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Ruinous Symbiosis Between Congress And The Fed
Wolf Richter www.testosteronepit.com
The members of the congressional panel on deficit reduction are struggling to come up with something that will—I mean, let's be realistic—get them reelected and fill their campaign funds. Even if they come up with a plan that will reduce the gargantuan budget deficits a bit, Congress won't follow through. Reason: it doesn't have to, thanks to the symbiotic relationship between Congress and the Fed.
And please, Media, stop using "debt" reduction in your stories on the panel—you're lying to your audience. Even if Congress succeeds in reducing future budget deficits, the cumulative debt, which is now breaking the $15 trillion mark, will continue to skyrocket, just at a slower rate. For Congress to reduce the debt, it would have to produce an actual budget surplus! Here's Exhibit A of your sins: Bloomberg, Yahoo, New York Times, Washington Times, Washington Post....
Despite the grandstanding during the debt ceiling debacle, outlays in fiscal 2011 rose by 4.2% to $3.6 trillion. Excluding the $67 billion surplus from Social Security and other trust funds, the deficit came in at $1.365 trillion, a whopping 8.7% of GDP. A vertigo-inducing 37.9% of every dollar spent was borrowed money.
The issue, as we know from Greece, is serious. But the U.S. has an "advantage" that Greece surrendered when it joined the European Monetary Union: a central bank that is willing and able to force yields to near zero and print whatever it takes to monetize the deficits.
The Fed has a solid record: treasury yields are below the rate of inflation all the way up the yield curve, and so are yields for many municipal bonds, corporate bonds, all money market funds, savings accounts, and CDs. To get a positive real yield, one has to venture into junk with scary probabilities of default. Financial repression of this kind has a devastating impact not only on savers, but also on pension funds, Social Security, insurance companies, etc. And worse: inflation has outrun wage growth for twelve years. Both factors have impoverished the middle class by sapping its purchasing power. That's not the way to rejuvenate the real economy.
But the Fed and the twelve Federal Reserve Banks have a dual mandate: enriching their cronies and pacifying Congress. Congress created the Federal Reserve System, and Congress can unravel it. Already, anger at the Fed's actions has become a distinct chorus. The Bloomberg lawsuits forced the Fed to disclose information on some of the trillions it handed out in secret during bailout mania. Congressionally mandated audits by the non-partisan Government Accountability Office shed some sunlight on certain aspects of the Fed (For more: The GAO Audit of the Fed Doesn't Call It 'Corruption'.... But it should). And now, Ben Bernanke is getting defensive.
To pacify Congress, the Fed issues assurances that it will continue to force down interest rates and print money to enable the Treasury to fund the deficits that Congress produces. Bernanke's talk today included a whole slew of such assurances. As long as this symbiotic relationship continues, Congress won't bring the budget deficits in line; it doesn't have to because the Fed shields congressional decisions from the brutal but healthy discipline of the markets.
Greece ran into trouble because the markets started to impose a bit of discipline. Deficits and debt had gotten out of hand, and the markets rebelled—belatedly, but they did rebel. Market discipline keeps governments (and companies) in line. It's all part of the checks and balances of a well-functioning capitalist system.
But Congress couldn't care less because the Fed and to a lesser extent the Treasury (through ownership of Fannie Mae and Freddie Mac) control the U.S. credit markets. At the slightest squiggle, the Fed prints massively.
The textbook precedent is Japan. The Bank of Japan, the Ministry of Finance, government agencies, and government-controlled financial institutions own or control 95% of all Japanese Government Bonds outstanding. To heck with the unrelenting downgrades; ten-year JGB yields are near 1%. The Japanese system protects politicians, bureaucrats, and Japan Inc. from market discipline and enables politicians to run up huge deficits year after year. As a result, Japan's debt is now 230% of GDP. That this will blow up is clear. That this will be much worse than Greece is also clear. But so far so good....
Over a number of years, the U.S. has perfected this shield against market discipline. Remember the bond vigilantes? Annihilated by the Fed's printing press and rate policies. Congress has been watching the same movie. They know that borrowing 40% of every dollar spent is no problem because the Fed will cover it. And in return, Congress, as an institution, puts shackles on its few members that are too vocal about auditing, restructuring, or even eliminating the Fed.
The Japanese quagmire has been getting deeper for years, but now the unique factors that supported its catastrophic indebtedness have reversed. And the endgame has started... How Long Can Japan Play The Endgame?
Wolf Richter www.testosteronepit.com
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And please, Media, stop using "debt" reduction in your stories on the panel—you're lying to your audience.
I would guess somewhere north of 80% of Americans view the words "deficit" and "debt" as synonyms. The difference ought to be a pretty simple concept, but everyone in the media and the government make every effort to conflate the two.
For Congress to reduce the debt, it would have to produce an actual budget surplus!
For CONgress to reduce the debt it would have to produce an actual budget. That's the cruel joke on Amerika that ain't NEVER gonna happen! How many days has it been since CONgress even produced a budget? A SURPLUS??? ain't NEVER gonna happen!
So we can go on spending far more than we take in because the Fed will cover our ass.
What's so bad about that. We are only at 100% debt to GDP, Japan is at 230% debt to GDP
and they have to intervene in their currency market because the Yen is too strong.
We have years of free spending ahead before we reach Japan and they are doing fine.
Enough with the Chicken Little' sky is falling' cry babies, lets party like it's 1999.
i guess empty rhetoric about the debt ceiling and actually doing something about the debt ceiling are two different things
If Japan want babies, I can go there and impregnate thousands of women, no biggie.
What's stopping you then? Get to work.
they have robots for that
such a decrepit culture, we demand free services that are not only worse than worthless but enslaving us as well and we continue to buy more junk in places like walmart. We have such childish beliefs about value and and the meaning of life that even if we take the quality of things alone and disregard all price appreciation the rate of true inflation would be unacceptably high. Meanwhile the smug stuttering fool that represents the fraudsters in Congress arrogantly proclaims that he has inflation under control. What a joke.
So ein Mist, gell?
So ein Mist, gell?
ROFL the guy thinks the debt is legitimate, and that we need an unconstitutional debt commission (that is free of the fed) to enact austerity to pay off the banksters.
The guy is an idiot.
The debt is fraud.
We don't need to cut anything useful, no austerity is needed for the average Joe.
Only fascist fucktards with monetarism in their blood laments that the illegal debt comission can't do it's job for bankster ilk.
The illegal debt comission doesn't have a 'job', it's a conceptual nothing meant to screw the people over, so banksters can go on bankstering. So if 'job' means, serving bankster ineterests, sorry, that's not a job...maybe a screwjob, but definitely not a legitimate 'job'.
Everyone knows what we need to spend on, our physical economy as well as our needs. Everyone knows what we need to cut, the wars, the bailouts, the needless imperial defense spending, anything involving imperial merchant banking.
You don't need a commission for that, and if the fucktard author doesn't get that our debt is fraudulent, and that we need Glass-Steagall, he's as useless as tits on a bull.
Once again, another idiot, who uses his teachings which only got him to think of things through a monetarists lens.
Why does anyone want to listen to a monetarists view of a monetary system in peril, when the clear cut easy answer is to ditch monetarism and ALL of it's asinine fascist fucktard tenets? He's running around saying federal reserve is bad, yet he doesn't realize his side is equally as bad? What an idiot.
He can't break away from all that worthless teaching of sophistry that's made his mind mad, so that what he wants are cuts to the bone, so we can continue making blood payments to the banksters, so they continue to give some people (usually their friends...i.e. themselves) a bone to keep the whole idiot system (monetary) going.
The system ain't worth it. It's fraudulent and based on bullshit to begin with. It's inherently anti-american to begin with.
Here's a clue idiot.....the people running the comission, and the federal reserve....are on the same side. You numbnuts. OF COURSE they want to have austerity. A dollar cut, is a dollar not printed to save their own bankster asses. Damn the people with austerity or printing, or both. It's all about saving the banksters. They want whatever will save them, damn anybody else.
How about the author bend over and take it up the ass for the commission. No one else wants to, nor needs to lose one thing because of the fraud. Printing for banksters is just as cocksucking as accepting (or calling for) austerity for banksters.
This guy wants to honor fraud via austerity. Why not just call fraud, fraud? Why not Glass-Steagall the debt out of existence (the larger fake part), get rid of all the monetary bullshit that is causing the inflation, not to mention leakage from real projects into fake worthless crap, and skip the middleman of banks with a Credit System? Oh that's right, the author was trained as a monetarist, which means he is deaf, dumb, blind, stupid, and then some when it comes to REAL economics. ALL he knows is the fake shit. The world as viewed through the lens of a monetarist is as skewed as the viewpoint a crackhead would view the world through.
Anyone that believes the people should take another shot on the chin for the banksters, should realize they are acting in a traitorous fashion, and nothing else!
Afterall this sort of moentarist bullshit is what our founding fathers tried to protect us from. It was the whole thing. Not just the printing for fraud. But the austerity for fraud. Any way you can be illegitimately beholden to financier interests, and have their will impact you negatively (as if there is any way else) is everything our founders fought against. Be it through cuts, taxes, or printing/debasement. This game didn't start in 2008, it just went into overdrive. But the idiot author forgets this. Even if he remembers, he still thinks we need to pay it off. What a dipshit.
The author loses all credibility by the fact he thinks what has gone on is somehow legitimate, that somehow we must do something to pay off this debt, which is legitimate. Anyone that sees our national debt as legitimate, in total, loses all credibility. As a whole it is not legitimate, this is a fact to anyone not beholden to the madness of monetarism.
Thus why should we cut anything useful, if the debt that is used as a rallying cry as 'need for cuts', is illegitimate? Because banksters want it that way. The author is still sucking the bankster's cock, and he doesn't even realize it. Are you? Well if you want to change anything (cuts, taxes, printing/debasement, sell of assets) to pay off fraud, then you too are swallowing more than crap. You too are on the side of the banksters if you are calling for their fraud to be realized by cannibalizing someone else.
We don't need a debt commission, nor the federal reserve. Letting either one control our destiny in any way, shape, or form is allowing banksters to rule you for their ends.
What we need is Glass-Steagall, and implement the American Credit System (founding fathers) not austerity nor printing which are the tools of our enemies since the birth of our nation (for THEIR illegitimate debt).
These idiots are just as clueless as Keynesians. Because ALL of them, are monetarists at heart. It isn't just Keyneisan under the microscope that is being proven as a failure, it is MONETARISM as a WHOLE. Which goes much further than Keyneisan. MONETARISM has FAILED, because it was always a failed ideology being saved through imperialism. The world will not tolerate it any longer. No more sophistry is going to keep the bullshit monetary system going. Not cuts, not printing, not taxes.
Real physical economy for real people's needs. We don't need monetarism. Quit thinking like a monetarist, or you are useless, except to banksters, who you will be useful.
If you want to do away with fiat money, you probably have to have a crash. We aren't going to a gold standard without a tussle and a big clean up. Sadly, the best hope for seeing it gone is to have it completely wreck the economy. You're too hard on the author, he's making a sound argument about another one of the weaknesses of the fed based system. Not every article has to boil down to a call for hard money and an end to the fed. I'd bet this fellow wants to rout the vipers as much as you do.
Good article. I personally believe that the Fed is pacifying congress by secretely buying up our US treasuries. Congress will end up cutting nothing, since they don't have to, seeing that we are borrowing relatively free money. Remember how people were afraid that if China stops purchasing our treasuries that the US government and economy will collapse? Well China, and foreigners in general have scaled way back on their treasury purchases but the interest rates on the treasuries are magically going down instead of up, like it should be going. So where is the money coming from? In my opinion it is coming from the printing presses of the Federal Reserve. We should now fear the Fed ending their purchases of treasuries with printed money. Because when they decide to pull the plug, our Government and economy will both have a catastrophic collapse. And this is probably their plan, seeing that they want a one world government, and one way to achieve their goal is by weakening our country as much as possible, financially. See the example of the banking system when they give everyone easy credit and then pull the plug on the easy credit. Everything collapses. This is what caused the stock markets to crash in 1929 and 2008. Same with the Fed. They are giving congress easy money until they decide to pull the plug on the easy money. Then we are finished. Think about it.
If this is their game plan then we should be ready for it and counter it. Let them loose, not us. It's our livelyhood that is at stake, but it is only a game to them.
The Fed will provide the drug of choice to the world to replace their failing fiats. Expect continued Fed printing on an as needed basis to provide global liquidity until... all your banking systems be mine.
I've wondered whether it is the bankstaz or the Polz who are the initiating cause. Of course, I've been in the zone of Bawney Fwank for too much of my life, so my view is slanted against the polz as the proponents.
But, then, there is a zone of Ivy League "proponency" that gives theoretical air cover to the polz who then coerce the bankstaz who fleece the ...
my head bein' 'sploded.
- Ned
Ruinous Symbiosis? no kidding? It goes without saying that the symbiosis since Nixon decouple our dollar from the gold window has evolved into something much darker and sinister than a symbiosis, Washington DC is home to a criminally insane crime family.
The problem has always been social dynamics. Start with a friend, then add another and another and at some point the dynamic changes from a "true" democracy to one in which the group unconsciously allows a "leader" to emerge who subsequently starts to make most of the decisions for the group's "own good". Check it out yourself and see. It happens almost every time.
"As a result, Japan's debt is now 230% of GDP. That this will blow up is clear. That this will be much worse than Greece is also clear. But so far so good...."
What is the thing that will blow up Japan and this seemingly perpetual motion-debt machine?
A declining~/soon to be negative savings rate from a rapidly aging population and lack of young people
http://av.r.ftdata.co.uk/files/2011/02/japansavings.jpg
Spot on, spot on. I've watched a few programs about Japan and it's aging population and not enough young. They could get more if they allow immigration but they don't like that to much. But if they don't do it they will come to that point where no matter what they do they can't tax enough or get stuff done because there isn't enough workers to old/retired workers still in the system. But who knows, if the Fukushima thing continues, Japan may become uninhabitable in the very near future.
>>>They could get more if they allow immigration but they don't like that to much.<<<
One the whole Japanese Culture is racist and clannish. Just ask anyone of color--particularly the color "black"--who has spent any time there other than a brief stopover or vacation.
Jokes on them now. Who the fuck would want to immigrate there...other than someone with a death wish?
Vote the bums out. All of them! Maybe the next bunch will get the message.
keep publishing the forbidden truth about legal hidden payments. there are very many bigger ones that have yet to be published.
http://expose2.wordpress.com
Won't work. Too many stupid people out there. All congress is scum... except my own, he's honest!
So you live in Barney Frank's district???????????
Not by a long shot. :) I hate Barney Frank...
Anyway, if you look at the real hard data, you'll see that the reelection rates are in the 90% every time... and when people ``got mad`` in 2010, the reelection rate were at 87%... so no way everyone gets kicked out. No way in hell.
congress and the fed were suppose to stave USA off a default disaster. in reality congress and the fed are propelling all of us toward mutual destruction: they don't give a flying fcuk about the little people, their bailouts is designed to save financial criminals and the 1%. just look at AIG fannie freddie, all taxpayer bailouts are channeled to financial gluttons and crooks. the only solution is to stop borrowing more money and increase tax rate to pay back what we owe; however neither party (especially the gop) are willing to consider such option. it's absolutely critical that we judge politicans, not by what they say, but their respective actions and behaviors. also bear in mind that current campaign finance regulations heavily favor incum-bents; each of us has to vote accordingly. evaluate the performance of your representative in the federal government, their handling of public and private debt, financial crisis, complex financial crimes, the discrepancies between what they say and what they do, dig into their voting records and pork barrels from the past.
we should take a page from greece's playbook and initiate a debt referendum. get out of my gop damn money hoarding lawyer retaining hypocrites, long live fiscal conservatism!