Why Did the Dollar Go Up?

Remember when the dollar went up when everyone thought it should be headed down? This interview between congressman Alan Grayson and Ben Bernanke could explain a strong reason why. In it Bernanke reluctantly admits that the Fed used 1/2 a trillion in foreign currency operations.  Since this is a central bank move to fight the tide, it must have cost us a considerable portion of that money (did we lose $100 billion of it, $200 billion of it? Will we ever know?) to prop up the dollar. I highly doubt the Fed has the authority to do this. The Fed claims the authority but Alan Grayson is questioning this. In fact does the Fed have unlimited authority? Could they spend $2 trillion to prop up the dollar? Where exactly does the Fed’s authority end. Also, did any investment bank get inside information on this allowing them to go long on the dollar? For some reason I think if you check Goldman’s currency positions at the time right before the massive intervention, they did go long on the dollar.

The Video of the Exchange

Excerpt from the Exchange Between Grayson and Bernanke.

Grayson’s questioning focused on the Fed’s handouts to FOREIGN central banks in Europe and other countries. These “Central Bank Liquidity Swaps” rose from a total of $24 billion at the end of 2007, to over $553 billion by the end of 2008.

Grayson: “So who got the money?”
Bernanke: “Financial institutions in Europe and other counries.”
Grayson: “Which ones?”
Bernanke: “I don’t know.”
Gryson: “Half a trillion dollars and you don’t know who got the money?”

Grayson: “Well, look at the next page [in Bernanke's written report], the very next page has the U.S. dollar nominal exchange rate, which shows a 20 percent increase in the U.S. dollar nominal exchange rate at exactly the same time that you were handing out half a trillion dollars. You think that’s a coincidence?”
Bernanke: “Yes.”
Grayson: “hah-hah-hah-hah!”

The Fed is Private

Some comments have been made about Grayson laughing at Bernanke. However, Bernanke is lying and it is costing taxpayers billions, possibly trillions. Why is Bernanke lying about such an obvious fact that his intervention caused the dollar to increase in value? Why is he so uncomfortable answering this line of questioning? Bernanke seems to be using an opaque instrument (currency swap) to cover up the Fed’s move to increase the value of the dollar.

What is a Currency Swap?

Is a foreign exchange agreement between two parties to exchange principal and fixed rate interest payments on a loan in one currency for principal and fixed rate interest payments on an equal value. – Wikipedia

It sounds innocuous enough, but why $1/2 a trillion?

Many people who work in finance speak with extreme confidence, but don’t help much in pointing out the incontrovertible corruption in the system. In the beginning we heard that mortgage backed securities were great because they provided liquidity, but then we learned they have a tendency to melt down the financial system. Now, no one seems to condescend to us about mortgage backed securities anymore, but if we allow it, the industry will keep coming up with new “instruments.”

One advantage to creating new instruments all the time is the ability to declare that its critics are ignorant (as other people would be to the amount of change in my pocket – that is right, only I know.) However, fraud is always opaque. The blog Taxes and Trade supported the swap as an extremely good idea. Here is an excerpt.

The Fed came up with something even better. They created dollars and then used the dollars to obtain foreign currencies by trading the dollars with foreign central banks for their currencies.

Here’s how a currency swap works. The Federal Reserve and the foreign central bank each create their own government’s bonds. Then they trade bonds of equal value with each other. Whenever the foreign central bank wants to trade back, they can. This strategy has three extremely beneficial effects:

1. It stabilizes currency markets. Foreign central banks get dollar reserves that will get sold right away, boosting their collapsing currencies versus the dollar.

2.It increases the money supply. In order to engage in these swaps both the Federal Reserve and the foreign central banks create new money, thus alleviating the world’s deflation. (Right now, the main problem in the world is deflation, as indicated by falling prices of stocks, oil, and precious metals.)

3. It weakens the dollar The immediate effect of the currency swaps is to weaken the dollar versus these other currencies, which helps the competitiveness of American products in world markets. – Trade and Taxes

However, the swaps did not weaken the dollar, they strengthened it. Something unasked in this analysis is why the Fed needs to create liquidity and why currency swaps are the way to do it. The Fed can create more liquidity anytime it wants, it does not need currency swaps to do so. That is the benefit of having control over a nation’s money supply. The problem generally is that while finance types tend to state that actions lead to specific outcomes, oftentimes the outcomes do not happen and a different outcome happens. So the credibility of finance has greatly declined.

Why is the Fed Anwering Questions at All?

Its important to know, the Fed is completely private. It only reports to its member banks and to investment banks. Bernanke can take his clothes off and show his bare ass to Grayson, and there is nothing Grayson or anyone else in Congress can do about it. The Fed is completely independent from the government and does not need to answer FOIA requests or any other types of requests.

http://www.bloomberg.com/apps/news?pid=newsarchive&sid=aKr.oY2YKc2g

http://www.bloomberg.com/apps/news?pid=20601087&sid=a7CC61ZsieV4

Bloomberg submitted a FOIA to the Fed and they fought it. The court ruled that:

“improperly withheld agency records” by “conducting an inadequate search” after Bloomberg News reporters filed a request under the information act. She gave the Fed five days to turn over documents it told the reporters it located, including 231 pages of reports, and said it must look for more at the Federal Reserve Bank of New York, which runs most of the loan programs.

However, what is going on here? While we appreciate the ruling and we think its right, it does not make legal sense. The Fed does answer requests in order to maintain the illusion that it is part of the Federal government, which it is not. Why is the judiciary providing these judgements and continuing the illusion that the Fed is public? The better approach is to admit the Fed is not subject to public inquiry, understand why, and then have the government take over the Fed. As long as the Fed is private, attempts to control it for the benefit of the population vs. banks will never take place.

Bernanke lies quite a bit. His constituents are concentrated financial power, not voters. He also does not work for the government, but somehow controls the currency of the government. He is enriching his constituents at great cost to voters.

Bernanke is lying in his exchange with Grayson, because he is trying to downplay the interventions on the part of the Fed, how they benefit the Fed’s elite constituents. Bernanke also has essentially gone rogue and is taking the Fed into a place it has not historically been by interpreting the Federal Reserve Act as broadly as possible. The total estimate of the corrupt bailout is $12.4 trillion at this point, and the Fed and Treasury continue to shovel US taxpayer dollars into the coffers of the ultra-wealthy.

References:

Read about the Federal Reserve Act here.

http://en.wikipedia.org/wiki/Federal_Reserve_Act

http://en.wikipedia.org/wiki/Federal_Reserve_System#List_of_member_banks

http://tradeandtaxes.blogspot.com/2008/10/federal-reserve-doing-exactly-right.html

There is one Congressman on the Financial Services Committee who has actually stood up to concentrated financial power, Alan Grayson.

Who is Alan Grayson?

Alan Grayson is a new Congressman who is a former practicing attorney who has clerked for the Supreme Court in his younger days. He sits on the Financial Service Committee. What is interesting is he is one of the few Congressmen asking these types of questions. Furthermore, it should be noticed that in several of these videos there is no one else sitting on the committee side. The question would be why on such important questions no one else except Barney Frank (who is the chair, and is obligated to be there) is interested in participating in these meetings. There are over 70 Congressmen who sit on this committee, yet almost no one participates when Grayson is asking questions. Our interpretation is that is that this is a sign of respect to the banking industry. That is if the committee members know what is “best for them” they will not even be associated with these questions. Grayson is one of the few (only) Congressmen who is standing up for the people that voted for him.

How is the Bailout Being Managed

A good portion of the population thinks that the bailout was necessary (without observing the deep fraud and corruption that caused the bailout), however just these videos demonstrate that the bailout is being and has been executed with extreme opacity which is covering up fraud on a huge scale. Grayson, as well as the entire Financial Services Committee (most of who are not there) is clearly being lied to or the interviewees are clearly attempting to dodge the question. Here is a listing of the Congressmen on this committee. It might help if they were asked why they have not interest in getting to the bottom of this corrupt bailout. http://financialservices.house.gov/who.html

Simply Illegal

As we have been saying for for some time, so much of what went on before and after the financial crisis is simply illegal. Unless the people responsible are punished, we will accelerate towards a system where justice is entirely based upon wealth. The first person to begin prosecuting is Henry Paulson, who violated the restrictions of his powers as head of the Treasury and conspired to show preferential treatment to his old firm (Goldman Sacks) in a way that broke the law.

http://counterecon.com/2009/01/14/reverse-the-bailout-arrest-and-prosecute-henry-paulson/

References An excerpt from an interview in Salon.

GG: The argument that he made–he did give you a reason why he felt as though you shouldn’t get that information, or at least why it ought not be publicly disclosed–was that if these institutions know that their receipt of these funds will be made public, that they will refuse to participate in the bailout program, that they won’t take the money. Do you find that to be persuasive, and why do you or don’t you?

AG: I don’t. And I don’t find it too persuasive for a couple of different reasons. The first reason is that by law the Federal Reserve is the lender of last resort. So the people who borrowed this $1.2 trillion from the Federal Reserve literally have nowhere else to go. That’s the principle, the underlying principle that governs the Federal Reserve’s operation. It’s why we have the Federal Reserve. We have a Federal Reserve to serve as the lender of last resort. So they would take the money because they’d literally have no choice.

The second reason is that the whole reason why we have securities law in the first place, why we have a Securities Exchange Act, is to allow investors to make informed decisions. So if in fact it’s true that Citicorp took $50 billion from the Federal Reserve, certainly the people who are investing in Citicorp need to know that. Frankly all the rest of us do, too.

If these institutions are going to fail at some point in the future, then people need to be able to protect themselves against that. It doesn’t seem to me to be a good idea in general to try to deliberately keep people in the dark, under the assumption that if they knew the truth; they might actually act on it.

Think that through a little bit. What he’s saying is, we wouldn’t want people to know that $50 billion went to institution X, because if they knew–well, what? What would they do? The fact is the matter is that they would understand the truth of the matter, which is that institution X is pretty shaky, and maybe institution X doesn’t deserve their money. So, what we have is the collaboration between the Federal Reserve and failing institutions to keep the public in the dark.

AG: No, I think if you look at this particular situation, the Federal Reserve is assuming that it has certain authorities in a very aggressive way, based upon laws that were written under entirely different circumstances 70 years ago. You know, if somebody said 70 years ago to Mr. Mellon, the Secretary of the Treasury, the Federal Reserve would like to issue $1.2 trillion to favored institutions, he would have said, what are you talking about; there isn’t $1.2 trillion in the entire world. And now they’re taking that as some sort of license, 70 years later, to do what they want to do, and keep it secret.

It’s utterly senseless. Not only does it completely mock the idea of checks and balances in government, and mock the idea of democracy, but it opens us up to a tremendous possibility of corruption.

Let’s suppose for the sake of the argument, that Mr. Bernanke decides to give a billion dollars to a fledging institution called the Dick Cheney Savings and Loan, and its only asset was a numbered Swiss bank account. How would we know? How would we know that that happened? The answer is, if you take the Federal Reserve’s view of things, we wouldn’t. And that’s disastrous.

http://www.salon.com/opinion/greenwald/radio/2009/01/26/grayson/index1.html

This is an interesting excerpt from Wikipedia.

In early 2009, Grayson responded to controversial comments by talk radio personality Rush Limbaugh, in which Limbaugh stated that he wanted President Barack Obama “to fail”, by saying, “Rush Limbaugh is a has-been hypocrite loser, who craves attention. His right-wing lunacy sounds like Mikhail Gorbachev, extolling the virtues of communism. Limbaugh actually was more lucid when he was a drug addict. If America ever did 1% of what he wanted us to do, then we’d all need pain killers.”[10] On March 3 of that year, satirizing incidents in which prominent Republican officials (including Republican National Committee Chairman Michael S. Steele) were forced to apologize to Limbaugh for criticizing him, Grayson released a second statement, in which he said, “I’m sorry Limbaugh called for harsh sentences for drug addicts while he was a drug addict. I’m also sorry that he’s bent on seeing America fail. And I’m sorry that Limbaugh is one sorry excuse for a human being.”[11][12] Grayson Suing Corrupt Defense Contractors

“Mr. Grayson has filed dozens of lawsuits against Iraq contractors on behalf of corporate whistle-blowers. He won a huge victory last month [March 2006] when a federal jury in Virginia ordered a security firm called Custer Battles LLC to return $10 million in ill-gotten funds to the government. The ruling marked the first time an American firm was held responsible for financial improprieties in Iraq.”[10]

In the words of Senator Dorgan, there is an “orgy of greed” in Iraq. Vice President Cheney’s old firm Halliburton gets billions of dollars in no-bid contracts. War profiteers run wild, stealing millions from both US taxpayers and the Iraqi people. Corrupt corporations plunder Iraqi reconstruction funds, sabotaging the war effort. And the Bush Administration does nothing to stop it.

Everyone is concerned about the War in Iraq. Alan Grayson has done something about it.

Alan has taken on the biggest corrupt defense contractors, and won. His work on behalf of taxpayers has been recognized and applauded not only in the Wall Street Journal, but in the Washington Post, the New York Times, the Boston Globe, CNN, 60 Minutes, the BBC, and newspapers and magazines in dozens of countries around the world.

“Mr. Grayson has filed dozens of lawsuits against Iraq contractors on behalf of corporate whistle-blowers. He won a huge victory last month [March 2006] when a federal jury in Virginia ordered a security firm called Custer Battles LLC to return $10 million in ill-gotten funds to the government. The ruling marked the first time an American firm was held responsible for financial improprieties in Iraq.”[10]

In the words of Senator Dorgan, there is an “orgy of greed” in Iraq. Vice President Cheney’s old firm Halliburton gets billions of dollars in no-bid contracts. War profiteers run wild, stealing millions from both US taxpayers and the Iraqi people. Corrupt corporations plunder Iraqi reconstruction funds, sabotaging the war effort. And the Bush Administration does nothing to stop it.

Everyone is concerned about the War in Iraq. Alan Grayson has done something about it.

Alan has taken on the biggest corrupt defense contractors, and won. His work on behalf of taxpayers has been recognized and applauded not only in the Wall Street Journal, but in the Washington Post, the New York Times, the Boston Globe, CNN, 60 Minutes, the BBC, and newspapers and magazines in dozens of countries around the world. – Wikipedia

What would you do if you learned that your government had outsourced its central banking function to a private company? Furthermore that this company had only a loose affiliation to the government, and that the government have very little oversight into this entity both in terms of controlling its behavior and being able to see what this private company was doing. Would it surprise you to learn that, if you are a US citizen, that your government already has done this and actually there is nothing new in that privatizing the central bank was performed back in 1913.

What Does a Central Bank Do?

A central bank does a number of important things, but the most central to its role are the following:

• Creating money
• Controlling the money supply
• Setting interest rates (this is done through what is called the Federal Funds Rate – which is the rate they loan money to banks)
• Loaning money to banks

The central banking function is considered both one of the most important roles of government, as well as one its greatest powers. What is most unusual is that any government would give up this right to a third party, and how this happened, and the fact that it did happen tells us a lot about in effect who is running the country. That is, any government that can be persuaded to sign over its right to the central banking function, may indicate that the government may not be as powerful as one would presume that a government ordinarily is.

How Does the Fed Create Money?

The first idea to dispense with to understand this concept is paper money. Paper money is a physical representation of money, but it is less and less important as transactions are increasingly electronic. Therefore, money is increasingly accounting entries. Of the money that you have, unless you are a rare coin collector or a goldbug (someone who hoards gold), the vast majority of your money is a ledger entry at the bank of your choice. This ledger entry is supported by only a small fraction of reserves as your bank. The bank has the right to do this because  they have been deputized by the government to do so.

Now if the Fed wants to increase the money supply, they have a number of mechanisms they can do so. First they can reduce the federal funds rate, which is stimulative (causing more banks to borrow). Second, they can offer to make more loads to banks. Roughly speaking, for every $1 a bank receives, it can loan out $10 (called fractional reserve banking). Where does the Fed get this money from? Well, that is the thing, and why the Fed is so powerful. They can create money from air. They have been given this power by the government.

The Fed is nothing more than an organization that is a front for large banking interests. This is in the same way that the Cato Institute or Hoover Institute are fronts for large business and defense interests. The Fed is not only an example of a privatized central bank, many of the owners of the Fed are not even US banks. Controlling banks include a number of banks in Europe.

1. Rothschild Bank of London
2. Warburg Bank of Hamburg
3. Chase Manhattan Bank of New York
4. Warburg Bank of Amsterdam
5. Rothschild Bank of Berlin
6. Lehman Brothers of New York
7. Lazard Brothers of Paris
8. Kuhn Loeb Bank of New York
9. Goldman Sachs of New York
10. Israel Moses Seif Banks of Italy

We don’t like using the term “international banking cartel.” However, we are not aware of any other similarly important government function that is both privatized and also owned by foreign firms. This would be like learning that the Pentagon has as one of its member companies, companies in Fiji or Russia, or that the State Department is taking orders from the Illuminati. We can only conclude that central banking must not be as important as we thought it was!

Why a Private Fed?

Understanding how powerful the Fed is question arises as to why it is in private hands. And in fact, there are a number of experts in this field who believe that the current privatized Fed is unconstitutional and therefore illegal. We have been waiting for a lawsuit to be brought to the Supreme Court to test the constitutional validity of the Fed, but none have been forthcoming that we are aware of.

The Fed website seems to pretend that it serves a public interest function. They have tips for avoiding foreclosure scams. However, there is an inconsistency in their behavior. In the late 1990s when approached by the District Attorney of Cleveland about lending abuses by their member banks to low income households, they did absolutely nothing. The Fed behaves in ways that promote the interests of banks. Their public interest function is not apparent.

Who’s Interests Does the Fed Represent?

This issue of who’s interests the Fed represents is a critical one. There is evidence provided by cepr.net that in the early days of the current financial crisis that Fed Chairman Bernanke actively exacerbated the financial crisis through reducing liquidity through reducing its purchases of commercial paper. The reason this was done is that because the major banks were insolvent, and under federal law would have gone into receivership, and this would have caused the management of these banks to be removed. When one sees that one of the Fed’s owning banks is Goldman Sacks, and the Treasury Secretary at the time was the former CEO of Godlman Sacks, its not hard to see where the term “thick as theives” came from.

Paulson and Bernanke had the same employer….but its not the employer you think. Its actually Goldman Sacks and other controlling banks of the Fed. This is utterly masterful, both men pretending to work for the US government, when in fact that work for the banks that own the Fed. The banks control both the Fed and the Treasury. Because of this control of both of the major finanical branches of the US, they have the ability to collude in order to rig financial markets. For this reason it is not surprising that the bailout has been so bank friendly.

As for Bernanke, its important to point out that he lies for a living. He pretends that he works for the government when he does not. He may have a PhD in economics, but he is no longer an economist. He is now a professional actor, and he has only one role, he is paid to serially misrepresenting himself through his role as Fed Chairman.

What that major banks wanted, and what Bernanke wanted as he represents those interests, was a major bailout of the banks my taxpayers. This bailout would allow what are essentially his friends or his board of directors to maintain their management positions at these banks.

Conclusion

At last tally over $1.2 trillion has been loaned out from the Fed to banks, and that is actually an old figure. When asked about this in a congressional hearing, a representative of the Fed stated that they did not have the “specific list of banks” that received money (in fact, they did not name a single bank). The answer given was that they did not like to publicize this list as it could cause banks to be less likely to borrow from them. What should be remembered is that this is not technically the Fed’s $1.2 trillion. They have only been deputized to create this money by the US government, and without the US government, the Fed is nothing. However, what appears to be the case is that the Fed does not only not report to the US government, but they do not owe the government any accounting of where or to whom the money that they loan goes. That is a serious problem that needs significant investigation. Ron Paul seems to be one of the few congressmen who have had a long term interest in this topic.

In this excellent video by the Real News, a Fed representative refuses to provide specific banks that at least $2 trillion have gone to. Not being a government organization, they are actually not required by law to answer questions of any detail from Congress. That is why their testimony in front of Congress is primarily a dog and pony show.

Quote on this topic from Thomas Jefferson

“I believe that banking institutions are more dangerous to our
liberties than standing armies. If the American people ever allow
private banks to control the issue of their currency, first by
inflation, then by deflation, the banks and corporations that will grow
up around [the banks] will deprive the people of all property until
their children wake-up homeless on the continent their fathers
conquered. The issuing power should be taken from the banks and
restored to the people, to whom it properly belongs.”

References

http://en.wikipedia.org/wiki/Federal_Reserve_Act

http://www.geocities.com/CapitolHill/Senate/3616/flaherty3.html

http://land.netonecom.net/tlp/ref/federal_reserve.shtml

How the Federal Reserve complete failed in its duty to manage the credit and money supply of the US economy during the boom years.

http://www.cepr.net/index.php/op-eds-&-columns/op-eds-&-columns/systematic-risk-regulators-and-the-power-of-arithmetic/

We find the portions of the videos that focus on the past very good, the future projections are pretty extreme, and less credible, however the entire series is certainly worth watching.

Part 1

Part 2

Part 3

Part 4

Part 5

“I believe that banking institutions are more dangerous to our
liberties than standing armies. If the American people ever allow
private banks to control the issue of their currency, first by
inflation, then by deflation, the banks and corporations that will grow
up around [the banks] will deprive the people of all property until
their children wake-up homeless on the continent their fathers
conquered. The issuing power should be taken from the banks and
restored to the people, to whom it properly belongs.” Thomas Jefferson