Geither's Stimulus

9 posts / 0 new
Last post
xxxxxx's picture
xxxxxx
Status: Martenson Brigade Member (Offline)
Joined: Nov 27 2008
Posts: 32
Geither's Stimulus

The Huffington Post had a story on Tuesday about the briefing on the Treasury Secretary’s financial bailout plan that White House aides gave to Congressional aides prior to his speech yesterday.  It was met with laughter.  Bipartisan laughter.

 

The stated goal of the plan is to restore “faith” although the lack of any real details seems to require faith as a starting point rather than a goal.  What we do know is that Mr. Geithner is committed to the securitization of debt instruments – that means that he sees derivatives as a central component of the monetary system.  In a way, one can understand this mindset.  The derivatives marketplace, although seriously damaged over the last five months, dwarfs the equities and bond markets of the world.  We keep hearing news reports that the CDS (credit default swap) market has a face value of $62 trillion – that’s about equal to the GDP of all the nations in the world and CDS’s are but a small subset of all derivatives.

 

So that means that the guts of the global economic system is based on the value of a promise to pay.  Derivatives are contractual agreements derived from a debt instrument (bond, mortgage, loan, etc.) that supposedly has some underlying value (a company, a car, a student loan or a house).  But there are some fundamental problems that are not going to go away and presage a bad ending to the Treasury Secretary’s plan.

 

In our monetary system we can only create money through debt.  People can make a product or a service that has excellence and utility and sell it in the marketplace, but that doesn’t create money.  The only way we can create money is through banks lending money to companies or individuals or the Federal Reserve lending money to banks.  They are the only entities that can create money and, despite the Fed’s virtually non-existent interest rate, our system is never in balance because the interest required to pay a loan is not created when the loan is created.

 

So how does a plan that proposes that banks create more debt (we like to call it credit but credit is useless to the economy unless it is used and then it is a debt) to get rid of bad debt?  There is a model for this in the recent past, but we need to understand that it is not really applicable.  In 1989 the Resolution Trust was formed to deal with the assets of nearly 750 savings and loan banks.  Essentially, these banks had made bad investments in an inflated real estate market (sound familiar?).  Over the next six years the Trust purchased the assets and sold them off and, we are told, made a profit.

 

But there is a big difference between those savings and loan assets and the ones that Mr. Geithner is talking about.  The S&L assets were loans made against real things – shopping malls and condo complexes.  The derivatives that we are talking about now are at least once removed from any underlying asset.  In many cases there are no underlying assets (student loans, consumer loans, credit card debt, etc.).  So it is hard to see how we are going to be able to value financial instruments that have no value.

 

The other aspect of this plan that we need to understand is that, with the exception of the $350 billion left in TARP money, none of the $2 trillion that Mr. Geithner is proposing to spend will be taxpayer money.  That may sound unbelievable and you may be relieved but it is true and you should not be relieved.  We are used to loosing taxpayer money.  We get mad about it but we have been conditioned to expect it – look at the billions lost and unaccounted for in the Iraqi reconstruction. 

 

The money that will be used for the bailout of the banking system will be created out of thin air by the Federal Reserve.  Let’s follow that thread for a moment.  We have a private corporation (The Fed) established by an act of Congress in 1913 that is owned by the banks that will create money to essentially give to the banks to cover their losses.  It would be wonderful if that could be done without some very serious repercussions, but it can’t.

 

The effect that this will have on the value of our currency will be devastating.  Some of the people in the news media are focused on deflation – less money chasing goods and services resulting in lower prices – but the real disaster that is coming is hyperinflation – vast amounts of money chasing less and less goods and services.  We may want to point to the strength of the dollar these days and convince ourselves that all will be well but a brief reading of the history of fiat currencies (money that is not backed by a precious metal) is pretty grim – none of them survive for very long.

 

And yet we have to ask ourselves, what else could the government do at this point?  There is not yet the awareness of how our financial system works to support a massive move to re-establish a gold-backed currency.  There is also not yet the awareness to begin to ask the questions about whether or not the monetary system should be in the hands of a private corporation.  We had a vigorous and spirited debate in this country for 150 years about whether or not we should have a central bank but somehow we have all forgotten that history.  It’s as though we are afraid to look at how the system works and ask the questions that need to be asked.

 

Until that happens, until more people in public and private life understand how our system works through a dispassionate analysis we are going to keep walking down this road of trying to keep a system that has already collapsed alive in the minds of our citizens.  The longer we wait the more spectacular the collapse and disillusionment will be.  Perhaps the laughter was a good sign.  Perhaps this has all gotten so outrageous that enough people will want to understand what is happening. That’s the kind of change that I think we were all expecting. 

DrKrbyLuv's picture
DrKrbyLuv
Status: Diamond Member (Offline)
Joined: Aug 10 2008
Posts: 1995
Re: Geither's Stimulus

Bill, thanks for your fine article and for bringing this to everyone's attention.

First of all the name of this abomination is misleading, it is NOT a stimulus package, it is theft - what they are trying to accomplish is that the banks will move more toxic liabilities from their balance sheet to ours; "we the people."  The Federal Reserve bank is also buying private corporations at a nickel to the dollar.   The Fed has assumed new powers that should make anyone who is thinking, challenge where all of this is heading.

Let's look at what the private, non-American Fed has taken in the last half year:

- The Fed now owns the largest insurance company in the world.  The Fed gave AIG, after the shareholders were raped, a $85 billion loan in September 08 that gave them a nearly 80% stake of AIG.  Oh, did I mention, we supplied the money. 

- The Treasury Department, for the first time in history, said it would begin selling bonds FOR THE Federal Reserve in an effort to "help" the central bank with it's borrowing needs.  Think about this for a minute...we the people are funding a private international bank without any oversight.

- The Fed has been authorized to buy up public companies - they are free to buy companies on the cheap - after they ruin them.  Oh, did I mention that we will foot the bill.

- During the last stimulus theft, the Fed has been enabled to pay interest on the reserves that banks are required to hold at the central bank.  Since the Fed's money comes from the taxpayers, we the taxpayers are paying interest on reserves held for the profit of private banks. 

- Late last year, Bloomberg filed a Freedom of Information lawsuit against the Fed in order to force the Fed to disclose almost $2 trillion dollars in debt that it secured with taxpayer money.  The Fed refuses to disclose what they are doing with our money, but yet, they are back in Washington getting a a lot more.

If anyone is sincere in trying to understand what is happening, I ask that they please investigate the Federal Reserve.  The Fed is NOT Federal - it is a private bank.  And the Fed is controlled by international criminals who would love to see the United States sink.

Please take the time (this is not directed towards Bill Sharon) to read either "The Creature from Jekyll Island" or "Secrets of the Temple: How the Federal Reserve Runs the Country" or "The Case Against the Fed."  There are also many websites that tell the truth about who and what the Fed is - only then can anyone hope to understand what's happening in America.  The books are also appropriate for citizens of most other nations too, as we are only the most recent to be taken over by the criminal central bankers.

joe2baba's picture
joe2baba
Status: Martenson Brigade Member (Offline)
Joined: Jun 17 2008
Posts: 807
Re: Geither's Stimulus

thanks for stating the obvious bill.

seriously a very fine post.

the vast number of americans do not have a clue. by the time the masses get it it will be too late

as for the creature DKL you can order the book for $26.45 incl shipping and get a free silver dollar 

call 800-686-2237 pay it forward

bearing01's picture
bearing01
Status: Silver Member (Offline)
Joined: Sep 7 2008
Posts: 153
Re: Geither's Stimulus
DrKrbyLuv wrote:

First of all the name of this abomination is misleading, it is NOT a stimulus package, it is theft -

It's a government "spending" package. 

....taken from the productive members of society to sustain the malinvested problem areas that inevitably must be liquidated.  Rather than let the productive areas to grow, taking from it will stagnate productivity and its growth to support the enterprises that either have too much debt or are not profitable - because they're trying to sell things people don't want.

The ironic thing is that they're getting the green light for the money but don't really know how to spend it.  That's because gov't doesn't have the oversight to properly predict where to spend it.  If the gov't let the economy keep their money then the economy would be able to choose what they want or don't want.  That would truely determine what should or should not be developed and prevent distortion in the economy from government intervention.

bearing01's picture
bearing01
Status: Silver Member (Offline)
Joined: Sep 7 2008
Posts: 153
Re: Geither's Stimulus

 

I believe this video of Jim Rogers on Geithner's policy applies to this post:

 

Gadfly's picture
Gadfly
Status: Silver Member (Offline)
Joined: Dec 5 2008
Posts: 127
Re: Geither's Stimulus

Please excuse my ignorance, but could someone point out the difference between the Bush and Obama Administration's strategy towards this mess?  As far as I see it, Obama is just going to out spend Bush, otherwise I see no difference in approach.  Also, is there a danger of tax revolt in the U.S.?  If I was an American citizen, I would be steaming over all this pork.

bearing01's picture
bearing01
Status: Silver Member (Offline)
Joined: Sep 7 2008
Posts: 153
Re: Geither's Stimulus
Gadfly wrote:

Please excuse my ignorance, but could someone point out the difference between the Bush and Obama Administration's strategy towards this mess?  As far as I see it, Obama is just going to out spend Bush, otherwise I see no difference in approach.  Also, is there a danger of tax revolt in the U.S.?  If I was an American citizen, I would be steaming over all this pork.

** Note Edit : I said errorneously before that Hoover blew up the 1920's bubble.  He didn't.  It was Pres. Coolidge during the 1920's that did.  Hoover got behind the wheel in 1929 when the SHTF. 

Bush = Herbert Hoover (He put bailout policies and market intervention in place, called New Deal and turned the recession into a depression)

Obama = Franklin Roosevelt (Continued Hoover's Legacy of market interference / manipulation and porked up his own new deal, plus grabbed as much power as he could to create cartels and monopolies of the economy for special interest groups)

As for difference between Bush & Obama, all the other heads in the house & senate are all the same as before.  Only the messenger has been replaced.

DrKrbyLuv's picture
DrKrbyLuv
Status: Diamond Member (Offline)
Joined: Aug 10 2008
Posts: 1995
Re: Geither's Stimulus

Gadfly said

Please excuse my ignorance, but could someone point out the difference
between the Bush and Obama Administration's strategy towards this
mess?  As far as I see it, Obama is just going to out spend Bush,
otherwise I see no difference in approach.  Also, is there a danger of
tax revolt in the U.S.?  If I was an American citizen, I would be
steaming over all this pork.

No need to be excused - you are absolutely right, the new boss is the same as the old boss.  When Bush was in office, the non-federal reserve banks ran the country - and now with Obama, the non-federal reserve banks continue running the country.

My take is that people are getting angry - and as they suffer more financially, they will become more angry.

As far as a tax revolt...one can only hope but I don't see the people being that angry yet - I hope I am wrong.  I'm ashamed as an American at just how passive the people have been.  Most still think that the war on terror is legit and that 9/11 was planned and carried out by a bearded guy living in a cave. 

What do you see in your country?

Larry

castlewp's picture
castlewp
Status: Gold Member (Offline)
Joined: Oct 7 2008
Posts: 304
Re: Geither's Stimulus

I am still amazed that some people still flop back and forth between Republican andDemocratic leadership as if these are actually choices. They are merely two closing jaws of the same steel trap.

Comment viewing options

Select your preferred way to display the comments and click "Save settings" to activate your changes.
Login or Register to post comments