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Monday, December 6, 2010

Uncle Ben's Warm and Fuzzy

Did you see Fed Chairman Ben Bernanke last night on 60 Minutes?

He came out with some powerful statements:
Federal Reserve Chairman Ben S. Bernanke said large U.S. budget deficits threaten financial stability and the government can’t continue indefinitely to borrow at the current rate to finance the shortfall.

“Unless we demonstrate a strong commitment to fiscal sustainability in the longer term, we will have neither financial stability nor healthy economic growth,”

“Maintaining the confidence of the financial markets requires that we, as a nation, begin planning now for the restoration of fiscal balance.”

Bernanke’s comments signal that the central bank sees risks of a relapse into financial turmoil even as credit markets show signs of stability. He said the Fed won’t finance government spending over the long term, while warning that the financial industry remains under stress and the credit crunch continues to limit spending.
Oh, wait.  My bad.

Uncle Ben didn't say those things last night.  He made those statements a year and a half ago in testimony to Congress.

In that very same testimony, he made a very strong statement regarding fiscal restraint.
“Either cuts in spending or increases in taxes will be necessary to stabilize the fiscal situation,” Bernanke said in response to a question. “The Federal Reserve will not monetize the debt.”
My, my, my.  How times have changed.

In the 60 Minutes interview, Uncle Ben told us he's going to break out the Federal Reserve's checkbook and go on a buying spree.

No, not for Christmas presents to stimulate the economy.  But to buy US Treasuries.

To monetize our debt.
Last month, Bernanke announced the Fed's intent to buy $600 billion in U.S. Treasury securities, which is supposed to have the effect of lowering rates on long term loans for things like cars and homes.

Bernanke wanted to emphasize that these are the Fed's own reserves. It's not tax money. It does not add to the federal deficit.
Uncle Ben then went into more detail about the FRB printing presses -
"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."
When I heard that statement - that the FRB has some sort of reserve account somewhere, and that they won't be printing up money - I pondered how I could find out what the balance sheet of the FRB might look like.  I wanted to see that $600 Billion Pot-Of-Gold we've got somewhere.  It must be the mythical Obama Stash I'd heard about in the past.

To find this data would surely be an angst-filled process consisting of hours of research.  Thank Goodness a news organization like 60 Minutes had a crack staff available to do this work and verify Bernanke's statements.

But they gave him a pass.  No questions about this massive $600 Billion reserve.  So I jumped on that new-fangled Inter-web thingy, and found the FRB's balance sheet.  It took me maybe 30 seconds.

Uhm, there's no $600 Billion laying around.

[Don't glaze over here - this will be quick!] 

On a balance sheet, your assets (the stuff you own) equal your liabilities (the money you owe to others) plus your net worth.

The FRB balance sheet shows that they have $2.349 trillion in assets.  They have $2.293 Trillion in liabilities.  That leaves $56 Billion in net worth.

[See?  Not so painful]

Now, if they have some big ol' reserve account, it would be listed in their Liabilities - this is money that is "spoken for".  I can't find it.

Shouldn't 60 Minutes have at least questioned this assertion?  People from around the world - from US lawmakers and business people to the heads of other world governments - are calling this BS. 

If Bernanke suddenly has an answer for his many critics, don't you think 60 Minutes might have wanted a deeper explanation other than, "I gots a stash, dude!"

Oh yeah.  And what about that whole "monetizing debt" thing?  He testified in front of Congress that they would not do this.

He then turned around and did exactly that right after he made the statement with the first round of the Obama bailout.  He's now coming out of the closet as a full-blown monetizer, but no one in our government seems to be doing a damned thing about it.

Accept The Challenge

That bastard Bernanke is very good at splitting hairs. 

He says he won't be increasing the "currency in circulation" - and he's right.  Scroll back up and read his exact quote.  He won't be printing up any more paper dollars.

The FRB breaks money into two general categories - currency in circulation, and digital money.  Together, they're considered our "money supply".

Currency in circulation is the physical paper money.  Everything else is digital.  We have around $800 billion in Currency in Circulation and about $8 TRILLION in digital bucks for a total money supply of around $8.8 trillion.

Uncle Ben won't be running the physical money presses, but the digital ones.  He'll let his fingers do the printing. 

By digitally producing another $600 billion - a mere 6.8% increase in the money supply - he can stand by his statement that he's not "significantly" increasing the money supply.

What we get is a devalued dollar that will buy less.  Thanks, Uncle Ben.  Got any of that name-sake rice layin' around in reserve?

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suek said...

Primarily about Wikileaks, but there's also info that may affect the economic situation. I don't know...but it's a "heads up" kind of thing.

Chief Instructor said...

Sue, absolutely amazing about the "rape" charge. Retroactive, "NO means NO?". Wow.

The banker thing will be interesting if it ever comes out. It's supposed to be about BofA. They're supposedly on the verge of collapse as-is, and a scandal might put them over the edge.