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07.01.2008 0

A Dangerous Creature on the Prowl – Again!

  • On: 07/16/2008 14:46:05
  • In: Monetary Policy

  • “[T]he Fed action helps imprudent bankers dig out of a hole by putting prudent citizens and foreigners in one. This gives big financial businesses a shot at staving off disaster at the risk of cutting the spending and earning power of everyone else.” – Jon Markman, “Why the Fed’s rate cuts won’t help you,” March 18th, 2008

    The Fed’s latest rate cuts are soaking middle America and foreigners to keep the banks afloat. As G. Edward Griffin has noted in his seminal work, “The Creature from Jekyll Island,” the Federal Reserve System was created by bankers to control the financial system so that the bankers always come out on top.

    And that basically sums up what the Federal Reserve – a central bank owned and operated by the bankers themselves – is up to with its latest bailout. As the Fed cut the Federal Funds Rate Tuesday by ¾ of a percentage point down to 2.25% to help the money-squandering banks fix their balance sheets, the market shot up about 400 points.

    However, this “growth” is only an illusion, and as Jon Markman pointed out in his March 18th piece, the Fed’s rate cuts certainly won’t help the average citizen. In fact, it’s just the opposite:

    “Normally, when the Federal Reserve cuts the rate at which it lends money to U.S. banks, those banks in turn cut the rates at which they lend money to citizens and companies for personal and commercial use. Simple enough. Yet in the past few months, banks have made three important changes in their usual practice:

    • “They have not been passing all of their interest-rate savings to customers.
    • “They have restricted lending only to most creditworthy, documented applicants.
    • “They have cut the total amount they’re willing to lend.”

    And, why is that? Markman has an answer:

    “Rather than providing funds to prospective home buyers and business people with legitimate needs for moving into larger homes or expanding factory lines, records show the banks are hoarding the low-cost money they’re borrowing from the Fed and investing it in Treasury bonds paying higher interest yields [emphasis added]. They’re then pocketing the windfall profits to repair their own ravaged balance sheets.”

    As Markman goes on to note, the Fed’s action boosts inflation by increasing the money supply, leads to ever higher food, energy and gold prices, and reduces the yields on dividend-paying investments like government bonds.

    In short, the Creature from Jekyll Island is once again on the prowl, “seeking those whom he may devour” – in this case, the American taxpayer.

    ALG Perspective: Most Americans think that the Federal Reserve system is a part of the Federal government. But it’s not. It’s actually a central bank operated by a consortium of privately-owned financial institutions, whose own interests come first. Once again, as it has so often in the past, it has plunged us into a financial crisis. And it’s time to take a hard look as to whether it should exist at all, and if so, in what form.

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