wave of deregulation,
    resulting in the complete elimination of usury rate ceilings in South Dakota and Delaware,
    among others.

    Delaware folks, the home of corporate America, was the first state to proclaim sky is the limit on charging interest on borrowed money.

    • 1980, Depository Institutions Deregulation and Monetary Control Act – Legislation
    increases deposit insurance from $40,000 to $100,000, authorizes new authority to thrift
    institutions, and calls for the complete phase-out of interest rate ceilings on deposit
    accounts.

    How well did this work out, it was beginning of sucking in deposits for more interest and concurrently raising rates on borrowed money. Today you can charge any rate on interest for borrowed money, but if you want 5% return on your money, the bank has the right to exit the contract and drop that to zero, or even create ways to charge you for an account.

    And another kicker on Reagan non-linear watch:
    • 1982, Garn-St. Germain Depository Institutions Act – Bill deregulates thrifts almost
    entirely, allowing commercial lending and providing for a new account to compete with
    money market mutual funds. This was a Reagan administration initiative that passed with
    strong bi-partisan support…….The list goes on and on.

    Which leads us to today’s environment of cut throat economics.
    We should have been asking who made this up, who said you should make any money on your money, who idea was that? You should make and save and spend your money, if you lend it, you trust or hope that it will be paid back in full, with no interest. And no interest in seeing another hurt if they can’t pay. Kids? First prove you can afford them, don’t use them as collateral for your current and future debts. It’s the tax laws, the upper class, and the hypocrites who caused all of today’s heartaches, and now they want to be anonymous, and stop talking cause they have the financial advantage. But don’t worry, i’ll give um plenty of notice when their time is up.

  43. There is no way out of this black hole and the authorities in America well know it. Watch what they do, and NOT what they say. It makes no sense to speak of restoring the legitimacy of the Fed, any more than it does the legitimacy of any criminal enterprise, including the governments that spawn them. The symbiotic relationship between the government and corporate sectors has rendered the question moot. Government and public officials haven’t been captured, they’ve surrendered, e.g., sold out and committed high acts of treason.

    http://www.zerohedge.com/news/2012-09-22/whats-next-simon-johnson-explains-doomsday-cycle

  44. Well spoken funkright and peterpalms! The Fed is a cartel of, by, and for the predatorclass. Forget the lofty language in the Feds charter and look to its unholy borning. Since its inception – the Feds only real purpose and function is printing money out of the myst to funnel into the offshore accounts of select predatorclass finance oligarchs.

    Now the socalled government, the MSM and the predatorclass are one single organized crime cartel. The people are told and taught fairytales while the predatorclass den of vipers and thieves pillage the nations resources, gut the middleclass, literally redistribute trillions of the peoples dollars into the offshore accounts of select predatorclass oligarchs.

    All you sociopath predatorclass creeps that hold supremist disdain for those less fortunate and imagine you are somehow exceptional mastersoftheuniverse and that everyone else is a sod better pray that nothing changes. Because once the unwashed masses get wind of systemic criminal enterprises guaranteeing and shielding your otherworldly wealth – the seething anger and desperation of those less fortunate will reach criticality – and the will be a fearsome reckoning and balancing. History proves this truth.

    Burn it all down. Reset! It’s the only viable option.

  45. Interesting that they seem to be both claiming it’s ineffective and pointless AND saying it could tip the elections.

    One of these two things does not fit together.

  46. @Tony F – “The people are told and taught fairytales while the predatorclass den of vipers and thieves pillage the nations resources, gut the middleclass, literally redistribute trillions of the peoples dollars into the offshore accounts of select predatorclass oligarchs.”

    And now that everyone knows this, and they do really know it even though it is not “broadcast” on MSM, we need to realize that we have every right to issue a different “currency” to circulate and water life-maintenance activity in our CIVILIZATION.

    Otherwise, we ARE stupid. And they are NUTZ. That’s no way to live.

    So that’s USA’s contribution to the today’s world – an economy that supports the TRUTH that every person has the right to make their lives less miserable through honest work. It’s not going to flatten out social strata, but it must realistically place a LIMIT on “profit”. How can there be a “minimum wage” set where there is no “maximum profit” set for THIEVES and people who sneer at “rule of law”?

    Abort the FRB and you abort “armaggedon”…

  47. And the ECB too, and the IMF and the World Bank…..to avoid this kind of anarchy, which results from the banksters getting ordinary people in a position to PAY FOR BANKSTER (rhymes with GANGSTER) errors and frauds.

    http://worldnews.nbcnews.com/_news/2012/09/26/14107264-rage-against-austerity-protesters-in-gas-masks-helmets-clash-with-greek-police?lite

    Hail to the Greeks!!

  48. @Bond – never mind the anarchy, wait a few minutes for the military exercises to get going – trillions either built to blow stuff up, or stuff that actually blows up. That’s why everything was shoveled to the top – to blow it all up. Talk about “wealth management”…

    Trillion dollars to *fund* Nihilism…only one non-violent way out – issue a currency to be used for life-MAINTENANCE commerce that is NOT “debt” owed to FRB, ECB, IMF, and wha’ever.

  49. This is from my stand up routine:

    Used to be a drug dealer, oh yea, just weed, nothing hard. Used to grow it too, my stuff was the best around, and the people just could hardly contain themselves when it was harvest time. I had this one fellow, he was my step grandfathers grandson, I think he was a coke head cause he would only come around once every six months for a twenty dollar bag. Well he came around this one time, and I told him all I had was my high test stuff, no regular. He says no prob, he was just glad to get it, so I sent him down the road with it. Six months later he shows up again for another twenty bag. Only this time I had no high test, just regular, he says GOOD, that last stuff fu_ked me up.

  50. Bank regulators have facilitated banks to obtain much larger return on equity when lending to the “not-risky” than when lending to the “risky”, and that is distorting our economies to death.

    I have written several hundreds of letters to the Financial Times over many years on this issue but, their economists’ fail to understand or simply do not want to acknowledge the problem.

    I have now, for umpteenth time, again sent FT a simple question, and I would much appreciate your support in having it answered by sending an email to the Editor of FT asking for it.

    You can send it to Letters.Editor@FT.com and reference it as “Kurowski’s question to FT’s economists”… pleading “Please answer it!”

    I am absolutely certain you would like that question to be answered too, not only by FT’s economist but also by real life bank regulators… but, one thing at the time.

    You can find the question here:

    http://teawithft.blogspot.com/2012/09/a-question-from-reader-to-any-of-fts.html

    Of course if you know anyone that might bear some influence over FT or is also simply a reader of FT, it would be nice if you could resend this message to him, or, as you now seem obliged to say, to her.

    Thanks

  51. Lets take a ride.

  52. Dear Simon and friends (and others as well)
    Pity.
    The legitimacy is in the ‘mission-statement’ of the Fed.
    The tragedy is working with an impotent system to achieve the mission.
    If ANYONE wants to know the way out of this mess, a couple of researchers at the IMF have handily pointed it out.

    http://www.imf.org/external/pubs/ft/wp/2012/wp12202.pdf

    Please have a read, Simon, friends and others.
    The problem is not the Fed.
    The problem is the debt-based system of money.
    This from the IMF researchers – OF COURSE, not from the IMF.

    For the Money System Common

  53. Blame goes to your politicians. FED is just an instrument to them. If it is claiming some political power, it should be banned. This is all you can say about it. US were never a land with a good attitude towards its citizens. It was always freedom instead of care. Many of the people accepted it and believed it should be like that. Now with the crisis, when millions of people literally hit the bottom, it is no longer acceptable. The problem is that there is still enough voters, who don´t understand the political competition between Democrats and Republicans. They don´t even understand that they are not political parties in a term of holding the same ideology. Being Democrat or Republican is like being Coca-Cola or Pepsi. It is just a brand. A product with name. How to change it? I recommend you Immigration to Canada which is growing and more and more people are seeing it as an opportunity. Believe me or not, I rather pay bigger taxes to get social services than have absolute liberty.