What would happen if the Federal Reserve was shut down permanently? That is a question that CNBC asked recently, but unfortunately most Americans don’t really think about the Fed much. Most Americans are content with believing that the Federal Reserve is just another stuffy government agency that sets our interest rates and that is watching out for the best interests of the American people. But that is not the case at all. The truth is that the Federal Reserve is a private banking cartel that has been designed to systematically destroy the value of our currency, drain the wealth of the American public and enslave the federal government to perpetually expanding debt. During this election year, the economy is the number one issue that voters are concerned about. But instead of endlessly blaming both political parties, the truth is that most of the blame should be placed at the feet of the Federal Reserve. The Federal Reserve has more power over the performance of the U.S. economy than anyone else does. The Federal Reserve controls the money supply, the Federal Reserve sets the interest rates and the Federal Reserve hands out bailouts to the big banks that absolutely dwarf anything that Congress ever did. If the American people are ever going to learn what is really going on with our economy, then it is absolutely imperative that they get educated about the Federal Reserve.
The following are 10 things that every American should know about the Federal Reserve….
#1 The Federal Reserve System Is A Privately Owned Banking Cartel
The Federal Reserve is not a government agency.
The truth is that it is a privately owned central bank. It is owned by the banks that are members of the Federal Reserve system. We do not know how much of the system each bank owns, because that has never been disclosed to the American people.
The Federal Reserve openly admits that it is privately owned. When it was defending itself against a Bloomberg request for information under the Freedom of Information Act, the Federal Reserve stated unequivocally in court that it was “not an agency” of the federal government and therefore not subject to the Freedom of Information Act.
In fact, if you want to find out that the Federal Reserve system is owned by the member banks, all you have to do is go to the Federal Reserve website….
The twelve regional Federal Reserve Banks, which were established by Congress as the operating arms of the nation’s central banking system, are organized much like private corporations–possibly leading to some confusion about “ownership.” For example, the Reserve Banks issue shares of stock to member banks. However, owning Reserve Bank stock is quite different from owning stock in a private company. The Reserve Banks are not operated for profit, and ownership of a certain amount of stock is, by law, a condition of membership in the System. The stock may not be sold, traded, or pledged as security for a loan; dividends are, by law, 6 percent per year.
Foreign governments and foreign banks do own significant ownership interests in the member banks that own the Federal Reserve system. So it would be accurate to say that the Federal Reserve is partially foreign-owned.
But until the exact ownership shares of the Federal Reserve are revealed, we will never know to what extent the Fed is foreign-owned.
#2 The Federal Reserve System Is A Perpetual Debt Machine
As long as the Federal Reserve System exists, U.S. government debt will continue to go up and up and up.
This runs contrary to the conventional wisdom that Democrats and Republicans would have us believe, but unfortunately it is true.
The way our system works, whenever more money is created more debt is created as well.
For example, whenever the U.S. government wants to spend more money than it takes in (which happens constantly), it has to go ask the Federal Reserve for it. The federal government gives U.S. Treasury bonds to the Federal Reserve, and the Federal Reserve gives the U.S. government “Federal Reserve Notes” in return. Usually this is just done electronically.
So where does the Federal Reserve get the Federal Reserve Notes?
It just creates them out of thin air.
Wouldn’t you like to be able to create money out of thin air?
Instead of issuing money directly, the U.S. government lets the Federal Reserve create it out of thin air and then the U.S. government borrows it.
Talk about stupid.
When this new debt is created, the amount of interest that the U.S. government will eventually pay on that debt is not also created.
So where will that money come from?
Well, eventually the U.S. government will have to go back to the Federal Reserve to get even more money to finance the ever expanding debt that it has gotten itself trapped into.
It is a debt spiral that is designed to go on perpetually.
You see, the reality is that the money supply is designed to constantly expand under the Federal Reserve system. That is why we have all become accustomed to thinking of inflation as “normal”.
So what does the Federal Reserve do with the U.S. Treasury bonds that it gets from the U.S. government?
Well, it sells them off to others. There are lots of people out there that have made a ton of money by holding U.S. government debt.
In fiscal 2011, the U.S. government paid out 454 billion dollars just in interest on the national debt.
That is 454 billion dollars that was taken out of our pockets and put into the pockets of wealthy individuals and foreign governments around the globe.
The truth is that our current debt-based monetary system was designed by greedy bankers that wanted to make enormous profits by using the Federal Reserve as a tool to create money out of thin air and lend it to the U.S. government at interest.
And that plan is working quite well.
Most Americans today don’t understand how any of this works, but many prominent Americans in the past did understand it.
For example, Thomas Edison was once quoted in the New York Times as saying the following….
That is to say, under the old way any time we wish to add to the national wealth we are compelled to add to the national debt.
Now, that is what Henry Ford wants to prevent. He thinks it is stupid, and so do I, that for the loan of $30,000,000 of their own money the people of the United States should be compelled to pay $66,000,000 — that is what it amounts to, with interest. People who will not turn a shovelful of dirt nor contribute a pound of material will collect more money from the United States than will the people who supply the material and do the work. That is the terrible thing about interest. In all our great bond issues the interest is always greater than the principal. All of the great public works cost more than twice the actual cost, on that account. Under the present system of doing business we simply add 120 to 150 per cent, to the stated cost.
But here is the point: If our nation can issue a dollar bond, it can issue a dollar bill. The element that makes the bond good makes the bill good.
We should have listened to men like Edison and Ford.
But we didn’t.
And so we pay the price.
On July 1, 1914 (a few months after the Fed was created) the U.S. national debt was 2.9 billion dollars.
Today, it is more than more than 5000 times larger.
Yes, the perpetual debt machine is working quite well, and most Americans do not even realize what is happening.
#3 The Federal Reserve Has Destroyed More Than 96% Of The Value Of The U.S. Dollar
Did you know that the U.S. dollar has lost 96.2 percent of its value since 1900? Of course almost all of that decline has happened since the Federal Reserve was created in 1913.
Because the money supply is designed to expand constantly, it is guaranteed that all of our dollars will constantly lose value.
Inflation is a “hidden tax” that continually robs us all of our wealth. The Federal Reserve always says that it is “committed” to controlling inflation, but that never seems to work out so well.
And current Federal Reserve Chairman Ben Bernanke says that it is actually a good thing to have a little bit of inflation. He plans to try to keep the inflation rate at about 2 percent in the coming years.
So what is so bad about 2 percent? That doesn’t sound so bad, does it?
Well, just consider the following excerpt from a recent Forbes article….
The Federal Reserve Open Market Committee (FOMC) has made it official: After its latest two day meeting, it announced its goal to devalue the dollar by 33% over the next 20 years. The debauch of the dollar will be even greater if the Fed exceeds its goal of a 2 percent per year increase in the price level.
#4 The Federal Reserve Can Bail Out Whoever It Wants To With No Accountability
The American people got so upset about the bailouts that Congress gave to the Wall Street banks and to the big automakers, but did you know that the biggest bailouts of all were given out by the Federal Reserve?
Thanks to a very limited audit of the Federal Reserve that Congress approved a while back, we learned that the Fed made trillions of dollars in secret bailout loans to the big Wall Street banks during the last financial crisis. They even secretly loaned out hundreds of billions of dollars to foreign banks.
According to the results of the limited Fed audit mentioned above, a total of $16.1 trillion in secret loans were made by the Federal Reserve between December 1, 2007 and July 21, 2010.
The following is a list of loan recipients that was taken directly from page 131 of the audit report….
Citigroup – $2.513 trillion
Morgan Stanley – $2.041 trillion
Merrill Lynch – $1.949 trillion
Bank of America – $1.344 trillion
Barclays PLC – $868 billion
Bear Sterns – $853 billion
Goldman Sachs – $814 billion
Royal Bank of Scotland – $541 billion
JP Morgan Chase – $391 billion
Deutsche Bank – $354 billion
UBS – $287 billion
Credit Suisse – $262 billion
Lehman Brothers – $183 billion
Bank of Scotland – $181 billion
BNP Paribas – $175 billion
Wells Fargo – $159 billion
Dexia – $159 billion
Wachovia – $142 billion
Dresdner Bank – $135 billion
Societe Generale – $124 billion
“All Other Borrowers” – $2.639 trillion
So why haven’t we heard more about this?
This is scandalous.
In addition, it turns out that the Fed paid enormous sums of money to the big Wall Street banks to help “administer” these nearly interest-free loans….
Not only did the Federal Reserve give 16.1 trillion dollars in nearly interest-free loans to the “too big to fail” banks, the Fed also paid them over 600 million dollars to help run the emergency lending program. According to the GAO, the Federal Reserve shelled out an astounding $659.4 million in “fees” to the very financial institutions which caused the financial crisis in the first place.
Does reading that make you angry?
It should.
#5 The Federal Reserve Is Paying Banks Not To Lend Money
Did you know that the Federal Reserve is actually paying banks not to make loans?
It is true.
Section 128 of the Emergency Economic Stabilization Act of 2008 allows the Federal Reserve to pay interest on “excess reserves” that U.S. banks park at the Fed.
So the banks can just send their cash to the Fed and watch the money come rolling in risk-free.
So are many banks taking advantage of this?
You tell me. Just check out the chart below. The amount of “excess reserves” parked at the Fed has gone from nearly nothing to about 1.5 trillion dollars since 2008….
But shouldn’t the banks be lending the money to us so that we can start businesses and buy homes?
You would think that is how it is supposed to work.
Unfortunately, the Federal Reserve is not working for us.
The Federal Reserve is working for the big banks.
Sadly, most Americans have no idea what is going on.
Another example of this is the government debt carry trade.
Here is how it works. The Federal Reserve lends gigantic piles of nearly interest-free cash to the big Wall Street banks, and in turn those banks use the money to buy up huge amounts of government debt. Since the return on government debt is higher, the banks are able to make large profits very easily and with very little risk.
This scam was also explained in a recent article in the Guardian….
Consider this: we pretend that banks are private businesses that should be allowed to run their own affairs. But they are the biggest scroungers of public money of our time. Banks are lent vast sums of money by central banks at near-zero interest. They lend that money to us or back to the government at higher rates and rake in the difference by the billion. They don’t even have to make clever investments to make huge profits.
That is a pretty good little scam they have got going, wouldn’t you say?
#6 The Federal Reserve Creates Artificial Economic Bubbles That Are Extremely Damaging
By allowing a centralized authority such as the Federal Reserve to dictate interest rates, it creates an environment where financial bubbles can be created very easily.
Over the past several decades, we have seen bubble after bubble. Most of these have been the result of the Federal Reserve keeping interest rates artificially low. If the free market had been setting interest rates all this time, things would have never gotten so far out of hand.
For example, the housing crash would have never been so horrific if the Federal Reserve had not created such ideal conditions for a housing bubble in the first place. But we allow the Fed to continue to make the same mistakes.
Right now, the Federal Reserve continues to set interest rates much, much lower than they should be. This is causing a tremendous misallocation of economic resources, and there will be massive consequences for that down the line.
#7 The Federal Reserve System Is Dominated By The Big Wall Street Banks
Even since it was created, the Federal Reserve system has been dominated by the big Wall Street banks.
The New York representative is the only permanent member of the Federal Open Market Committee, while other regional banks rotate in 2 and 3 year intervals. The former head of the New York Fed, Timothy Geithner, is now U.S. Treasury Secretary. The truth is that the Federal Reserve Bank of New York has always been the most important of the regional Fed banks by far, and in turn the Federal Reserve Bank of New York has always been dominated by Wall Street and the major New York banks.
#8 It Is Not An Accident That We Saw The Personal Income Tax And The Federal Reserve System Both Come Into Existence In 1913
On February 3rd, 1913 the 16th Amendment to the U.S. Constitution was ratified. Later that year, the United States Revenue Act of 1913 imposed a personal income tax on the American people and we have had one ever since.
Without a personal income tax, it is hard to have a central bank. It takes a lot of money to finance all of the government debt that a central banking system creates.
It is no accident that the 16th Amendment was ratified in 1913 and the Federal Reserve system was also created in 1913.
They have a symbiotic relationship and they are designed to work together.
We could fill Congress with people that are committed to ending this oppressive system, but so far we have chosen not to do that.
So our children and our grandchildren will face a lifetime of debt slavery because of us.
I am sure they will be thankful for that.
#9 The Current Federal Reserve Chairman, Ben Bernanke, Has A Nightmarish Track Record Of Incompetence
The mainstream media portrays Federal Reserve Chairman Ben Bernanke as a brilliant economist, but is that really the case?
In 2005, Bernanke said that we shouldn’t worry because housing prices had never declined on a nationwide basis before and he said that he believed that the U.S. would continue to experience close to “full employment”….
“We’ve never had a decline in house prices on a nationwide basis. So, what I think what is more likely is that house prices will slow, maybe stabilize, might slow consumption spending a bit. I don’t think it’s gonna drive the economy too far from its full employment path, though.”
In 2005, Bernanke also said that he believed that derivatives were perfectly safe and posed no danger to financial markets….
“With respect to their safety, derivatives, for the most part, are traded among very sophisticated financial institutions and individuals who have considerable incentive to understand them and to use them properly.”
In 2006, Bernanke said that housing prices would probably keep rising….
“Housing markets are cooling a bit. Our expectation is that the decline in activity or the slowing in activity will be moderate, that house prices will probably continue to rise.”
In 2007, Bernanke insisted that there was not a problem with subprime mortgages….
“At this juncture, however, the impact on the broader economy and financial markets of the problems in the subprime market seems likely to be contained. In particular, mortgages to prime borrowers and fixed-rate mortgages to all classes of borrowers continue to perform well, with low rates of delinquency.”
In 2008, Bernanke said that a recession was not coming….
“The Federal Reserve is not currently forecasting a recession.”
A few months before Fannie Mae and Freddie Mac collapsed, Bernanke insisted that they were totally secure….
“The GSEs are adequately capitalized. They are in no danger of failing.”
For many more examples that demonstrate the absolutely nightmarish track record of Federal Reserve Chairman Ben Bernanke, please see the following articles….
But after being wrong over and over and over, Barack Obama still nominated Ben Bernanke for another term as Chairman of the Fed.
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#10 The Federal Reserve Has Become Way Too Powerful
The Federal Reserve is the most undemocratic institution in America.
The Federal Reserve has become so powerful that it is now known as “the fourth branch of government”, but there are less checks and balances on the Fed than there are on the other three branches.
The Federal Reserve runs the U.S. economy but it is not accountable to the American people. We can’t vote those that run the Fed out of office if we do not like what they do.
Yes, the president appoints those that run the Fed, but he also knows that if he does not tread lightly he won’t get the money from the big Wall Street banks that he needs for his next election.
Thankfully, there are a few members of Congress that are complaining about how much power the Fed has. For example, Ron Paul once told MSNBC that he believes that the Federal Reserve is now actually more powerful than Congress…..
“The regulations should be on the Federal Reserve. We should have transparency of the Federal Reserve. They can create trillions of dollars to bail out their friends, and we don’t even have any transparency of this. They’re more powerful than the Congress.”
As members of Congress such as Ron Paul have started to shed some light on the activities of the Federal Reserve, that has caused many in the mainstream media to come to the defense of the Fed.
For example, a recent CNBC article entitled “If The Federal Reserve Is Abolished, What Then?” makes it sound like there is absolutely no other rational alternative to having the Federal Reserve run our economy.
But this is not what our founders intended.
The founders did not intend for a private banking cartel to issue our money and set our interest rates for us.
According to Article I, Section 8 of the U.S. Constitution, the U.S. Congress has been given the responsibility to “coin Money, regulate the Value thereof, and of foreign Coin, and fix the Standard of Weights and Measures”.
So why is the Federal Reserve doing it?
But the CNBC article mentioned above makes it sound like the sky would fall if control of the currency was handed back over to the American people.
At one point, the article asks the following question….
“How would the U.S. economy then function? Something has to take its place, right?”
No, the truth is that we don’t need anyone to “manage” our economy.
The U.S. Treasury could be in charge of issuing our currency and the free market could set our interest rates.
We don’t need to have a centrally-planned economy.
We aren’t China.
And it goes against everything that our founders believed to be running up so much government debt.
I wish it were possible to obtain a single amendment to our Constitution. I would be willing to depend on that alone for the reduction of the administration of our government to the genuine principles of its Constitution; I mean an additional article, taking from the federal government the power of borrowing.
Oh, how things would have been different if we had only listened to Thomas Jefferson.
Please share this article with as many people as you can. These are things that every American should know about the Federal Reserve, and we need to educate the American people about the Fed while there is still time.
The people out there that believe that the U.S. economy is experiencing a permanent recovery and that very bright days are ahead for us should have their heads examined. Unfortunately, what we are going through right now is simply just a period of “hopetimism” between two financial crashes. Things may seem relatively stable right now, but it won’t last long. The truth is that the financial crisis of 2008 was just a warm up act for the economic horror show that is coming. Nothing really got fixed after the crash of 2008. We are living in the biggest debt bubble in the history of the world, and it has gotten even bigger since then. The “too big to fail” banks are larger now than they have ever been. Americans continue to run up credit card balances like there is no tomorrow. Tens of thousands of manufacturing facilities and millions of jobs continue to leave the country. We continue to consume far more than we produce and we continue to become poorer as a nation. None of the problems that caused the crisis of 2008 have been solved and we are even weaker financially than we were back then. So why in the world are so many people so optimistic about the economy right now?
Just take a look at the chart posted below. It shows the growth of total debt in the United States. During the financial crisis of 2008 there was a little “hiccup”, but the truth is that not much deleveraging really took place at all. And since the recession “ended”, total credit market debt has gone on to even greater heights….
So what does this mean for the future?
Well, if a small “hiccup” in the debt bubble caused so much chaos back in 2008, what is going to happen when this debt bubble finally bursts?
That is something to think about.
Sadly, most Americans seem oblivious to all of this.
If you go out to malls in the wealthy areas of America today, people are charging up a storm. In all, Americans charged a whopping 2.5 trillion dollars on their credit cards during 2011. Way too many people have already forgotten the lessons that we all learned back in 2008.
Of course some Americans pay off their credit cards every month, but way too many Americans are not doing that. Today, Americans are carrying 793 billion dollars in revolving credit balances.
And student loan debt is an even bigger bubble than credit card debt is. As I have written about previously, total student loan debt in America is rapidly approaching a trillion dollars.
So it looks like U.S. consumers have not learned to stay away from debt.
That is not good.
Well, what about the banks?
Has the financial system learned any lessons since 2008?
No, not really.
Sadly, the “too big to fail” banks are now even bigger than ever. The total assets of the six largest U.S. banks increased by 39 percent between September 30, 2006 and September 30, 2011. If they were to fail today, they would be even more of a threat to our financial system than they were back in 2008.
And our major banks continue to be very highly leveraged. In fact, major banks all over the world are absolutely swamped with debt.
These are insane levels of leverage, and they are just inviting another major financial crisis.
Do you all remember Lehman Brothers? The fact that they were leveraged so highly is what did them in back in 2008. When the value of their holdings declined by just a little bit they were totally wiped out.
Well, during this next financial crisis large financial institutions are going to be wiped out all over the world. Major banks all over the globe are going to be crying out for more bailouts when things take a turn against them.
They are making the exact same mistakes that they made before, and they are going to be expecting more government handouts when things go bad.
Will we ever learn?
So obviously the banking system has not learned any lessons.
What about the federal government?
Well, if you follow my blog regularly, you know that I love to write about how horrific U.S. government debt is.
Unfortunately, over the past four years things have gotten so much worse.
Back in 2008, the U.S. national debt crossed the 10 trillion dollar mark.
Just recently, it crossed the 15 trillion dollar mark.
So now we are in a much weaker position financially to respond to another major financial crisis.
Just check out the chart posted below. This is a recipe for national financial suicide….
During fiscal 2011, the Obama administration stole close to 150 million dollars from our children and our grandchildren every single hour.
At the moment, the legacy of debt that we are passing on to future generations is sitting a grand total of $15,351,406,294,640.49.
But keep in mind that it is going up every single hour.
Meanwhile, our ability to service that debt is declining. We are rapidly getting poorer as a nation.
During 2011, the amount of money that left the United States exceeded the amount of money that entered the United States by more than a half a trillion dollars.
This gap is called a trade deficit, and it is absolutely ripping our economy to shreds.
For a moment, imagine Uncle Sam standing next to a giant pile of money on a map of the United States. Then imagine a half a trillion dollars being taken out of that pile every single year.
So why haven’t we totally run out of money yet?
Well, it is because we borrow those dollars back. In order to maintain our false standard of living, our federal government, our state governments and our local governments have to go out and beg the rest of the world to lend us our dollars back.
Sadly, our government schools have “dumbed-down” the population so much that most of them don’t even know what a “trade deficit” is anymore.
Meanwhile, our economic infrastructure is being gutted like a fish.
Look, I know that I go over this point over and over and over, but it is absolutely imperative that we all understand this.
The half a trillion dollars a year that leaves this country every year could have gone to support businesses and jobs inside the United States.
But instead it is going to support businesses and jobs on the other side of the world.
The consequences of this are absolutely devastating.
According to U.S. Representative Betty Sutton, an average of 23 manufacturing facilities a day closed down in the United States during 2010. Overall, more than 56,000 manufacturing facilities in the United States have shut down since 2001.
Even many so-called “American companies” have been bought up by the rest of the world. The following comes from a recent article posted on Economy In Crisis….
RCA is now a French company, Zenith is a Korean company. Frigidaire is a Swedish company. IBM’s Personal Computer Division—with its 500 patents—is now a Chinese company. Westinghouse Nuclear Energy’s major shareholder is Toshiba—a Japanese Company. Lucent Technologies, a former research division of AT&T, along with all the patents acquired from the beginning of the phone system, is now a French company. In 2008, Brazilian-Belgian brewing company InBev purchased the iconic American brewer Anheuser-Busch, makers of Budweiser. With the sale of these manufacturing companies, the future profit and technologies all belong to foreign entities.
We once had the greatest economic machine in the history of the world.
Now it is being dismantled and bought up by foreigners.
When America’s economic infrastructure declines, that means that there are less jobs available for all of us.
As I wrote about the other day, the employment situation in this country is not getting better and we have never even come close to recovering from the recession that started back in 2008.
During 2008 and 2009, the U.S. economy lost millions of jobs. Since the beginning of 2010, the percentage of the U.S. population that has had a job has remained very stable….
Normally, when a recession ends the percentage of Americans that have a job bounces back pretty dramatically.
So considering the fact that the employment situation has never recovered from the last financial crisis, what is going to happen when the next financial crisis hits?
And most of the jobs that have been “created” during this so-called “recovery” have been low income jobs. In fact, if you look closely at the employment numbers that were released last Friday, you will find that the vast majority of the “new jobs” were part-time jobs.
But you cannot pay a mortgage and support a family on a part-time job.
Sadly, the truth is that median household income in America has been steadily dropping over the past several years. Tens of millions of American families are deeply struggling and more Americans than ever are falling into poverty.
Back in the year 2000, about one out of every nine Americans was living in poverty. Today, about one out of every seven Americans is living in poverty.
All of this is causing a great deal of anxiety in America today. Large numbers of Americans know that something has fundamentally changed, even if they don’t understand the specifics. That is one reason why sites such as this one have become so popular. People want some answers.
And once people get some answers about what is really happening, they tend to want to prepare for the hard times that are coming.
In a few days, a new series on National Geographic entitled “Doomsday Preppers” premieres. The mainstream media is starting to take notice of the growing “prepper” movement in America today. It is estimated that there are at least 2 million “preppers” in the United States at this point. Of course people are “prepping” for a whole host of reasons, but the number one concern among most groups of preppers is the economy.
As the economy crumbles, more Americans than ever have decided that it is not a good thing to be 100% dependent on the system.
Back in 2008 and 2009, millions of Americans suddenly lost their jobs. Because they did not have any finances stored up, large numbers of them also lost their homes. Many went from being solidly middle class to being out on the street in a matter of months.
That doesn’t have to happen to you. Instead of blowing your money on frivolous things, do what you can to set something aside for the difficult times that are on the horizon.
A lot of those “in the know” are quietly making their own preparations. For example, legendary film director James Cameron (Avatar, Titanic and Terminator) has purchased more than 2600 acres of farmland in New Zealand and he is getting out of the U.S. for good apparently.
Unfortunately, most of us do not have the resources for something like that. But what most of us can do is we can change our priorities and start focusing on the things that will help us survive the hard times that are coming.
How would you feel if someone told you that one of the largest banks on Wall Street makes more money whenever the number of Americans on food stamps goes up? Unfortunately, this is something that is actually true. In the United States today, one out of every seven Americans is on food stamps. In fact, the number of Americans on food stamps has increased by a whopping 14 million since Barack Obama entered the White House. All of this makes JP Morgan very happy, because JP Morgan has been making money by the boatload on food stamps. Right now, JP Morgan Chase issues food stamp debit cards in 26 U.S. states and the District of Columbia. The division of JP Morgan Chase that issues these debit cards made an eye-popping 5.47 billion dollars in net revenue during 2010. JP Morgan is paid per customer, so when the number of Americans on food stamps goes up, they make more money. But doesn’t this give JP Morgan an incentive to try to keep the number of Americans on food stamps as high as possible? Of course it does. JP Morgan is interested in making money as rapidly as possible. If JP Morgan can get more Americans enrolled in the food stamp program and keep them enrolled in it for as long as possible, that is good for business.
And the Obama administration is certainly doing what it can to help out. Even though a whopping 46 million Americans are now on food stamps, the Obama administration plans to give out large amounts of money to organizations that are able figure out ways to get even more people enrolled in the program….
Despite the historic rise in food stamp use, however, the Obama Administration believes not enough people are receiving food stamps who should be and is offering $75,000 grants to groups who devise “effective strategies” to “increase program participation” among those who have yet to sign up.
In fact, U.S. Agriculture Secretary Tom Vilsack says that if we can get even more Americans enrolled in the food stamp program, that will be a great way to “stimulate the economy“.
Of course JP Morgan just loves all of this. The more people they have in the system the better.
Christopher Paton, the managing director of JP Morgan’s “Treasury Solutions” business, made the following statement about the “food stamp business” that his firm is engaged in during an interview with Bloomberg Television….
“This business is a very important business to JPMorgan. It’s an important business in terms of its size and scale…Right now, volumes have gone through the roof in the past couple of years. The good news, from JPMorgan’s perspective, is the infrastructure that we built has been able to cope with that increase in volume.”
You can see more of the interview with Paton in the video posted below….
As the interview above noted, more than 40 percent of all food stamp recipients in the United States actually have a job.
This is an exciting “growth area” for JP Morgan. As the middle class continues to decline, the number of “the working poor” in America is exploding.
Back in 1980, less than 30% of all jobs in the United States were low income jobs. Today, more than 40% of all jobs in the United States are low income jobs. This trend is perfect for JP Morgan because it means that the number of low income workers that are eligible for food stamps is going to keep increasing.
And what makes all of this even sadder is that JP Morgan has outsourced many of the customer service jobs for its food stamp program to India.
Yes, you read that correctly.
When Americans that can’t find a decent job need help with their food stamps there is a good chance that they will be talking to a customer service representative sitting in India.
Isn’t that crazy?
When ABC News confronted JP Morgan about this, JP Morgan would not tell ABC which states have customer service calls sent to India and which states have them handled inside the United States….
JP Morgan is the only one today still operating public-assistance call centers overseas. The company refused to say which states had calls routed to India and which ones had calls stay domestically. That decision, the company said, was often left up to the individual states.
But JP Morgan doesn’t just handle food stamps. JP Morgan also issues child support debit cards in 15 states and unemployment insurance debit cards in 7 states.
Of course JP Morgan is not the only big bank involved in this kind of business. Several others are also making money in massive quantities on the backs of the poor.
Shawana Busby does not seem like the sort of customer who would be at the center of a major bank’s business plan. Out of work for much of the last three years, she depends upon a $264-a-week unemployment check from the state of South Carolina. But the state has contracted with Bank of America to administer its unemployment benefits, and Busby has frequently found herself incurring bank fees to get her money.
To withdraw her benefits, Busby, 33, uses a Bank of America prepaid debit card on which the state deposits her funds. She could visit a Bank of America ATM free of charge. But this small community in the state’s rural center, her hometown, does not have a Bank of America branch. Neither do the surrounding towns where she drops off her kids at school and attends church.
She could drive north to Columbia, the state capital, and use a Bank of America ATM there. But that entails a 50 mile drive, cutting into her gas budget. So Busby visits the ATMs in her area and begrudgingly accepts the fees, which reach as high as five dollars per transaction. She estimates that she has paid at least $350 in fees to tap her unemployment benefits.
There is something about all of this that just seems very, very wrong.
When we have good jobs, the big banks hit us with outrageous bank fees and they try to get us enslaved to credit card debt.
When we are down on our luck and become dependent on the government, the big banks still find ways of making money at our expense.
Why do the banksters always seem to win and we always seem to lose?
In recent days, the fact that Mitt Romney has millions of dollars parked down in the Cayman Islands has made headlines all over the world. But when it comes to offshore banking, what Mitt Romney is doing is small potatoes. The truth is that the global elite are hiding an almost unbelievable amount of money in offshore banks. According to shocking research done by the IMF, the global elite are holding a total of 18 trillion dollars in offshore banks. And that figure does not even count any money being held in Switzerland. That is a staggering amount of money. Keep in mind that U.S. GDP in 2010 was only 14.58 trillion dollars. So why do the global elite go to such trouble to hide their money in offshore banks? Well, there are two main reasons. One is privacy and the other is low taxation. Privacy is a big issue for those that are involved in illegal enterprises such as drug running, but the biggest reason why people move money into offshore banks is in order to avoid taxes. Some set up bank accounts in foreign nations because they want to legally minimize their taxes and others set up bank accounts in foreign nations because they want to illegally avoid taxes. You would be absolutely amazed at what some large corporations and wealthy individuals do to get out of paying taxes. Unfortunately, the vast majority of the rest of us don’t have the resources or the knowledge to play these games, so we get taxed into oblivion.
So why do they call it “offshore banking”?
Well, the term originally developed because the banks on the Channel Islands were “offshore” from the United Kingdom. Most “offshore banks” are still located on islands today. The Cayman Islands, Bermuda, the Bahamas, and the Isle of Man are examples of this. Other “offshore banking centers” such as Monaco are actually not “offshore” at all, but the term applies to them anyway.
Traditionally, these offshore banking centers have been very attractive to both criminals and to the global elite because they would not tell anyone (including governments) about the money that anyone had parked there.
These days some governments (particularly the U.S. government) are trying to change this, but we certainly will not see the end of offshore banking any time soon.
The amount of money that goes through these offshore banks is absolutely astounding.
It has been estimated that 80 percent of all international banking transactions take place through these offshore banks. $1.4 trillion is being held in offshore banks in the Cayman Islands alone.
One article in the Guardian estimated that a third of all the wealth on the entire globe is being held in offshore banks, and others believe that as much as half of all the capital in the world flows through offshore banks at some point.
Obviously, all of this tax avoidance means that governments around the world are missing out on a whole lot of money.
It has been estimated that the U.S. government is missing out on $100 billion a year because of these offshore banks. Others would put that figure significantly higher.
Avoiding taxes is a game that the global elite have mastered. They are playing a whole different ballgame than you and I are. They don’t just sit there like idiots and get blasted with taxes. Instead, they hire the best experts and they employ every trick in the book to hold on to as much money as they possibly can.
These days, taking advantage of offshore tax havens is not that complicated to do. The following is from a recent Politico article….
A plausible scenario plays out like this: I hire an accountant. Doing her job, my accountant tells me that if I sign a few legal documents and route my money through a small Caribbean island, I could keep more of my paycheck and pay a lower tax rate. I may have earned my money in the United States, but legally I can claim that it was, in fact, earned in a tax haven.
If it is legal, perhaps more of us should look into this.
After all, if playing these kinds of games is good enough for Mitt Romney, then why isn’t it good enough for all the rest of us?
During a campaign stop recently, Romney said the following….
“I can tell you we follow the tax laws”
I certainly believe him when he says that. But it is what he said next that is troubling….
“And if there’s an opportunity to save taxes, we like anybody else in this country will follow that opportunity.”
I certainly believe him when he says that too.
ABC News recently revealed that Bain Capital has established an astounding 138 different offshore funds in the Cayman Islands.
Something has got to work pretty well to want to do it 138 times.
But Bain Capital was also very busy over in other offshore banking centers as well.
One of the largest shell companies that Bain set up down in the Caribbean was called Sankaty High Yield Asset Investors Ltd. It did not have an office in Bermuda and it had no staff in Bermuda. But it helped clients of Bain Capital avoid a whole lot of taxes.
In Bermuda, Romney served as president and sole shareholder for four years of Sankaty High Yield Asset Investors Ltd. It funneled money into Bain Capital’s Sankaty family of hedge funds, which invest in bonds and other debt issued by corporations, as well as bank loans.
Like thousands of similar financial entities, Sankaty maintains no office or staff in Bermuda. Its only presence consists of a nameplate at a lawyer’s office in downtown Hamilton, capital of the British island territory.
“It’s just a mail drop, essentially,” said Marc B. Wolpow, who worked with Romney for nine years at Bain Capital and who set up Sankaty Ltd. in October 1997 without ever visiting Bermuda. “There’s no one doing any work down there other than lawyers.”
The amount of money being funneled through Sankaty today is absolutely stunning….
Today, Bain Capital manages $60 billion in assets, according to a spokesman. The total includes $23 billion in Sankaty debt and credit funds. Half a dozen Sankaty affiliates now are active in Bermuda, corporate registry records show.
The Sankaty debt hedge funds are organized as partnerships in Delaware that produce taxable business income by investing in fixed-income bonds and other debt instruments. Under tax law, even tax-exempt U.S. institutions may face a 35% tax if they invest directly in such hedge funds. By investing instead through a Bermuda corporation, the taxes are legally blocked, experts say.
Of course all of this is perfectly legal.
So nobody gets into trouble for any of this.
By keeping money offshore, even those managing these kinds of funds can avoid being taxed.
“The idea behind some of the Cayman Island strategies was that the income that the fund managers receive for managing the money would be kept offshore in the Cayman Island — and the chief benefit is that you can defer when you recognize that income until a later date and you can reinvest the money from the Cayman islands and none of those reinvested funds get taxed until you bring them back either”
So was Romney doing this?
We may never know unless he shows us his tax returns.
What we do know is that Romney has millions of dollars of his own personal wealth invested in offshore tax havens.
In addition to paying the lower tax rate on his investment income, Romney has as much as $8 million invested in at least 12 funds listed on a Cayman Islands registry. Another investment, which Romney reports as being worth between $5 million and $25 million, shows up on securities records as having been domiciled in the Caymans.
But Romney does not just have money invested down in the Cayman Islands. Apparently his money is invested in a whole host of offshore tax havens.
Bain funds in which Romney is invested are scattered from Delaware to the Cayman Islands and Bermuda, Ireland and Hong Kong, according to a Reuters analysis of securities filings.
So is there anything wrong with this?
Well, it depends on how you define “wrong”.
What Romney is doing is perfectly legal.
But it also stinks. Washington lawyer Jack Blum recently told ABC News the following about Romney’s finances….
“His personal finances are a poster child of what’s wrong with the American tax system”
So now we may have a few hints as to why Romney may not want to release his old tax returns.
But as noted above, what Romney is doing is just small potatoes compared to what the ultra-wealthy do.
The U.S. Congress has been trying to clamp down on offshore banking, but the ultra-wealthy are always two or three steps ahead of them.
The ultra-wealthy will go to just about any extreme in order to avoid paying taxes.
In fact, the Washington Post has reported that an increasing number of wealthy individuals are actually deciding to renounce their citizenship rather than face the wrath of the IRS.
The ultra-wealthy aren’t really concerned that much with national citizenship anyway. If they want to influence an election, they can have far more influence by donating a few million bucks to a “Super PAC” than they can by casting the few votes that they have.
In a previous article, I described how the ultra-wealthy use offshore banks as a “shadow banking system” that plays by rules that most people don’t even know exist….
It is a shadow banking system that most Americans don’t know anything about. Most Americans don’t have the resources to be able to set up shell companies in half a dozen different countries so that they can “filter” their profits. Most Americans don’t know a thing about complicated tax avoidance plans that tax lawyers use such as the “Double Irish” and the “Dutch Sandwich”. Most Americans would have no idea how to eventually have most of the money that they make end up in Bermuda so that it can avoid taxes.
Most among the global elite simply do not care that U.S. debt is climbing into the stratosphere. All they care about is keeping as much of their own money in their pockets as they possibly can.
Of course there are always exceptions to this rule. Warren Buffett recently wrote a check to the U.S. Treasury for a little more than $49,000 to help pay off the national debt.
But considering the fact that the U.S. national debt is increasing by more than 100 million dollars an hour, that didn’t exactly do much to help.
Our system is deeply broken and the global elite are getting away with bloody murder. Over the decades, they have carefully crafted the rules so that as much wealth as possible is funneled into their pockets, and they have carefully crafted the rules so that as much wealth as possible stays in their pockets.
Of course if we got rid of the personal income tax and the corporate income tax entirely and replaced them with a completely new system we could get rid of all of this game playing once and for all.
But what do you think the odds are of that happening?
The euro is a dying currency. On Thursday, the EUR/USD fell below 1.28 for the first time since September 2010. In fact, as I write this the EUR/USD is sitting at 1.2791. Back in July, the EUR/USD was over 1.45. But this is just the beginning. The euro is going to go a lot lower. At this point, there are several major European nations that are on the verge of default, the European financial system is overflowing with debt and toxic assets, and most major European banks are leveraged about as badly as Lehman Brothers was when it collapsed. Most Americans simply do not grasp the gravity of what is happening. Just because the Dow is sitting above 12000 and a few U.S. economic numbers have improved slightly does not mean that everything is going to be okay. As I wrote about recently, the EU has a bigger economy than we do and they have a bigger banking system than we do. U.S. banks are massively exposed to European sovereign debt and European banking debt. When the financial system of Europe collapses and the euro falls apart it is going to rock the entire planet. So you better look out below – the euro is coming down and it is coming down hard. After the euro implodes, nothing is every going to be the same again.
The relative strength of the recent economic data from the US is supporting the dollar more generally, and we expect this divergence to persist as the euro-zone slides into a deep and prolonged recession. Above all, doubts about the very survival of the euro itself are likely to remain a drag on the currency. We therefore continue to expect the euro to fall to around $1.10 by the end of the year.
Others are even more pessimistic.
As I have written about previously, the head of global bond portfolio management at PIMCO believes that the euro is going to go even lower than that….
“Parity with the dollar next year is not out of the question”
Can you imagine that?
1 dollar = 1 euro?
Don’t think that it can’t happen.
But the decline of the euro is just part of the story. The truth is that Europe is on the verge of a financial collapse that could end up dwarfing the financial crisis of 2008.
Sadly, most Americans have no idea what has been going on in Europe the past few days….
-Even shares of German banks are falling like a rock. Shares of Commerzbank fell 4.5 percent on Thursday and shares of Deutsche Bank fell 5.6 percent on Thursday.
-The yield on 5 years Italian bonds is back over 6 percent and the yield on 10 year Italian bonds is back over 7 percent. Analysts all over Europe insist that that the Italian debt situation is not sustainable if rates stay this high.
These are some of the other top headlines on USA Today right now….
“Automakers Rush To Offer Apps In Your Car”
“Bargain Season At Taco Bell, Pizza Hut, Wendy’s”
“Does Your Dog Understand You? Study Says Maybe”
Is that what passes as news in this country?
A financial meltdown of historic proportions is happening in Europe and you cannot even find anything about it on the front page of USA Today.
Amazing.
All of us need to snap out of our television-induced comas and start waking up.
Things are about to get really bad for the global financial system.
At this point so much confidence has been lost in the euro that even the Council on Foreign Relations is admitting that the euro is a failure….
The euro should now be recognized as an experiment that failed. This failure, which has come after just over a dozen years since the euro was introduced, in 1999, was not an accident or the result of bureaucratic mismanagement but rather the inevitable consequence of imposing a single currency on a very heterogeneous group of countries. The adverse economic consequences of the euro include the sovereign debt crises in several European countries, the fragile condition of major European banks, high levels of unemployment across the eurozone, and the large trade deficits that now plague most eurozone countries.
If even the CFR is throwing in the towel, that should tell you something about what is about to happen to the euro.
There is a very real possibility that we could see the euro break up at some point during the next couple of years.
“We seem to have entered the last days of the euro as we currently know it. That doesn’t make a break-up very likely, but it does mean some extraordinary things will almost certainly need to happen – probably by mid-January – to prevent the progressive closure of all the euro zone sovereign bond markets, potentially accompanied by escalating runs on even the strongest banks.”
The European debt crisis just continues to get worse and worse. None of the solutions that European leaders have tried have worked. We are rapidly approaching the meltdown phase of this crisis.
As I have written about previously, it doesn’t take a genius to figure out what is happening in Europe. The equation is simple….
Brutal austerity + toxic levels of government debt + rising bond yields + a lack of confidence in the financial system + banks that are massively overleveraged + a massive credit crunch = A financial implosion of historic proportions
Unfortunately, what is happening right now in Europe is eventually going to happen in the United States as well.
As I wrote about yesterday, U.S. debt is a ticking time bomb that is going to devastate the entire global economy at some point. Nobody knows when the implosion will happen, but everyone knows that it is inevitable.
When Europe falls apart financially, that is going to make our own financial system much less stable. What is happening in Europe could turn our “limited recovery” into a “major recession” almost overnight.
So keep your eye on the euro.
If the euro keeps going down, that is going to be really bad news for the global economy.
Unfortunately, the truth is that the decline of the euro is just getting started.
Hold on to your hats.
***UPDATE***
The euro continues to drop like a rock. Right now it is at 1.2721.
I have learned that watching what people do is much more important than listening to what they say. Back in 2008, financial authorities in the United States insisted that everything was gone to be okay. But we all know now that was a lie. Well, right now financial authorities in the U.S. and Europe are once again trying to assure us that everything is under control and that we are not headed for a global recession. Unfortunately, their actions are telling a very different story. All over the world, bailouts are flying around as if the end of the world is coming. Governments and central banks are stepping in with gigantic mountains of money to prop up bond yields, major banks and even stock markets. What we have seen over the past few months has been absolutely unprecedented. So why are such desperate measures being taken if everything is going to be just fine? Unfortunately, debt problems are never solved with more debt, so these bailouts really aren’t solving anything. We are still headed for a massive amount of financial pain. It would just be nice if the authorities would quit lying to us and would actually admit how bad things really are.
Today it was announced that the European Central Bank has agreed to make $638 billion in 3 year loans to 523 different banks. Never before (not even during the last financial crisis) has the ECB loaned so much cheap money to European banks at one time.
European authorities are hoping that European banks will use this money to make loans to businesses and to buy up the debt of troubled European governments.
But as we have seen in the United States, bailout money does not always get spent the way that the authorities intend for it to be spent.
The truth is that the banks could end up just sitting on the money. That is what happened with a lot of bailout money in the United States during the last financial crisis.
European authorities hope, however, that European banks will take this super cheap money and lend it to European governments at much higher interest rates.
Unfortunately, global financial markets were not terribly impressed with this move by the ECB. European bond yields actually rose and the euro just kept on falling.
Every few days another major “solution” to the European debt crisis is put out there, but so far nothing has worked.
For example, the European Central Bank has already spent over 274 billion dollars directly buying up European government bonds, and yet bond yields continue to hover in very dangerous territory.
But without ECB intervention, we probably would have already seen a major financial collapse in Europe.
The financial system of Europe is a total mess right now, and everyone is becoming incredibly dependent on the ECB. The following comes from a recent Reuters article….
One of the key factors certain to have boosted demand is that banks are now more reliant than ever on central bank funds. The ECB said on Monday, in its semi-annual Financial Stability Review, that this dependency could be difficult to cure.
French banks have almost quadrupled their intake of ECB money since June to 150 billion euros, while banks in Italy and Spain are each taking more than 100 billion euros.
At this point, the ECB has the weight of the entire world on its shoulders. One false move and we could see a huge wave of bank failures and we could be plunged into a major global recession.
But even with all of this unprecedented assistance, we have already seen some big time European banks fail.
Back in Obtober, Dexia was the first major European bank to be bailed out, and the cost of that bailout is going to exceed 100 billion dollars.
The funny thing is that Dexia actually passed the banking stress test that was conducted earlier this year with flying colors.
So what does that say about all of the other major European banks that did not do so well on the stress test?
In addition, it was recently announced that Germany’s second largest bank is going to need a bailout.
Germany’s second largest bank, Commerzbank, is reportedly in discussions with the German government about a bailout after regulators said it needed to raise more money to cope with a potential default on its loans to governments.
“Intense talks” have been going on for several days, according to sources who spoke to the news agency Reuters.
Even with unprecedented intervention by the ECB, the truth is that the European banking system is rapidly failing.
In Greece, a full-blown run on the banks is happening. According to a recent Der Spiegel article, funds are being pulled out of Greek banks at a pace that is astounding….
He means that the outflow of funds from Greek bank accounts has been accelerating rapidly. At the start of 2010, savings and time deposits held by private households in Greece totalled €237.7 billion — by the end of 2011, they had fallen by €49 billion. Since then, the decline has been gaining momentum. Savings fell by a further €5.4 billion in September and by an estimated €8.5 billion in October — the biggest monthly outflow of funds since the start of the debt crisis in late 2009.
In all, approximately 20 percent of all deposits in Greek banks have been withdrawn since the start of 2011.
Other European nations are implementing draconian measures in an attempt to protect their banks. For example, in Italy all cash transactions over 1000 euros have been permanently banned. People will either have to use checks, debit cards or credit cards for large transactions. This will “encourage” people to keep more money in the banks, and this will also make it much easier for the Italian government to track transactions and to collect taxes.
But it is not just in the EU where we find unusual steps being taken.
In the UK, the Bank of England is acting like the end of the world is about to happen. The following comes from a recent article on the This Is Money website….
The deputy governor of the Bank of England today warned the situation surrounding the single currency was ‘worrying’ and that the Bank was making preparations to support British banks, should the eurozone collapse.
A temporary loan facility has been introduced as a precaution, for use in the event of contagion from the eurozone crisis endangering UK institutions, Charlie Bean said in an interview on BBC Radio 4’s World at One.
An article posted on Business Insider a while back says that Switzerland is also preparing for “a euro collapse”….
The Swiss government is preparing for a collapse of the euro, according to Swiss Finance Minister Eveline Widmer-Schlumpf.
She told parliament that a work group was studying the imposition of capital controls and negative interest rates to protect Switzerland from the capital flight that a euro collapse would engender
Frightening stuff.
On the other side of the world, the government of China is also taking action. In fact, China is actually injecting money into the stock market in order to prop up stock prices.
In a movement considered “long overdue” by some analysts, the injection of government money into the tanking stock market to prop up stock prices has been given the green light, government officials announced yesterday.
Vice Premier Chen, the topmost government official charged with the country’s financial stability, however, insisted the fundamentals of the economy and the stock market are sound, expressing his hope for continued optimism among the people.
Of course the Federal Reserve is not going to stand on the sideline while all of this is going on. In a recent article, I described how the Federal Reserve is helping to bail out European banks….
The Federal Reserve, the European Central Bank, the Bank of England, the Bank of Canada, the Bank of Japan and the Swiss National Bank have announced a coordinated plan to provide liquidity support to the global financial system. According to the plan, the Federal Reserve is going to substantially reduce the interest rate that it charges the European Central Bank to borrow dollars. In turn, that will enable the ECB to lend dollars to European banks at a much cheaper rate. The hope is that this will alleviate the credit crunch which has gripped the European financial system by the throat. So where is the Federal Reserve going to get all of these dollars that it will be loaning out at very low interest rates? You guessed it – the Fed is just going to create them out of thin air. Our currency is being debased so that Europe can be helped out.
If the global financial system was in good shape, all of these bailouts would not be happening.
These desperate measures are a clear sign that something is up.
The financial authorities of the world are doing their best to keep the system together, but in the end they are not going to be able to prevent the collapse that is coming.
The world is heading for incredibly hard economic times.
So is the end of the world coming?
No.
But to many in the financial world it may feel like it. The coming global recession is not going to be fun.
We have now reached a point where it has become “normal” for governments and central banks to throw money at one financial crisis after another.
At one time, bailouts were so unusual that they provoked a great deal of outrage.
Today, bailouts have become standard operating procedure.
The bailouts will continue to get larger and larger, and authorities all over the globe will do their very best to keep the house of cards from coming crashing down.
What you are about to read should absolutely astound you. During the last financial crisis, the Federal Reserve secretly conducted the biggest bailout in the history of the world, and the Fed fought in court for several years to keep it a secret. Do you remember the TARP bailout? The American people were absolutely outraged that the federal government spent 700 billion dollars bailing out the “too big to fail” banks. Well, that bailout was pocket change compared to what the Federal Reserve did. As you will see documented below, the Federal Reserve actually handed more than 16 trillion dollars in nearly interest-free money to the “too big to fail” banks between 2007 and 2010. So have you heard about this on the nightly news? Probably not. Lately Bloomberg has been reporting on some of this, but even they are not giving people the whole picture. The American people need to be told about this 16 trillion dollar bailout, because it is a perfect example of why the Federal Reserve needs to be shut down. The Federal Reserve has been actively picking “winners” and “losers” in the financial system, and it turns out that the “friends” of the Fed always get bailed out and always end up among the “winners”. This is not how a free market system is supposed to work.
According to the limited GAO audit of the Federal Reserve that was mandated by the Dodd-Frank Wall Street Reform and Consumer Protection Act, the grand total of all the secret bailouts conducted by the Federal Reserve during the last financial crisis comes to a whopping $16.1 trillion.
That is an astonishing amount of money.
Keep in mind that the GDP of the United States for the entire year of 2010 was only 14.58 trillion dollars.
The total U.S. national debt is only a bit above 15 trillion dollars right now.
So 16 trillion dollars is an almost inconceivable amount of money.
But some other dollar figures have been thrown around lately regarding these secret Federal Reserve bailouts. Let’s take a look at them and see what they mean.
The $1.2 trillion peak on Dec. 5, 2008 — the combined outstanding balance under the seven programs tallied by Bloomberg — was almost three times the size of the U.S. federal budget deficit that year and more than the total earnings of all federally insured banks in the U.S. for the decade through 2010, according to data compiled by Bloomberg.
The $1.2 trillion figure represents the peak outstanding balance on these loans, not the total amount of all the loans. On December 5, 2008 the “too big to fail” banks owed this much money to the Federal Reserve. Many of them could not pay these short-term loans back right away and had to keep rolling them over time after time. Each time a short-term loan got rolled over that represented a new loan.
$7.7 Trillion
Bloomberg is reporting that the Federal Reserve had made a total of $7.77 trillion in financial commitments to the big banks by the end of March 2009….
Add up guarantees and lending limits, and the Fed had committed $7.77 trillion as of March 2009 to rescuing the financial system, more than half the value of everything produced in the U.S. that year.
But as mentioned above, a one-time limited GAO audit of the Federal Reserve that was mandated by the Dodd-Frank Wall Street Reform and Consumer Protection Act covered an even broader time period and revealed even more bailout loans.
According to the GAO audit, $16.1 trillion in secret loans were made by the Federal Reserve between December 1, 2007 and July 21, 2010. The following list of firms and the amount of money that they received was taken directly from page 131 of the GAO audit report….
Citigroup – $2.513 trillion
Morgan Stanley – $2.041 trillion
Merrill Lynch – $1.949 trillion
Bank of America – $1.344 trillion
Barclays PLC – $868 billion
Bear Sterns – $853 billion
Goldman Sachs – $814 billion
Royal Bank of Scotland – $541 billion
JP Morgan Chase – $391 billion
Deutsche Bank – $354 billion
UBS – $287 billion
Credit Suisse – $262 billion
Lehman Brothers – $183 billion
Bank of Scotland – $181 billion
BNP Paribas – $175 billion
Wells Fargo – $159 billion
Dexia – $159 billion
Wachovia – $142 billion
Dresdner Bank – $135 billion
Societe Generale – $124 billion
“All Other Borrowers” – $2.639 trillion
This report was made available to all the members of Congress, but most of them have been totally silent about it. One of the only members of Congress that has said something has been U.S. Senator Bernie Sanders.
“As a result of this audit, we now know that the Federal Reserve provided more than $16 trillion in total financial assistance to some of the largest financial institutions and corporations in the United States and throughout the world”
So where is everyone else?
Why aren’t leading Republicans and leading Democrats crying bloody murder over this report?
This scandal should have been front page news for months when it was revealed.
But it wasn’t.
And Guess what?
Not only did the Federal Reserve give 16.1 trillion dollars in nearly interest-free loans to the “too big to fail” banks, the Fed also paid them over 600 million dollars to help run the emergency lending program. According to the GAO, the Federal Reserve shelled out an astounding $659.4 million in “fees” to the very financial institutions which caused the financial crisis in the first place.
In addition, it turns out that trillions of dollars of this bailout money actually went overseas. According to the GAO audit, approximately $3.08 trillion went to foreign banks in Europe and in Asia.
So why were our dollars being used to bail out foreign banks while tens of millions of American families were deeply suffering?
That is a very good question.
Also, it is important to remember that many of these bailout loans were made at below market interest rates, and this enabled many of these financial institutions to rake in huge profits.
According to a recent Bloomberg article, the big banks brought in an estimated $13 billion by taking advantage of the Fed’s below-market rates….
While the Fed’s last-resort lending programs generally charge above-market interest rates to deter routine borrowing, that practice sometimes flipped during the crisis. On Oct. 20, 2008, for example, the central bank agreed to make $113.3 billion of 28-day loans through its Term Auction Facility at a rate of 1.1 percent, according to a press release at the time.
The rate was less than a third of the 3.8 percent that banks were charging each other to make one-month loans on that day. Bank of America and Wachovia Corp. each got $15 billion of the 1.1 percent TAF loans, followed by Royal Bank of Scotland’s RBS Citizens NA unit with $10 billion, Fed data show.
So once the financial crisis was over, were adjustments made to the financial system to make sure that this type of thing would never happen again?
Of course not.
Today, the “too big to fail” banks are larger than ever. The total assets of the six largest U.S. banks increased by 39 percent between September 30, 2006 and September 30, 2011.
So now they are more “too big to fail” than ever.
But this is what happens when we allow unelected central bank bureaucrats to run our financial system.
Most Americans do not realize this, but the truth is that the Federal Reserve is not part of the government. In fact, it is about as “federal” as Federal Express is. The Federal Reserve has admitted that they are a privately owned institution in court many times, and you can see video of a Federal Reserve employee admitting that the Federal Reserve is privately owned right here.
The Federal Reserve is an out of control monster that is throwing around trillions of dollars whenever it wants to. Nobody should be allowed to do this. Nobody should be allowed to give bailouts to banks and corporations without the express permission of the U.S. Congress and the president of the United States.
This is a point that I made in my article yesterday. The Federal Reserve decided this week that it is going to provide “liquidity support” to Europe. If the American people do not like this move, that is just too bad. We do not get a say in the matter.
The central banks of the world are acting as if it is 2008 all over again. Desperate times call for desperate measures, and right now the central bankers are pulling out all the stops. The Federal Reserve, the European Central Bank, the Bank of England, the Bank of Canada, the Bank of Japan and the Swiss National Bank have announced a coordinated plan to provide liquidity support to the global financial system. According to the plan, the Federal Reserve is going to substantially reduce the interest rate that it charges the European Central Bank to borrow dollars. In turn, that will enable the ECB to lend dollars to European banks at a much cheaper rate. The hope is that this will alleviate the credit crunch which has gripped the European financial system by the throat. So where is the Federal Reserve going to get all of these dollars that it will be loaning out at very low interest rates? You guessed it – the Fed is just going to create them out of thin air. Our currency is being debased so that Europe can be helped out. Unfortunately, the impact of this move will be mostly “psychological” because it really does nothing to address the fundamental problems that Europe is facing. It is up to Europe to solve those problems, and so far Europe has shown no signs of being able to do that.
The major central banks of the world say that they want to “enhance their capacity to provide liquidity support to the global financial system.” But essentially what is happening is that the Federal Reserve is going to be zapping large amounts of dollars into existence and loaning them out to the ECB very, very cheaply. Think of it as a type of “quantitative easing” on a global scale.
The decision to do this was reportedly made by the Federal Reserve on Monday morning. For the moment, this move seems to have stabilized the European financial system. It is quite unlikely that any major European banks will fail this weekend now.
But as mentioned above, this move does nothing to solve the very serious financial problems that Europe is facing. This intervention by the central banks is merely just a speed bump on the road to financial oblivion.
Most Americans are not going to understand what the central banks of the world just did, but it really is not that complicated.
The following is how CNN chief business correspondent Ali Velshi broke down what the central banks have done….
In an attempt to stave off the consequences of a global credit freeze, the Federal Reserve, in coordination with major central banks, has created a credit line available to those central banks, whereby they can borrow dollars at reduced interest rates for periods of three months. The central banks, in turn, can lend to commercial banks in their respective countries. This is meant to reduce the cost of short-term borrowing for troubled European banks and to give them immediate access to dollars.
This was done immediately after the collapse of Lehman Brothers as well, to alleviate the consequences of banks being largely unwilling to lend to other banks, even for short periods, for fear that the borrowing banks could fail.
Okay – so the Federal Reserve is loaning giant piles of cheap money to the European Central Bank.
So where in the world does all of that money come from?
As a CNBC article recently explained, all of this money is created right out of thin air by the Federal Reserve….
Neither the dollars nor the Euros come from anywhere. They aren’t moved or debited from anywhere. They are invented right on the spot with a few taps on the key pad. And that’s all. There’s no printing press fired up to make new dollars or euros.
This is sometimes called “fiat money.” But that makes it sound as if some command from a sovereign created the money. It’s really closer to “keyboard money,” since it is created by data entry in a computer.
Does that sound bizarre to you?
It should.
But that is how the global financial system really works.
We live in a crazy world.
So what did the financial markets of the world think of this move by the Federal Reserve?
It turns out that they absolutely loved it.
The Dow was up 490 points, and that was the biggest gain of the year so far.
Unfortunately, this stock market rally is not going to last indefinitely. If you are still in the market, enjoy this while you can because eventually a whole lot of pain is going to be coming.
Again, nothing has been solved. Europe is still in a massive amount of trouble. But the announcement did make everyone feel all “warm and fuzzy” for at least a day.
Michelle Girard, a senior economist at RBS Securities, said the following about this move….
“The impact is more psychological than anything else”
Just think of it as “comfort food” for the financial markets.
It was also a very desperate move.
In fact, some even believe that this move happened because a major European bank was in danger of failing.
Just check out some of the things that Jim Cramer of CNBC has been saying on Twitter….
If the Fed didn’t act we would have had the largest bank failure ever this weekend, i believe.
The actions the governments took today shows that there was without a doubt a major bank about to fall this weekend. That’s very dire….
I believe a major European bank would have gone under this weekend…. That’s why they did this….
An article in Forbes has also speculated that this move was made because a major European bank was in imminent danger of failing….
Did a big European bank come close to failing last night? European banks, especially French banks, rely heavily on funding in the wholesale money markets. Given the actions of the world’s largest central banks last night, it raises the question of whether a major bank was having difficulty funding its immediate liquidity needs.
Perhaps we will never know the truth, but the reality is that the Federal Reserve and the European Central Bank would have never taken coordinated action like this if they did not believe that there was some sort of imminent threat to the global financial system.
Sadly, this latest move is also going to have some side effects.
Pimco senior vice president Tony Crescenzi says that all of this “liquidity” is going to dramatically increase the size of the U.S. monetary base….
Keep in mind that any use of the Fed’s swap facility expands the Fed’s monetary base: all dollars, no matter where they are deposited, whether it be Kazakhstan, Japan, or Mexico, wind up back in an American bank. This means that any time a foreign central bank engages in a swap with the Federal Reserve, the Fed will create new money in order to make the swap. Use of the Fed’s liquidity swap line in late 2008 was the main cause of a surge in the Fed’s monetary base at that time. The peak for the swap line was about $600 billion in December 2008. Some observers will therefore say that the swap line is a backdoor way to engage in more quantitative easing.
When there is more money floating around out there but the same amount of goods and services, prices go up.
So will we eventually see more inflation in the United States because of all this?
That is what some are fearing.
Meanwhile, politicians in Europe have failed to come up with a plan to address the European financial crisis once again.
They are calling it a “delay”, but the truth is that it should be called a “failure”. The following comes from an article in USA Today….
The ministers delayed action on major financial issues — such as the concept of a closer fiscal union that would guarantee more budgetary discipline — until the heads of state meet next week in Brussels.
So will European politicians come up with a real plan next week in Brussels?
That seems unlikely.
The reality is that this latest move by the major central banks of the world does not change the fact that Europe is in a huge amount of trouble and is most likely headed for a very painful financial collapse.
One more thing that this latest move by the central banks of the world highlights is the fact that we do not have any control over what they do.
All of these central banks are run by unelected bureaucrats that answer to nobody. The decisions that these central bankers make affect all of our lives in a very significant way, and yet we have zero input into these decisions.
Most of the decisions that these central bankers make seem to benefit big banks and big financial institutions. They always claim that the benefits will “filter down” to the rest of us. But most of the time what ends up filtering down to us is the economic pain that comes from their bad decisions.
As I have written about so many times before, these central banks need to be abolished. The American people need to tell Congress to shut down the Federal Reserve and to start issuing debt-free United States currency.
We do not want a bunch of unelected central bankers to “centrally plan” the U.S. economy or to “centrally plan” the global economy.
The more these central bankers monkey with things, the more they mess things up.
Yes, this latest move has stabilized things for the moment, but big trouble is on the horizon for the global financial system.
Will 2012 be the year that we see an economic collapse in Europe? Before you dismiss the title of this article as “alarmist”, read the facts listed in the rest of this article first. Over the past several months, there has been an astonishing loss of confidence in the European financial system. Right now, virtually nobody wants to loan money to financially troubled nations in the EU and virtually nobody wants to lend money to major European banks. Remember, one of the primary reasons for the financial crisis of 2008 was a major credit crunch that happened here in the United States. This burgeoning credit crunch in Europe is just one element of a “perfect storm” that is rapidly coming together as we get ready to go into 2012. The signs of trouble are everywhere. All over Europe, governments are implementing austerity measures and dramatically cutting back on spending. European banks are substantially cutting back on lending as they seek to meet new capital requirements that are being imposed upon them. Meanwhile, bond yields are going through the roof all over Europe as investors lose confidence and demand much higher returns for investing in European debt. It has become clear that without a miracle happening, quite a few European nations and a significant number of European banks are not going to be able to get the funding that they need from the market in 2012. The only thing that is going to avert a complete and total financial meltdown in Europe is dramatic action, but right now European leaders are so busy squabbling with each other that a bold plan seems out of the question.
The following are 22 reasons why we could see an economic collapse in Europe in 2012….
#1 Germany could rescue the rest of Europe, but that would take an unprecedented financial commitment, and the German people do not have the stomach for that. It has been estimated that it would cost Germany 7 percent of GDP over several years in order to sufficiently bail out the other financially troubled EU nations. Such an amount would far surpass the incredibly oppressive reparations that Germany was forced to pay out in the aftermath of World War I.
A host of recent surveys has shown that the German people are steadfastly against bailing out the rest of Europe. For example, according to one recent poll 57 percent of the German people are against the creation of eurobonds.
At this point, German politicians are firmly opposed to any measure that would place an inordinate burden on German taxpayers, so unless this changes that means that Europe is not going to be saved from within.
#2 The United States could rescue Europe, but the Obama administration knows that it would be really tough to sell that to the American people during an election season. The following is what White House Press Secretary Jay Carney said today about the potential for a bailout of Europe by the United States….
“This is something they need to solve and they have the capacity to solve, both financial capacity and political will”
Carney also said that the Obama administration does not plan to commit any “additional resources” to rescuing Europe….
“We do not in any way believe that additional resources are required from the United States and from American taxpayers.”
#3 Right now, banks all over Europe are in deleveraging mode as they attempt to meet new capital-adequacy requirements by next June.
According to renowned financial journalist Ambrose Evans-Pritchard, European banks need to reduce the amount of lending on their books by about 7 trillion dollars in order to get down to safe levels….
Europe’s banks face a $7 trillion lending contraction to bring their balance sheets in line with the US and Japan, threatening to trap the region in a credit crunch and chronic depression for a decade.
So what does that mean?
It means that European banks are going to be getting really, really stingy with loans.
That means that it is going to become really hard to buy a home or expand a business in Europe, and that means that the economy of Europe is going to slow down substantially.
#4 European banks are overloaded with “toxic assets” that they are desperate to get rid of. Just like we saw with U.S. banks back in 2008, major European banks are busy trying to unload mountains of worthless assets that have a book value of trillions of euros, but virtually nobody wants to buy them.
#5 Government austerity programs are now being implemented all over Europe. But government austerity programs can have very negative economic effects. For example, we have already seen what government austerity has done to Greece. 100,000 businesses have closed and a third of the population is now living in poverty.
But now governments all over Europe have decided that austerity is the way to go. The following comes from a recent article in the Economist….
France’s budget plans are close to being agreed on; further cuts are likely but will be delayed until after the elections in spring. Italy has yet to vote through a much-revised package of cuts. Spain’s incoming government has promised further spending cuts, especially in regional outlays, in order to meet deficit targets agreed with Brussels.
#6 The amount of debt owed by some of these European nations is so large that it is difficult to comprehend. For example, Greece, Portugal, Ireland, Italy and Spain owe the rest of the world about 3 trillion euros combined.
So what will massive government austerity do to troubled nations such as Spain, Portugal, Ireland and Italy? Ambrose Evans-Pritchard is very concerned about what even more joblessness will mean for many of those countries….
Even today, the jobless rate for youth is near 10pc in Japan. It is already 46pc in Spain, 43pc in Greece, 32pc in Ireland, and 27pc in Italy. We will discover over time what yet more debt deleveraging will do to these societies.
#7 Europe was able to bail out Greece and Ireland, but there is no way that Italy will be able to be rescued if they require a full-blown bailout.
Unfortunately, Italy is in the midst of a massive financial meltdown as you read this. The yield on two year Italian bonds is now about double what it was for most of the summer. There is no way that is sustainable.
It would be hard to overstate how much of a crisis Italy represents. The following is how former hedge fund manager Bruce Krasting recently described the current situation….
At this point there is zero possibility that Italy can refinance any portion of its $300b of 2012 maturing debt. If there is anyone at the table who still thinks that Italy can pull off a miracle, they are wrong. I’m certain that the finance guys at the ECB and Italian CB understand this. I repeat, there is a zero chance for a market solution for Italy.
Krasting believes that either Italy gets a gigantic mountain of cash from somewhere or they will default within six months and that will mean the start of a global depression….
I think the Italian story is make or break. Either this gets fixed or Italy defaults in less than six months. The default option is not really an option that policy makers would consider. If Italy can’t make it, then there will be a very big crashing sound. It would end up taking out most of the global lenders, a fair number of countries would follow into Italy’s vortex. In my opinion a default by Italy is certain to bring a global depression; one that would take many years to crawl out of.
#8 An Italian default may be closer than most people think. As the Telegraph recently reported, just to refinance existing debt, the Italian government must sell more than 30 billion euros worth of new bonds by the end of January….
Italy’s new government will have to sell more than EURO 30 billion of new bonds by the end of January to refinance its debts. Analysts say there is no guarantee that investors will buy all of those bonds, which could force Italy to default.
The Italian government yesterday said that in talks with German Chancellor Angela Merkel and French President Nicolas Sarkozy, Prime Minister Mario Monti had agreed that an Italian collapse “would inevitably be the end of the euro.”
#9 European nations other than just the “PIIGS” are getting into an increasing amount of trouble. For example, S&P recently slashed the credit rating of Belgium to AA.
#10 Credit downgrades are coming fast and furious all over Europe now. At this point it seems like we see a new downgrade almost every single week. Some nations have been downgraded several times. For instance, Fitch has downgraded the credit rating of Portugal again. At this point it is being projected that Portuguese GDP will shrink by about 3 percent in 2012.
#11 The financial collapse of Hungary didn’t make many headlines in the United States, but it should have. Moody’s has cut the credit rating of Hungarian debt to junk status, and Hungary has now submitted a formal request to the EU and the IMF for a bailout.
#13 German banks are also starting to show signs of weakness. The other day, Moody’s downgraded the ratings of 10 major German banks.
#14 As the Telegraph recently reported, the British government is now making plans based on the assumption that a collapse of the euro is only “just a matter of time”….
As the Italian government struggled to borrow and Spain considered seeking an international bail-out, British ministers privately warned that the break-up of the euro, once almost unthinkable, is now increasingly plausible.
Diplomats are preparing to help Britons abroad through a banking collapse and even riots arising from the debt crisis.
The Treasury confirmed earlier this month that contingency planning for a collapse is now under way.
A senior minister has now revealed the extent of the Government’s concern, saying that Britain is now planning on the basis that a euro collapse is now just a matter of time.
#15 The EFSF was supposed to help bring some stability to the situation, but the truth is that the EFSF is already a bad joke. It has been reported that the EFSF has already been forced to buy up huge numbers of its own bonds.
#16 Unfortunately, it looks like a run on the banks has already begun in Europe. The following comes from a recent article in The Economist….
“We are starting to witness signs that corporates are withdrawing deposits from banks in Spain, Italy, France and Belgium,” an analyst at Citi Group wrote in a recent report. “This is a worrying development.”
#17 Confidence in European banks has been absolutely shattered and virtually nobody wants to lend them money right now.
Money-market funds in the United States have quite dramatically slammed shut their lending windows to European banks. According to the Economist, Fitch estimates U.S. money market funds have withdrawn 42 percent of their money from European banks in general.
And for France that number is even higher — 69 percent. European money-market funds are also getting in on the act.
#18 There are dozens of major European banks that are in danger of failing. The reality is that most major European banks are leveraged to the hilt and are massively exposed to sovereign debt. Before it fell in 2008, Lehman Brothers was leveraged 31 to 1. Today, major German banks are leveraged 32 to 1, and those banks are currently holding a massive amount of European sovereign debt.
#19 According to the New York Times, the economy of the EU is already projected to shrink slightly next year, and this doesn’t even take into account what is going to happen in the event of a total financial collapse.
#20 There are already signs that the European economy is seriously slowing down. Industrial orders in the eurozone declined by 6.4 percent during September. That was the largest decline that we have seen since the midst of the financial crisis in 2008.
#21 Panic and fear are everywhere in Europe right now. The European Commission’s index of consumer confidence has declined for five months in a row.
#22 European leaders are really busy fighting with each other and a true consensus on how to solve the current problems seems way off at the moment. The following is how the Express recently described rising tensions between German and British leaders….
The German Chancellor rejected outright Mr Cameron’s opposition to a new EU-wide financial tax that would have a devastating impact on the City of London.
And she refused to be persuaded by his call for the European Central Bank to support the euro. Money markets took a dip after their failure to agree.
Are you starting to get the picture?
The European financial system is in a massive amount of trouble, and when it melts down the entire globe is going to be shaken.
But it isn’t just me that is saying this. As I mentioned in a previous article, there are huge numbers of respected economists all over the globe that are now saying that Europe is on the verge of collapse.
For example, just check out what Credit Suisse is saying about the situation in Europe….
“We seem to have entered the last days of the euro as we currently know it. That doesn’t make a break-up very likely, but it does mean some extraordinary things will almost certainly need to happen – probably by mid-January – to prevent the progressive closure of all the euro zone sovereign bond markets, potentially accompanied by escalating runs on even the strongest banks.”
Many European leaders are promoting much deeper integration and a “European superstate” as the answer to these problems, but it would take years to implement changes that drastic, and Europe does not have that kind of time.
If Europe experiences a massive economic collapse and a prolonged depression, it may seem like “the end of the world” to some people, but things will eventually stabilize.
A lot of people out there seem to think that the global economy is going to go from its present state to “Mad Max” in a matter of weeks. Well, that is just not going to happen. The coming troubles in Europe will just be another “wave” in the ongoing economic collapse of the western world. There will be other “waves” after that.
Of course this current sovereign debt crisis could be entirely averted if the countries of the western world would just shut down their central banks and start issuing debt-free money.
The truth is that there is no reason why any sovereign nation on earth ever has to go a penny into debt to anyone. If a nation is truly sovereign, then the government has the right to issue all of the debt-free money that it wants. Yes, inflation would always be a potential danger in such a system (just as it is under central banking), but debt-free money would mean that government debt problems would be a thing of the past.
Unfortunately, most of the countries of the world operate under a system where more government debt is created when more currency is created. The inevitable result of such a system is what we are witnessing now. At this point, nearly the entire western world is drowning in debt.
There are alternatives to our current system. But nobody in the mainstream media ever talks about them.
So instead of focusing on truly creative ways to deal with our current problems, we are all going to experience the bitter pain of the coming economic collapse instead.
What would happen if the Federal Reserve was shut down permanently? That is a question that CNBC asked recently, but unfortunately most Americans don’t really think about the Fed much. Most Americans are content with believing that the Federal Reserve is just another stuffy government agency that sets our interest rates and that is watching out for the best interests of the American people. But that is not the case at all. The truth is that the Federal Reserve is a private banking cartel that has been designed to systematically destroy the value of our currency, drain the wealth of the American public and enslave the federal government to perpetually expanding debt. During this election year, the economy is the number one issue that voters are concerned about. But instead of endlessly blaming both political parties, the truth is that most of the blame should be placed at the feet of the Federal Reserve. The Federal Reserve has more power over the performance of the U.S. economy than anyone else does. The Federal Reserve controls the money supply, the Federal Reserve sets the interest rates and the Federal Reserve hands out bailouts to the big banks that absolutely dwarf anything that Congress ever did. If the American people are ever going to learn what is really going on with our economy, then it is absolutely imperative that they get educated about the Federal Reserve.
