Incredibly, in an interview yesterday on 60 Minutes with CBS’s Scott Pelley, Fed Head Ben Bernanke, when asked about the inflationary impact of the QE2, actually said, “We’re not printing money.” According to The Wall Street Journal, the question and answer went this way.
“Many people believe that (QE’s $600 billion) could be highly inflationary, that it’s a dangerous thing to try.”
“ Well, this fear of inflation, I think is way overstated. We’ve looked at it very, very carefully. We’ve analyzed it every which way. One myth that’s out there is that what we’re doing is printing money. We’re not printing money. The amount of currency in circulation is not changing. The money supply is not changing in any significant way. What we’re doing is lowering interest rates by buying treasury securities. And by lowering interest rates, we hope to stimulate the economy to grow faster. So, the trick is to find the appropriate moment when to begin to unwind this policy. And, that’s what we’re going to do.”
Again, this is incredible. The Fed is set to buy $90 billion a month in “treasury securities” over the next eight months, up to $600 billion. When the Fed buys bonds, it credits the seller’s Fed account with dollars that the Fed previously did not own. Dollars are literally created.
The Fed never “owns” dollars. When it buys bonds, it creates the dollars by accounting legerdemain. When it sells bonds, the dollars that buyers pay are “cancelled,” they come out of circulation, thereby lowering the money supply, a basic function of a central bank.
So, when Bernanke says it’s a “myth” that they are printing money, he is stretching the truth. The Fed does not literally print dollars, the Bureau of Engraving and Printing does that, but the Fed does create dollars on accounting ledgers, which inflates the money supply.
Such doublespeak is a politician’s stock in trade. Older readers will remember that in the 1950s we did not fight a war in Korea. Truman’s administration called it a police action.
Regarding Bernanke’s statement, “So, the trick is to find the appropriate moment when to begin to unwind this policy. And, that’s what we’re going to do.”
This, of course, is evidence that Bernanke actually believes that he can manage the economy, that he and the Fed staff can look at statistics and decide appropriate Fed action in the monetary markets. This is a fallacy of the first degree. History is full of deceased centrally-managed economies, a recent being the old Soviet Union and more recent being Zimbabwe.
Finally, Bernanke said that he wished he’d been omniscient and seen the crisis coming. “I didn’t, but it was a very, very difficult situation. And, the Federal Reserve responded very aggressively, very proactively.”
Bernanke also said that the Fed needs more “oversight authority” and implied that the Fed could have foreseen the demise of AIG. Bernanke’s hubris knows no end.
Interestingly, Ron Paul, a student of Austrian economic theory, saw the crisis coming and wrote about it in his bestselling The Revolution: A Manifesto. Bernanke needs to read more Austrian economic theory and to burn his Paul Samuelson texts.
Fascinating that we have become politically correct PC and cannot speak plainly. My question for you is about the future.
When our gold and silver investments have quadrupled and the dollar has tanked, what do we do to buy and sell? Do we convert some of our precious metals to the prevailing currency, or do you think that the sellers will quickly grasp the value of our precious metals?
I think that as the dollar falls, acceptance of gold and silver as parallel currencies will grow. Not first at Safeway, but at local mom & pop stores. This will put pressure on politicians to correct the errors of their ways, to work toward a sound currency because there is great advantage for governments to control a nation’s currency. If the people run completely from a currency (toward gold and silver), the government loses the advantage of being able to print (create) that currency at will (inflation, the hidden tax).
If gold and silver become the dominant currencies, then the government will have to resort to taxes to raise the funds it wants. Direct taxes have their limits because at certain levels the people rebel. That’s why governments love the hidden tax of inflation. V.I. Lenin said that inflation is a process which not one man in a million is able to diagnose, another reason governments love inflation (monetary inflation, not price inflation.)
For this reason, governments jealously guard the right to control their currencies.
Now, will this currency crisis be the one that causes the people to lose faith in government-issued currencies for generations, or will it end with the world’s major currencies debased to, say, 30% of their present values. No way to know. But, historically precious metals have been the place to be during such time.
Bernanke and the Fed will be remembered by history as the two entities who brought America and the rest of the world to their fiscal knees. In the recorded historis of past republics, the mistake he and the Fed are about to make have resulted in the fiscal destruction of those societies. Ancient Greece and Rome fell as a result of these very same erroneous monetary policies. Deflation and economic stagnation will be the final chapter in the Ben and the fed story.
Let us not forget that the Fed has the power to seize gold assets held by individuals as was done by Roosevelt during the great depression. When the politician’s get desperate, individual rights and our liberties are too quickly abolished.
Actually, the 1933 gold call-in was by presidential Executive Order; I know of no law that gives the Fed to power to confiscate gold.
Follow-on to Mr Watson: What does one do with a a boatload of gold and silver stocks? Looks like you’d have to convert to $$ in order to buy anything?
Yes, gold/silver stocks would have to be sold for the prevailing currency. In the early stages of a gold/silver bull market, stocks can be quite profitable–if you choose the right stocks. But, if it’s a bull market that destroys faith and confidence in paper currencies, then stocks have their drawbacks. Investors who expect the worst should go with physical gold and silver.
J. W. Watson raises an interesting question: Exactly when do we sell our precious metals?
One has it that the proper time to sell is to acquire a cash-flowing asset (s)- real estate for e.g. …This is obtaining true value for our investment, without getting so hung up on price.
Long ago, as a young stock broker, I learned that is much easier to know when to buy than when to sell. When do you sell your gold and silver? When you find something else you would rather own.
I often think of how the U.S. Constitution was a near perfect law and that nothing about it really needed to be changed, that the only problem was the government’s lack of adherence to it. But I do believe that if the Constitution required the government to remain on the gold standard, that simple law would have prevented the impending economic collapse.
Today, the Fed doesn’t have to “print” money, they can just create more electronically. So while Bernanke may be technically correct on the printing, they are still monetizing the debt, the end result is the same.
The most despicable part of this latest “Quantitative Easing” is not the childish lies Bernanke and Co. are telling the American people, it is not even that the Fed is buying these Tresury notes from Goldman Sachs (at a huge profit to Goldman Sachs) instead of the US Treasury, it is their demand that we accept their claim that the proper way to put out a fire is by repeatedly pouring gasoline on it.
Any one who objects to, or disagrees with their corrupt and lunatic schemes are proclaimed too foolish to see the Emperor’s beautiful new clothes. They wish us to believe all who oppose them are either stupid or mad.
I, too, would like to know the answer, or at least your best guess, to the question posted by J. Wayne Watson.
Do you know what has happened historically? Will gold and silver become the new currency (such as Gold and Silver Certificates) or will we simply see a new currency, such as the proposed Amero, take the place of the old?
Since the public is largely ignorant of the Fed and its powers as opposed to Congress being in charge, it seems unlikely to me that the people will demand a currency with real backing.
As for Watson’s question: It is likely that parallel currencies will develop, and the two earliest will be gold and silver. Yes, the government will attempt to foist a new paper currency upon the people because of the great value of being the issuer of a paper currency. Will any new currency be convertible into gold or silver? Probably not. The government will probably start with a “gold-back currency,” but not one redeemable in gold or silver.
Let’s don’t provide the elitists anymore evidence of the common public stupidity over our economic system.
1) Read the book “The Creature from Jekyll Island” and discuss it with others who have read the same book.
2) Offer the retailers in your neighborhood a choice between a check, greenbacks or an ounce of silver and learn what I did: (1) The average store clerk will prefer the greenbacks, (2) The average store manager will say “No” to the check and yes to ounce of silver provided he is over 50 years of age…younger ones rarely knows anything at all about “carry value”…and watch what the older (and wiser) store manager “rings up” on the cash register.
If you buy a $30 item and pay with 30 greenbacks, the cash register will likely read $30; if you buy a $30 priced item with a silver round (i.e.: .999 fine silver round…sometimes also called a Silver Eagle) and what I most often have seen myself is that the cash registers rings up $1! A few seconds later, usually out of your sight, of course, that older manager reaches into his own pocket, produces a greenback dollar, and promptly replaces that “silver dollar” with a greenback dollar, and then places that silver dollar into his own pocket.
Here’s the rub: “monetized” precious metal US coins (i.e.: pre-1965 dimes, quarters, halves and silver dollars) contain 90% silver; but the “fiat” money from “The Fed” is a “note” and has no precious metal. That “note” is monetized debt…debt that will be paid not by the government but buy the taxpayer who uses it! Precious metal content US coins do not trace to debt…Federal Reserve notes do…which would you rather have?
True: Your utility companies, most vendors of all types that are firms that don’t know you well enough to accept your check or your silver will demand “greenbacks” as “legal tender” but in actuality, those greenback “notes” are only money because the federal government still says it is.
Final comment and question…when was the last time the federal government lied to you? Now you can learn the difference between brush and logs, “fiat” money and real carry value transfer, non-debt-related instruments having precious metal content (pre-1965 minted coins with 90% silver content) or bullion rounds (usually .999 fine silver content).
At least food for thought and reason, is it not?
Thomas Avery Blair, EA
The Creature from Jekyll Island is an excellent book on the chicannery employed during the establishment of the US central bank, aka The Federal Reserve System. Another excellent book on the Fed is Murray Rothbard’s The Origins of the Federal Reserve.
The Creature is a lengthy tome, 588 pages; The Origins, which is chapter 2 of Rothbard’s History of Money and Banking, also a lenghty tome, is only 120 pages and is an excellent read for those who are not yet ready to devote hours to The Creature from Jekyll Island.
Both books reveal that the Fed did not originate as a response to national need, as was publicized, but was established by government officials and large financial/banking interests for their own benefit, along with paid-for economists gave the scheme a scientific patina.
Mises.org provides a free pdf download copy of The Origins of the Federal Reserve.
Actually, mises.org provides free pdf copies of many excellent books, including Rothbard’s The Case Against the Fed, another expose of the creature from Jekyl Island.
Note: pdf book downloads can take a long time to load; they usually do not download in secornds.
Not printing money!!! WOW
Fiscal Destruction, that sounds like a great name for a hollywood movie.
I would like to comment about QE2. I have no idea how the federal government creates money. The idea that borrowing and spending will result in inflation has not been conclusively proven so far. We have not seen any significant increase in prices.
f the government of the united states is unable to borrow money in the future, it would be catastrophic. The deficit is 1.3 trillion dollars. This amount of money would be removed from the economy. If this happened all at once this would be unimaginable.
James exhibits a basic lack of understanding as to how the Fed and fractional reserve banking works. I recommend he read What Has Government Done to Our Money? and The Mystery of Banking. Both are by the great Austrian economist Murray Rothbard.
For a quick synopsis of how money is created, let me suggest a relatively short and succint video that will go a long way in clarifying how that process is set into motion. Go to http://www.zeitgeistmovie.com and click on the movie “Zeitgeist Addendum”.
This documentary is divided into three parts, the first part of which explaining the process of money creation. In essence, money is nothing more than a concept in terms of fiat currencies. It’s a false set of rules we are all forced to adhere to. If you decide to watch it, please let me know what you think in a reply.
If you want a more detailed analysis of monetary policy and the Federal Reserve, may I suggest “The Creature From Jekyll Island” by G. Edward Griffin. Many believe that this is the definitive treatise on this particular subject.
As to your not noticing any inflation, then you must not be watching the prices of food, energy and raw materials lately. They are ALL up considerably as a direct result of quantative easing. Of course, this is the main reason why precious metals have made such a huge leap in the last few years.
I was wondering: has there ever been a scenario where government went to the FED to borrow money and the FED refused? I doubt it.
It amuses me when Bernanke and other FED officials march out and avow their concern for out of control spending and broken budgets; quite the contrary, this is in effect what they live for! The more debt the more control they will eventually consolidate over REAL assets.
If only the average American could wake up to the simple reality that the FED is neither Federal nor does it have reserves. I would contend that any problem plaguing this country right now can be attributed to and remedied by the abolishment of the Federal Reserve.
Actually, the Treasury does not borrow directly from the Fed. The Treasury buys and sells bonds through the major banks (Some of which have precious metals trading desks.) Buying and selling through banks ensures that the banks get their cut on the billions (now trillions) of dollars in Treasury financing. It’s a pure money machine for the banks.
The Fed is a “lender of last resort,” which is expected to lend when on one else will. Being a “lender of last resort,” the Fed provides liquidity to the markets so that the Treasury can borrow via the banks. So, if the Treasury needs to borrow $100 billion, it goes to one of (or several of) the banks that trade in bonds. Now, if there is “no liquidity,” meaning that that Treasury borrowing would drive up interest rates, the Fed buys bonds from the banks, which gives them the funds (liquidity) to buy the Treasury’s new bonds.
The money that the Fed uses to buy the bonds is created out of thin air. That money does not exist until the Fed credits the selling banks’ accounts at the Fed. The banks then write checks on their accounts at the Fed just as individuals write checks on their accounts. And that is inflation in its classical definition: an increase in the money supply.
All the trillions of US debt that the Fed now owns was bought through banks, thereby enriching them immensely. It’s a racket.
Thanks for the clarification. In essence though, isn’t it all the same thing since the FED is nothing more than a cartel of all the major banks?
When you view that way, you are absolutely right. I laid out the steps as to how the Fed facilitates Treasury borrowing, but you pointed out that in essence the Fed and the banking cartel are one and the same. The Fed was established for the benefit of the banks, it is owned by the banks. One and the same. Good observation.
Interesting looking at this article now, given the latest action we have seen in the markets and the effect on both the silver and gold prices.
Oh where will be in another 12 months? Gold at $3,000 p/oz?