Monday, November 22, 2010

« Eric Cantona: "Kill The Banks!" - Banque Stop! - European Bank Run On December 7 (VIDEO) »

You should be aware that there is a French-based European movement that is gaining considerable strength that calls for massive, coordinated bank withdrawals across the continent on December 7. It's an attempt at a modern, crowd-sourced bank run.

In France the last few weeks has been enough protest. Since demonstrating in the street have brought us nothing we understand that the real power lies in the hands of international banks and corporations.

All citizens of the country resolve your accounts in cash. The activists suggest, one can first put the money in a suitcase or invest it in a social bank.

http://www.huffingtonpost.com/social/breakingpoint/elections-2010-live-updates_n_774115_65345108.html

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For European readers, here are the relevant Facebook pages:

« Kill JPMorgan With A Silver Bullet - Max Keiser Starts A Revolution Against The Silver Manipulator »

Video: Crash JP Morgan, Buy Silver - Max Keiser

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More VIDEO below...

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Comment from writer and contributor Mark McHugh...

You're never going to get courtroom justice from all this (never ever). What you can do is take away their power by forcing them to exchange real money for worthless paper.

If you are serious about justice, listen to him now. His plan will work and make people money at the same time.

The Chinese can corner the world's silver market in the blink of an eye and the only reason I can think of that they haven't is out of respect for the American people. Despite what you may think about them, I don't think they want to thought of as being in cahoots with JPM. But, If we piss them off enough, they will take all the silver. They are waiting to see if we will deal with our own corruption.

What drives me completely bat-shit crazy is I often think of that Elizabeth Coleman video and how we have done nothing about it. It makes me embarrassed to be an American. I mean it. We deserve to be slaves if we won't stand up about that.

Here we have another opportunity to reclaim our country. This doesn't require any politician to lift a finger, it doesn't require you to understand what a CDO is. You just go buy some physical silver. If Americans can get off their butts and buy 300 million ounces of physical silver (about 1/3 of annual production), they will find out how long and how far the laws of supply and demand have been warped.

The same kind of dirty tricks played in the silver market are played against farmers to keep food prices low, by pretending there's more supply than there actually is, they drive prices lower to impoverish farmers and enrich themselves. When that game blows up, we'll start killing each other over food.

As important as silver is, it's nothing compared to food. We have to make JPM choke in its paper before it's too late. You can revolt now, this way, revolt later another way, or just sit there an accept whatever's gonna happen.

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Video: The Max Keiser Takedown of JPMorgan - Demand Physical Delivery!

Runs 2 minutes. Pretty good clip. This guy went out and bought some silver bars which he proudly displays as he calls for the destruction of JPMorgan.

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Hawaii Police State, TSA Naked Body Scanners unfortunately welcomed with an Aloha

Click this link .....

« Ireland Agrees To IMF, EU, U.S. Taxpayer Bailout - Bank Bondholders Don't Lose A Dime »

U.S. taxpayers finance approximately 20% of the IMF's budget, so this is now the 2nd European member state to require your assistance to survive. Greece and Ireland now bailed out, the bond market's focus will turn to the next 2 weakest links - Spain and Portugal.

Details inside.

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Scroll down for VIDEO...

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From the AP

DUBLIN – Ireland on Sunday became the second European nation to ask for a multibillion euro rescue loan to help stabilize its debt-ridden banks and Europe's finance ministers scrambled to talk about ways to relieve the country's debt crisis.

Other eurozone countries and the European Central Bank had pushed Dublin to accept help after anxiety over Ireland's massive bank-bailout bill threatened to spill over to the currency area's other shaky economies, including Portugal and Spain.

The request for help from the EU and the International Monetary Fund is a humiliating turnaround for the Irish government, which only days ago had denied that such a package was being negotiated or was even necessary.

It also dashes the hopes of other members of the 16-country currency union that the mere existence of a euro750 billion ($1025.55 billion) financial backstop set up in May would suffice to quell concern over several nations' massive debt levels.

Ireland's Finance Minister Brian Lenihan refused to give a precise figure on the fund, saying only that it would reach tens of billions of euros. He denied the figure would top euro100 billion ($136.7 billion), as some had speculated.

"I will be recommending to the government that we should apply for this program," a somber Lenihan told Irish state broadcaster RTE. The Irish cabinet is expected to sign off on the request later Sunday.

Experts from the EU, the ECB and the IMF in recent days have been digging through the books of Ireland's biggest banks to find out whether the government would have to pump in more than the euro50 billion it has already budgeted for the bailout.

Ireland is running a deficit of euro19 billion ($26 billion), which Lenihan said could not be financed at current market rates. Lenihan said the money would help Ireland pay its bills and provide a contingency fund to back up the banks, which have been hemorrhaging cash since the country's real estate boom crashed in 2008.

The interest rate on Ireland's 10-year bonds surged to above 8 percent in recent weeks, after the government again had to revise up the final cost of the bank bailout and economists raised doubts that the Irish economy could grow fast enough to pay off the debt.

"Clearly we want to borrow for much less than that," Lenihan said Sunday.

Although the government has insisted that it has enough cash on hand until the middle of 2011, analysts are concerned that the discovery of further holes in the banks' balance sheet could suddenly drive up costs.

Market jitters had also begun to spread, raising borrowing costs for Ireland and Spain and weighing on the value of the euro.

After the Irish cabinet has approved the loan application, Irish, EU and IMF officials will negotiate the details of the bailout. The first portion of the loan might come from the European Commission, the EU's executive; after that the IMF and a facility funded by eurozone nations would raise money in the international debt markets. The European Commission declined to comment on Ireland's request Sunday. The European Financial Stability Facility wasn't immediately available for comment.

The Irish rescue is the latest act in Europe's yearlong drama to prevent mounting debts and deficits from overwhelming the weakest members of the 16-nation eurozone. Greece was saved from bankruptcy in May, and analysts say Portugal, which some argue has done less than the Irish to bring debt and deficits back under control, could be next.

Reflecting the national mood, the Sunday Independent newspaper displayed the photos of Ireland's 15 Cabinet ministers on its front page, expressed hope that the IMF would order the Irish political class to take huge cuts in positions, pay and benefits — and called for Fianna Fail's destruction at the next election.

"Slaughter them after Christmas," the Sunday Independent's lead editorial urged.

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Clarke & Dawe on the European debt-guarantee circle jerk...

Brilliant satire. If you haven't seen this yet, buckle up.

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Jimmy Rogers explains how the situation should have been handled...

More detail on this clip is here:

Even better, Rogers never mucks around with airtime. This is a solid 2 minutes of pain for bank-bullshitting fear mongers on both sides of the Pond.

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The New Normal Recovery

Click this link 。。。。

Waterford Target to close

Target has announced their store in Waterford will be closing on January 29, 2011. According to Target, the decision to close “was made after careful consideration of the unit's long-term financial performance”.

The store, located at 355 Summit Drive, opened in 1987.

January closings tend to be more profitable as it allows the store to remain at full price during most of the holiday sales season. Clearance sales in January tend to be successful as shoppers are looking for – and expecting – low prices.

January is also considered a good month for store openings as new stores can be stocked with spring merchandise and escape after Christmas and winter markdowns.

Target has more than 1,700 discount stores in the United States, second only to Walmart. Kmart was once the leader in discount store count with over 2,100 stores spanning across all 50 states and Puerto Rico, but has dropped to just around 1,400 stores following the chain’s 2002 bankruptcy.

Kmart opened its first new stores in eight years in October by converting Sears Essentials stores to the Kmart banner. Openings were quiet with no grand opening fanfare beyond ribbon cuttings and cake.

© Rick Weaver, all rights reserved.

« Obama Tells Americans: Stop Complaining About The TSA, Get in Line and Get Molested Like Everyone Else (VIDEO) »

Obama on the TSA situation yesterday during a NATO press conference...

Much more inside, including Boehner saying 'Buh-bye' to security lines, and a routine from George Carlin on airport security.

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No Security Pat-Downs for Boehner - NYT

Updated Representative John A. Boehner, soon to be the Speaker of the House, has pledged to fly commercial airlines back to his home district in Ohio. But that does not mean that he will be subjected to the hassles of ordinary passengers, including the controversial security pat-downs.

As he left Washington on Friday, Mr. Boehner headed across the Potomac River to Reagan National Airport, which was bustling with afternoon travelers. But there was no waiting in line for Mr. Boehner, who was escorted around the metal detectors and body scanners, and taken directly to the gate.

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US Passenger Arrested For Refusing TSA Screening Process Then Paraded Through Airport in His Underwear

In what can only be described as TSA handlers gone wild, the San Diego Harbor Police arrested an area resident for refusal to complete the screening/security process yesterday. This is the same airport that created the TSA security catch phrase “don’t touch my junk.” John Kliner of San Diego started the airport screening firestorm last week as Americans head into the busiest travel week of the year in the United States.

This time the defendant, Sam Wolanyk says he was asked to pass through the 3-D x-ray machine. When Wolanyk refused, Transportation Security Administration (TSA) personnel told him he would have to be patted down before he could pass through and board his airplane.

Wolanyk said he knew what was coming and took off his pants and shirt, leaving him in Calvin Klein bike undergarments.

“It was obvious that my underwear left nothing to the imagination,” he explained. “But that wasn’t enough for the TSA supervisor who was called to the scene and asked me to put my clothes on so I could be properly patted down.”

It was clear to Wolanyk that TSA only wanted him to submit to a pat-down and if they were interested in ensuring the safety of all passengers they would have rifled through his clothes, carryon baggage and acknowledged that he was not carrying any illegal paraphernalia on his person.

Once Harbor Police arrested Wolanyk, he was handcuffed and paraded through two separate airport terminals in his underwear to the Harbor Police office located inside a different terminal at the airport than Wolanyk had originally gone through during his TSA security process.

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Profanity Warning! George Carlin on terrorism and personal liberties.

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In the mood for a riot? Check out these photos...

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Spoiler ALERT -- Do not miss #7:

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« Warren Buffett's $600 Million INTEREST-FREE Loan From Taxpayers & Many Other Ways The Government HOSES You To HELP The Insanely Rich! »

Video - David Cay Johnston, author, winner of the Pulitzer Prize

Very good clip. Much more detail inside.

"This enormous growth of incomes at the top is not the result of market forces -- there's some market forces -- but it's largely the result of all these rules nobody knows about," he tells Dan and Aaron in this clip.

The problem starts with government subsidies, says Johnston, a Pulitzer Prize-winning journalist. States are spending around $70 billion on government subsidies, he estimates. That doesn't include the hundreds of billions more doled out in federal subsidies.

"Is that capitalism?," he complains. "Go compete in a competitive arena. Don't go to Washington and say 'give me money' either by saying 'I don't have to pay taxes' or forcing other people to pay taxes that go to me. Go earn your money in the marketplace."

The wealth gap in America is outpacing much of the world. "Income inequality in the United States has soared ... with 1 percent controlling 24 percent of American income in 2007," New York Times columnist Nicholas Kristof recently wrote. Kristof notes that's worse than "historically unstable countries like Nicaragua, Venezuela and Guyana."

What's even more striking is that many of these unfair advantages are given to the biggest political contributors. The Wall Street bailouts are a perfect example.

"There's been a massive turnover of money to people who didn't have to face the consequences of the market," Johnston says. "Goldman Sachs got its bad bets paid off at 100 cents on the dollar. I’ve never seen the government do that for me."

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From Huff Po

Pulitzer Prize-winning journalist David Cay Johnston says it's no accident that the middle class has been shrinking.

In fact, in a recent conversation with Aaron Task and Daniel Gross on Yahoo's Tech Ticker, Johnston argues that the middle class is a direct result of a maze of subsidies and sweetheart deals that states and cities have doled out to big companies. (Johnston is the author of "Free Lunch: How The Wealthiest Americans Enrich Themselves At Government Expense (And Stick You With The Bill.")

"We've changed the government rule book in tremendous ways this enormous growth of incomes at the top is not the result of market forces," Johnston says, "it's the result of all these rules nobody knows about."

Among the questionable benefits that Johnston identifies are the deals received by teams in America's biggest four sports which, he says, get subsidies that are worth more than their combined profit. Cabelas, a sporting goods store, got $1.37 in subsidies for every dollar of profit it brought in, he notes.

States are spending approximately $70 billion on these type of corporate subsidies, but that may be understating the case. "Is that capitalism?," Johnston argues. "Go compete in a competitive arena. Don't go to Washington and say 'Give me money' either by saying 'I don't have to pay taxes' or forcing other people to pay taxes that go to me. Go earn your money in the marketplace."

He added: "Every community is doing this Every state is doing this... the net effect is wealth destruction and concentrating money in the hands of those who are politically connected."

Dear Airline, I'm Leaving You

by Megan McArdle

But don't feel too bad. It's not you, it's me. Or rather, it's the TSA.

I'm not going to lie. It's come between us. If I have to let someone else see me naked in order to be with you--well, I'm just not that kinky. And deep down, I don't think you are either. I think it's the TSA making you act like this. Frankly, you haven't been the same since you started running around together.

But I can't put all the blame on them. I think you went along because you thought I had to have you--that I couldn't live without you. That no matter what you did, I'd stay. And it's true, you had a pretty strong hold on me. Took away the food, and I still loved you--who wanted to eat a terrible, fattening meal anyway? Narrowed the distance between the seats, and still I stayed, using my airline miles to upgrade to first class. Charge me for baggage? I'm an economics writer--I love unbundled products. So I can see where you got the idea that I'd stick by you no matter what.

But the kinky stuff is just a bridge too far. I'm not saying I'll never see you again: we can still meet up for a drink, or even a quick weekend trip to California. But our days as a regular item are through....

It wouldn't be fair to just drop out of sight and not return your calls without letting you know why I was leaving. As it happens, I'm a frequent flier on American, and a pretty reliable customer of Delta and United. Or rather I was. Because like I said, I'm leaving you.

In fact, I've already left. My cousin's wedding in Buffalo in October? Drove eight hours each way. Going to visit Dad in Boston over Christmas? We're taking a slow train from DC rather than subject ourselves to the increasing indignity of flying. If it's under 500 miles, I'll do anything rather than hop on a plane. And if it's over 500 miles, it had better be way over . . . or I'd better be carrying a cooler with a still-beating heart in it.

AIRPORT PAT-DOWNS

TSA AIRPORT PAT-DOWNS

NOVEMBER 18, 2010. In case you’re living inside a tree, I’ll mention that US airports are now doing full body scans of passengers, and apparently there is a radiation risk, or there might be a radiation risk, or there is no risk, or the risk is “minimal.”

I found a TSA employee a few blocks away from LAX selling tinfoil hats. Business was brisk. But that’s another story.

If you decline the scan, because you don’t like the health odds, or because you object to having your nude photo taken and distributed on the internet, you can opt for the pat-down.

This is a same-sex grope. Unless the TSA employee is a transsexual. In that case, you construct your own definition of what is happening.

Now, having read stories about disgruntled passengers who didn’t appreciate their “junk” being shaken by strangers in an airport, I have come to the following conclusion:

Soon, there will be an incident of sexual intercourse.

And the TSA employee who carried out this form of inspection will say, “It depends on what the definition of ‘is’ is.”

Someone with a cell phone will capture the act on video, and it will garner 500 million hits in the first six hours.

ABC will win the sweepstakes, and having paid the victim four million dollars, Diane Sawyer will do the sensitive interview.

Drudge will discover the victim is a divorced mom with three kids from Cleveland—and moonlights on the side as a hooker.

She will say (but not to Diane Sawyer), “That was the most expensive trick I ever turned—by a long shot.”

Diane, however, will offer, in a low breathy voice: “We know at least one terrorist who had a bomb in his anus, so we must ask, was it only vaginal sex in the airport?”

And the mom/hooker will reply: “If I had gone for the anal, you guys would be paying me ten million for the interview.”

Homeland Security will, upon consideration, issue a release: “Sex is probably the best way to determine whether a terrorist intends to board a plane.”

During this entire episode, President Obama will be visiting US troops in Guam. He will spend a week with a little-known tribe rehearsing a rain dance.

Hillary Clinton will be aboard a space shuttle orbiting Earth.

In Washington DC, several groups will issue statements demanding a gay and lesbian pat-down option.

Unobserved, Osama Bin Laden will fly commercial from JFK to LAX, making stops in Columbus, Houston, Phoenix, and San Diego.

An Al Jazeera story will escape notice: “Today, leaders of the Wahabi sect announced the launch of a new air service in the United States. Traversing a variety of local routes, the commercial planes will accept only Islamic passengers, and will be flown and serviced by Islamic crews. Explosion Airlines is set to debut in March of 2011.”

JON RAPPOPORT

Eric Cantona's call for bank protest sparks online campaign

Thousands of French protesters have taken up the former Man United footballer's call for a mass cash withdrawal

eric
Eric Cantona is calling on protesters against cutbacks and pension reforms in France to start a real revolution by mass bank withdrawals. Photograph: MCP / Rex Features

As students and public sector workers across Europe prepare for a winter of protests, they have been offered advice from the archetypal football rebel Eric Cantona.

Cantona was once a famous exponent of direct action against adversaries on and off the pitch. In 1995 he was given a nine-month ban after launching a karate kick at a Crystal Palace fan who shouted racist abuse at the former Manchester United star after he was sent off. But while sympathising with the predicament of the protesters in France, the now retired Cantona is urging a more sophisticated approach to dissent.

The 44-year-old former footballer recommended a run on the cash reserves of the world's banks during a newspaper interview that was also filmed. The interview has become a YouTube hit and has spawned a new political movement.

The regional newspaper Presse Océan in Nantes had asked Cantona about his work with the Abbé Pierre Foundation, which campaigns for housing for the destitute and for which he produced a book of photographs last year. But the discussion soon moved on to other issues, including the demonstrations in France and elsewhere against government cutbacks in the new era of austerity.

Cantona, wearing a bright red jumper, dismissed protesters who take to the streets with placards and banners as passé. Instead, he said, they should create a social and economic revolution by taking their money out of their bank.

He said: "I don't think we can be entirely happy seeing such misery around us. Unless you live in a pod. But then there is a chance... there is something to do. Nowadays what does it mean to be on the streets? To demonstrate? You swindle yourself. Anyway, that's not the way any more.

"We don't pick up weapons to kill people to start the revolution. The revolution is really easy to do these days. What's the system? The system is built on the power of the banks. So it must be destroyed through the banks.

"This means that the three million people with their placards on the streets, they go to the bank and they withdraw their money and the banks collapse. Three million, 10 million people, and the banks collapse and there is no real threat. A real revolution.

"We must go to the bank. In this case there would be a real revolution. It's not complicated; instead of going on the streets and driving kilometres by car you simply go to the bank in your country and withdraw your money, and if there are a lot of people withdrawing their money the system collapses. No weapons, no blood, or anything like that."

He concludes: "It's not complicated and in this case they will listen to us in a different way. Trade unions? Sometimes we should propose ideas to them."

Cantona's call appeared to touch a popular chord and generated an instant response. Nearly 40,000 people have clicked on the YouTube clip, and a French-based movement – StopBanque – has taken up the campaign for a massive coordinated withdrawal of money from banks on 7 December. It is claimed that more than 14,000 people are already committed to removing deposits. The movement is also gaining increasing attention in Britain.

The trio of French Facebook users now leading the campaign have appealed to people across Europe to provoke a bank crash. "It is we who control the banks, not vice versa," they write.

In a fuller statement on the website Bankrun2010.com, the organisers write: "Our call has been more successful than we dared think. Our action is a people's movement... we're not seeking to destroy anyone in particular, it's the corrupt, criminal and moribund system that we have decided to oppose using what means we can, with determination and within the law." The statement is signed by Géraldine Feuillien, 41, a Belgian filmmaker, and Yann Sarfati, 24, an actor and director from France.

Sarfati said he and his friends had simply wanted to pass on Cantona's video clip, but had found themselves caught up in a global "citizens' movement".

"We were surprised by the interest and the buzz it created on the internet. It has really spread; there are now Facebook events in Italy, Romania, Bulgaria and even Korea," Sarfati said.

"We're not anarchists, nor linked to any political party or trade union; we're not even an organisation. We just thought this was another way of protesting."

He added: "In between doing publicity campaigns for L'Oréal, Cantona has this revolutionary side. He earns a good living, but obviously he has a social conscience and I think he is sincere."

Valérie Ohannesian, of the French Banking Federation, said she thought that the appeal was "stupid in every sense" and a charter for thieves and money-launderers.

"My first reaction is to laugh. It is totally idiotic," she told the Observer. "One of the main roles of a bank is to keep money safe. This appeal will give great pleasure to thieves, I would have thought."

She also doubted the practicalities of the suggestion. "If Mr Cantona wants to take his money out of the bank, I imagine that he'll need quite a few suitcases," she said.

ERIC'S DIRECT ACTION

1987 Fined by Auxerre for punching his team's goalkeeper, Bruno Martini.

1989 Kicks ball into the crowd and hurls shirt at the referee on being substituted in a charity match, then throws his jersey at Marseille coach Gerard Gili. Playing for Montpellier, he hits team-mate Jean-Claude Lemoult with his boot.

1991 Now playing for Nîmes, he throws the ball at the referee and storms off. Later attacks an opponent.

1993 Spits at a Leeds fan in his first season for Manchester United.

1995 Kicks out at a Crystal Palace defender and is sent off. As Cantona leaves the pitch, Palace fan Matthew Simmons screams abuse at him and Cantona launches his now infamous kung-fu kick at Simmons.

Israel Killed JFK Says Vanunu

Rediff.com
11-20-10
In a startling accusation, nuclear whistleblower Mordechai Vanunu has alleged that Jerusalem was behind the assassination of US President John F. Kennedy, who was exerting pressure on the then Israeli head of state to shed light on the Dimona nuclear plant.
In defiance of a ban on talking to the media and meeting with foreigners, Vanunu is said to have made the accusation in an interview to London-based Al-Hayat newspaper.
As per the interview published in newspaper's Arabic supplement Al-Wassat yesterday, Vanunu said according to "near-certain indications", Kennedy was assassinated due to "pressure he exerted on then head of government, David Ben-Gurion, to shed light on Dimona's nuclear reactor".
"We do not know which irresponsible Israeli Prime Minister will take office and decide to use nuclear weapons in the struggle against neighboring Arab countries," he is quoted to have said, adding, "What has already been exposed about the weapons Israel is holding can destroy the region and kill millions."
The whistleblower, who was released in April after 18 years of imprisonment on charges of treason for divulging state secrets, also said that the reactor in Dimona, could become a second "Chernobyl", Israili media reported. He said an earthquake could cause fissures to the core and that would cause a massive radiation leak threatening millions.
Vanunu warned that Jordan should test the residents along the border with Israel for exposure to radiation and give them pills just like the Jewish state decided to do for its citizens.
Criticising the visit of head of the Atomic Energy Agency, Mohammed el-Baradei, to Israel early this month, he said, "He (Baradei) should have refused to visit Israel (because) he was not allowed to inspect the nuclear reactor."
It was not yet clear how al-Hayat did the interview, which the publication claimed is the first with Vanunu since his release. If it turns out that he in fact gave such an interview in violation of the conditions laid down for his release, severe sanctions might be imposed on him.
An Israeli Justice Ministry statement said "the statements that Vanunu made will be examined and if it is determined that he violated the law or his restrictions, then steps against him will be considered."
"The opinions on Vanunu are divided," said Ra'anan Gissin, a spokesman for Prime Minister Ariel Sharon. "Some say let him speak and it adds to the ambiguity policy, while others say the more he speaks the more he raises tensions, particularly in the current atmosphere."
Brushing aside the latest allegations, he said that serious people understood that Vanunu was speaking nonsense and his comments on JFK were not worthy of a reaction.
http://www.rediff.com/news/2004/jul/26vanunu.htm




The Federal Reserve's Hidden Agenda: Driving the Country into a Second Depression

The Fed Is Saying One Thing But Doing Something Very Different

Ben Bernanke has said that the Fed is trying to promote inflation, increase lending, reduce unemployment, and stimulate the economy.

However, the Fed has arguably - to some extent - been working against all of these goals.

For example, as I reported in March, the Fed has been paying the big banks high enough interest on the funds which they deposit at the Fed to discourage banks from making loans. Indeed, the Fed has explicitly stated that - in order to prevent inflation - it wants to ensure that the banks don't loan out money into the economy, but instead deposit it at the Fed:

Why is M1 crashing? [the M1 money multiplier basically measures how much the money supply increases for each $1 increase in the monetary base, and it gives an indication of the "velocity" of money, i.e. how quickly money is circulating through the system]

Because the banks continue to build up their excess reserves, instead of lending out money:

(Click for full image)

These excess reserves, of course, are deposited at the Fed:

(Click for full image)

Why are banks building up their excess reserves?

As the Fed notes:

The Federal Reserve Banks pay interest on required reserve balances--balances held at Reserve Banks to satisfy reserve requirements--and on excess balances--balances held in excess of required reserve balances and contractual clearing balances.

The New York Fed itself said in a July 2009 staff report that the excess reserves are almost entirely due to Fed policy:

Since September 2008, the quantity of reserves in the U.S. banking system has grown dramatically, as shown in Figure 1.1 Prior to the onset of the financial crisis, required reserves were about $40 billion and excess reserves were roughly $1.5 billion. Excess reserves spiked to around $9 billion in August 2007, but then quickly returned to pre-crisis levels and remained there until the middle of September 2008. Following the collapse of Lehman Brothers, however, total reserves began to grow rapidly, climbing above $900 billion by January 2009. As the figure shows, almost all of the increase was in excess reserves. While required reserves rose from $44 billion to $60 billion over this period, this change was dwarfed by the large and unprecedented rise in excess reserves.

[Figure 1 is here]

Why are banks holding so many excess reserves? What do the data in Figure 1 tell us about current economic conditions and about bank lending behavior? Some observers claim that the large increase in excess reserves implies that many of the policies introduced by the Federal Reserve in response to the financial crisis have been ineffective. Rather than promoting the flow of credit to firms and households, it is argued, the data shown in Figure 1 indicate that the money lent to banks and other intermediaries by the Federal Reserve since September 2008 is simply sitting idle in banks’ reserve accounts. Edlin and Jaffee (2009), for example, identify the high level of excess reserves as either the “problem” behind the continuing credit crunch or “if not the problem, one heckuva symptom” (p.2). Commentators have asked why banks are choosing to hold so many reserves instead of lending them out, and some claim that inducing banks to lend their excess reserves is crucial for resolving the credit crisis.

This view has lead to proposals aimed at discouraging banks from holding excess reserves, such as placing a tax on excess reserves (Sumner, 2009) or setting a cap on the amount of excess reserves each bank is allowed to hold (Dasgupta, 2009). Mankiw (2009) discusses historical concerns about people hoarding money during times of financial stress and mentions proposals that were made to tax money holdings in order to encourage lending. He relates these historical episodes to the current situation by noting that “[w]ith banks now holding substantial excess reserves, [this historical] concern about cash hoarding suddenly seems very modern.”

[In fact, however,] the total level of reserves in the banking system is determined almost entirely by the actions of the central bank and is not affected by private banks’ lending decisions.

The liquidity facilities introduced by the Federal Reserve in response to the crisis have created a large quantity of reserves. While changes in bank lending behavior may lead to small changes in the level of required reserves, the vast majority of the newly-created reserves will end up being held as excess reserves almost no matter how banks react. In other words, the quantity of excess reserves depicted in Figure 1 reflects the size of the Federal Reserve’s policy initiatives, but says little or nothing about their effects on bank lending or on the economy more broadly.

This conclusion may seem strange, at first glance, to readers familiar with textbook presentations of the money multiplier.

Why Is The Fed Locking Up Excess Reserves?

Why is the Fed locking up excess reserves?

As Fed Vice Chairman Donald Kohn said in a speech on April 18, 2009:

We are paying interest on excess reserves, which we can use to help provide a floor for the federal funds rate, as it does for other central banks, even if declines in lending or open market operations are not sufficient to bring reserves down to the desired level.

Kohn said in a speech on January 3, 2010:

Because we can now pay interest on excess reserves, we can raise short-term interest rates even with an extraordinarily large volume of reserves in the banking system. Increasing the rate we offer to banks on deposits at the Federal Reserve will put upward pressure on all short-term interest rates.

As the Minneapolis Fed's research consultant, V. V. Chari, wrote this month:

Currently, U.S. banks hold more than $1.1 trillion of reserves with the Federal Reserve System. To restrict excessive flow of reserves back into the economy, the Fed could increase the interest rate it pays on these reserves. Doing so would not only discourage banks from draining their reserve holdings, but would also exert upward pressure on broader market interest rates, since only rates higher than the overnight reserve rate would attract bank funds. In addition, paying interest on reserves is supported by economic theory as a means of reducing monetary inefficiencies, a concept referred to as “the Friedman rule.”

And the conclusion to the above-linked New York Fed article states:

We also discussed the importance of paying interest on reserves when the level of excess reserves is unusually high, as the Federal Reserve began to do in October 2008. Paying interest on reserves allows a central bank to maintain its influence over market interest rates independent of the quantity of reserves created by its liquidity facilities. The central bank can then let the size of these facilities be determined by conditions in the financial sector, while setting its target for the short-term interest rate based on macroeconomic conditions. This ability to separate monetary policy from the quantity of bank reserves is particularly important during the recovery from a financial crisis. If inflationary pressures begin to appear while the liquidity facilities are still in use, the central bank can use its interest-on-reserves policy to raise interest rates without necessarily removing all of the reserves created by the facilities.

As the NY Fed explains in more detail:

The central bank paid interest on reserves to prevent the increase in reserves from driving market interest rates below the level it deemed appropriate given macroeconomic conditions. In such a situation, the absence of a money-multiplier effect should be neither surprising nor troubling.

Is the large quantity of reserves inflationary?

Some observers have expressed concern that the large quantity of reserves will lead to an increase in the inflation rate unless the Federal Reserve acts to remove them quickly once the economy begins to recover. Meltzer (2009), for example, worries that “the enormous increase in bank reserves — caused by the Fed’s purchases of bonds and mortgages — will surely bring on severe inflation if allowed to remain.” Feldstein (2009) expresses similar concern that “when the economy begins to recover, these reserves can be converted into new loans and faster money growth” that will eventually prove inflationary. Under a traditional operational framework, where the central bank influences interest rates and the level of economic activity by changing the quantity of reserves, this concern would be well justified. Now that the Federal Reserve is paying interest on reserves, however, matters are different.

When the economy begins to recover, firms will have more profitable opportunities to invest, increasing their demands for bank loans. Consequently, banks will be presented with more lending opportunities that are profitable at the current level of interest rates. As banks lend more, new deposits will be created and the general level of economic activity will increase. Left unchecked, this growth in lending and economic activity may generate inflationary pressures. Under a traditional operating framework, where no interest is paid on reserves, the central bank must remove nearly all of the excess reserves from the banking system in order to arrest this process. Only by removing these excess reserves can the central bank limit banks’ willingness to lend to firms and households and cause short-term interest rates to rise.

Paying interest on reserves breaks this link between the quantity of reserves and banks’ willingness to lend. By raising the interest rate paid on reserves, the central bank can increase market interest rates and slow the growth of bank lending and economic activity without changing the quantity of reserves. In other words, paying interest on reserves allows the central bank to follow a path for short-term interest rates that is independent of the level of reserves. By choosing this path appropriately, the central bank can guard against inflationary pressures even if financial conditions lead it to maintain a high level of excess reserves.

This logic applies equally well when financial conditions are normal. A central bank may choose to maintain a high level of reserve balances in normal times because doing so offers some important advantages, particularly regarding the operation of the payments system. For example, when banks hold more reserves they tend to rely less on daylight credit from the central bank for payments purposes. They also tend to send payments earlier in the day, on average, which reduces the likelihood of a significant operational disruption or of gridlock in the payments system. To capture these benefits, a central bank may choose to create a high level of reserves as a part of its normal operations, again using the interest rate it pays on reserves to influence market interest rates.

Because financial conditions are not "normal", it appears that preventing inflation seems to be the Fed's overriding purpose in creating conditions ensuring high levels of excess reserves.

***
As Barron's notes:

The multiplier's decline "corresponds so exactly to the expansion of the Fed's balance sheet," says Constance Hunter, economist at hedge-fund firm Galtere. "It hits at the core of the problem in a credit crisis. Until [the multiplier] expands, we can't get sustainable growth of credit, jobs, consumption, housing. When the multiplier starts to go back up toward 1.8, then we know the psychological logjam has begun to break."

***

It's not just the Fed. The NY Fed report notes:

Most central banks now pay interest on reserves.

Robert D. Auerbach - an economist with the U.S. House of Representatives Financial Services Committee for eleven years, assisting with oversight of the Federal Reserve, and subsequently Professor of Public Affairs at the Lyndon B. Johnson School of Public Affairs at the University of Texas at Austin - argues that the Fed should slowly reduce the interest paid on reserves so as to stimulate the economy.

Last week, Auerbach wrote:

The stimulative effects of QE2 may be small and the costs may be large. One of these costs will be the payment of billions of dollars by taxpayers to the banks which currently hold over 50 percent of the monetary base, over $1 trillion in reserves. The interest payments are an incentive for banks to hold reserves rather than make business loans. If market interest rates rise, the Federal Reserve may be required to increase these interest payments to prevent the huge amount of bank reserves from flooding the economy. They should follow a different policy that benefits taxpayers and increases the incentive of banks to make business loans as I have previously suggested.

In September, Auerbach explained:

Immediately after the recession took a dramatic dive in September 2008, the Bernanke Fed implemented a policy that continues to further damage the incentive for banks to lend to businesses. On October 6, 2008 the Fed's Board of Governors, chaired by Ben Bernanke, announced it would begin paying interest on the reserve balances of the nation's banks, major lenders to medium and small size businesses.

You don't need a Ph.D. economist to know that if you pay banks ¼ percent risk free interest to hold reserves that they can obtain at near zero interest, that would be an incentive to hold the reserves. The Fed pumped out huge amounts of money, with the base of the money supply more than doubling from August 2008 to August 2010, reaching $1.99 trillion. Guess who has over half of this money parked in cold storage? The banks have $1.085 trillion on reserves drawing interest, The Fed records show they were paid $2.18 billion interest on these reserves in 2009.

A number of people spoke about the disincentive for bank lending embedded in this policy including Chairman Bernanke.

***
Jim McTague, Washington Editor of Barrons, wrote in his February 2, 2009 column, "Where's the Stimulus:" "Increasing the supply of credit might help pump up spending, too. University of Texas Professor Robert Auerbach an economist who studied under the late Milton Friedman, thinks he has the makings of a malpractice suit against Federal Reserve Chairman Ben Bernanke, as the Fed is holding a record number of reserves: $901 billion in January as opposed to $44 billion in September, when the Fed began paying interest on money commercial banks parked at the central bank. The banks prefer the sure rate of return they get by sitting in cash, not making loans. Fed, stop paying, he says."

Shortly after this article appeared Fed Chairman Bernanke explained: "Because banks should be unwilling to lend reserves at a rate lower than they can receive from the Fed, the interest rate the Fed pays on bank reserves should help to set a floor on the overnight interest rate." (National Press Club, February 18, 2009) That was an admission that the Fed's payment of interest on reserves did impair bank lending. Bernanke's rationale for interest payments on reserves included preventing banks from lending at lower interest rates. That is illogical at a time when the Fed's target interest rate for federal funds, the small market for interbank loans, was zero to a quarter of one percent. The banks would be unlikely to lend at negative rates of interest -- paying people to take their money -- even without the Fed paying the banks to hold reserves.

The next month William T. Gavin, an excellent economist at the St. Louis Federal Reserve, wrote in its March\April 2009 publication: "first, for the individual bank, the risk-free rate of ¼ percent must be the bank's perception of its best investment opportunity."

The Bernanke Fed's policy was a repetition of what the Fed did in 1936 and 1937 which helped drive the country into a second depression. Why does Chairman Bernanke, who has studied the Great Depression of the 1930's and has surely read the classic 1963 account of improper actions by the Fed on bank reserves described by Milton Friedman and Anna Schwartz, repeat the mistaken policy?

As the economy pulled out of the deep recession in 1936 the Fed Board thought the U.S. banks had too much excess reserves, so they began to raise the reserves banks were required to hold. In three steps from August 1936 to May 1937 they doubled the reserve requirements for the large banks (13 percent to 26 percent of checkable deposits) and the country banks (7 percent to 14 percent of checkable deposits).

Friedman and Schwartz ask: "why seek to immobilize reserves at that time?" The economy went back into a deep depression. The Bernanke Fed's 2008 to 2010 policy also immobilizes the banking system's reserves reducing the banks' incentive to make loans.

This is a bad policy even if the banks approve. The correct policy now should be to slowly reduce the interest paid on bank reserves to zero and simultaneously maintain a moderate increase in the money supply by slowly raising the short term market interest rate targeted by the Fed. Keeping the short term target interest rate at zero causes many problems, not the least of which is allowing banks to borrow at a zero interest rate and sit on their reserves so they can receive billions in interest from the taxpayers via the Fed. Business loans from banks are vital to the nations' recovery.

The fact that the Fed is suppressing lending and inflation at a time when it says it is trying to encourage both shows that the Fed is saying one thing and doing something else entirely.

I have previously pointed out numerous other ways in which the Fed is working against its stated goals, such as:

Reinforcing cyclical trends (when one of the Fed's main justifications is providing a counter-cyclical balance);

Increasing unemployment (when the Fed is mandated by law to maximize employment); and

Encouraging financial companies to make even riskier gambles in the future (when it is supposed to stabilize the financial system).

And see this.

Postscript: If the Fed really wants to stimulate the economy, it should try Steve Keen's idea.

Obama Forces 700,000 Seniors Out Of Med Coverage

President Barack Obama is a bald faced liar and senior citizens
will die thanks to this duplicitous Chicago politician.

By Charles Benninghoff
11-20-10
Obama said while trying to pass his government takeover of your health care that you would be able to keep your doctor and health care plan. Like Jon Lovitz of Saturday Night Live, he lied and he knew it.
Last year we heard it over and over, I'm talking of course about President Obama's promise that if you like your plan you can keep it. Well forget it. Today it was discovered that another 700,000 Seniors will have to change plans, because health insurers are shutting down certain types of plans because of legislative changes and looming cuts to federal funding. That is on top of the announcement in August that three million seniors would have to get new providers.
Cigna Corp., Harvard Pilgrim Health Care, several Blue Cross Blue Shield plans and others aren't renewing hundreds of Medicare Advantage plans, which are Medicare policies administered by private insurers. The moves will displace some 700,000 beneficiaries who must find new policies, according to Humana Inc., a large seller of Advantage plans.
For 2011, the Kaiser Family Foundation said there will be a 13% decline in the number of Medicare Advantage plans. "
He lied about the Death Panels--there are two.
He lied about his takeover of your health care would bring down costs. "The pullback is largely due to a 2008 law that required the plans to have networks of preferred doctors, with the idea that managed care could be less costly and aggressive marketing could be curbed. Some providers of traditional fee-for-service policies decided to close the plans rather than invest in networks. But some insurers say the federal health-care overhaul, which includes $140 billion in cuts to reimbursements for Advantage plans over 10 years, is a factor as well.
Insurers are also saying as the market tightens up more plans will close and prices will go up."
Why would you expect to have costs go down if you cut half a trillion dollars from Medicare and add 32 million people to be served. Oh, all of this without adding a single doctor and lowering reimbursement fee for hospitals and doctors.
Thanks to the hack from Chicago, not only is our economy tanking, the value of our dollar going down 20%, but our very health is now in trouble. About 735 days to regime change--this is no longer about politics; it is about saving your life.

http://yidwithlid.blogspot.com/2010/11/another-700000-seniors-will-be-forced.html?
utm_source=feedburner&utm_medium=email&utm_campaign=Feed%3A+Yid
WithLid+%28YID+With+LID%29 for the complete article.

The Fed Is Saying One Thing But Doing Something Very Different

WASHINGTONSBLOG.COM


Ben Bernanke has said that the Fed is trying to promote inflation, increase lending, reduce unemployment, and stimulate the economy.
However, the Fed has arguably - to some extent - been working against all of these goals.
For example, as I reported in March, the Fed has been paying the big banks high enough interest on the funds which they deposit at the Fed to discourage banks from making loans. Indeed, the Fed has explicitly stated that - in order to prevent inflation - it wants to ensure that the banks don't loan out money into the economy, but instead deposit it at the Fed:
Why is M1 crashing? [the M1 money multiplier basically measures how much the money supply increases for each $1 increase in the monetary base, and it gives an indication of the "velocity" of money, i.e. how quickly money is circulating through the system]
Because the banks continue to build up their excess reserves, instead of lending out money:

(Click for full image)
These excess reserves, of course, are deposited at the Fed:

(Click for full image)
Why are banks building up their excess reserves?
As the Fed notes:
The Federal Reserve Banks pay interest on required reserve balances--balances held at Reserve Banks to satisfy reserve requirements--and on excess balances--balances held in excess of required reserve balances and contractual clearing balances.
The New York Fed itself said in a July 2009 staff report that the excess reserves are almost entirely due to Fed policy:
Since September 2008, the quantity of reserves in the U.S. banking system has grown dramatically, as shown in Figure 1.1 Prior to the onset of the financial crisis, required reserves were about $40 billion and excess reserves were roughly $1.5 billion. Excess reserves spiked to around $9 billion in August 2007, but then quickly returned to pre-crisis levels and remained there until the middle of September 2008. Following the collapse of Lehman Brothers, however, total reserves began to grow rapidly, climbing above $900 billion by January 2009. As the figure shows, almost all of the increase was in excess reserves. While required reserves rose from $44 billion to $60 billion over this period, this change was dwarfed by the large and unprecedented rise in excess reserves.


[Figure 1 is here]
Why are banks holding so many excess reserves? What do the data in Figure 1 tell us about current economic conditions and about bank lending behavior? Some observers claim that the large increase in excess reserves implies that many of the policies introduced by the Federal Reserve in response to the financial crisis have been ineffective. Rather than promoting the flow of credit to firms and households, it is argued, the data shown in Figure 1 indicate that the money lent to banks and other intermediaries by the Federal Reserve since September 2008 is simply sitting idle in banks’ reserve accounts. Edlin and Jaffee (2009), for example, identify the high level of excess reserves as either the “problem” behind the continuing credit crunch or “if not the problem, one heckuva symptom” (p.2). Commentators have asked why banks are choosing to hold so many reserves instead of lending them out, and some claim that inducing banks to lend their excess reserves is crucial for resolving the credit crisis.


This view has lead to proposals aimed at discouraging banks from holding excess reserves, such as placing a tax on excess reserves (Sumner, 2009) or setting a cap on the amount of excess reserves each bank is allowed to hold (Dasgupta, 2009). Mankiw (2009) discusses historical concerns about people hoarding money during times of financial stress and mentions proposals that were made to tax money holdings in order to encourage lending. He relates these historical episodes to the current situation by noting that “[w]ith banks now holding substantial excess reserves, [this historical] concern about cash hoarding suddenly seems very modern.”


[In fact, however,] the total level of reserves in the banking system is determined almost entirely by the actions of the central bank and is not affected by private banks’ lending decisions.


The liquidity facilities introduced by the Federal Reserve in response to the crisis have created a large quantity of reserves. While changes in bank lending behavior may lead to small changes in the level of required reserves, the vast majority of the newly-created reserves will end up being held as excess reserves almost no matter how banks react. In other words, the quantity of excess reserves depicted in Figure 1 reflects the size of the Federal Reserve’s policy initiatives, but says little or nothing about their effects on bank lending or on the economy more broadly.


This conclusion may seem strange, at first glance, to readers familiar with textbook presentations of the money multiplier.
Why Is The Fed Locking Up Excess Reserves?


Why is the Fed locking up excess reserves?
As Fed Vice Chairman Donald Kohn said in a speech on April 18, 2009:
We are paying interest on excess reserves, which we can use to help provide a floor for the federal funds rate, as it does for other central banks, even if declines in lending or open market operations are not sufficient to bring reserves down to the desired level.
Kohn said in a speech on January 3, 2010:
Because we can now pay interest on excess reserves, we can raise short-term interest rates even with an extraordinarily large volume of reserves in the banking system. Increasing the rate we offer to banks on deposits at the Federal Reserve will put upward pressure on all short-term interest rates.
As the Minneapolis Fed's research consultant, V. V. Chari, wrote this month:
Currently, U.S. banks hold more than $1.1 trillion of reserves with the Federal Reserve System. To restrict excessive flow of reserves back into the economy, the Fed could increase the interest rate it pays on these reserves. Doing so would not only discourage banks from draining their reserve holdings, but would also exert upward pressure on broader market interest rates, since only rates higher than the overnight reserve rate would attract bank funds. In addition, paying interest on reserves is supported by economic theory as a means of reducing monetary inefficiencies, a concept referred to as “the Friedman rule.”
And the conclusion to the above-linked New York Fed article states:
We also discussed the importance of paying interest on reserves when the level of excess reserves is unusually high, as the Federal Reserve began to do in October 2008. Paying interest on reserves allows a central bank to maintain its influence over market interest rates independent of the quantity of reserves created by its liquidity facilities. The central bank can then let the size of these facilities be determined by conditions in the financial sector, while setting its target for the short-term interest rate based on macroeconomic conditions. This ability to separate monetary policy from the quantity of bank reserves is particularly important during the recovery from a financial crisis. If inflationary pressures begin to appear while the liquidity facilities are still in use, the central bank can use its interest-on-reserves policy to raise interest rates without necessarily removing all of the reserves created by the facilities.
As the NY Fed explains in more detail:
The central bank paid interest on reserves to prevent the increase in reserves from driving market interest rates below the level it deemed appropriate given macroeconomic conditions. In such a situation, the absence of a money-multiplier effect should be neither surprising nor troubling.


Is the large quantity of reserves inflationary?


Some observers have expressed concern that the large quantity of reserves will lead to an increase in the inflation rate unless the Federal Reserve acts to remove them quickly once the economy begins to recover. Meltzer (2009), for example, worries that “the enormous increase in bank reserves — caused by the Fed’s purchases of bonds and mortgages — will surely bring on severe inflation if allowed to remain.” Feldstein (2009) expresses similar concern that “when the economy begins to recover, these reserves can be converted into new loans and faster money growth” that will eventually prove inflationary. Under a traditional operational framework, where the central bank influences interest rates and the level of economic activity by changing the quantity of reserves, this concern would be well justified. Now that the Federal Reserve is paying interest on reserves, however, matters are different.


When the economy begins to recover, firms will have more profitable opportunities to invest, increasing their demands for bank loans. Consequently, banks will be presented with more lending opportunities that are profitable at the current level of interest rates. As banks lend more, new deposits will be created and the general level of economic activity will increase. Left unchecked, this growth in lending and economic activity may generate inflationary pressures. Under a traditional operating framework, where no interest is paid on reserves, the central bank must remove nearly all of the excess reserves from the banking system in order to arrest this process. Only by removing these excess reserves can the central bank limit banks’ willingness to lend to firms and households and cause short-term interest rates to rise.


Paying interest on reserves breaks this link between the quantity of reserves and banks’ willingness to lend. By raising the interest rate paid on reserves, the central bank can increase market interest rates and slow the growth of bank lending and economic activity without changing the quantity of reserves. In other words, paying interest on reserves allows the central bank to follow a path for short-term interest rates that is independent of the level of reserves. By choosing this path appropriately, the central bank can guard against inflationary pressures even if financial conditions lead it to maintain a high level of excess reserves.


This logic applies equally well when financial conditions are normal. A central bank may choose to maintain a high level of reserve balances in normal times because doing so offers some important advantages, particularly regarding the operation of the payments system. For example, when banks hold more reserves they tend to rely less on daylight credit from the central bank for payments purposes. They also tend to send payments earlier in the day, on average, which reduces the likelihood of a significant operational disruption or of gridlock in the payments system. To capture these benefits, a central bank may choose to create a high level of reserves as a part of its normal operations, again using the interest rate it pays on reserves to influence market interest rates.
Because financial conditions are not "normal", it appears that preventing inflation seems to be the Fed's overriding purpose in creating conditions ensuring high levels of excess reserves.


***
As Barron's notes:
The multiplier's decline "corresponds so exactly to the expansion of the Fed's balance sheet," says Constance Hunter, economist at hedge-fund firm Galtere. "It hits at the core of the problem in a credit crisis. Until [the multiplier] expands, we can't get sustainable growth of credit, jobs, consumption, housing. When the multiplier starts to go back up toward 1.8, then we know the psychological logjam has begun to break."
***
It's not just the Fed. The NY Fed report notes:

Most central banks now pay interest on reserves.
Robert D. Auerbach - an economist with the U.S. House of Representatives Financial Services Committee for eleven years, assisting with oversight of the Federal Reserve, and subsequently Professor of Public Affairs at the Lyndon B. Johnson School of Public Affairs at the University of Texas at Austin - argues that the Fed should slowly reduce the interest paid on reserves so as to stimulate the economy.


Last week, Auerbach wrote:
The stimulative effects of QE2 may be small and the costs may be large. One of these costs will be the payment of billions of dollars by taxpayers to the banks which currently hold over 50 percent of the monetary base, over $1 trillion in reserves. The interest payments are an incentive for banks to hold reserves rather than make business loans. If market interest rates rise, the Federal Reserve may be required to increase these interest payments to prevent the huge amount of bank reserves from flooding the economy. They should follow a different policy that benefits taxpayers and increases the incentive of banks to make business loans as I have previously suggested.
In September, Auerbach explained:
Immediately after the recession took a dramatic dive in September 2008, the Bernanke Fed implemented a policy that continues to further damage the incentive for banks to lend to businesses. On October 6, 2008 the Fed's Board of Governors, chaired by Ben Bernanke, announced it would begin paying interest on the reserve balances of the nation's banks, major lenders to medium and small size businesses.
You don't need a Ph.D. economist to know that if you pay banks ¼ percent risk free interest to hold reserves that they can obtain at near zero interest, that would be an incentive to hold the reserves. The Fed pumped out huge amounts of money, with the base of the money supply more than doubling from August 2008 to August 2010, reaching $1.99 trillion. Guess who has over half of this money parked in cold storage? The banks have $1.085 trillion on reserves drawing interest, The Fed records show they were paid $2.18 billion interest on these reserves in 2009.
A number of people spoke about the disincentive for bank lending embedded in this policy including Chairman Bernanke.
***
Jim McTague, Washington Editor of Barrons, wrote in his February 2, 2009 column, "Where's the Stimulus:" "Increasing the supply of credit might help pump up spending, too. University of Texas Professor Robert Auerbach an economist who studied under the late Milton Friedman, thinks he has the makings of a malpractice suit against Federal Reserve Chairman Ben Bernanke, as the Fed is holding a record number of reserves: $901 billion in January as opposed to $44 billion in September, when the Fed began paying interest on money commercial banks parked at the central bank. The banks prefer the sure rate of return they get by sitting in cash, not making loans. Fed, stop paying, he says."


Shortly after this article appeared Fed Chairman Bernanke explained: "Because banks should be unwilling to lend reserves at a rate lower than they can receive from the Fed, the interest rate the Fed pays on bank reserves should help to set a floor on the overnight interest rate." (National Press Club, February 18, 2009) That was an admission that the Fed's payment of interest on reserves did impair bank lending. Bernanke's rationale for interest payments on reserves included preventing banks from lending at lower interest rates. That is illogical at a time when the Fed's target interest rate for federal funds, the small market for interbank loans, was zero to a quarter of one percent. The banks would be unlikely to lend at negative rates of interest -- paying people to take their money -- even without the Fed paying the banks to hold reserves.


The next month William T. Gavin, an excellent economist at the St. Louis Federal Reserve, wrote in its March\April 2009 publication: "first, for the individual bank, the risk-free rate of ¼ percent must be the bank's perception of its best investment opportunity."
The Bernanke Fed's policy was a repetition of what the Fed did in 1936 and 1937 which helped drive the country into a second depression. Why does Chairman Bernanke, who has studied the Great Depression of the 1930's and has surely read the classic 1963 account of improper actions by the Fed on bank reserves described by Milton Friedman and Anna Schwartz, repeat the mistaken policy?
As the economy pulled out of the deep recession in 1936 the Fed Board thought the U.S. banks had too much excess reserves, so they began to raise the reserves banks were required to hold. In three steps from August 1936 to May 1937 they doubled the reserve requirements for the large banks (13 percent to 26 percent of checkable deposits) and the country banks (7 percent to 14 percent of checkable deposits).
Friedman and Schwartz ask: "why seek to immobilize reserves at that time?" The economy went back into a deep depression. The Bernanke Fed's 2008 to 2010 policy also immobilizes the banking system's reserves reducing the banks' incentive to make loans.
This is a bad policy even if the banks approve. The correct policy now should be to slowly reduce the interest paid on bank reserves to zero and simultaneously maintain a moderate increase in the money supply by slowly raising the short term market interest rate targeted by the Fed. Keeping the short term target interest rate at zero causes many problems, not the least of which is allowing banks to borrow at a zero interest rate and sit on their reserves so they can receive billions in interest from the taxpayers via the Fed. Business loans from banks are vital to the nations' recovery.
The fact that the Fed is suppressing lending and inflation at a time when it says it is trying to encourage both shows that the Fed is saying one thing and doing something else entirely.


I have previously pointed out numerous other ways in which the Fed is working against its stated goals, such as:
And see this.

Ruling on Behalf of Wall Street's "Super Rich": The Financial End Time has Arrived

Now that President Obama is almost celebrating his bipartisan willingness to renew the tax cuts for the super-rich enacted under George Bush ten years ago, it is time for Democrats to ask themselves how strongly they are willing to oppose an administration that looks like Bush-Cheney III. Is this what they expected by Mr. Obama’s promise to rise above partisan politics – by ruling on behalf of Wall Street, now that it is the major campaign backer of both parties?

It is a reflection of how one-sided today’s class war has become that Warren Buffet has quipped that “his” side is winning without a real fight being waged. No gauntlet has been thrown down over the trial balloon that the president and his advisor David Axelrod have sent up over the past two weeks to extend the Bush tax cuts for the wealthiest 2% for “just” two more years. For all practical purposes the euphemism “two years” means forever – at least, long enough to let the super-rich siphon off enough more money to bankroll enough more Republicans to be elected to make the tax cuts permanent.

Mr. Obama seems to be campaigning for his own defeat! Thanks largely to the $13 trillion Wall Street bailout – while keeping the debt overhead in place for America’s “bottom 98%” – this happy 2% of the population now receives an estimated three quarters (~75%) of the returns to wealth (interest, dividends, rent and capital gains). This is nearly double what it received a generation ago. The rest of the population is being squeezed, and foreclosures are rising.

Charles Baudelaire quipped that the devil wins at the point where he manages to convince the world that he doesn’t exist. Today’s financial elites will win the class war at the point where voters believe it doesn’t exist – and believe that Mr. Obama is trying to help them rather than shepherd them into debt peonage as the economy settles into debt deflation.

We are dealing with shameless demagogy. The financial End Time has arrived, but Mr. Obama’s happy-talk pretends that “two years” will get us through the current debt-induced depression. The Republican plan is to make more Congressional and Senate gains in 2012 as Mr. Obama’s former supporters “vote with their backsides” and stay home, as they did earlier this month. So “two years” means forever in politician-talk. Why vote for a politician who promises “change” but is merely an exclamation mark for the Bush-Cheney policies from Afghanistan and Iraq to Wall Street’s Democratic Leadership Council on the party’s right wing? One of its leaders, after all, was Mr. Obama’s Senate mentor, Joe Lieberman.

The second pretense is that cutting taxes for the super-rich is necessary to win Republican support for including the middle class in the tax cuts. It is as if the Democrats never won a plurality in Congress. (One remembers George W. Bush with his mere 50+%, pushing forward his extremist policies on the logic that: “I’ve got capital, and I’m using it.” What he had, of course, was Democratic Leadership Committee support.) The pretense is “to create jobs,” evidently to be headed by employment of shipyard workers to build yachts for the nouveau riches and sheriff’s deputies to foreclose on the ten million Americans whose mortgage payments have fallen into arrears. It sounds Keynesian, but is more reminiscent of Thomas Robert Malthus’s lugubrious claim (speaking for Britain’s landed aristocracy) that landlords would keep the economy going by using their rental income (to be protected by high agricultural tariffs) to hire footmen and butlers, tailors and carriage-makers.

It gets worse. Mr. Obama’s “Bush” tax cut is only Part I of a one-two punch to shift taxes onto wage earners. Congressional economists estimate that extending the tax cuts to the top 2% will cost $700 to $750 billion over the next decade or so. “How are we going to go out and borrow $700 billion?” Mr. Obama asked Steve Croft on his Sixty Minutes interview on CBS last week.

It was a rhetorical question. The President has appointed a bipartisan commission (right-wingers on both sides of the aisle) to “cure” the federal budget deficit by cutting back social spending – to pay yet more bailouts to the economy’s financial wreckers. The National Commission on Fiscal Responsibility and Reform might better be called the New Class War Commission to Scale Back Social Security and Medicare Payments to Labor in Order to Leave more Tax Revenue Available to Give Away to the Super-Rich. A longer title than the Deficit-Reduction Commission used by media friendlies, but sometimes it takes more words to get to the heart of matters.

The political axiom at work is “Big fish eat little fish.” There’s not enough tax money to continue swelling the fortunes of the super-rich pretending to save enough to pay the pensions and related social support that North American and European employees have been promised. Something must give – and the rich have shown themselves sufficiently foresighted to seize the initiative. For a preview of what’s in line for the United States, watch neoliberal Europe’s fight against the middle and working class in Greece, Ireland and Latvia; or better yet, Pinochet’s Chile, whose privatized Social Security accounts were quickly wiped out in the late 1970s by the kleptocracy advised by the Chicago Boys, to whose monetarist double-think Mr. Obama’s appointee Ben Bernanke has just re-pledged his loyalty.

What is needed to put Mr. Obama’s sell-out in perspective is the pro-Wall Street advisors he has chosen – not only Larry Summers, Tim Geithner and Ben Bernanke (who last week reaffirmed his loyalty to Milton Friedman’s Chicago School monetarism), but by stacking his Deficit Reduction Commission with outspoken advocates of cutting back Social Security, Medicare and other social spending. Their ploy is to frighten the public with a nightmare of $1 trillion deficit to pay retirement income over the next half century – as if the Treasury and Fed have not just given Wall Street $13 trillion in bailouts without blinking an eye. President Obama’s $750 billion tax giveaway to the wealthiest 2% is mere icing on the cake that the rich will be eating when the bread lines get too long.

To put matters in perspective, bear in mind that interest on the public debt (that Reagan-Bush quadrupled and Bush-Obama redoubled) soon will amount to $1 trillion annually. This is tribute levied on labor – increasing the economy’s cost of living and doing business – paid for losing the fight for economic reform and replacing progressive taxation with regressive neoliberal tax policy. As for military spending in the Near East, Asia and other regions responsible for much of the U.S. balance-of-payments deficit, Congress will always rise to the occasion and defer to whatever foreign threat is conjured up requiring new armed force.

It’s all junk economics. Running a budget deficit is how modern governments inject the credit and purchasing power needed by economies to grow. When governments run surpluses, as they did under Bill Clinton (1993-2000), credit must be created by banks. And the problem with bank credit is that most is lent, at interest, against collateral already in place. The effect is to inflate real estate and stock market prices. This creates capital gains – which the “original” 1913 U.S. income tax treated as normal income, but which today are taxed at only 15% (when they are collected at all, which is rarely in the case of commercial real estate). So today’s tax system subsidizes the inflation of debt-leveraged financial and real estate bubbles.

The giveaway: the Commission’s position on tax deductibility for mortgage interest

The Obama “Regressive Tax” commission spills the beans with its proposal to remove the tax subsidy for high housing prices financed by mortgage debt. The proposal moves only against homeowners – “the middle class” – not absentee owners, commercial real estate investors, corporate raiders or other prime bank customers.

The IRS permits mortgage interest to be tax-deductible on the pretense that it is a necessary cost of doing business. In reality it is a subsidy for debt leveraging. This tax bias for debt rather than equity investment (using one’s own money) is largely responsible for loading down the U.S. economy with debt. It encourages corporate raiding with junk bonds, thereby adding interest to the cost of doing business. This subsidy for debt leveraging also is the government’s largest giveaway to the banks, while causing the debt deflation that is locking the economy into depression – violating every precept of the classical drive for “free markets” in the 19th-century. (A “free market” meant freedom from extractive rentier income, leading toward what Keynes gently called “euthanasia of the rentier.” The Obama Commission endows rentiers atop the economy with a tax system to bolster their power, not check it – while shrinking the economy below them.)

Table 7.11 of the National Income and Product Accounts (NIPA) reports that total monetary interest paid in the U.S. economy amounted to $3,240 billion in 2009. Homeowners paid just under a sixth of this amount ($572 billion) on the homes they occupied. Mr. Obama’s commission estimates that removing the tax credit on this interest would yield the Treasury $131 billion in 2012.

There is in fact a good logic for stopping this tax credit. The mortgage-interest tax deduction does not really save homeowners money. It is a shortsighted illusion. What the government gives to “the homeowner” on one hand is passed on to the mortgage banker by “the market” process that leads bidders for property to pledge the net available rental value to the banks in order to obtain a loan to buy the home (or an office building, or an entire industrial company, for that matter.) “Equilibrium” is achieved at the point where whatever rental value the tax collector relinquishes becomes available to be capitalized into bank loans.

This means that what appears at first as “helping homeowner” afford to pay mortgages turns out merely to enable them to afford to pay more interest to their bankers. The tax giveaway uses homebuyers as “throughputs” to transfer tax favoritism to the banks.

It gets worse. By removing the traditional tax on real estate, state, local and federal governments need to tax labor and industry more, by transforming the property tax onto income and sales taxes. For banks, this is transmuting tax revenue into gold – into interest. And as for the home-owning middle class, it now has to pay the former property tax to the banker as interest, and also to pay the new taxes on income and sales that are levied to make up for the tax shift.

I support removing the tax favoritism for debt leveraging. The problem with the Deficit Commission is that it does not extend this reform to the rest of the economy – to the commercial real estate sector, and to the corporate sector.

The argument is made that “The rich create jobs.” After all, somebody has to build the yachts. What is missing is the more general principle: Wealth and income inequality destroy job creation. This is because beyond the wealthy soon reach a limit on how much they can consume. They spend their money buying financial securities – mainly bonds, which end up indebting the economy. And the debt overhead is what is pushing today’s economy into deepening depression.

Since the 1980s, corporate raiders have borrowed high-interest “junk bond” credit to take over companies and make money by stripping assets, cutting back long-term investment, research and development, and paying out depreciation credit to their financiers. Financially parasitized companies use corporate income to buy back their stock to support its price – and hence, the value of stock options that financial managers give themselves – and borrow yet more money for stock buybacks or simply to pay out as dividends. When the process has run its course, they threaten their work force with bankruptcy that will wipe out its pension benefits if employees do not agree to “downsize” their claims and replace defined-benefit plans with defined-contribution plans (in which all that employees know is how much they pay in each month, not what they will get in the end). By the time this point has been reached, the financial managers have paid themselves outsized salaries and bonuses, and cashed in their stock options – all subsidized by the government’s favorable tax treatment of debt leveraging.

The attempted raids on McDonalds and other companies in recent years provide object lessons in this destructive financial policy of “shareholder activists.” Yet Mr. Obama’s Deficit Reduction Commission is restricting its removal of tax favoritism for debt leveraging only for middle class homeowners, not for the financial sector across the board. What makes this particularly absurd is that two thirds of homeowners do not even itemize their deductions. The fiscal loss resulting from tax deductibility of interest stems mainly from commercial investors.

If the argument is correct (and I think it is) that permitting interest to be tax deductible merely “frees” more revenue to pay interest to banks – to capitalize into yet higher loans – then why isn’t this principle even more applicable to the Donald Trumps and other absentee owners who seek always to use “other peoples’ money” rather than their own? In practice, the “money” turns out to be bank credit whose cost to the banks is now under 1%. The financial-fiscal system is siphoning off rental value from commercial real estate investment, increasing the price of rental properties, commercial real estate, and indeed, industry and agriculture.

Alas, the Obama administration has backed the Geithner-Bernanke policy that “the economy” cannot recover without saving the debt overhead. The reality is that it is the debt overhead that is destroying the economy. So we are dealing with the irreconcilable fact that the Obama position threatens to lower living standards from 10% to 20% over the coming few years – making the United States look more like Greece, Ireland and Latvia than what was promised in the last presidential election.

Something has to give politically if the economy is to change course. More to the point, what has to give is favoritism for Wall Street at the expense of the economy at large. What has made the U.S. economy uncompetitive is primarily the degree to which debt service has been built into the cost of living and doing business. Post-classical “junk economics” treats interest and fees as payment for the “service” for providing credit. But interest (like economic rent and monopoly price extraction) is a transfer payment to bankers with the privilege of credit creation. The beneficiaries of providing tax favoritism for debt are the super-rich at the top of the economic pyramid – the 2% whom Mr. Obama’s tax giveaway will benefit by over $700 billion.

If the present direction of tax “reform” is not reversed, Mr. Obama will shed crocodile tears for the middle class as he sponsors the Deficit Reduction Commission’s program of cutting back Social Security and revenue sharing to save states and cities from defaulting on their pensions. One third of U.S. real estate already is reported to have sunk into negative equity, squeezing state and local tax collection, forcing a choice to be made between bankruptcy, debt default, or shifting the losses onto the shoulders of labor, off those of the wealthy creditor layer of the economy responsible for loading it down with debt.

Critics of the Obama-Bush agenda recall how America’s Gilded Age of the late 19th century was an era of economic polarization and class war. At that time the Democratic leader William Jennings Bryan accused Wall Street and Eastern creditors of crucifying the American economy on a cross of gold. Restoration of gold at its pre-Civil War price led to a financial war in the form of debt deflation as falling prices and incomes received by farmers and wage labor made the burden of paying their mortgage debts heavier. The Income Tax law of 1913 sought to rectify this by only falling on the wealthiest 1% of the population – the only ones obliged to file tax returns. Capital gains were taxed at normal rates. Most of the tax burden therefore fell on finance, insurance and real estate (FIRE) sector.

The vested interests have spent a century fighting back. They now see victory within reach, by perpetuating the Bush tax cuts for the wealthiest 2%, phasing out of the estate tax on wealth, the tax shift off property onto labor income and consumer sales, and slashing public spending on anything except more bailouts and subsidies for the emerging financial oligarchy that has become Mr. Obama’s “bipartisan” constituency.

What we need is a Futures Commission to forecast just what will the rich do with the victory they have won. As administered by President Obama and his designated appointees Tim Geithner and Ben Bernanke, their policy is financially and fiscally unsustainable. Providing tax incentives for debt leveraging – for most of the population to go into debt to the rich, whose taxes are all but abolished – is shrinking the economy. This will lead to even deeper financial crises, employer defaults and fiscal insolvency at the state, local and federal levels. Future presidents will call for new bailouts, using a strategy much like going to military war. A financial war requires an emergency to rush through Congress, as occurred in 2008-09. Mr. Obama’s appointees are turning the U.S. economy into a Permanent Emergency, a Perpetual Ponzi Scheme requiring injections of more and more Quantitative Easing to to rescue “the economy” (Mr. Obama’s euphemism for creditors at the top of the economic pyramid) from being pushed into insolvency. Mr. Bernanke’s helicopter flies only over Wall Street. It does not drop monetary relief on the population at large.

“The Wurst of Obama: He’s Carving the Middle Class into Sausage Filler as a Super-Meal for the Rich.”

by Prof. Michael Hudson