Shut Down the Federal Reserve

During the Great Depression over 3,000 banks failed; interest only home loans and 90% stock loans, were major factors. When people started runs on the banks, the institutions started to collapse because there was no central authority that could bring in reserves. The Federal Reserve did not insure deposits. It was pretty much a zero sum game. The speculators that made money and the people who borrowed it, got wiped out if their funds were in a bank.

When you examine the 1930’s scenario, one person buys a home for 100K and then sells it later for 500K. There is 400K created in speculation that no one really had to work for. So when the house is sold for 500K the seller puts it back in the bank. If the buyer defaults, the bank goes insolvent and the home later sells on the market for the original 100K. The 400K that no one worked for goes poof and disappears.

In today’s market, with FDIC insurance, it works differently. First the Federal insurance will cover most deposits. Now also, the Fed will guarantee the value of the home loan notes by Freddie and Fannie. The speculative money created by the housing bubble is allowed to exist. Also since it wasn’t destroyed in the collapse, the banks have to be made whole by honoring the bad loans. So all of the money created by the housing bubble still exists (money that no one worked for) and on top of that we are going to cover the amount that the banks lost in this bubble (nobody worked for this money either). So in effect, the government will double the money created by the original bubble. No one has lost a dime. That pretty much takes care of the banks.

The mutual funds and retirement accounts are a little different. There is no FDIC insurance. About half of the money in these accounts can be withdrawn without penalty, the other half can’t. The only reason Bernie Madoff’s Ponzi scheme worked so well, was that no one needed the money they had invested with him. This group of investments’ is very suspect right now. These investment funds are probably selling Treasuries to raise funds for payout. If you happen to be in the half that can’t draw their money out without penalty, you can share the pain of Bernie’s depositors.

Here is a quote from the Feds FOMC meeting.

To provide greater support to mortgage lending and housing markets, the Committee decided today to increase the size of the Federal Reserve’s balance sheet further by purchasing up to an additional $750 billion of agency mortgage-backed securities, bringing its total purchases of these securities to up to $1.25 trillion this year, and to increase its purchases of agency debt this year by up to $100 billion to a total of up to $200 billion. Moreover, to help improve conditions in private credit markets, the Committee decided to purchase up to $300 billion of longer-term Treasury securities over the next six months.

What the Federal Reserve is attempting to do is wrong, insanely wrong. This is stepping way beyond their mandate. They have to be stopped from doing this. They are exercising implied powers that go beyond their reason for creation.

I am beginning to see why Andrew Jackson shut down the Second Bank of the United States, which I believed up until now was a mistake. These actions to print money should violate some law of the land and it seems as if they don’t. If this bank cannot be controlled, it needs to be destroyed. Its new policies will destroy our financial system and ruin the retirement plans of many already on a fixed income.

In my humble opinion, the present policies of our government are devoted to preserving the status quo of the obscenely rich by destroying the middle class wealth by way of inflation. The poor lose nothing since they have nothing. Using the Federal Reserve in this sleigh of hand is unconscionable and despicable to say the least. Sadly I guess is what it boils down to is "Who cares?"