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Who Is Lying: The Federal Reserve Or... The Federal Reserve? And Why Stalin "Lost"

Tyler Durden's picture


When one thinks of the early 1950's, things that often come to mind are fries and milkshake, muscle cars, Little Richard, and greased hair. Things that rarely come to mind are that the US and China were openly at war over a little piece of land called Korea, that the Treasury market did not exist, that short and long end rates were "fixed" by the Fed at 0.125% and 2.5% respectively, even as inflation was at the highest it has ever been in the post war period at over 20%. What absolutely never comes to mind, is that on March 3, 1951, the world as we know it changed forever, after a little noted event known as the Fed-Treasury Accord of March 3, 1951 took place, and mutated the role of the Federal Reserve, which set off on a path that would ultimately lead to the disastrous economic state the world finds itself in today.

Oh and another thing that never comes to mind, is that while the current iteration of the Fed, various recent voodoo economic theories, and assorted blogs, all claim that excess bank reserves are never an inflationary threat, it is precisely two Federal Reserve chairmen's heretic claims that reserves will light an inflationary conflagration, that forced then president Truman to eliminate not one but two Fed Chairmen, and nearly result in the "independent" Federal Reserve being subsumed by the Treasury to do its monetization and market manipulation/intervention bidding. Which then begs the question: who is telling the truth about the linkage of reserve accumulation to inflation - the Fed of 1951, or every other Fed since, now firmly under the control of the Treasury-banker syndicate. Because they can not both be right.

Why is March 3, 1951 such an important date? Because, more than anything, the confluence of events that led to the "Accord" signed on this day have extensive parallels to our current situation, as the attached paper by the Federal Reserve of Richmond shows in exquisite detail, yet 100% in reverse.

In a nutshell what happened in the late 1940s and early 1950s was that in the aftermath of WWII, and the outbreak of the Korean war, America found itself in a very odd situation... one never really encountered until today. The country had soaring inflation - as in real inflation, not just core inflation measured by hedonic adjustments and excluding all those thing that actually do go up in price. More importantly, it had the 1950's version of ZIRP - only then it was called a peg, in this case of 0.375%, and subsequently 0.125% on short end Treasurys, and 2.5% on long-dated paper. In other words, the monetary situation in 1951 was one where both the short and long end of the curve were artificially boosted (think ZIRP and Twist), just so holders of Treasury paper (at that time only insurance companies as banks were not allowed to invest in TSYs) did not experience losses and get further "demoralized" in addition to the war that Truman was currently waging.

In fact, the following quote from none other than Truman is as idiotic, yet as valid today, as it was 61 years ago:

[T]he Federal Reserve Board should make it perfectly plain. . . to the New York Bankers that the peg is stabilized....I hope the Board will...not allow the bottom to drop from under our securities. If that happens that is exactly what Mr. Stalin wants. (FOMC Minutes, 1/31/51, p. 9)

And this:

The FOMC met with President Truman late in the afternoon of Wednes- day, January 31.17    Truman began by stating that “the present emergency is  greatest this country has ever faced, including the two World Wars and all the preceding wars.. . . [W]e must combat Communist influence on many fronts.. . . [I]f the people lose confidence in government securities all we hope to gain from our military mobilization, and war if need be, might be jeopardized.”

This is arguably the earliest recorded iteration in modern history of a "the world will come to an end unless you don't do what I tell you" type of threat uttered by a member of the administration (ahem Hank Paulson) to a governing body. We will skip commenting on the supreme irony that according to Truman, Stalin would win if the US did not engage in the same central planning that ultimately brought the Soviet empire down. 

Yet what is so very different about this date in history, is that while it was the Treasury pushing tooth and nail for endless bond pegging by the Fed (apparently nobody had thought of QE back then yet, because it would have been all the rage), the body warning about the potential threat of runaway inflation from a surge in reserves, as well as the dangers associated with central planning was... The Federal Reserve.

Huh !!??

The same Fed that can not withhold its exuberance in encouraging ZIRP, Twist, LSAP, selling of Treasury Puts, and every other form of market intervention known to man, warning the president these very same actions would lead to ruin? And not only that but Truman being forced to get rid of not just Fed veteran Marriner Eccles (after whom the building in which centrally planned schemes are hatched every single day in yet another supreme irony), but also his successor Thomas McCabe who also refused to follow the precepts of central planning... who in turn was replaced by a Treasury muppet, or someone who will gladly monetize US debt whenever needed, at which point the scene for the final outcome was set.

That is impossible you say. Oh, not only is it impossible but it gets much better.

Because not only did the two veteran Fed chairmen warn against the state's incursion into central planning, but they explicitly said something which the Fed, or at least its modern versions, have rejected over and over, especially during congressional committees: that a build of bank reserves is the surest way to spark hyperinflation.

But....but....but.... this is what fringe tin-foil hat blogs allege.... not Fed chairmen who between them have over 20 years of tenure.

Well, here are the facts:

“We have marched up the hill several times and then marched down again. This time I think we should act on the basis of our unwillingness to continue to supply reserves to the market by supporting the existing rate structure and should advise the Treasury that this is what we intend to do—not seek instructions” (FOMC Minutes, 8/18/50, p. 137).


[Fed member] Sproul would state the idea that a central bank controls inflation through the monetary control made possible by allowing market determination of the interest rate: "[T]he Committee did not in its operations drive securities to any price or yield....[M]arket forces had been the determining factor, and that only in resisting the creation of reserves had the committee been a party to an increase in interest rates. That...was the result of market forces, and not the action of the Committee. (FOMC Minutes, 3/1/51, pp. 125–26)"

In response to Truman's ceaseless demands for pegging interest rates even as inflation was spiking over 20%, NY Fed president Sproul said that...

...this “would make the Federal Reserve System a bureau of the Treasury and, in light of the responsibilities placed in the System by the Congress, would be both impossible and improper” (FOMC Minutes, 1/31/51, p. 23).

In other words, pegging (i.e., ZIRP, Twist, LSAP)... is "impossible and improper"... is unconstitutional another word for it?

In retrospect perhaps we were a little too rought on Mr. Martin, who despite being a Treasury puppet, had these words to say:

In his speech accepting an appointment to the Board of Governors, Martin (1951, p. 377) said:


"Unless inflation is controlled, it could prove to be an even more serious threat to the vitality of our country than the more spectacular aggressions of enemies outside our borders. I pledge myself to support all reasonable measures to preserve the purchasing power of the dollar."

There are those who claim the Fed has become the bankers' puppet. It was not always so. In fact, the bankers loathed the Fed... Until the "Accord"

The banking community contributed to the Fed’s isolation by refusing to support its position. On February 2, the Board had met with the Federal Advisory Council, which represents the views of large banks. At that meeting, Eccles accused bankers of a lack of “courage and realistic leadership” (Board Minutes, 2/20/51, p. 389).


The Executive Committee refused to withdraw the FOMC’s letter to the President. Furthermore, it wrote a defiant letter to Senator O’Mahoney. The initial substantive paragraph began with the famous quote from John Maynard Keynes: “[T]hat the best way to destroy the Capitalist System was to debauch the currency” (FOMC Minutes, 2/14/51, p. 87).

It just gets better, as Marriner Eccles puts it into overdrive:

"We favor the lowest rate of interest on government securities that will cause true investors to buy and hold these securities. Today’s inflation. ... is due to mounting civilian expenditures largely financed directly or indirectly by sale of Government securities to the Federal Reserve.. . . The inevitable result is more and more money and cheaper and cheaper dollars." (FOMC Minutes, 2/7/51, p. 60)

Yet punchline #1:

[We are making] it possible for the public to convert Government securities into money to expand the money supply....We are almost solely responsible for this inflation. It is not deficit financing that is responsible because there has been surplus in the Treasury right along; the whole question of having rationing and price controls is due to the fact that we have this monetary inflation, and this committee is the only agency in existence that can curb and stop the growth of money.. . . [W]e should tell the Treasury, the President, and the Congress these facts, and do something about it....We have not only the power but the responsibility....If Congress does not like what we are doing, then they can change the rules. (FOMC Minutes, 2/6/51, pp. 50–51)

And #2 and final:

Governor Eccles and Representative Wright Patman, who was a populist congressman from Texarkana, Texas, went head-to-head:


Patman: Don’t you think there is some obligation of the Federal Reserve System to protect the public against excessive interest rates? 


Eccles: I think there is a greater obligation to the American public to protect them against the deterioration of the dollar. 


Patman: Who is master, the Federal Reserve or the Treasury? You know, the Treasury came here first. 


Eccles: How do you reconcile the Treasury’s position of saying they want the interest rate low, with the Federal Reserve standing ready to peg the market, and at the same time expect to stop inflation? 


Patman: Will the Federal Reserve System support the Secretary of the Treasury in that effort [to retain the 2 1/2 percent rate] or will it    refuse?. . . You    are    sabotaging    the    Treasury.    I    think    it    ought    to    be stopped. 


Eccles: [E]ither the Federal Reserve should be recognized as having some independent status, or it should be considered as simply an agency or a bureau of the Treasury. (U.S. Congress 1951, pp. 172–76)

And there you have it folks, clear as daylight, every aspect of the tension of the "independent" Fed brought to the surface. Because the few men who dared to stand up against Truman,  the doctrine of central planning, "pegging" Treasury prices,  and the banking cartel whose sole prerogative has always and only been cheap and easy money, all got their just deserts:

Fed president #1:

Eccles also reported in his memoirs that shortly before this event he had completed a letter of resignation to the President. He then decided to postpone his resignation. Eccles had been Chairman of the FOMC from its creation in 1935 until 1948. He did not intend to leave Washington with the Federal Reserve under the control of the Treasury. According to a Truman staff member, Truman had failed to reappoint Eccles as Board Chairman in 1948 to show him “who’s boss” (Donovan 1982, p. 331).

And Fed president #2...

While in the hospital, Snyder conveyed to Truman the message that he felt he could no longer work with McCabe. Without a working relationship with the Treasury, McCabe could not function as Chairman of the Board of Governors. McCabe sent in a bitter letter of resignation, but resubmitted a bland version when asked to do so by the White House. McCabe, however, conditioned his resignation on the requirement that his successor be acceptable to the Fed.

As a reminder Snyder was the Secretary of the Treasury.

And whom did Truman replace McCabe with?

On March 15, the President appointed William McChesney Martin to replace McCabe.

Martin was undersecretary of the Treasury: the same institution that wanted all objectors to central planning scrapped. His position? Quote the Fed:

Truman and Snyder were populists who believed that banks, not the market forces of supply and demand, set interest rates. Truman felt that government had a moral obligation to protect the market value of the war bonds purchased by patriotic citizens. He talked about how in World War I he had purchased Liberty Bonds, only to see their value fall after the war.

Yet by keeping bonds pegged at ridiculously low prices during the late 1940s, and early 1950s, inflation exploded.

And that is what marked the beginning of the end, as while the Fed may have gained its independence, the US presidency, acting on behalf of the banks and populism (to keep capital losses to a minimum) made it all too clear anyone who steps out of line would be fired.

Call it a Stalinist putsch.

Actually hold on, did we say Stalin lost? Perhaps we may need to revise that. And while we got closure on that, we are still confused: is the real seed of inflation in reserves?

"Forced by the rate peg issue to make a stand on the role
of a central bank in creating inflation, Eccles expressed the nature of a
central bank in a fiat money regime. It was not private
speculation or government deficits that caused inflation, but rather
reserves and money creation by the central bank."
[The Treasury-Fed Accord: A New Narrative Account, Richmond Fed, Robert L. Hetzel and Ralph F. Leach]

Ok, now we get it.

And should we listen to the Fed or the... Fed?

Read the full absolutely must read Rchmond Fed narrative of the 1951 accord here. We can only hope someone in Congress can ask Bernanke for his take on the allegations made by the man responsible for the name of the current Fed headquarters.



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Fri, 08/03/2012 - 01:13 | 2674935 Likstane
Likstane's picture

I realize I am unable to add anything intelligent to any of these posts.  I will keep stacking.

Sat, 04/21/2012 - 18:54 | 2364107 riphowardkatz
riphowardkatz's picture

there won't be bank reserve inflation until the pit is filled. So if the reserves were not filled to the point they are filled now would the banks have been buying assets like they were going out of style and making tons of investment profits in 2009?

Come on. The pit doesn't need to be filled. The perception that it is filled is all that is needed. The fed gives the perception that the pit is being filled and can be filled at any time. That is all that is needed. The inflation is already occuring.

There has been 10=% increase each month in total money.

That money is working its way into the economy. See gold, see apple, see zynga, see facebook, see corn and sugar and oil and rents.  

Sat, 04/21/2012 - 21:34 | 2364258 Centurion9.41
Centurion9.41's picture


Sorry, but you're talking about two separate things. 

And yes, inflation is occuring.  But again, inflation is different than hyper-inflation. 

Likewise regarding equity increase, yes they are going up due to pringint.  However most of the equity kick is due more to the Fed pushing investors out of treasuries via yield compression.

As for the banks, yes the goal is for them to make money.  They are insolvent and the only way to "fix" that is to correct the balance sheed through increase of, essentially, risk free profits.

But again, the fact is you are talking about diffrent things than hyper-inflation.



Sat, 04/21/2012 - 13:10 | 2363719 Snakeeyes
Snakeeyes's picture

It's not just The Fed. It is the ENTIRE government. Clinton put the Jurassic Park housing policies into place and Bush/Congress kept them. The Fed IS part of the goverment (don't kid yourself).

Sat, 04/21/2012 - 13:11 | 2363720 onlooker
onlooker's picture

Nice job Tyler 


Poor Harry. First he was a super hero for ending WW2 and forcing the Japs to surrender by using the atomic bomb. Then he became less than popular because of Korea and sending the boys back to war. Then he became despised because he fired MacArthur for heated disagreement of how the war was fought. Then, the Left deserted him because he dropped the atomic bomb and his name was banished in the leftysphere. Never mind that he integrated the U.S. Military after the war (yes it was a big deal), and the bomb belonged to FDR.


And now this revelation of clueless Harry. As I approach a ¾ Century birthday, I can not effectively convey to you my ZH companions how wonderful the learning experience is and the OMG ----- who woulda thunk---- revelations.   

Sat, 04/21/2012 - 13:14 | 2363722 bob_dabolina
bob_dabolina's picture

It was not private
speculation or government deficits that caused inflation, but rather
reserves and money creation by the central bank.

I don't know how I feel about this.

It is the creation of money that causes inflation, however, the money is created to fund the government deficits.

I think you can argue that with profligate government spending and the creation of money out thin air to fund the spending, you get inflation.

The only thing that can curb inflation is responsibility and we have none of that.

Sat, 04/21/2012 - 13:13 | 2363723 evolutionx
evolutionx's picture

For a great many people it is now totally natural to rely on the state for their needs rather than on themselves. And the state needs to borrow/print ever increasing amounts to perpetuate this economy based on an illusion. This situation is totally untenable. Since any additional money printing will only exacerbate the crisis and make the final collapse so much greater, the swiftest solution would be let the financial system implode now. We need to reset the world to a level which is sustainable. The consequences of this implosion would be a collapse of the financial system and a reset of debt to zero



Sat, 04/21/2012 - 14:30 | 2363825 Bear
Bear's picture


This would be a great solution for all those who’s earning lifetime is before them ... but it would also mean that all who have carefully saved for a lifetime would be wiped out as well as most of what we view as critical infrastructure. I would like to think with the erosion of our currency, the debt will deflate and simultaneously an alternate financial infrastructure will arise for a more orderly transfer of generational wealth … possibly a new gold standard.

Unfortunately, I am afraid that as the dollar (loonie, euro, etc) declines, crony capitalists will enter to loot the remaining wealth and impose a global ‘level playing field’, whereby the wealthy nations transfer their wealth to the poor nations. Our sovereignty will be lost and we will all be reduced to serfs with the constant admonitions of ‘equal sacrifice’, ‘social justice’, and ‘fairness’. We will descend into the second ‘Dark Ages’.


Sat, 04/21/2012 - 15:20 | 2363890 Hypersonic14
Hypersonic14's picture


Great piece, thanks for sharing!

Sat, 04/21/2012 - 13:48 | 2363774 tahoebumsmith
tahoebumsmith's picture

And you wonder why the Washington ponzi machine is scared shitless about the possibility of the man that wrote, " End The Fed" gaining popularity amongst its serfs? If Ron Paul decides to run as an Independent, It's on like Donky Kong.

Sat, 04/21/2012 - 14:08 | 2363801 orangegeek
orangegeek's picture

The degree of corruption numbs the mind and soul.  I think the key is to be focused on WEALTH PRESERVATION.


The markets have risen almost 20% since December of lowering volume - this is a sign of weakness.


If you are long the markets, considering leaving - no amount of dividends will save you.


Elliott wavers know what's coming.  It's not going to be pretty.

Sat, 04/21/2012 - 14:17 | 2363808 Arnold Ziffel
Arnold Ziffel's picture

The "Fun Size" Snickers Bar used to be 0.08 cents a bar. Now they are double; i.e., 0.16 cents a bar.

They went from 80 cnet for a pack of then a dollar for 6.


....sockeye salmon...same....



Monetary expansion may be subtle in some cases (like no) or outright obvious (like TARP and QE) but it is continuing....just the speed with which it "tickles down" varies into different hard commodities. That's why John Williams at Shadow Stats may not be far off when he said silver may hit $400 an ounce...very possible...very possible.

Sat, 04/21/2012 - 14:26 | 2363820 Dre4dwolf
Dre4dwolf's picture

It's really simple.

Federal Reserve System = Fractional Reserve Banking with a monster bank put in place to make sure that the system can go on and on until everything self-destructs.

The system was not designed to last this long.

Exponential growtn in demand for energy.

Exponential growth in demand for food.

Exponential growth in demand for govt benefit spending.

And to top it off, the entire system is reliant on exponential growth in GDP forever.

It's impossible to grow forever when your resources are limited.

When we started mining, back in the day with heavy machinery, we used to pickup boulders of copper/iron/ and other metals, boulders that were just sitting on the surface of the earth literally waiting for a truck to come and scoop them up, now we are digging a mile down into the crust to scrape dust off of ore.

The amount of energy required to constantly grow and expand goes up and up exponentially.... as a result we under this system print money to subsidize the growing costs of war (aka resource alocation), extraction, and energy.... all costs which grow exponentially.

The problem is, that there comes a point where the currency losses efficiency (it used to be that 1$ of debt created 1$ of prosperity) but now that number is probably down to about 1$ of debt netting 0.10cents of prosperity.... (the debt has lost its cost efficiecny ) and as a result the debt is now more of a burdon than a benefit.

The burdon is not held by the mega rich, because the mega rich do not care if the cost of their dinner goes from 100$ to 110$.... it hurts the poor who see the cost of dinner rising from 10$ to 20$.

But the Rich and upper middle class (people making something like 2,000,000~ a year) actually benefit because the poor eat the cost (since they usually have to work harder to keep food on the table than a rich person or semi rich middle class person), the rich benefit because the costs of their debt gets inflated away.

For example if you own a company and the company is profitable... say the company makes 2,000,000 a year gross, and you took out a mortgage for say 1,000,000$ by the time you make the last payment , pizza is going to cost 100$ for a pie, and your monthly payments would be more or less about the same.


The problem is, people have this stigma behind seeing people that are well off.... just because a guy drives a nice car, and has a nice house... does not make him some evil rich elite.

Most poor people don't understand the amount of work and up-keep it takes for an average working class American to keep all those things (since more or less they are all financed with debt).

For example, my current situation is I have 3 car payments and a house to pay for, if I get hit with bad luck, I will lose it all in less than 3 years to the bank, despite having paid into it for 5 years.

The average middle class American (making 100,000~1.5 million) is barely holding onto their shirt right now.

The money you make is really quite worthless, because you really never own anything in this system, everything is either rented from the bank or the government (mortgage / Taxes).

So you are stuck in the rate race, forever.

The gap between rich and poor is huge.... but attacking middle class Americans is really.... just attacking the upper tier of the poor, because if the economy slides just a little bit more most of the middle class americans will join the poor in 2 ~ 3 years.


If you are poor, you dont want this to happen, because the middle class represents the ladder, the bridge if it were to that helps people cross over from the poor to the rich.... if you wipe out the middle class... that bridge is essentially destroyed and you are locked into poverty .... forever until a revolution happens and the banking system collapses.


The best thing that could of happened to this country back in 2007 ~ 2009 would of been for the banks to go down, Americans would of been in control of all the assets, and they would of had capital to improve upon/utilize to grow the economy.

The poor had nothing to lose, and the rich have all their money outside of the banks, the only people that would of been harmed would of been the people that made all the bad decisions in the first place.

Thats just the simple truth.... accept it or not.



Sat, 04/21/2012 - 14:33 | 2363830 Bartanist
Bartanist's picture

Obviously Bernanke knows.

Sat, 04/21/2012 - 14:44 | 2363849 The Alarmist
The Alarmist's picture

The Fed lied, and people died!

Sat, 04/21/2012 - 15:36 | 2363859 earleflorida
earleflorida's picture

good digging, tyler

thanks :-))

yep,... the good ol bankers fell-out-of-luv with the fed, but as a true marriage-of-convenience would have it - the "51 [renewed marriage vows?] accord" gave independence [adult alpha spouse mistress platitudes?] to thy fed - tis the soul-bread-winner that gets privileged once again, by ze`gang-bangkers long past it's 'golden`anniversary'? 

how quaint and scripted can a platonic carnal`less love-fest get? 

Sat, 04/21/2012 - 15:35 | 2363895 Temporalist
Temporalist's picture

The Fed and banks used to be adversaries now it's Reach Around economics.  Everyone gets a tug.


Oh, and as usual great stuff ZH and Tylers and Marlas out there.

Sat, 04/21/2012 - 15:28 | 2363897 Bansters-in-my-...
Bansters-in-my- feces's picture

Let me start by saying that they (gov/bankers) CHEMTRAILED the FUCK OUT OF ME.....this morning and are still at it...!!!!!


Why do they call it the Federal Reserve ?

It got no FED and it got NO reserves.

Ink Resrves R U.S maybe

Fuck Off you Traitors Fed/Govt aiding and aibieting (sp?)

Sat, 04/21/2012 - 15:42 | 2363910 jack stephan
jack stephan's picture

OMM: Let us be thankful we have commerce. Buy more. Buy more now. Buy. And be happy.

Sat, 04/21/2012 - 16:35 | 2363977 Liquid Courage
Liquid Courage's picture

This is a bit OT for this thread, I guess, unless you consider the purpose to which all the monetary madness is ultimately directed ...

Greetings, History Buffs! I was ploughing through Arnold J. Toynbee’s A Study of History the other night and came upon one of those sections that reminded me why history is so worthwhile reading. Perhaps the experience of the first military “superpower” has some trenchant lessons for the latest one?

From Book IV, THE BREAKDOWNS OF CIVILIZATIONS - Chapter XVI, Failure of Self-Determination - Part (6) The Suicidalness of Militarism

At first sight, the fate of Assyria seems difficult to comprehend; for her militarists cannot be convicted, like the Macedonians, the Romans and the Mamluks, of ‘resting on their oars’. When these other war-machines met with their fatal accidents each was hopelessly obsolete and shockingly out of repair. The Assyrian war-machine, on the other hand, was continuously overhauled, renovated and reinforced right down to the day of its destruction. [...] What, then was the cause of Assyria’s destruction?

In the first place the policy of the unremitting offensive, and the possession of a potent instrument for putting this policy into effect, led the Assyrian war-lords [...] to extend their enterprises and commitments far beyond the bounds which their predecessors had kept. [...]

There is yet another variety of militaristic aberration of which we shall also find the prototype in the Assyrian militarism when we envisage Assyria in her proper setting as an integral part of the larger body social which we have called the Babylonic Society. [viz. Anglo-sphere] In this society, Assyria was a march whose special function was to defend not only herself, but the rest of the world of which she formed a part from [external pressures]. In articulating a march of this kind out of a previously undifferentiated social fabric a society stands to benefit in all its members; for while the march is stimulated in so far as it responds successfully to its proper challenge of resisting external pressures, the interior is relieved of pressure and set free to face other challenges and accomplish other tasks. This division of labour breaks down if the frontiersmen turn the arms which they have learnt to use against the outsider into a means of fulfilling ambitions at the expense of the interior members of their own society. What follows is essentially a civil war [...] The aberration of the march which turns against the interior is, of its very nature, disastrous for the society as a whole, but, for the marchman himself it is suicidal.

A few well-chosen words to the wise should be sufficient. To the “marchmen” of the NWO however -– committed as they are beyond all sense and reason to their dystopic nightmare-world -- entire libraries will likely fail to move them. And so it goes ...

Sat, 04/21/2012 - 16:44 | 2363988 blindman
Sun, 04/22/2012 - 00:59 | 2364361 blindman
blindman's picture

Dr Judy Wood - anomalies of 9-11 - in the UK

Sun, 04/22/2012 - 12:16 | 2364820 earleflorida
earleflorida's picture

great link

excellent quote from Dr. Wood __ "If you don't know what the crime was, how can you convict somebody of it?"  --- being open-minded/ in a biased free-zone

thanks :-)) 

Sun, 04/22/2012 - 17:55 | 2365375 blindman
blindman's picture

she is a very smart person. !
her suspicions are also very interesting.

Sat, 04/21/2012 - 17:05 | 2364018 rsnoble
rsnoble's picture

And just how is Congress going to change the rules when they're all a bunch of bought of pieces of dog shit in bed with the Fed to begin with? I'm sorry but the US is an elitist owned barf bag being used to conquer the rest of the world.  When the US is refered to as "the big satan".....that's no fucking lie. I hate this country.  No use moving away....probably just end up somewhere the fucking morons in the US will either bankrupt or bomb.

Sat, 04/21/2012 - 17:14 | 2364027 Ghordius
Ghordius's picture

This article is a good example
For my arguments

1) Central Banks are not evil, they are like weapon systems.
It's about how you use them. How rates are set.

2) Fractional reserve is not evil,
It's about what you allow/accept as collateral.

And all this, like government, suffers from corruption, same as infrastructure suffers to decay...

It's all about corruption, waste and lazyness...

Sat, 04/21/2012 - 17:44 | 2364046 ekm
ekm's picture

This is theology.

Nothing is intrinsically bad, but its use is good or bad.

Like a knife, it can be used to cut bread, but it can be used to kill a person.

Sat, 04/21/2012 - 17:43 | 2364045 ebworthen
ebworthen's picture

You mean "Ctrl-P$" has consequences?

Just don't tell B-B-B-Bennie and the inkjets!

With FED intervention there are no markets; only banks plying FED liquidity to their own advantage.

Sat, 04/21/2012 - 18:13 | 2364071 nah
nah's picture

power grab n

Sat, 04/21/2012 - 18:55 | 2364108 riphowardkatz
riphowardkatz's picture

Would be great to hear Benankes smug response to this article, wait no it wouldnt.

Very good stuff. Thanks ZH 

Sat, 04/21/2012 - 20:12 | 2364153 BlackholeDivestment
BlackholeDivestment's picture open war with China through Korea, lol, now it's the Great Wal Mart of China global standard with zero interest. What a joke.|home|top 

Got RTN? Lol.

 Maybe we should just arrest all the Fed heads and send their dusty asses to China so they can work for the rest of their hell bound lives at the orphanages?

On second thought, who would be so cruel to the children as to subject them to the Suicide Vampire Squid of the Great Wal Mart of China? 

Interesting movie, Spawn is created by a North Korean lab, lol, and Heat 16, at the 4:10 mark in this video defines a global bio weapon. If you are not signed on and given immunity, well, you catch the new, eh hum, flu and die.

Sat, 04/21/2012 - 22:14 | 2364291 illyia
illyia's picture

If this article and/or contents were brought to the attention of the American people they would have no idea what the subject was, or any aspect of the history. They might understand inflation=bad (unless it meant that house values would go back up). Otherwise, this information is safe.

No one will understand the significance. Even if splashed across the NYT.

ZHers, on the other hand, might wait for the drop to buy (more) gold.

Sat, 04/21/2012 - 22:53 | 2364302 ekm
ekm's picture

- Hyperinflation in Germany or in Yugoslavia in the early nineties, was caused by actual printing of banknotes. Once manufactured, those banknotes make it to the daily market and pooop. They cannot be "reserved" into a warehouse, otherwise what's the point of printing them.

- The Fed thought they could duplicate the Book of Genesis and create something out of nothing. They called it "RESERVES" (the most abused word in finance).

- What is a reserve? A reserve is something one puts on the side to be used later, in case one runs out of that stuff on a daily base. Crude oil, food, copper are reserves. Anything that is internationally recognized as MONEY is a reserve since it can be exchanged anywhere in the world with the real stuff that people need to live daily. Hence, Gold is a reserve, silver is a reserve, platinum is a reserve etc.

- All the above mentioned things are FINITE in the sense that one has to spend energy to create those things. None of those can be created out of nothing (by humans).

- Now, the Fed said that they can create RESERVES out of nothing, just enter some number in a computer. Since nobody can actually eat electrons (as far as I know at least), all these "reserves" are actually READY to be EXCHANGED with the Real Reserves that people need daily. The Fed says: Since "electronic reserves" do not make it into the daily people's market (unlike printed banknotes), hence they are not inflatinary. Hence, Bernanke saying he did not print money, he created reserves. So far, so good.

- The problem is:Go and tell this to the world resource producers. Saudi Arabia one example, with Crude Oil.

- Reserves may not create inflation caused by consumers, but it surely creates inflation caused by resource producers. See, Saudi Arabia has studied the history also. When USA de-linked USD from Gold, Saudi Arabia de-linked the Crude Oil from the free market. Yes, people, Crude Oil is not traded freely based on supply/demand. Saudi Arabia sets a price to the refineries and they have to live with it. Anybody else follows Saudi Arabia's price setting.

- So, Saudi Arabian are not idiots to exchange something FINITE and badly needed for everyday life with some INFINITE electrons created out of nothing. Hence, they increased the price of Crude oil at least to $100 so they get the dollars and they spend them immediately on projects. They do not overprouduce anything more that the wordl can consume or JPM can prepay to store, which becomes JPM's problem to deal with later.


- Conclusion 1: Reserves not only are inflationary (inflation is imposed by resource producers and not by western consumers), but they lead to "resource rationing" as it happened to gasoline during Nixon times.

- Conclusion 2: It also leads to food rationing, which is actually a reality for 50 million americans. The reserves are squarely to be blamed for that, since world food producers are NOT willing to exchange cheaply their food with created electrons infinitely.

- Conclusion 3: Since they lead to resource rationing, if the sheeple get really, really hungry, these reserves may actually be released to the people for daily use to buy stuff. The aftermath is only for one's imagination to ponder.

- Conclusion 4: Reserves lead to reduction in world trade, since the infinitely created reserves are the world currency. France is a very current example.

Sat, 04/21/2012 - 22:47 | 2364313 Sandmann
Sandmann's picture

US and China were openly at war over a little piece of land called Korea

Maybe the US was alone in Korea but the British and Turks fighting thought it was a UN War against the Russisn (flying the MIGs) and Chinese which ended when Stalin was murdered in 1953 


The Accord was probably because the Fed had to consider the mess that Europe was in and the need to stop capital flight into the US which was major and had to be compensated with Marshall Aid to supply Dollars in Europe. Fighting two World Wars was stupid and bankrupted Europe leaving the US with huge industrial capacity and gold holdings and Europe ripe for Stalin to acquire.

Sun, 04/22/2012 - 01:36 | 2364373 Seal
Seal's picture

“The combat and instability would continue because its real source was the political contract struck between democracy and capital back in 1913, the implicit decision that democratic politics could not be trusted to act responsibly in the national interest. Therefore, the authority and responsibilities of elected politicians were permanently curtailed. Put another way, the elected government was allowed to be permanently irresponsible – free to indulge its own follies and protected from the accountability by the higher authority, the non-elected central bank. The creation of the Federal Reserve represented a great retreat from democratic possibilities. The maturing of self-government was forever stunted.” Pg. 534, Secrets of the Temple – How the Federal Reserve Runs the Country, William Greider, Simon and Schuster, 1987

Sun, 04/22/2012 - 04:25 | 2364434 Sandmann
Sandmann's picture

The Federal Reserve was created after the Banking Crash of 1907-08 when James Pierrepoint Morgan acted as Central Banking arranging a rescue of the Banking System.  Interestingly he died in 1913.

Otherwise the US Central Bank would effectively be The Bank of England and its Gold Standard (which went offline 1914) so I suppose they wanted to institutionalise J P Morgan, the man. Whether it worked or not is unclear, and its work in the 1920s was dubious.....frankly financing two World Wars destroyed the Bank of England which was set up in 1694 to fund a European War. Britain had low interest rates from 1925-51 to try to pay for the First War and suppressed yields 1947-1972 in an attempt to extract real resources from the public to pay for the Second War. Britain got more Marshall Aid than Germany but used it to fund The City and Government deficits rather than industry.

Most of the Financial History of the 20th Century has to do with 3 Major Wars - 1914-18; 1939-45, and 1955-1975 Vietnam and the destruction of Capital both financial and human.

Sun, 04/22/2012 - 14:23 | 2364958 Perpetual Burn
Perpetual Burn's picture

the Fed has 25,000 employees, runs its own air force of 47 Learjets and small cargo planes, and has fleets of vehicles, including personal cars for 59 Fed bank managers. . . . A full-time curator oversees its collection of paintings and sculpture. The Fed held $451 billion in accumulated assets as of 1996,

Fed employees earning more than $125,000 per year more than doubled (from 35 to 72) from 1993 to 1996; even the head janitor (known as the support services director) is paid $163,800 in annual salary plus benefits.


BRB being a janitor at the fed...

Sun, 04/22/2012 - 16:25 | 2365200 blueridgeviews
blueridgeviews's picture

Am I to believe that a move by the Fed in 1951 caused the current financial mess? Come off it! The complete disregard for the wealth created by millions of hard working individuals is and has been the problem.

A prime example: The Communnity Reinvestment Act otherwise know as "The Giveaway of Billions of Dollars to Unworthy Lendees Act" the  previous mentioned hard working people created for this banking system.

Bad is Bad and Good is Good.  If you don't know the difference go into teaching or politics.

Tue, 04/24/2012 - 15:04 | 2370998 thriftymost
thriftymost's picture

Duck and Cover kills you. Triangle of Life keeps you alive. 

Tue, 07/17/2012 - 18:25 | 2626173 UnpatrioticHoarder
UnpatrioticHoarder's picture

There is an arguable case that reserves don't lead to inflation:

Notes From Steve Keen on "Lending Reserves" and "Debt Jubilees"

Do NOT follow this link or you will be banned from the site!