Best of the Week
Most Popular
1.Is the Stocks Bull Market Over? Dow Trend Forecast into End January 2015 - Nadeem_Walayat
2.Gold and Silver Stocks Apocalypse Now, Bear Market Review - Rambus_Chartology
3.NHS Baldrick Plan to Spread Ebola Across UK - Sheffield, Newcastle, Liverpool, London Hospitals - Nadeem_Walayat
4.Ebola Terror Threat Suicide Bio-Weapons Threatens Multiple 9/11's, Global Plague - Nadeem_Walayat
5.Second-Richest Man Says Mortgages Now a "No Brainer" - Dr. Steve Sjuggerud
6.Gold And Silver Still No End In Sight - Michael_Noonan
7.NHS Baldrick Plan to Spread Ebola Across UK - Sheffield, Newcastle, Liverpool, London Hospitals - Nadeem_Walayat
8.The Gold Bug is Set to Bite Back - EWI
9.How Alibaba Could Capitalize on the EBay-PayPal Split - Frank_Holmes
10.The Consequences of the Economic Peace - John_Mauldin
Last 5 days
New Profit Points in the Shifting Balance of Power, Welcome to Saudi America - 24th Oct 14
QE Failure & Folly Of Paper Mache, Treasury Bond Integrated Lifeline Patches - 24th Oct 14
U.S. Economy Faltering Momentum, Debt and Asset Bubbles - 23rd Oct 14
Annuities - Afraid Your Money Will Vanish before You Do? - 23rd Oct 14
What Debt Deleveraging? - 23rd Oct 14
How to Profit from Massive Spin-Offs with Just One Play - 23rd Oct 14
Evaluating Ebola as a Biological Weapon - 23rd Oct 14
Euro, USD, Gold and Stocks According to Chartology - 23rd Oct 14
Why You Should Always Be Invested in the Stock Market (Even Now) - 23rd Oct 14
Five U.S. Housing Market Warning Signs Point to Real Estate Market Downturn - 23rd Oct 14
The Better Short: Gold or Silver? - 23rd Oct 14
Focus on Graphite Companies with Green Energy and Technology Strategies - 22nd Oct 14
Crude Oil Price Hitting Bottom - 22nd Oct 14
Evidence of Another Even More Sweeping U.S. Housing Market Bust Already Starting to Appear - 22nd Oct 14
Gold Or Crushing Paper Debt Stocks Crash? - 22nd Oct 14
India Gold Demand Surges 450% and Bank of Russia Demand At 15 Year High - 22nd Oct 14
Bitcoin Stock Exchange Could Be "More Valuable than Alibaba" - 22nd Oct 14
Currency War - How to Profit from a Stronger U.S. Dollar - 22nd Oct 14
Banks Hold Treasuries and Make Loans- 22nd Oct 14
Gold and Silver Timing is Everything - 22nd Oct 14
Don't Get Ruined by These 10 Popular Investment Myths (Part VII) - 22nd Oct 14
Follow the Baby Boom to Biotech Stock Profits - 22nd Oct 14
Copper, Nickel and Zinc Won't Be Cheap for Long - 22nd Oct 14
How Will We Know That the Gold & Silver Price Bottom Is In? - 21st Oct 14
Is Gold as Dead as Florida Hurricanes? - 21st Oct 14
First Swiss Gold Poll Shows Pro-Gold Side In Lead At 45% - 21st Oct 14
The Similarities Between Germany and China - 21st Oct 14
The REAL Reason Why the Stock Market Turned Down - 21st Oct 14
Petrobras is a 'Scheme, Not a Stock' - 21st Oct 14
Stocks Bear Market Indicator Is Off the Mark - 20th Oct 14
Stock Market Ideal Turning Point is at Hand - 20th Oct 14
Investors Quit Complaining, The Environment is Perfect Right Now - 20th Oct 14
Ebola Armageddon Could Trigger a Rebirth in Gold and Silver Prices - 20th Oct 14
Gold vs Euro Risk Due To Possible Return of Italian Lira - Drachmas, Escudos, Pesetas and Punts? - 20th Oct 14
Stocks Rebounded Following Recent Sell-Off, But Will It Last? - 20th Oct 14
U.S. Responsible for West Africa Ebola Outbreak Says Liberian Scientist - 20th Oct 14
Stock Market Intermediate B Wave has Started - 20th Oct 14
Gold Stocks Analysis – FNV, CG, NCM, SBM - 19th Oct 14
Stock Market Primary IV Wave Counter Trend Rally - 19th Oct 14
Gold And Silver - Financial World: House Of Cards Built On Sand - 18th Oct 14
Anatomy of a Stock Market Sell-Off - 18th Oct 14
Why OPEC Has Declared an Oil War on Russia - 18th Oct 14
Gold and Silver Extreme Shorting Peaks - 18th Oct 14
Bitcoin Price Fall to $350? - 18th Oct 14
Tesco Supermarket Crisis Worse To Come as Customers Vanish! - 18th Oct 14

Free Instant Analysis

Free Instant Technical Analysis


Market Oracle FREE Newsletter

Stocks Epic Bear Market

Why the Federal Reserve Is So Dangerous

Politics / Central Banks Dec 18, 2012 - 09:27 AM GMT

By: Money_Morning

Politics

Shah Gilani writes: The Federal Reserve System is a government-sanctioned private enterprise that functions as a socialist tool.

It was conceived in 1910 and constructed for the benefit of the private bankers who control it. Congress blessed the scheme in 1913 with passage of the Federal Reserve Act.


These days the Fed doesn't just backstop America's too-big-to-fail banks. It has expanded its doctrine of socializing banking losses globally.

The Fed helped bail out private businesses, foreign big banks and central banks in Europe and Japan in the credit crisis of 2008 and is the model for the European Central Bank, as well as the ECB's primary backstop.

To understand how the Fed gets taxpayers around the world to pay the losses its member banks routinely incur, let's pull back the curtain on the Fed and explain how it operates.

Here's What the Fed Really Does
Banks lend money and sometimes they don't get paid back. That's not a problem if it doesn't happen too often and if profits from other loans and investments cover the loan losses.

But since banks have gotten really big and have to make big loans (due to economies of scale and return on capital expectations) they need big borrowers. There are no bigger borrowers on the planet than governments, and that's where a lot of banks are lending.

Of course, governments aren't immune to over-borrowing and insolvency.

All the big banks that lent to banks in countries now in financial straits continue to lend to them because if they don't they won't get paid back what they are owed. Banks would fail from a cascade of losses and would either have to be bailed out or shut down.

That's where the Federal Reserve comes in.

They don't let their constituent members go under. If they have to, they will print money and give it to them, no matter how much they need.

That includes foreign banks and foreign governments. The Fed's member banks lend all the time to both foreign banks and foreign governments. It only follows that our banks are not immune to what goes on anywhere they have lent money. They are directly in the line of fire.

If there was no Fed or no ECB, there wouldn't be a backstop for banks that have lent to borrowers in Europe who can't pay them back. Countries would fail.

But they don't fail because central banks print money to give to banks so they can extend the loans they made, reschedule them, or in some way keep them going so they don't have to write them off as losses.

What's Wrong With Bankers Helping Bankers?...Plenty
The Federal Reserve System was designed to ensure that bankers always get paid. Congress blessed this scheme because Congress can be bought, was bought in 1913, again in 1977 when the Fed was given its "dual mandate," and is still being bought and paid for by bankers today.

Essentially, the Fed operates on a socialist model. It's not capitalism because banks would be "allowed" to fail under the rules of capitalism.

But they are protected from failing by virtue of taxpayers being called upon, in one way or another (mostly by future inflation and currency debasement, in other words, less purchasing power) to "socialize" banks' losses.

There is no going backwards. Globally we couldn't endure the hardships that would befall us if a cascade of big banks failed. So don't worry, that won't happen. But you should be worried about the creeping socialism.

The elitist class of bankers and money brokers, whose incredible wealth is protected by taxpayers, is going to have to increase the size of loans they make since they have more capital to disperse and earn income on, and will end up needing more taxpayers under their thumbs to keep their game a win-win for themselves.

Not that there isn't a way out for us taxpayers, those of us who would like to earn more than half a percent on our fixed income investments. There is a way out...

We have to end the Fed. It's just that simple.

End the Fed and all the big banks would have to be either shrunk or broken up, because there would be no more backstopping them with taxpayer money. The truth is they should all be made small enough to be allowed to fail without encumbering the national economy, or unfortunately today, the global economy.

Think about it. Banks that should have failed in 2008 are bigger than ever.

They've paid off what they borrowed to stay alive. They are paying dividends again. They are buying back billions and billions of dollars of their stocks again. They are paying big fat bonuses again. But they still complain that tougher capital standards and reserve ratios will ruin their profitability and they won't be able to lend to the people who need them.

Seriously, this is what the Federal Reserve does, has done, and will continue to allow to happen -- unless we end the Fed and their game for good

Source :http://moneymorning.com/2012/12/18/what-you-...

Money Morning/The Money Map Report

©2012 Monument Street Publishing. All Rights Reserved. Protected by copyright laws of the United States and international treaties. Any reproduction, copying, or redistribution (electronic or otherwise, including on the world wide web), of content from this website, in whole or in part, is strictly prohibited without the express written permission of Monument Street Publishing. 105 West Monument Street, Baltimore MD 21201, Email: customerservice@moneymorning.com

Disclaimer: Nothing published by Money Morning should be considered personalized investment advice. Although our employees may answer your general customer service questions, they are not licensed under securities laws to address your particular investment situation. No communication by our employees to you should be deemed as personalized investent advice. We expressly forbid our writers from having a financial interest in any security recommended to our readers. All of our employees and agents must wait 24 hours after on-line publication, or after the mailing of printed-only publication prior to following an initial recommendation. Any investments recommended by Money Morning should be made only after consulting with your investment advisor and only after reviewing the prospectus or financial statements of the company.

Money Morning Archive

© 2005-2014 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in

Free Report - Financial Markets 2014