Friday, August 28, 2009

The Federal Reserve's Madoff "Manuer" Maneuver

I was just cleaning up my upstairs office and ran across some correspondence I wrote to Mr Greenspan at the Federal Reserve warning him about the future housing and banking crisis. It was written in 2005, 6 months before I ever even thought of writing a blog. Double click the picture for a larger view.

Here is the letter I got back. I was rather disappointed that it wasn't from Mr Greenspan himself. But it was read and answered by someone in his organization. Everything was under control as far as they were concerned.

My main point in running these two letters was to demonstrate, that this train is set in its direction and is not going to stop. The hand writing is on the wall, all I did was point it out.

Look at the table below, here is where things look very out of whack with our national debt.

How do you explain 4.785 Trillion dollars that are part of our national debt that is held by the Federal Reserve? Is this the total amount of extra printed money stuffed in mattresses around the world? I can see where the rest of the world got their money to buy our debt, but come on, what product does the Federal Reserve make that earned it almost 5 trillion dollars to purchase our Treasury's? Question two; do they get paid interest on those holdings with our tax dollars? It looks like a lot of smoke and mirrors. I guess with this "robust" economy, there is so much smoke; they can cut down on the number of mirrors.


Sackerson said...

Brad Setser has plausibly suggested that much of the UK's holding is actually on behalf of China.

Anonymous said...

I believe a lot of the inter government debt is SS debt.

Remember the Fed is not a government agency.

Also take into account the private and corporate debt and contrast it to the government debt. It out masses it by an order of magnitude.

Good luck.


Anonymous said...

The average salary for a FED employee is $51,000. Hardly something to get excited about. If those funds were gaining interest for the fed, I would think salaries would be a bit higher!

Anonymous said...

Just a note from Canada to let you know how much I appreciate your blog, which I read all the time.
I felt this posting was particularly poignant.
People up here are still high on real estate with the current low cost of borrowing money. You'd think the party had just started.
Where I live, no one seems too worried about this impending global disaster.

Jim in San Marcos said...

Hi Sack

Do you have a link to that article? I see he has moved on up from blogging to better things.

Jim in San Marcos said...

Hi James

Sometimes I'm a little vague, because I don't have all the facts. This is one of those cases.

Money spent is money spent, it is gone. But from your suggestion, the Social Security Checks would be an easy vector to use to deliver these "new dollars." Just print a check.

The Federal Reserve is a government agency, but I think maybe you were making the distinction that they have no power to spend money. They don't really report to anyone. But yet they are extending loans to banks in amounts that boggle the mind.

I agree that when we contrast the government debt with the private, the question comes to mind, why even fiddle with the private stuff? Just maybe the private stuff was all we had, once upon a time, hmmmm

Jim in San Marcos said...

Hi C

I think that Canada could be a special case, Rob from Nova Scotia mentioned that your banks weren't allowed to lend money like they were here in the US. That could make your problem a lot smaller, but I think it may take another year for what's going on globally to sink in up there.

Thank you for the ataboy, take care.

Unknown said...

I've been reading your blogs for a long time.......don't even remember how long.
I'd like to meet you one day.
Tomorrow evening my wife and I are going to the Town Hall to hear Darrell Issa. Any chance of you being there?
Bill (62 yrs old, the area for 40 yrs)

Jim in San Marcos said...

Hi Bill

Sorry, too short of a notice. I'm not sure his approach will work " his proposal (H.R. 3438) to grant the American people access to the same health care benefit plans that Members of Congress and Federal Employees receive"

There is no way we can pay for it.

I'm still 62 (for a few more months). I have been often tempted to reveal my identity, but when you realize that free speech ends where your family begins, you have to be more defensive. You can always click on the email link on the side bar to contact me.

Hope the town meeting was enjoyable. Thank you for reading and take care.

Anonymous said...

The FRB's response is a boilerplate letter slightly personalized to reflect the main subject of your letter. They only truly listen to members of the plutocracy.

Anonymous said...

Jim, the Federal Reserve is NOT a gov't agency. They present themselves in this way but it is a private organization owned and operated by the banks. The Fed tries to spin it to sound like they are a gov't agency but the shareholders are the biggest banks in the world.

Rob in NS said...

Trainwreck is example of a picture that is worth a thousand words.

Pat yourself on back for calling this back in 2005.

I wonder how long this manuer is going to last?



Jim in San Marcos said...

Hi Anon 602

The Federal Reserve is a Federal Agency created by Congress. Congress pays Bernanke's salary of 183K each year.

The banks in the US are share holders of the Federal Reserve. In order to become a federally insured bank, you have to keep around 5% of you assets in the Federal Reserve Bank. As a bank, you don't have to join, but who's going to deposit money in your bank if it isn't federally insured?

Your first link to Wikipedia, I have no argument with. The second link is a lot of hot air mixed with some truth. There is no foreign ownership.

The Federal Reserve is a clearing house for checks. They also make sure that banks don't run out of currency. They swap out old money for new. They issue temporary loans to bank members when checks don't clear in a timely manner. Their presence prevents a run on the bank like what happened in the 1930's.

Their normal duties are well defined. There is a gray area that has everyone worried. The bank assets that are being collateralized by the Fed could be of a rather suspect nature. Congress never intended them to function in this area. What they may be holding on the books could be some very bad paper. The real question being raised is; have they overstepped their mandate. Since they don't have to report what they are doing, there is no way to tell. There just might be a fox in the Congressional chicken coop.

Jim in San Marcos said...

Hi Anon 5:34

You may be right. But I gave them the shovel, they dug the hole and I just hit them over the head with the shovel. Just a little time delay.

I could get some heat back. I inadvertently gave them my name when I included the date of the letter and the person responding to me. It wouldn't be the first time I've had one of my letters written into the Congressional Record.

Jim in San Marcos said...

Hi Rob

Many thanks.

I'm not sure how long it will last, but I think Congress is about to change the way the Fed does business. They want some disclosure.

It kind of reminds me of the CEO that was coming in to see how clean and neat the home office was. The managers cleaned up the whole place and stashed all of the unsightly stuff on the flat roof. A helicopter landing by the CEO had not been anticipated. Things from there, did not go quite as expected.

Rob in NS said...


Great analogy as usual. Just read online that y-o-y credit contraction for July was largest in history. I wonder if that is going to be fly in onitment being applied by government thru policies at Federal Reserve.

Jim in San Marcos said...

Hi Rob

I'm not sure the two are related. People are thinking twice about purchases and are paying off their cards. And then there are those that are broke and can't pay what is owed.

As for the Federal Reserve, I can't figure out the low interest rate. Why invest in government paper when you can buy gold? With interest rates at 3%, retirees are eating into principle at a very high rate. 3% interest doesn't even cover the 12% (nonexistent) inflation.

If you use the rule of 72, divide the interest rate of 3% into it, you get the amount of time it takes to double your money in the bank. 24 years sucks if you are retired.

I think that you are right in suggesting that something has to give. I for one can't figure why this whole thing hasn't collapsed from it's own weight.