A letter to Senator Scott Brown - The Fed's Political Interference Must Be Stopped

The Honorable Scott Brown
United States Senate
317 Russell Senate Office Building
Washington D.C. 20510

Dear Senator Brown:

I am a constituent who would like to help. My father sent you my book, Panderer to Power: The Untold Story of How Alan Greenspan Enriched Wall Street and Left a Legacy of Recession. You wrote my father a thank you note, for which I am thankful. None of the other 20 or so senators and congressmen to whom we mailed my book sent an acknowledgement.

I am writing because the Federal Reserve has interfered with the November elections to an unprecedented degree. I know this, having read Federal Reserve officials’ speeches, their testimony, and the warnings of senators (in committee) to not loosen or tighten money in the weeks before forthcoming elections. Even my protagonist, Alan Greenspan, a master politician, muzzled his mouth and the Fed’s pocketbook before an election. The current interference has not been mentioned by the popular media or by any politician, to my knowledge.

I am suggesting that you denounce the Fed’s activities. It is an institution that, more and more, believes it operates outside the law and above the political process. This is for good reason, given its unaccountability for the financial meltdown and greater authority awarded in the Dodd-Frank Act. It must be reduced to serve the bureaucratic functions that legislation permits.


Ben Bernanke and his cohorts at the Fed are promising to gird the stock and bond markets at elevated levels. This is an insider’s game, understood on Wall Street. Its purpose is to fulfill the axiom that a strong stock market aids the incumbent party in an election. The Fed wants the Democratic Party to hold its majorities in both the Senate and the House because it is frightened of what the Republicans might reveal. The Federal Reserve reached an agreement with the Democrats in the past session of Congress, in which obvious failures and possible criminal acts of the Fed were dismissed. The Fed is the prime culprit in the continuing impoverishment of the American people, and its active interference will cause more destruction.


The Federal Reserve has long believed that boosting the stock market inflates the economy as a whole and influences people to spend beyond their means. The following is Alan Greenspan, then chairman of the Fed, speaking at the Federal Reserve Open Market Committee’s (FOMC) November, 2004, meeting: “The household savings rate has come down dramatically and now is close to zero….The idea of having a negative savings rate is not out of line with the way the world works. Remember…the average household looks at the market value …of its equity holdings…. We can have a negative savings rate with a significant part of the population believing that they are saving at a fairly pronounced rate.”

Greenspan’s policy as Federal Reserve chairman was to draw the masses into the markets (stocks, mortgages, bonds) and then create asset bubbles that leave “a significant part of the population believing that they are saving at a fairly pronounced rate.” After the bubble crashes (even the Fed knows this is inevitable), it creates another bubble by leading the People to the Wall Street insiders’ latest manipulated market.


The means by which the Federal Reserve has boosted the stock market is two-fold. First, it pumps money into the banking system. Second, in recent days, several Federal Reserve officials have spoken about artificially boosting the stock market. The Fed does not control where the money goes once it enters the banking system. By coordinating these speeches, Wall Street knows the stock market is being supported. Thus, the large, recent infusions of money into the banking system by the New York Federal Reserve Bank are going into the stock, bond, and commodity markets.

The method by which the Federal Reserve draws money into riskier assets (stocks, bonds) from safer assets (money markets, for instance) is diabolical. In 2003 (and thereabouts) the Fed drove short-term interest rates to 1%. This was a level below which those who live on interest, such as retirees, could not eat. The Fed’s tactic was explicitly stated.

Ben Bernanke’s Fed is doing the same. Federal Reserve Governor Donald Kohn stated the current policy, in October 2009: “[R]ecently the improvement, in risk appetites and financial conditions, in part responding to actions by the Federal Reserve and other authorities, has been a critical factor in allowing the economy to begin to move higher after a very deep recession…. Low market interest rates should continue to induce savers to diversify into riskier assets, which would contribute to a further reversal in the flight to liquidity and safety that has characterized the past few years.”

This flight from “liquidity and safety” has been forced upon savers, many of whom do not understand that the Fed’s stock market support operation can only work for a limited period of time.

Alan Greenspan described this tactic of fooling the people on March 27, 2010. He told Bloomberg TV: “Ordinarily, we think of the economy affecting stock prices. I think we miss a very crucial connection here in that this whole economic recovery, as best as I can judge, is to a very large extent, the consequence of the market’s bottoming last March, and coming all the way back-up. It is affecting the whole structure of the economy, as well as creating the usual wealth effect impact.”

Greenspan operated under this precept when he was Federal Reserve Chairman. This is Greenspan speaking at an FOMC meeting in 1995:  “I think the downside risks are basically coming from the possibility of significant increases in stock and bond prices…..Ironically, the real danger is that things may get too good. When things get too good, human beings behave awfully.”

The Current Publicity Campaign:

The following are comments in speeches by Federal Reserve officials over the past week:

On October 1, 2010, William C. Dudley, Federal Reserve President of New York, speaking at City University of New York: “We have tools that can provide additional stimulus at costs that do not appear to be prohibitive…. [P]urchases of long-duration assets [by the New York Fed will] pull down the level of long-term interest rates…. [L]ower long-term rates would support the value of assets, including houses and equities and household net worth.”

Dudley was a managing director and partner at Goldman Sachs before taking his position at New York Federal Reserve. On October 1, 2010, Goldman Sachs published a guide to “quantitative easing” for its clients. Quantitative easing is the Fed’s euphemism for creating unlimited amounts of money.

The firm wrote: “As [New York Federal Reserve] President Dudley pointed out, those who are able to borrow will do so at lower rates…. Perhaps more importantly, [quantitative easing] works on other elements of financial conditions, including equity prices and the exchange rate.” In its guide, Goldman Sachs went on to write that higher equity prices increase consumer confidence and decrease the savings rate.

I write “unlimited amounts of money,” since this was made clear by Federal Reserve Chairman Ben Bernanke on October 4, 2010. He spoke in Rhode Island: “I do think the additional purchases – although we don’t have precise numbers for how big the effects are – I do think they have the ability to ease financial conditions.”

On October 4, 2010, Brian Sack, an Executive Vice President at the New York Federal Reserve, spoke in Newport Beach, California. He discussed the Fed increasing the size of its balance sheet. This is a euphemism for money printing: “[B]alance sheet policy can still lower long-term borrowing costs for many households and businesses, and it adds to household wealth by keeping asset prices higher than they otherwise would be.”

On October 1, 2010, Chicago Federal Reserve President Charles Evans spoke in Rome: “In my view, the evidence suggests that the expansion of the securities portfolio to date has helped to foster more accommodative financial conditions, and further expansion would likely provide additional accommodation.”

He is correct that “evidence suggests that the expansion of the securities portfolio to date has helped to foster more accommodative financial conditions.” The S&P 500 rose 8.8% in September, its best September since 1939. This is a dangerous game being played, particularly for the novice.


The Federal Reserve, its constituents on Wall Street, and those on Capital Hill have their backs against a wall. They know that ultimately there is no way for them, or us, to escape another wave of impoverishment. That will happen when the enormous creation of money and credit crashes. It will crash because there is no increase in the productive economy to validate it.

In his October 1, 2010, speech, New York Federal Reserve President William Dudley talked about the recent mortgage boom. By simply removing “in home prices” from the following, he described exactly how his current contribution to the economy will end: “The surge in home prices was fueled by products and practices in the financial sector that led to a rapid and unsustainable buildup of leverage and an underpricing of risk during this period. These dynamics in turn provided the fuel that caused house prices and consumer spending to rise much faster than income. The boom, of course, was unsustainable.”

It is necessary to publicize the goals, the intentions, and the tactics of the Federal Reserve. I hope that you are able to help.


Frederick Sheehan,
for The Daily Reckoning

[For more of Frederick Sheehan’s perspective you can visit his blogs here and at www.AuContrarian.com. You can also purchase his book, Panderer to Power: The Untold Story of How Alan Greenspan Enriched Wall Street and Left a Legacy of Recession (McGraw-Hill, 2009), here.]