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“Audit the Fed,” – Restore “Free Markets for Free People”Gary Dorsch When will the Fed’s folly and madness come to an end? Perhaps next year, we’ll begin to see big changes at the Federal Reserve, including the sacking of Fed chief Ben Bernanke, and his henchmen of addicted money printers, who have tossed aside the notion of “Moral Hazard,” a long time ago, and instead, are engaging in “financial repression” in the bond markets, and the rigging of the stock market, much to the chagrin of believers in free markets. However, in order for this shake-up at the Fed to occur, the Republican Party would have to beat the odds, by capturing the White House, and majorities in both chambers of Congress. Perhaps the most important piece of legislation to come down from Capitol Hill this year was HR #459, sponsored by Texas’s Ron Paul, a long-time critic of the Fed. By an overwhelming 327-98 vote, the House on July 25th voted to authorize Congress’ chief investigators to begin a forensic audit of the Fed’s secret activities in the markets, including its dealing with crony capitalists on Wall Street and in Europe. Nearly half of the Democrats in the House voted for the passage of HR #459, supporting the high-water mark for Mr Ron Paul, who has been pushing the slogan “End the Fed” for many years, and more recently “Audit the Fed.” Before the House vote, Mr Paul noted that since the 2008 financial crisis erupted, the Fed has in essence, become the fourth branch of the US-government. “Today we have a combination of a secret Federal Reserve dealing with private banks who collude with private banks to set interest rates. At the same time they collude with the executive branch. They claim, they say we can’t have an audit of the Fed because it would make it political,” Paul said. “Well, how can it be more political if the Treasury Department from the executive branch gets together with the Fed and bails out their friends? And then they want it kept secret. And they say it would be chaotic. Yea, it would be chaotic for those people who have been ripping us off. That’s why they don’t want to have it. They talk about, ‘I want transparency.’ And they talk about independence. Independence to them means secrecy,” Mr Paul declared. Mr Paul also got political support from a far-left leaning Democrat, who is retiring from Washington politics at the end of this year. “The Fed wants to be spared a full audit,” said Rep. Dennis Kucinich, Ohio Democrat on July 25th. “They want monetary deliberations private. They then use that privacy shield to keep irregularities from regulators and from congressional view, exposing investors and consumers to massive losses. When things fall apart, to whom does the banks come to clean up the mess? Congress! ” Kucinich said. “The Fed creates trillions of dollars out of nothing and gives it to banks. Congress is in the dark. The Fed sets the stage for the subprime meltdown. Congress is in the dark. The Fed takes a dive on LIBOR. Congress is in the dark. The Fed doesn’t tell regulators what is going on. Congress is in the dark. It’s time that we stood up to the Fed that right now acts like some kind of high, exalted priesthood, unaccountable to democracy,” Kucinich added. Despite the broad support in the House, a senior Democrat in the Senate signaled that bill #459 isn't likely to go anywhere in that chamber in the near future. With the US-economy teetering on the brink of a “double-dip” recession, after muddling through the most anemic recovery since the 1930’s, the White House and leading Democrats, see the Fed as the only savior left, that can prevent a sharp slide in the US-stock market before the Nov 6th Elections. After all, a sudden slide in the US-stock market indexes of -10% or more, if left unchecked, could raise anxiety levels among a jittery American public. A sharp drop in the stock market could dampen consumers’ spirits further, lead to further cutbacks in spending by business, and usher in a new round of lethal jobs cuts.
Historically, the process of “price discovery” in the US-financial markets, has been determined by the collective judgments of millions of individual investors, and thousands of money managers, analyzing streams of news and information, used to set market prices. Likewise, the US-government’s policy towards the “price discovery” mechanism in the financial markets was summed up by the term, - “Laissez-Faire,” or leave it alone. Today however, the value of a wide range of bonds and stocks that are traded electronically on US-exchanges are increasingly determined by a handful of central bankers sitting on the Fed’s Board. There are wide spread suspicions that the Fed is actively intervening in the stock index futures markets, cushioning the market after sharp declines and engineering short squeeze rallies. “Allowing the Fed to operate our nation's monetary system in almost complete secrecy leads to abuse, inflation, and a lower quality of life for every American,” Mr Paul warns. Indeed, in March of 2011, the Federal Reserve, under judicial order from the US Supreme Court, posted details of its “shadow bailout” scheme, in which it doled out upwards of $20-trillion of electronically printed monies, to rescue Wall Street bankers from the results of their own recklessness speculation. The Fed’s Primary Dealer Credit Facility, started in March of 2008, has lent $9-trillion in overnight loans to the largest investment banks. These vast sums were loaned out at rock-bottom interest without any strings attached. Since then, over the past 3-½-years, Mr Bernanke has been experimenting with several “Unorthodox” monetary schemes, - that are designed to artificially inflate the value of the stock market, and simultaneously boost the value of various types of marketable bonds, which are the principal assets held by the Wall Street banking Oligarchs. Essentially, the Fed is utilizing the blueprints designed by the Bank of Japan (BoJ) – the pioneer of several radical schemes, such as the “Zero Interest Rate Policy,” (ZIRP), “Quantitative Easing,” (QE), and large scale purchases of exchange traded funds in Tokyo, linked to the Nikkei-225 index.
Although the BoJ hasn’t succeeded in engineering a rally in the Nikkei-225 index above the 10,000-level, with the nuclear weapons in its toolbox, the Fed has been enormously successful with its intervention schemes. By leveraging $2.35-trillion of QE injections into the coffers of the Wall Street Oligarchs, since March of 2009, and more recently, mixed with ZIRP and “Operation Twist,” – a $665-billion scheme to drive long-term bond yields lower, the Fed has engineered an improbable doubling of the market value of the S&P-500 index. The Russell-2000 index, which measures the value of the 2,000 smallest publicly traded US companies, has also doubled from its crisis bottom low hit in March of 2009. The US small-cap companies are more of a homegrown variety, earning less than 20% of their revenues from outside the US’s borders. That’s less than half of the exposure of the larger cap S&P-500 companies that collect about 45% of their earnings from overseas. Thus, the Russell-2000 index, should in theory, be less susceptible to the business cycles in foreign economies, and instead, should be mostly influenced by consumer and business demand in the US-economy. Still, while there are variations at the margins, the swings in the Russell-2000 index usually track the gyrations in the broader S&P-500-companies. What’s most remarkable about the post-March 2009 recovery rally on Wall Street is that it marks the first time ever that the US-stock market has doubled in value in such a short time frame – of just three years. Since 1956, the average gain for the S&P-500 index, after three years of recovery from a Bear market low, has been +65-percent. Strangely enough, the US-stock markets’ outsized gains over the past 3-¼ years were accompanied by the weakest economic recovery since the 1930’s. Since the “Great Recession” officially ended in June of 2009, the US-economy has grown by +6.7%. That’s far less than the Reagan recovery, when the US-economy grew +18.5% over a three-year period, after the 1982 recession ended.
Clearly, the US-stock market’s outsized gains, blowing through the headwinds of an anemic economic recovery, is an anomaly that’s best explained by the Fed’s ultra-easy money policies. Today, the US-stock markets are under the “command and control” of the Federal Reserve, and in coordination with the US Treasury - wielding its powerful influence in the markets, through its ability to print unlimited amounts of US-dollars, and according to conspiracy theorists, the Fed also engages in clandestine intervention forays in the marketplace, through strategic purchases of stock index futures contracts. Only a complete “Audit of the Fed” can uncover the trail of the central bank’s secret dealings, and either confirm or deny the validity of long held conspiracy theories of clandestine Fed intervention. With only 100-days before the upcoming Presidential election, the Obama White House cannot afford to suffer through a crash in the stock market before Nov 6th. Yet Macro traders are baffled by the resiliency of the US-stock market, including the Russell-2000 index, even in the face of mounting evidence that the US-economy is sliding into a recession. For example, US-retail sales have declined for 3-straight months. Since the end of World War II, there’s been 27 occasions when retail sales fell for three months in a row, and in 25 of those instances, the US-economy was already in recession or was within 3-months of entering into a recession. A big reason that US-economic growth is so weak is the decisions of US-consumers to save more and spend less. Personal saving rose by $56-billion in the second quarter, almost equal to personal spending of $60-billion. However, spending in Q’2 was sharply less than the $143-billion of outlays in Q’1. In effect, consumers decided to save nearly one out of every two dollars in additional income, a clear indication of mounting concern over job security and the rising cost of living. Yet there are no alarm bells ringing on Wall Street. To read the rest of this article, please click on the hyperlink located below: http://www.sirchartsalot.com/article.php?id=167 Jul 31, 2012 321gold Ltd |
