The US Federal Reserve: A Bank that Will Live in Infamy

“A day that will live in infamy…” – Franklin D. Roosevelt

The Dow ended down 19 points yesterday. Gold up $9.

Thanks to the socialist Senator from Vermont, Bernie Sanders, we get to see what the Fed is up to. He insisted on learning where the Fed’s bailout money was going. Turns out, not only did billions go to European banks…billions more went to firms in the US that pretended they needed no help.

Goldman Sachs, for example.

Goldman went to the Fed 212 times between March 2008 and March 2009, according to Fed documents. It collected nearly $600 billion.

Morgan Stanley. GE. Citigroup. They were all in on it.

The Fed put out $3.3 trillion worth of credit, buying up speculators’ bad bets. Not surprisingly, the price of the bad credits rose. So that now the Fed can say it hasn’t lost a penny.

Ha. Ha. What a sense of humor!

Let’s imagine that instead of banking and speculating…Goldman was a cabbage grower. And let’s say Goldman overdid it. It planted far too much cabbage. The price dropped…and Goldman was on the verge of bankruptcy. So, in comes the Fed…and buys cabbage by the boatload. And what do you know? The price of cabbage goes up. So, the Fed then looks in its warehouse and it finds it owns tons of cabbage. It multiplies the price of cabbage by what it has in inventory. Wow! It hasn’t lost a penny!

The feds are supposed to pursue corrupt operators. But now the feds are at the center of the racket. Talk about infamy? Now, it’s right here at home…

How does the racket work? It’s very simple. The Fed hands out money to its powerful cronies. Remember, the Fed is a private bank. It serves what is supposedly a public purpose. But it is neither owned nor controlled by the government. Instead, it’s part of the banking industry. Its official role is to give the US a trustworthy currency…and (more recently) to promote full employment. You can see how well it fulfilled the fist part of its mission. Consumer prices are up about 33 times since the Fed was formed in 1913.

Or, to look at it another way, a $20 gold piece from pre-Fed days – a one-ounce US gold coin – is now worth about $1,450. How’s that for a stable currency?

As to employment… Before 1913, unemployment was virtually unheard of. Why? There was a free market in labor. If you need to work, you took whatever work you could get at the then-prevailing wage. End of the story. There were no subsidies for people who were unemployed. No minimum wages. No safety nets. It was just supply and demand. When demand for labor increased, so did wages. When it decreased, wages went down. Except for brief periods of adjustment, there was no unemployment.

And now? Well, you know the facts as well as we do.

The Fed’s real mission now is to make sure the banks stay in business and make a profit. This it does in the simplest way – by transferring money to the banks. How does it get the money? It just prints it up. Who pays the bill? Eventually, taxpayers and citizens…when this new money reduces the value of their old money.

Neat huh? Who complains? Who has a cause of action? Who even realizes what is going on?

The European Central Bank is duplicating this trick in the other part of the Old World. It is buying up the debt of Ireland and Greece. And what ho! The more you buy…the more the price goes up. Pretty soon, the ECB – with hundreds of billions of this paper in its vault – will be able to announce that it too has made money!

But there’s a strange smell coming from the central bank vaults. Maybe that cabbage isn’t so good after all.

Bill Bonner
for The Daily Reckoning

The Daily Reckoning