Monday, February 15, 2010

Games the Government Plays Pt. I

The Federal Reserve manages the economy through the manipulation of interest rates. The Federal Reserve is sitting on an interest rate bubble that will burst, causing a serve in inflation. It [Federal Reserve] has tried to artificially manipulate interest rates in order to prop up the economy. By keeping interest rates low, the Federal Reserve has insulated bansk, making money very cheap for banks to borrow. This in turn has propped up a fledgling banking system. The Federal Reserve lends to banks at zero percent. The banks take that cheap money and buy U.S. Treasury bills and notes, thereby keeping the Federal government in business. There is little money to lend businesses and individuals because the banks are lending to the Federal Reserve by buying Treasury bills and notes.

The spread that the banks make on those transactions keeps the banks afloat. However, it is a vicious cycle and eventually the interest rate bubble will burst as the Federal Reserve's borrowing and lending chokes the Treasury and the Federal government. The way in which the Federal Reserve controls interest rates, and therefore the stock market is through adding reserves, or money to the banking system. The reserves, or money that the Federal Reserve is adding, in order to prop up the value of the dollar and to stave off inflation, have no value. The reserves of the Federal Reserve are an illusion and have nothing but the full faith and credit of the American
government to back it up. The full faith and credit of America is not worth much because there are not enough assets to back up the full faith and credit of the U.S. dollar. There are not enough assets to back up the reserves keep pumping into the banking system.

The gold bullion held by the U.S. Treasury in Fort Knox and in the vaults of the U.S. Treasury and U.S bank, only supports a fraction of the outstanding claims against America. Those outstanding claims includes money in circulation, U.S. Treasury bills, U.S. Treasury bonds, and other debt obligations of the government. So, what we are left with is a government and its Federal Reserve which continues to create money and reserves, that have no value, through the banking system.

If the Reserves that the U.S. banks are holding as assets have no value, then you, as a depositor, or creditor of the bank have a claim against the bank that will likely not be honored. FDIC insurance will mean nothing at this point, since that guarantee comes from an agency of a bankrupt government. The full faith and credit of the American governmetn will eventually dry up. The inflation "virus" will break out, as demand exceeds supply and the government will have no way of controlling the caps on inflation. The currency will be worthless at that point. People will want to hold every asset in the world, except the American dollar because it has no value. The full faith and credit of the American government will not be worth the paper it is written on.

American has become a debtor nation, importing more that it exports, and relying on others to manufacture things that it needs. The weak American dollar will not be able to buy the imports at a price that the American consumer can afford. Many companies will go out of business because they cannot afford to compete on the international market because of the weak American dollar. As a result, many more Americans will lose their jobs, their homes and other assets.

America was anxious to open trade with China. When America branched into trade with China, the Chinese were riding bicycles and donkeys, while Americans drove large cars. Now the Chinese ride in cars, while Americans will start riding bicycles, horses and any other means of transportation that is not dependent on oil. The greed of American corporations to open up trade with countries like China and India, while exporting the jobs of Americans overseas, has led to America's dependence on foreign countries, for commodities and manufacturing.

The bandaids of using taxpayer's funds to continue to bail out insolvent banks, investment houses,and other commercial firms, are simply postponing the inevitable. Unfortunately, the Federal Reserve, and the U.S. Treasury are just as insolvent as the financial institutions and commercial enterprises that they seek to prop up. The question needs to be asked: Who will prop up the U.S. Treasury and the Federal Reserve? Will the "sovereign funds" of other nations continue to underwrite the Federal Reserve and the U.S. Treasury as it continues to print worthless money in order to bail out insolvent financial institutions?

The American taxpayers are being asked to cosign on the face value of those loans, totaling over $1 Trillion, which have little or no value. The funds to pay for the loans on the purchase of bad loans by the Federal Reserve and the U.S. Treasury will be borrowed from foreign sources. The Federal government will print money by issuing U.S. Treasury bills and bonds, which they will sell to foreign investors. The taxpayers must pay the interest and debt on the loans. The whole thing is absurd. The Federal Reserve and the U.S. Treasury have become the major manufacturer in the United States of America.

The President and Congress do not get it. You, the taxpayers, get it. You do not want your tax dollars to go to bail out corrupt and insolvent financial institutions. Taxpayers want to let those institutions which are failing - fail. No one is too big to fail. This is throwing good money after bad money.

Henry Paulson, Timothy Geithner, and their Wall Street buddies worked behind closed doors inside the U.S. Treasury. They were busy servign up the spoils of their "victory" over the American taxpayers. There was no need for a hold-up or armed robbery. Congress and the President have given them loot of the Treasury to them. American taxpayers never stood a chance in this deal. We were doomed from the moment it began and I'm afraid the worst is yet to come - no matter what "they" tell us. Sound economic policies have not been used in a very long time. We will see the consequences of that very soon.

The fools, who are advocating that America spend itself out of debt and the economic mess that have been created by decades of mismanagement of the economy, are just that, fools. No amount of economic stimulus and spending by the Federal government will spend America out of debt. No one but a fool would say that the only way to cure an alcoholic, of his addiction to alcohol, is to give him more alcohol. America is addicted to debt. The economy runs on debt and credit. The problem is that America is drowning in debt created by the Federal Reserve and Treasury Department's unabated borrowing and printing of money. Stop spending. Stop borrowing until your revenue matches your spending. By spending and borrowing America is spending itself into a deep, dark hole from which it cannot be retrieved.

Alan Greenspan will go down in history as one of the worst, if not the worst Chairman in Federal Reserve history. Greenspan presided over the growth in the derivatives market and the transfer of that risk ultimately back to the taxpayers. Greenspan also kept interest rates artificially low in order to prop up the stock market. Greenspan was interested in keeping the stock market growing so that his 401k plan would grow and yield him a hefty retirement. Greenspan got away with his misdeeds because of a lack of oversight by Congress and because the Federal Reserve is outside the purview of Congress. Greenspan was the Chairman of the Federal Reserve under both Bush Presidents and Bill Clinton. Greenspan helped create the Silicon Valley bubble for Bill Clinton and the real estate bubble and stock market bubble for George Bush. Congress has been "dumbed down" by the Federal Reserve and is in no position to ask the right questions of the Federal Reserve. Congress should enact a law that prevents any senior executive of the Federal Reserve and its 12 Reserve Banks from participating in 401k plans, where the interest rates can be manipulated to control the growth in stocks in their 401k plans.

Barack Obama's appointee for Treasury Secretary, Geithner, and his colleagues at the Federal Reserve and Treasury Department, turned a blind eye to the excessive risk that was present in the banking system. That excessive risk included the trade in mortgage back securities, and the myriad of derivates, including interest rate swaps, and credit default swaps. Geithner is part of that corrupt Federal Reserve System. He will not be able to bring any new tools and ideas to the Treasury Department to turn the economy around. To expect Geithner to do so, is beyond his capability, as it is most economists. Ben Bernanke at the Federal Reserve is more of the same. He is just as bad as Alan Greenspan. Congress needs to clean house at The Federal Reserve.

The capital expenditures program, announced by Geithner to shore up America's financial system, is the most blatant form of self dealing ever formulated by any entity, be it private or governmental. Geithner has announced five different capital programs that involve the U. S. Treasury and Federal Reserve directly funding or indirectly funding the banking system through issuance of bonds, treasury bills, and guarantees of secondary financial instruments.  Each of the proposals will require trillions of dollars, which the U. S. Treasury and Federal Reserve will have to fund by printing and borrowing money. Geithner and Obama are too weak kneed to tell the American taxpayers the truth.

If AIG had been allowed to fail and go into bankruptcy, the bankruptcy court would have been able to renegotiate the contracts, which members of Congress engaged in doing. What Congress is doing, vis a vis AIG, appears to be a shameful violation of the Constitution. Lawmakers have proven to be lawbreakers in the AIG fiasco. Congress has over reached its powers and stepped into the realm of the Judiciary by trying to manage and protect insolvent entities.These entities include AIG and the large banks and other financial institutions, which Congress has prevented from failing and declaring bankruptcy.

The notion of "too big to fail" has led to the nationalization of banks and the commerce of America. Congress is making the decisions for failing companies that should be made in a bankruptcy court. In the process, trillions of taxpayers' dollars have been wasted and are being wasted in order to keep those failing banks, financial institutions, and commercial enterprises, such as the automobile manufacturers, alive.  The notion of "too big to fail" is causing the Federal government to fail, and the taxpayers along with it.

Barack Obama is spending America into a cesspool of trillions and trillions of dollars in debt.  All of his big time spending projects in the name of "economic recovery" will further destabilize the dollar and inflate the national debt. America will have to self fund its debt by extending government guarantees that have no worth, and by issuing debt obligations that will be funded by a bankrupt Treasury and Federal Reserve.

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