Tuesday, December 30, 2008

Fed refuses to disclose recipients of $2 trillion in lending‏

Dick McManus

Fed refuses to disclose recipients of $2 trillion in lending

Dec. 13, 2008: The Federal Reserve refused a request by Bloomberg News to disclose the recipients of more than $2 trillion of emergency loans from US taxpayers and the assets the central bank is accepting as collateral.

Bloomberg filed suit November 7 under the US Freedom of Information Act requesting details about the terms of 11 Fed lending programmes, most created during the deepest financial crisis since the Great Depression.

The Fed responded December 8, saying it’s allowed to withhold internal memos as well as information about trade secrets and commercial information.

Total Fed lending exceeded $2 trillion for the first time November 6. It rose by 138 per cent, or $1.23 trillion, in the 12 weeks since September 14, when central bank governors relaxed collateral standards to accept securities that weren’t rated AAA.
‘Right to Know’
The Freedom of Information Act requires federal agencies to make government documents available to the press and the public. The suit, filed in New York, doesn’t seek money damages.
“There has to be something they can tell the public because we have a right to know what they are doing,” said Lucy Dalglish, executive director of the Arlington, Virginia-based Reporters Committee for Freedom of the Press. “It would really be a shame if we have to find this out 10 years from now after some really nasty class-action suit and our financial system has completely collapsed.”
The Fed lent cash and government bonds to banks that handed over collateral including stocks and subprime and structured securities such as collateralised debt obligations, according to the Fed Web site.
Borrowers include the now-bankrupt Lehman Brothers Holdings Inc, Citigroup and New York-based JPMorgan Chase & Co, the country’s biggest bank by assets.
What's amazing to me is how vocal the Republicans were in killing the $25 billion bridge loan to the auto industry, but $2 trillion to the banks with no accountability; no problem!


November 25, 2008 Ending months of speculation, the Federal Reserve announced this morning that it would spend up to $600 billion to buy mortgage-related assets in an attempt to prop up the battered housing market.

Specifically, the Fed said that it would buy as much as $100 billion in direct obligations from the housing-related government-sponsored enterprises—Fannie Mae, Freddie Mac, and the Federal Home Loan Banks. In addition, it will buy $500 billion in mortgage-backed securities (MBS) backed by Fannie Mae, Freddie Mac, and Ginnie Mae.


Nov 29, 2008: The report said insurance giant American In­ternational Group's loan from the Fed averaged $79.6 billion for the week ending Wednesday.


AS of July 2007 the US government owed the FED about $4 trillion or 44% of the national debt. Some $3 trillion, 32% of the US debt is domestically (US persons) owned, and $2 trillion, 24% foreign owned with Japan owning some $600 billion and China some $400 billion.

They buy American interest bearing Treasury Bills & Treasury Bonds, which would have different maturity dates. The U.S. government incurs debt by issuing treasuries (bills, notes and bonds). These securities are either sold on the open market or directly to the Federal Reserve.

If the Fed buys huge amounts of Treasury debt, it can be assumed the national debt {about 9 trillion dollars} would be owed to the Fed, which apparently is owned by the wealthiest bankers in the world, not the American people. The State and Local debt at the end of 2006 stood at just over $2 trillion.

National debt about $10.5 trillion as of October 24, 2008.

Some consider that all government liabilities, including those that the government has contracted for but not yet paid, should also be included in the national debt. Corporations must report such liabilities in their annual financial statements under GAAP (Generally Accepted Accounting Principles).
These "off-balance sheet" items include future payments for federal pensions, Medicare and Social Security. Inclusion of these obligations would dramatically increase the U.S. national debt to $59.1 trillion or 403% of GDP!

The household sector has surged nearly 50% since 2001, increasing from $7.66 trillion to 12.82 trillion in 2006. Most of this jump is attributed to mortgage debt that has risen 83% since 2001. This has been what market analysts have been referring to as the "Housing Bubble". Starting in 2001, ordinary citizens became attracted to an increasingly speculative real estate market.


We move inexorably toward the socialization of credit risk and a much larger role for the state in the direction of the national economy.

The collapse of America’s credit bubble is very likely to lead, both here and abroad, to the revival of various forms of socialism. I wouldn't underestimate the power of nationalist and socialist tendencies in the new era.

A far more logical use of public resources is the tackling of our energy and environmental problems, both of them requiring large investments in infrastructure and alternative energy. We face the challenge of a generation in adapting to these challenges; the economic crisis, and the response given to it thus far, constitutes a formidable obstacle in doing so.

Serious savings could be had by reducing Defense force structure and limiting modernization. The most important step is to repudiate the Bush Doctrine and to rivet US military power to defensive purposes. The ground forces, slated to expand, should be reduced.


The Federal Reserve System (or 12 US owned banks)

Congress gave the Fed that power in 1913 when it created the nation's central bank, responsible for controlling the nation's money supply. The Fed's goal is to create enough money to keep the economy growing at a steady rate while guarding against creating so much money that it triggers inflation.

The FED failed it test in 1931-32 when it refused to lower interest rates. They did this because major money-center banks would have suffered precariously reduced earnings from their large portfolios of government securities. (p, 227, Wealth and Democracy by Kevin Phillips,

In other words, increasing the money supply, devalues the dollar, meaning the banks didn’t make as much profit on their loans paid back with dollars that have a lesser purchasing power.

Throughout history, there are plenty of examples of countries that let inflation get out of control. The last bout of high inflation in this country occurred in the 1970s and early 1980s when a series of oil price shocks sent the country into a period of stagflation -- stagnant growth together with persistently high inflation.

The FED has been play games with interest rates and inflation to keep the super rich in power and of course, wealthy.

Right before the credit crisis first struck with force in August 2007, the Fed's balance sheet stood at $850 billion. As of last week, that figure totaled $2.2 trillion -- nearly a threefold increase.

Some analysts think that scenario is possible with the current downturn, but they note that the Fed has caught a break, in the form of a 60 percent drop in oil prices since crude hit a record at $147 per barrel in mid-July.


The FED increases its reserves (the actual hard currency stored in their vaults), by "purchasing" government securities. when the FED purchases government securities, it does so with a FED check, which is a totally new form of money. In other words, when the FED writes a check, new money is created out of thin air. Government securities (like Treasury Bills) are paper promissory notes the government sells on the open market to raise money, which they then promise to pay back at a fixed time later, with a bit of interest. The government issues securities (various bonds, T-bills, etc.) in order to raise money, which increases the national debt, because these notes must be paid back when called upon (so long as it is past the maturation date issued on the note).

So when the FED wants to increase it's reserves, it purchases government securities with FED checks (new money remember), but it doesn't purchase newly issued securities directly from the government. It purchases them from the open market, from individuals and private institutions who have already bought them and who want to sell. These sellers then deposit the FED check into their local bank, and the multiplier effect again takes over. So the money supply increases even more.

And note that as the fed accumulates more and more government securities, the US government owes more and more money to the FED. But check this out. The FED doesn't need government money, because they are the ones who have the the power to print money anytime they want! And indeed, the FED has never sold a government security, ever. In its entire history, it has never decreased the money supply by selling its government securities and reducing its reserves. For 90+ years it has only been buying up US government securities.

The super rich are not worried. They are loaning it to themselves. The rich and powerful who control both the FED and the government. They don’t mean a government representing the people. And any time it wants the FED could call in these securities, making the government pay them back. But why would it do this? Certainly not when the economy is growing, because during a period of growth it can just keep playing the same game, issuing more money so banks can make more loans and collect interest. But when the economy stops growing, when nobody is taking out more loans, the game ends, and we are left with a situation where the US government now owes a load of money to the FED, and the only way the government can pay back this money now is by taxing the people.


Now consider ending the Federal Reserve System.

Global crisis threatens future LNG supply shock


Dec 12 (Reuters) - The world will face a severe liquefied natural gas supply crunch when demand rebounds after the economic crisis if more production plants are not built soon, delegates told the CWC World LNG Summit this week.

Talk of tight supplies and high prices affecting the market during last year's conference in Rome has turned to concern about long-term availability of gas after 2012.

Flower warned that a lack of new investment in new projects over the last three years would mean less fuel available to the market after that time.

"It's too late now to build very much new capacity to come onstream before 2013, whatever some of these optimistic projects say," he told delegates. "I think growth rates in supply will slow from 2013 onwards."



India faces a new energy crisis — unavailability of gas in the international market — that could worsen power supplies and impact a wide range of industries

This is because most of the cargoes have been bought by Japan, which is using gas to fire its power plants.

Brownout - Looming Electricity Shortage

By as early as next year our demand for electricity will exceed reliable supply in New England, Texas and the West and, by 2011, in New York and the mid-Atlantic region.

A failure of a power plant, or a summer-afternoon surge in the load, could make for a blackout or brownout. "There really isn't any excess in the system," says Rick P. Sergel, chief executive at the North American Electric Reliability Corporation (NERC).

Supply of liquefied natural gas imported from abroad via tankers. Good luck. Countries such as Japan and Korea are willing to pay 30% to 40% more than the U.S., so lng producers in Spain and India, for instance, are diverting shipments away from the U.S. David Ratcliffe, chief executive of the southeastern utility Southern Co., says he knows of times when a tanker loaded with lng was rerouted to a better-paying part of the world. Besides, relying on lng guarantees two things, neither good: more dependence on imported hydrocarbons and higher prices as the U.S. natural gas market gets tied to world prices. If we assume natural gas prices track oil's, gas will double from today's already high level.

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