A majority of the U.S. House of Representatives is now in support of a historic bill by Republican lawmaker Ron Paul to audit the Federal Reserve (the Fed), the privately run central bank that sets monetary policy for the United States.
A similar bill in the U.S. Senate was proposed by Democratic Socialist Sen. Bernie Sanders, and has three Republican co-sponsors.
Meanwhile, a House committee recently approved an amendment offered by leftist Democrat Dennis Kucinich to a bill granting more oversight to the Government Accountability Office, which would audit the Fed’s response to the economic crisis specifically.
Notably, the amendment passed committee unanimously, with broad bipartisan support, and now heads to the full House for action.
“The Fed has taken a number of extraordinary and unprecedented steps to address the financial crisis,” Kucinich said in an email. “In so doing, it has committed over one trillion dollars to the purchase and financing of many different kinds of assets. It has selectively intervened in certain economic sectors, while it has ignored others.”
“All of these interventions mark a departure from traditional monetary policy, raise significant public policy questions, and impact taxpayers considerably,” Kucinich said.
Fed Chairman Ben Bernanke is “not revealing what they did with the two trillion dollars they created on their books. It was loans to banks for sure. There have been several actions under the Freedom of Information Act to get them to say who they were to and what the terms were, but they won’t do it,” Ellen Brown, author of ‘Web of Debt’, said.
Most people in the United States do not understand what the Federal Reserve is or what it does, except some know the Fed sets a federal interest rate, which in turn affects interest rates on some variable private loans.
However, the Fed’s impact is much greater than this. Essentially, the Fed, which is made up of private bank representatives, can determine how much money is in the nation’s money supply.
“The money supply helps determine the general level of interest rates paid for the use of money, employment, prices, and economic growth. Many economists believe the money supply is the most important determinant of these variables,” according to a 1964 Congressional report, “Money Facts,” by the Committee on Banking and Currency.
One way the Fed impacts the money supply is by taking actions that open or restrict credit.
The vast majority of money in the U.S. economy was created through the issuance of loans by private banks. “Created” might seem like a strong word, but in fact, banks typically create money as a bookkeeping entry that did not exist before. Because of what is called “fractional reserve lending”, banks can create up to 10 times more money than they have on deposit with the central bank.
“How does the Federal Reserve change the money supply?” the Congressional report notes. “By regulations which tell the member banks the maximum amount of bank deposits they may create per dollar of reserves.”
It may seem obscure, but author Ellen Brown argues that “reserve ratio” decisions by the Fed may have preceded several economic crises in U.S. history, including the Great Depression in the 1930s.
“When the Federal Reserve raised the reserve requirements [from 10 percent] to 20 percent right before the Depression, that’s what brought on the Depression,” she argued.
“Let’s say you have a reserve requirement of 10 percent, and for every 10 dollars of reserves, you’ve got 100 dollars on loans. If they suddenly change the reserve requirement, they have to call in 50 dollars of loans. That caused the Depression. They have the power to shrink the money supply,” Brown explained.
Meanwhile, in the last year, the Fed has taken on incredible new powers, including managing the Troubled Asset Relief Program (TARP); purchasing parts of new federal debt; and issuing funds to unknown parties.
“There is a large number of members of Congress and Americans in general who believe that such an extraordinary and unprecedented commitment of taxpayer money demands Congressional oversight. That is why my amendment was adopted unanimously in committee when I introduced it in the committee of jurisdiction of the GAO,” Kucinich said.
“Reforms may be necessary, but first it is critical to shine a light in the shadows. The Fed’s actions have ballooned their balance sheet from 874 billion dollars to more than two trillion dollars. This is more than double the cost of TARP and we still do not really know where the money went. That’s unacceptable,” Kucinich said.
“The Constitution provides ‘the Congress shall have power to coin money, regulate the value thereof,‘” the Congressional report notes. “The Supreme Court interpreted this clause, again and again over a period of 150 years, to mean that ‘whatever power there is over the currency is vested in the Congress.'”
Congress delegated its authority to create and regulate money to the Federal Reserve, an independent agency it created in 1913. The “independence” of the Fed creates two problems, according to the report.
“Since the Federal Reserve is independent it is not accountable to anyone for the economic policies it chooses to pursue. But this runs counter to normally accepted democratic principles,” it says.
“The President and Congress are responsible to the people on election day for their past economic decisions. But the Federal Reserve is responsible, neither to the people directly nor indirectly through the people’s elected representatives. Yet the Federal Reserve exercises great power in controlling the money-creating activities of the commercial banks,” the report notes.
“With an ‘independent’ Federal Reserve, Congress and the President can be moving in one direction while the Federal Reserve is moving in the other,” it says.
Prior to 1913, the U.S. went through several different phases of monetary policy, including President Abraham Lincoln’s decision to print whatever funds he needed to fight the War of Northern Aggression, rather than relying on private banks.
It is remarkable that the Fed has purchased part of the federal debt in the last year, Brown says, although the public is mostly unaware of this development.
Last October, then-Treasury Secretary Henry Paulson ordered nine banks that the Treasury Department described as “healthy” financial institutions to surrender ownership interests to the government or else face regulatory action that would force them to surrender ownership interests to the government, according to an internal Treasury Department document.
Paulson’s extraordinary threat culminated in one of the most sweeping government intrusions into the free-enterprise system in the history of the United States.
Judicial Watch, a nonpartisan watchdog organization, used the Freedom of Information Act to obtain a copy of the internal Treasury Department “talking points” that were prepared for Paulson to use at his Oct. 13, 2008 meeting with the chief executive officers (CEOs) of the nine banks.
At the meeting–to which the bankers were called at short notice–Paulson made a conspicuous display of potential government regulatory power.
Paulson was flanked by Federal Reserve Chairman Ben Bernanke; current Treasury Secretary Timothy Geithner (who was then president of the Federal Reserve Bank of New York); Federal Deposit Insurance Corporation (FDIC) Chairman Sheila Bair and Comptroller of the Currency John C. Dugan.
While none of these regulators have responded to inquiries by CNSNews.com, the talking points mention each by first name.
The Fed, the FDIC and the Office of the Comptroller of the Currency all regulate various elements of the U.S. banking industry.
“Ben, Sheila, John, Tim and I have asked you here this afternoon because we are of the view that the United States needs to take strong and decisive action to arrest the stress in the financial system,” Paulson’s talking points directed him to tell the assembled bankers.
The talking points indicate that Paulson then told the nine bank CEOs that the government was going to use $250 billion of the $700 billion approved by Congress to shore up the financial industry through the “Troubled Asset Relief Program” (TARP) to buy stock in banks all across the country and that the nine banks these CEOs represented had no choice but to allow the government to buy their stock–or else.
Paulson assured the CEOs that the government would inform the public that the banks were “healthy institutions, participating in order to support the U.S. economy.”
In other words, according to the treasury secretary’s confidential talking points, the nine banks were not failing financial institutions that had come to the federal government in desperate need of a bailout from the taxpayers to stay in business.
Instead, they were healthy institutions that were being compelled to surrender ownership stakes to the government in order to help the government carry out a government policy.
To read the rest of this article go to http://www.cnsnews.com/public/content/article.aspx?RsrcID=49004