Yesterday’s unanimous Supreme Court opinion in American Trucking Associations v. City of Los Angeles is a run-of-the-mill federal preemption case, not inviting much attention. But the interesting bit isn’t Justice Kagan’s majority opinion. It’s Justice Thomas’s short concurrence. Thomas agrees that federal law trumps conflicting state/local law regarding certain regulations related to the Port of Los Angeles, but seizes on the plain language of the preempting statute to take a shot at the massive expansion of federal authority under a misreading of the Commerce Clause.
Justice Thomas focuses on a section of the relevant statute (the Federal Aviation Administration Authorization Act, or FAAAA–don’t ask why this covers ports) titled “Federal authority over intrastate transportation.” He denies that Congress possesses this authority: the Commerce Clause, part of Article I, section 8, only gives Congress the power to regulate commerce “among the several States.” Thomas can’t believe that Congress could have been granted power to legislate something so local as where trucks park once they leave the port (one of the regulations at issue in American Trucking):
Congress cannot pre-empt a state law merely by promulgating a conflicting statute–the preempting statute must also be constitutional, both on its face and as applied. As relevant here, if Congress lacks authority to enact a law regulating a particular intrastate activity, it follows that Congress also lacks authority to pre-empt state laws regulating that activity
The reason that Justice Thomas nevertheless concurs in the judgment here, however, is that Los Angeles waived any constitutional claims against the FAAAA, instead relying solely on statutory arguments (which correctly lost 9-0).
This isn’t the first time that Thomas upheld a federal law but noted federalism concerns that, as here, the plaintiffs didn’t raise (or didn’t preserve on appeal). In Gonzales v. Carhart, for example, Thomas concurred with a majority decision that sustained the federal Partial-Birth Abortion Ban Act against a challenge based on Roe v. Wade and Planned Parenthood v. Casey but noted that the issue of whether a federal abortion regulation “constitutes a permissible exercise of Congress’ power under the Commerce Clause is not before the Court. The parties did not raise or brief that issue; it is outside the question presented; and the lower courts did not address it.”
Justice Thomas’s opinions in these sorts of cases illustrate the misuse of the Commerce Clause given the Constitution’s careful enumeration of congressional powers. These brief, pointed concurrences show that our imperial government isn’t clothed in constitutional authority.
And they also have a direct use for legal practitioners. I wasn’t a “real” lawyer for that long before joining Cato, but here’s an easy practice tip: Don’t just assume that the federal government has the power to pass the law you don’t want applied to your client.
View full post on Cato @ Liberty
David Fahrenthold has another excellent article on waste in government in Sunday’s Washington Post. This time he finds a truly comic example of waste, duplication, and confusion:
[T]he U.S. government has at least 15 official definitions of the word “rural,” two of which apply only to Puerto Rico and parts of Hawaii.
All of these definitions matter; they’re used by various agencies to parcel out $37 billion-plus in federal money for “rural development.” And each one is different….
There are 11 definitions of “rural” in use within the U.S. Department of Agriculture alone.
It’s laughable. But the real question is, Why does the federal government even need to define “rural”? Well, of course the answer comes back to the real purpose of our modern tax-and-transfer state: The definitions define who gets the subsidies.
Every year, there are billions available to fund projects in rural communities. Money for housing. Community centers. Sewer plants. Broadband connections.
In a sidebar to the story, we get some details. The Census Bureau has one definition of “rural” so it can tell us how many Americans live in rural areas. Here are the purposes of the other 14 definitions:
Used for a variety of loan and grant programs, all meant to foster rural development…for loans and grants for “community facilities” in rural areas… for aid for water and waste-disposal systems… for aid for improvements in telecommunications systems…by farm-credit associations making housing loans… for certain lending programs for rural community development…to determine areas served by Office of Rural Health…by the National Rural Development Partnership…for grants to rural institutions of higher education…to determine what areas of Hawaii are eligible for rural-aid programs…to determine what areas of Puerto Rico are eligible for rural-aid programs…by various rural development loan and grant programs.
So let’s see. People in rural areas pay federal taxes. People in urban areas pay federal taxes. All that money goes to Washington – where a great deal of it stays – and then some of it is used to provide programs and services in rural and urban areas. Maybe both rural and urban Americans would be better off keeping their money at home and paying for whatever services they think are actually worth the cost. And then the federal government wouldn’t have to pay handsome salaries to well-educated people to form task forces to determine 15 different definitions of “rural.” And states, cities, and rural areas wouldn’t have to hire expensive lobbyists to get a piece of that federal pie.
View full post on Cato @ Liberty
Steve H. Hanke
Given all the attention that the Federal Reserve has garnered for its monetary “stimulus” programs, it’s perplexing to many that the U.S. has been mired in a credit crunch. After all, conventional wisdom tells us that the Fed’s policies, which have lowered interest rates to almost zero, should have stimulated the creation of credit. This has not been the case, and I’m not surprised.
As it turns out, the Fed’s “stimulus” policies are actually exacerbating the credit crunch. Since credit is a source of working capital for businesses, a credit crunch acts like a supply constraint on the economy. This has been the case particularly for smaller firms in the U.S. economy, known as small and medium enterprises (“SMEs”).
To understand the problem, we must delve into the plumbing of the financial system, specifically the loan markets. Retail bank lending involves making risky forward commitments, such as extending a line of credit to a corporate client, for example. The willingness of a bank to make such forward commitments depends, to a large extent, on a well-functioning interbank market – a market operating with positive interest rates and without counterparty risks.
With the availability of such a market, banks can lend to their clients with confidence because they can cover their commitments by bidding for funds in the wholesale interbank market.
At present, however, the interbank lending market is not functioning as it should. Indeed, one of the major problems facing the interbank market is the so-called zero-interest-rate trap. In a world in which the risk-free Fed funds rate is close to zero, there is virtually no yield be found on the interbank market.
In consequence, banks with excess reserves are reluctant to part with them for virtually no yield in the interbank market. As a result, thanks to the Fed’s zero-interest-rate policies, the interbank market has dried up (see the accompanying chart).
Without the security provided by a reliable interbank lending market, banks have been unwilling to scale up or even retain their forward loan commitments. This was verified in a recent article in Central Banking Journal by Stanford Economist Prof. Ronald McKinnon – appropriately titled “Fed ‘stimulus’ chokes indirect finance to SMEs.” The result, as Prof. McKinnon puts it, has been “constipation in domestic financial intermediation” – in other words, a credit crunch.
When banks put the brakes on lending, it is small and medium enterprises that are the hardest hit. Whereas large corporate firms can raise funds directly from the market, SMEs are often primarily reliant on bank lending for working capital. The current drought in the interbank market, and associated credit crunch, has thus left many SMEs without a consistent source of funding.
As it turns out, these “small” businesses make up a big chunk of the U.S. economy – 49.2% of private sector employment and 46% of private-sector GDP. Indeed, the untold story is that the zero-interest-rate trap has left SMEs in a financial straightjacket.
In short, the Fed’s zero interest-rate policy has exacerbated a credit crunch that has been holding back the economy. The only way out of this trap is for the Fed to abandon the conventional wisdom that zero-interest-rates stimulate the creation of credit. Suppose the Fed were to raise the Fed funds rate to, say, two percent. This would loosen the screws on interbank lending, and credit would begin to flow more readily to small and medium enterprises.
View full post on Cato @ Liberty
May 26, 2013 6:54 pm
Larry Summers has an edge in the race to head the Federal Reserve
By Edward Luce
Charm is overrated. The most important quality for the role is intellectual leadership
©Matt KenyonWhen Wall Street predicts something will happen in Washington, it is often wise to bet on the opposite. Multiple polls show Janet Yellen, vice-chair of the US Federal Reserve, as the strong favourite to be named Ben Bernanke’s replacement as chair – an announcement that is likely by September.
Such certainty is puzzling: there is no evidence President Barack Obama sees Ms Yellen as a shoo-in. Nor does his likely shortlist – which includes two former Treasury secretaries, Larry Summers and Tim Geithner; and a former vice-chairman of the Fed, Donald Kohn – suggest Ms Yellen as the inescapable choice. Each is an impressive name, as are possible outsiders such as Stanley Fischer, governor of the Bank of Israel (who holds dual nationality). Mr Obama has a deep bench from which to choose.
It is my bet he will settle on Mr Summers. The case for Ms Yellen is strong. Her economic credentials are a match for anyone’s, including Mr Summers. Having been head of the San Francisco Fed, her central bank experience is also deep. Yet Ms Yellen has a reputation as a dove at a time when the cycle may be close to turning. By next January, when Mr Bernanke’s successor takes over, the long phase of monetary easing is likely to be tapering off. Last week, Mr Bernanke assured Congress that the monthly $85bn of asset purchases in the third round of quantitative easing would continue as long as there was any question about the US recovery. Such doubt grows a little weaker with each Fed meeting. The US economy is picking up speed.
Mr Bernanke’s successor will need to reassure the markets that he or she is tough enough to raise interest rates when necessary. Much as a dovish president might feel under pressure to order air strikes, Ms Yellen’s reputation could push her to tighten too soon. Such are the perverse incentives of expectations. As for Mr Geithner, his résumé is equally stellar. But he insists he is uninterested in the job. The continuing Washington controversy over the Internal Revenue Service’s targeting of Tea Party groups would also risk an ugly Senate confirmation process. The events took place while Mr Geithner was Treasury secretary and the IRS is supervised by the Treasury department. No one suggests Mr Geithner knew of the audits. But Republicans would be tempted to revive the 2009 controversy over his failure to pay $34,000 in taxes on time. In contrast, Mr Kohn would probably sail through Senate confirmation. But most people are betting that, at 70, he will be seen as too old.
Which leaves Mr Summers. I should disclose that I once worked for him (and that he writes regularly for the Financial Times) but I have not spoken to him for this column. People’s chief concern is rightly about his emotional quotient rather than his IQ. No one has any doubt on the latter. Since the Fed chairman’s job is to build consensus among sometimes fragile egos, Mr Summers’ abrasiveness would count fatally against him, critics argue. Such worries are exaggerated. Even if he has greatly mellowed in recent years, as his friends insist, charm is overrated. He would make a bad choice as a mediator in Syria. Fortunately, a Fed chairman faces lesser diplomatic challenges. The most important quality is intellectual leadership – something Mr Summers would offer in greater abundance than the others.
An abiding yen for consensus may even be a handicap at a critical time such as this. The laconic Paul Volcker, America’s most celebrated former Fed chairman, had a patchy record of managing colleagues and was twice outvoted on the Fed’s Open Market Committee. Being in the minority has been unthinkable for a Fed chairman ever since. Yet Mr Volcker was able to impose his controversial stamp on the inflation-prone economy with the most painful course of high interest rates since the 1930s. The Fed became a target of angry demonstrations. Mr Volcker stuck it out and presided over the later easing that helped spur the 1980s boom. His success owed little to charm. The perverse effects of Mr Summers’ own reputation should not be overlooked. The risk may in fact be that he treads too softly.
Worries about Mr Summers’ Senate hearings are also overblown. Among economists, he is seen as neither a hawk nor a dove. Republicans would be unlikely to question his credentials. In practice – and not just for the hearings – his reputation for neutrality would be an asset. The only danger would come from the left, where Democrats such as Elizabeth Warren, the senator from Massachusetts, could raise questions about Mr Summers’ central role in the financial deregulation of the 1990s. Valid though many of the criticisms are, they would be unlikely to derail his nomination.
Likewise, in 2004, Mr Summers resigned as Harvard University’s president after seeming to cast doubt on women’s aptitude for maths. It was a stupid comment for which he apologised. Someone with a better diplomatic record would have got away with it. But it would be a weak basis almost 10 years later on which to reject his US monetary credentials. With any presidential nomination, the political calculus is always a wild card. The same is true of personality – and Mr Summers has made more than his share of enemies. Any of the other contenders for Fed chairman, including Ms Yellen, would make a good choice. But if Mr Obama wants to fill the job solely on merit, Mr Summers ought to have the edge.
Statistics: Posted by yoda — Mon May 27, 2013 4:29 pm
View full post on opinions.caduceusx.com
Since the dollar continues to be the world reserve currency, and since the mega banks float like clouds over the entire planet paying little attention to borders, we shouldn’t be surprised. But that the Fed has essentially given away $1 trillion to non-American banks is pretty amazing . (Not that American banks are any better than the foreign ones of course.)
What happens when the global banks don’t get their sugar? QE, despite what some may argue (though rarely in public) can’t go on forever. It will have to end at some point.
A few days ago I heard something about Bernanke and company trying to engineer a “soft landing” post QE. When I hear talk of “soft landings” my blood pressure usually lifts a bit as soft landings rarely occur, and are even more rarely “engineered.”
If the entire world is addicted to what the Fed is pushing (and we have long known that it is) the whole world is going to feel a coordinated withdrawal too as QE “ends.”
View full post on AgainstCronyCapitalism.org
My colleague Andrew Coulson has already briefly noted this story, but its constitutional and policy implications — which go well beyond the higher education context — merit a more detailed look.
For more than two years civil rights enforcers at the federal Department of Education and Department of Justice have been readying a crackdown on colleges and universities that they view as excessively lax, lenient, or observant of due process toward the accused in charges of unwelcome sexual conduct. Now, in a letter and resolution agreement sent to administrators at the University of Montana, the enforcers finally seem to have tipped their hand as to how far they’re prepared to go. And the answer is: really, really far.
- The “unwelcome conduct of a sexual nature” that colleges and universities must discipline is to include “verbal conduct,” better known as “speech.”
- To be subject to discipline, speech or conduct won’t have to be objectively offensive to a reasonable person, merely subjectively so to the particular complainant.
- Disciplinable speech or conduct also won’t have to be severe or pervasive enough to do actual damage to a complainant’s environment for learning or employment or research, a departure from the standard that courts have developed for liability in areas like workplace hostile-environment law. This ensures there will be more and tougher discipline handed out for offenses such as, say, posting desk photos of beach-clad spouses or playing a “shock jock” show on a dorm radio.
- The feds say universities are not just free, but affirmatively obliged, to take “protective” action against future harassment — kicking an accused student out of a class might be one such step — before affording a hearing at which that person might defend himself or herself.
Among those outraged: FIRE, or the Foundation for Individual Rights in Education, which calls the development a “shocking affront” to the Constitution’s First Amendment; CEI’s Hans Bader (Washington is now demanding that colleges institute speech codes much broader than many already struck down as overbroad by federal courts), and prominent education blogger Joanne Jacobs (rule could stifle education about sexuality as well as both sides of campus debates on related issues).
FIRE president Greg Lukianoff says the new speech prohibitions are “so broad that virtually every student will regularly violate them… it is time for colleges and the public to push back.”
View full post on Cato @ Liberty
Obama has expanded the crony capitalist state. Like his brother in cronyism George W. Bush, Obama has made every effort to help the connected get more connected and the wealthy wealthier. As the attached article explains, if one is heavily invested in the market, if one is a banker at one of the big banks, things are going pretty well. If one is not in that camp things are likely going significantly less well.
Simply, Obama’s “Fairness” Economy Has Backfired. In a big way.
View full post on AgainstCronyCapitalism.org
If the American people truly understood how the Federal Reserve system works and what it has done to us, they would be screaming for it to be abolished immediately. It is a system that was designed by international bankers for the benefit of international bankers, and it is systematically impoverishing the American people. The Federal Reserve system is the primary reason why our currency has declined in value by well over 95 percent and our national debt has gotten more than 5000 times larger over the past 100 years. The Fed creates our “booms” and our “busts”, and they have done an absolutely miserable job of managing our economy. But why do we need a bunch of unelected private bankers to manage our economy and print our money for us in the first place? Wouldn’t our economy function much more efficiently if we allowed the free market to set interest rates? And according to Article I, Section 8 of the U.S. Constitution, the U.S. Congress is the one that is supposed to have the authority to “coin Money, regulate the Value thereof, and of foreign Coin, and fix the Standard of Weights and Measures”. So why is the Federal Reserve doing it? Sadly, this is the way it works all over the globe today. In fact, all 187 nations that belong to the IMF have a central bank. But the truth is that there are much better alternatives. We just need to get people educated.
The following are 11 reasons why the Federal Reserve should be abolished…
#1 The Greatest Period Of Economic Growth In The History Of The United States Happened When There Was No Central Bank
Did you know that the greatest period of economic growth in U.S. history was between the Civil War and 1913? And guess what? That was a period when there was no central bank in the United States at all. The following is from Wikipedia…
The Gilded Age saw the greatest period of economic growth in American history. After the short-lived panic of 1873, the economy recovered with the advent of hard money policies and industrialization. From 1869 to 1879, the US economy grew at a rate of 6.8% for real GDP and 4.5% for real GDP per capita, despite the panic of 1873. The economy repeated this period of growth in the 1880s, in which the wealth of the nation grew at an annual rate of 3.8%, while the GDP was also doubled.
So if our greatest period of economic prosperity was during a time when there was no Federal Reserve, then why shouldn’t we try such a system again?
#2 The Federal Reserve Is Systematically Destroying The Value Of The U.S. Dollar
The United States never had a persistent, ongoing problem with inflation until the Federal Reserve was created in 1913.
If you do not believe this, just check out the inflation chart in this article.
The Federal Reserve systematically penalizes those that try to save their money. Inflation is a tax, and the value of each one of our dollars goes down a little bit more every single day.
But over time, it really adds up. In fact, the value of the U.S. dollar has fallen by 83 percent since 1970.
Anyone that goes to the grocery store on a regular basis knows how painful inflation can be. The following is a list that shows how prices for many of the things that we buy on a regular basis absolutely skyrocketed between 2002 and 2012…
Peanut Butter: 40%
A Loaf Of White Bread: 39%
Spaghetti And Macaroni: 44%
Orange Juice: 46%
Red Delicious Apples: 43%
Ground Beef: 61%
Chocolate Chip Cookies: 39%
Even the price of water has absolutely soared in recent years. According to USA Today, water bills have actually tripled over the past 12 years in some areas of the country.
So how can the Federal Reserve get away with claiming that we are in a “low inflation” environment?
Well, what Ben Bernanke never tells you is that the way that the government calculates inflation has changed more than 20 times since 1978.
The truth is that the real rate of inflation is somewhere between five and ten percent right now, but you will never hear about this on the mainstream news.
#3 The Federal Reserve Is A Perpetual Debt Machine
The Federal Reserve system was designed to be a trap. The intent of the bankers was to trap the U.S. government in an endless debt spiral from which it could never possibly escape.
But most Americans don’t understand this. In fact, most Americans don’t even understand where money comes from.
If you don’t believe this, just go out on the street and ask regular people where money comes from. The responses will be something like this…
“Duh – I don’t know. I’ve got to get home to watch American Idol.”
This is why it is so important to get people educated. I think that most Americans would be horrified to learn that the creation of more money in our system also involves the creation of more debt.
The following is a summary of money creation that comes from one of my previous articles…
When the U.S. government decides that it wants to spend another billion dollars that it does not have, it does not print up a billion dollars.
Rather, the U.S. government creates a bunch of U.S. Treasury bonds (debt) and takes them over to the Federal Reserve.
The Federal Reserve creates a billion dollars out of thin air and exchanges them for the U.S. Treasury bonds.
So what does the Federal Reserve do with those Treasury bonds? I went on to explain what happens…
The U.S. Treasury bonds that the Federal Reserve receives in exchange for the money it has created out of nothing are auctioned off through the Federal Reserve system.
There is a problem.
Because the U.S. government must pay interest on the Treasury bonds, the amount of debt that has been created by this transaction is greater than the amount of money that has been created.
So where will the U.S. government get the money to pay that debt?
Well, the theory is that we can get money to circulate through the economy really, really fast and tax it at a high enough rate that the government will be able to collect enough taxes to pay the debt.
But that never actually happens, does it?
And the creators of the Federal Reserve understood this as well. They understood that the U.S. government would not have enough money to both run the government and service the national debt. They knew that the U.S. government would have to keep borrowing even more money in an attempt to keep up with the game.
Men like Thomas Edison and Henry Ford could not understand why we would adopt such a foolish system. For example, Thomas Edison was once quoted in the New York Times as saying the following…
That is to say, under the old way any time we wish to add to the national wealth we are compelled to add to the national debt.
Now, that is what Henry Ford wants to prevent. He thinks it is stupid, and so do I, that for the loan of $30,000,000 of their own money the people of the United States should be compelled to pay $66,000,000 — that is what it amounts to, with interest. People who will not turn a shovelful of dirt nor contribute a pound of material will collect more money from the United States than will the people who supply the material and do the work. That is the terrible thing about interest. In all our great bond issues the interest is always greater than the principal. All of the great public works cost more than twice the actual cost, on that account. Under the present system of doing business we simply add 120 to 150 per cent, to the stated cost.
But here is the point: If our nation can issue a dollar bond, it can issue a dollar bill. The element that makes the bond good makes the bill good.
Unfortunately, today most Americans don’t even understand how the system works. They just assume that we have the best system in the entire world.
Sadly, the reality is that the system is working just as the international bankers that designed it had hoped. The United States has the largest national debt in the history of the world, and we are stealing more than 100 million dollars from our children and our grandchildren every single hour of every single day in a desperate attempt to keep the debt spiral going.
#4 The Federal Reserve Is A Centrally-Planned Financial System That Is The Antithesis Of What A Free Market System Should Be
Why do we need someone to centrally-plan our financial system?
Isn’t that the kind of thing they do in communist China?
Why do we need someone to tell us what interest rates are going to be?
Why do we need someone to determine what “the target rate of inflation” should be?
If we actually had a free market system, the free market would be the one “managing” our economy.
But instead, we have become so accustomed to central planning that any alternatives seem to be absolutely unthinkable.
For example, CNBC cannot possibly imagine a world where the Fed (or some similar institution) was not running things…
But suppose the law were taken off the books? The Fed’s job—in simple terms—is to manage the nation’s money supply and achieve the sometimes-conflicting tasks of full employment, stable prices while fighting inflation or deflation.
How would the U.S. economy then function? Something has to take its place, right?
Global markets would also need some sort of economic direction from the U.S. The Fed manages the dollar — and as the world’s leading currency, a void left by a Fed-less America could throw those markets into chaos with uncertainty about who’s managing U.S. interest rates and the American economy.
I’ve got an idea – let’s let the free market “manage” U.S. interest rates and the American economy.
I know, it’s a crazy idea, but I have a sneaking suspicion that it just might work beautifully.
#5 The Federal Reserve Creates Bubbles And Busts
Do you remember the Dotcom bubble?
Or what about the housing bubble?
By dramatically distorting interest rates and financial behavior, the Federal Reserve creates economic bubbles and the corresponding economic busts.
And guess what?
When will the American people decide that they have had enough?
If you can believe it, there have been 10 different economic recessions since 1950. And of course the Federal Reserve even admits that it helped create the Great Depression of the 1930s.
Perhaps it is time to try something different.
#6 The Federal Reserve Is Privately Owned
It has been said that the Federal Reserve is about as “federal” as Federal Express is.
Most Americans still believe that the Federal Reserve is a “federal agency”, but that is simply not true. The following comes from factcheck.org…
The stockholders in the 12 regional Federal Reserve Banks are the privately owned banks that fall under the Federal Reserve System. These include all national banks (chartered by the federal government) and those state-chartered banks that wish to join and meet certain requirements. About 38 percent of the nation’s more than 8,000 banks are members of the system, and thus own the Fed banks.
And even the Federal Reserve itself has argued that it is “not an agency” of the federal government in court.
So why is there still so much confusion about this?
We should not be allowing a private entity that is owned and dominated by the banks to make decisions that dramatically affect the daily lives of all the rest of us.
#7 The Federal Reserve Greatly Favors The “Too Big To Fail” Banks
Since the Federal Reserve is owned by the banks, should we be surprised that it serves the interests of the banks?
In particular, the Fed has been extremely good to the “too big to fail” banks.
Over the past several decades, those banks have grown tremendously in both size and power.
Back in 1970, the five largest U.S. banks held 17 percent of all U.S. banking industry assets.
Today, the five largest U.S. banks hold 52 percent of all U.S. banking industry assets.
#8 The Federal Reserve Gives Secret Bailouts To Their Friends
The Federal Reserve is the only institution in America that can print money out of thin air and loan it to their friends any time they want to.
For example, did you know that the Federal Reserve made 16 trillion dollars in secret loans to their friends during the last financial crisis?
The following list is taken directly from page 131 of a GAO audit report, and it shows which banks received secret loans from the Fed…
Citigroup – $2.513 trillion
Morgan Stanley – $2.041 trillion
Merrill Lynch – $1.949 trillion
Bank of America – $1.344 trillion
Barclays PLC – $868 billion
Bear Sterns – $853 billion
Goldman Sachs – $814 billion
Royal Bank of Scotland – $541 billion
JP Morgan Chase – $391 billion
Deutsche Bank – $354 billion
UBS – $287 billion
Credit Suisse – $262 billion
Lehman Brothers – $183 billion
Bank of Scotland – $181 billion
BNP Paribas – $175 billion
Wells Fargo – $159 billion
Dexia – $159 billion
Wachovia – $142 billion
Dresdner Bank – $135 billion
Societe Generale – $124 billion
“All Other Borrowers” – $2.639 trillion
If you will notice, a number of the banks listed above are foreign banks.
Why is the Fed allowed to print money out of thin air and lend it to foreign banks?
#9 The Federal Reserve Is Paying Banks Not To Lend Money
Did you know that the Federal Reserve is actually paying U.S. banks not to lend money?
That doesn’t make sense. Our economy is based on credit, and small businesses desperately need loans in order to operate.
But the Fed has decided to pay banks not to risk their money. Section 128 of the Emergency Economic Stabilization Act of 2008 allows the Federal Reserve to pay interest on “excess reserves” that U.S. banks park at the Fed.
So the big banks can just send their cash to the Fed and watch the money come rolling in risk-free.
As the chart below demonstrates, the banks have taken great advantage of this tremendous deal…
#10 The Federal Reserve Has An Astounding Track Record Of Failure
Over the past ten years, the Federal Reserve has been an abysmal failure when it comes to running the economy.
But despite a track record of failure that would make the Chicago Cubs look like a roaring success, Barack Obama actually decided to nominate Ben Bernanke for a second term as the Chairman of the Federal Reserve.
What a mistake.
Just check out some of the things that Bernanke said prior to the last financial crisis. The following is an extended excerpt from an article that I published previously…
In 2005, Bernanke said that we shouldn’t worry because housing prices had never declined on a nationwide basis before and he said that he believed that the U.S. would continue to experience close to “full employment”….
“We’ve never had a decline in house prices on a nationwide basis. So, what I think what is more likely is that house prices will slow, maybe stabilize, might slow consumption spending a bit. I don’t think it’s gonna drive the economy too far from its full employment path, though.”
In 2005, Bernanke also said that he believed that derivatives were perfectly safe and posed no danger to financial markets….
“With respect to their safety, derivatives, for the most part, are traded among very sophisticated financial institutions and individuals who have considerable incentive to understand them and to use them properly.”
In 2006, Bernanke said that housing prices would probably keep rising….
“Housing markets are cooling a bit. Our expectation is that the decline in activity or the slowing in activity will be moderate, that house prices will probably continue to rise.”
In 2007, Bernanke insisted that there was not a problem with subprime mortgages….
“At this juncture, however, the impact on the broader economy and financial markets of the problems in the subprime market seems likely to be contained. In particular, mortgages to prime borrowers and fixed-rate mortgages to all classes of borrowers continue to perform well, with low rates of delinquency.”
In 2008, Bernanke said that a recession was not coming….
“The Federal Reserve is not currently forecasting a recession.”
A few months before Fannie Mae and Freddie Mac collapsed, Bernanke insisted that they were totally secure….
“The GSEs are adequately capitalized. They are in no danger of failing.”
There are many, many more examples that could be listed, but hopefully you get the point.
And now it is happening again. Bernanke is telling the American people that everything is going to be just fine and that no major problems are ahead.
Do you believe him this time?
#11 The Federal Reserve Is Unaccountable To The American People
What is the most important political issue to most Americans?
Survey after survey has shown that the American people care about the economy more than anything else.
So why do we allow an unelected, unaccountable entity that is privately-owned to make our economic decisions for us?
The Federal Reserve has become so powerful that it has been called “the fourth branch of government”. Every four years, presidential candidates argue about who will be best at managing the economy, but the truth is that it is the Fed that manages our economy.
We are told that the “independence” of the Federal Reserve is absolutely critical, but don’t the American people deserve to have a say in the running of the economy?
Our system is broken. It is a system that will continue to create more bubbles and more debt until the entire thing finally collapses for good.
Thomas Jefferson once stated that if he could add just one more amendment to the U.S. Constitution it would be a ban on all government borrowing….
I wish it were possible to obtain a single amendment to our Constitution. I would be willing to depend on that alone for the reduction of the administration of our government to the genuine principles of its Constitution; I mean an additional article, taking from the federal government the power of borrowing.
But instead of banning government borrowing, we have allowed ourselves to become enslaved to a system where government borrowing actually creates our money.
We do not need to have a central bank. There are much better alternatives. We just need to get people educated.
Please share this article with as many people as you possibly can. These are things that every American should know about the Fed, and we need to educate the American people about the Federal Reserve while there is still time.
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Fisker Automotive, Inc, got a federal loan of $529 million to produce its $100,000 Fisker Karma hybrid, built not in America by American workers but in Finland by Finnish workers. Fisker has not produced a car since last summer and recently dumped all its rank and file employees. The company faces bankruptcy and could represent the largest loss of federal loan money since Solyndra. But according to the Associated Press there’s more to the story.
The Obama administration, it turned out, knew as early as 2010 that Fisker was not in compliance with loan requirements. Even so, Fisker kept getting money until June 2011. Aoife McCarthy, Department of Energy mouthpiece, said one person raised only a possibility that Fisker was failing. Turns out it was, and now Congress is looking into it in hearings on “the Department of Energy’s Bad Bet on Fisker Automotive.”
“Whatever they spent on Fisker was just not going to be enough,” one Detroit restructuring expert testified. Sen. Charles Grassley asked “How did the Energy Department determine Fisker’s potential before writing a check? Was there due diligence, or instead a blind hope that Fisker would produce something useful?” The DOE’s Aoife McCarthy responded that Fisker did not represent the wider efforts of the Obama administration to promote green vehicles. “There will always be an element of risk with investments in the most innovative companies,” she said. Further, the $529 million loan to Fisker was one of 33 clean-energy loans that failed.
So taxpayers shouldn’t worry that government picked a loser in Fisker because, count ‘em, 33 federal loans went bad. Other estimates peg the number of federally-backed troubled or bankrupt energy companies at 50. What we have here is misguided and wasteful policy that subsidizes failure then justifies it on the grounds of other failures. And none of this is supposed to reflect badly on administration clean-energy policy. Even by Washington’s low standards that is truly pathetic.
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Maybe because it’s now hitting schools, or because it’s gotten high on the radars of Michelle Malkin and Glenn Beck, or because national science standards have raised a ruckus, but for whatever reason the Common Core is finally starting to get the national—and critical—attention it has desperately needed. Indeed, just yesterday Sen. Chuck Grassley (R-IA) sent a letter to the Senate appropriations subcomittee that deals with education urging members to employ legislative language prohibiting federal funding or coercion regarding curricula. That follows the Republican National Committee last week passing a resolution opposing the Common Core.
It’s terrific to see serious attention paid to the Common Core, even if it is probably too late for many states to un-adopt the program in the near term. At the very least, this gives new hope that the public will be alert if there are efforts to connect annual federal funding to national standards and tests through a reauthorized No Child Left Behind Act. And there are certainly some states where nationalization could be halted in the next few months. Perhaps most important, the Grassley letter gives Common Core supporters who’ve said they oppose federal coercion a huge opening to act on their words—to loudly support an effort to keep Washington out. They can either do that, or substantiate the powerful suspicion that they are happy to use federal force to impose standards, they just don’t want to admit it.
View full post on Cato @ Liberty