Martin Armstrong: The only solution is to float the Fed publicly so that anyone can buy shares.

[Thenoticer]

• The Fed is far more independent than it portrays. The Fed’s decision to raise or lower interest rates is not at the direction of the bankers, rather it is an understanding that it must steer a realistic path. Yellen has inherited a nightmare. Rates were lowered and the Fed became trapped. They stopped buying 30-year bonds and moved to mortgage securities. They cannot sell anything it now holds. Yellen realized that the pension funds would belly up, and she keeps saying that the rates must rise to be “normalized”.
  
  Politics have far too much influence over the Fed. We cannot afford a central bank controlled by politicians. The bankers should not control the Fed sine they no longer retain loans on their books and become transactional bankers when they sell their loans.
  
  The only solution is to float the Fed publicly so that anyone can buy shares. The influence of politicians and bankers must come to an end. Banks should NOT be qualified for any bailout on their trading – PERIOD. If they do not retain loans, they are not entitled to use elastic money. Floating the Fed makes it a private corporation that must report its balance sheet like everyone else. Congress MUST be forbidden to order the Fed to do anything. That has been the problem all along. Stimulation should return to buying corporate paper instead of handing the banks cash and hoping that they lend it out. Enough is enough.

[Thenoticer]

QUESTION: Don’t you think it is wrong that the private banks own the institution that administers them.

ANSWER: You have to understand the original intent of the Federal Reserve. It was originally a bailout entity for banks, so the banks had to fund it. That made sense initially, but with time and circumstance, the Fed has morphed into something that is now a quasi-political-governmental agency. No one would have created what we now consider the Fed.

I do not think that the Treasury should own the Fed, because then politicians will control it for political purposes. I can hear it now: “Vote for me and I will give free interest on credit cards!” I do not think in its present form that it should be owned by banks who collect 6%. I would advocate a public float, as is the case in Switzerland.

My point is that the politicians keep changing the Fed, relieving themselves of ALL fiscal responsibility for economic booms and busts. The politicians blame the Fed, which is wrong since they are the primary cause of aggravating the business cycle.

I do not advocate conspiracy theories against the Fed or criticism of the Fed ignoring the role of Congress. To solve the problem, we MUST look at the whole. You need a central bank to clear. Bank failures were because of relationship banking where they borrow short-term and lend long-term. Elastic money made sense if you did not have enough to liquidate loans to repay depositors in a panic. The elastic money would expand during a panic and contrast when over.

Now that banks are doing transactional banking and not holding long-term loans on their books, they no longer need elastic money or bailouts and should collapse when they screw up. The banks should be held for CRIMINAL prosecution if they are trading with other people’s money. You cannot have it both ways. If the Fed is to stimulate, then they should buy corporate paper, not government, and the money should be injected directly into the economy. Currently, the banks still refuse to lend money long-term.

The Fed is caught between politicians and bankers. That is not a very nice place to be these days. We will have to REFORM this position after the crash, but eliminating the Fed will create chaos and will not solve the problem as long as Congress has the power to create debt.

[Thenoticer]

The Federal Reserve is not owned by foreign banks, the Queen of England, the Rothschilds, or whomever. The shareholders are American banks. However, the Fed does pay 6% dividends to the private banks that own the shares. The Political Research Associates is a far more reliable source than the people who use bogus books with an agenda.

We could transfer the shareholding to the Treasury, but that would only tempt the Executive who would raise or lower rates for political purposes. We could float the Fed and make their shares public on the NYSE, which would require full disclosure. That is one possible solution.

It is true that foreign share holders bought into Alexander Hamilton’s first bank, but that was not the Federal Reserve. They were investing in an emerging market. This also culminated in the first American banking crisis and bailout – Panic of 1791.

Right now, a 6% fixed dividend is a great investment. It is way out of line with negative rates today.

Here is a list of the top shareholders in the New York Federal Reserve:

Chase Manhatten Bank
Citibank
Morgan Guaranty Trust Company
Fleet Bank
Bankers Trust
Bank of New York
Marine Midland Bank, and
Summit Bank

[Thenoticer]

CapitolBldg
QUESTION: the big question: WHY do USA still have the FED (a private company) dictating the USA economy???

MK

ANSWER: Very simple. The Fed was originally a private bailout entity to replace J.P. Morgan and what he did during the panic of 1907. Stimulation occurred through buying corporate paper. When WWI came, Congress ordered the Fed to buy government paper; not corporate. They never returned it to its original design. When Great Depression came, Congress usurped all branches and established a single national interest rate. They ordered the Fed to support U.S. debt at par during WWII but removed that in 1951.

The answer is very simple: Congress gets to blame the Fed for inflation because the definition is an increase in money supply, which is the Fed’s job. Meanwhile, Congress relieves itself of any responsibility for inflation and fiscal management. Everyone focuses on the Fed and not on the fact that Congress creates the bulk of the money by debt.

It’s a blame game that relieves Congress of any responsibility. They get to hold hearings and interrogate everyone except themselves. They tell everyone to blame the Fed and they run for office and promise the moon. The Fed is nothing like what it was supposed to be. The elastic money was to allow it to stimulate buying corporate paper that was at least repaid. Once that became government paper, the game was changed. Roosevelt even confiscated the gold from the Fed in 1933 just like all other banks.

So it works. So many people hate the Fed, but they do not look at who really creates the bulk of the money – CONGRESS. It is very naive to think that shutting down the Fed that would solve everything. The problem runs much deeper.

[Possum577]

I  can't tell if you're quoting an article or if these are your own thoughts. Making the Fed public seems like a wise move but it won't have the impact intended. It'll just open opportunity for the same big banks to buy ownership in the Fed, which not only gives them a share of revenue from the lending  but it also gives them authority to influence how the Fed is run (rate moves, etc) over the people.  It would actually make the problem worse!

What we need is the Fed to be private and controlled exclusively by the US government - that, of course, will never happen. I mean, it is private, but it's not controlled exclusively by the US Government.  It does, however, remain quite separate from "the bankers" as you call them. The  bankers  are  slave to the Fed, seriously.


P.S. why all the italics?

[Thenoticer]

This is %100 Martin Armstrong quotes and are the collection of what he has recently said about the Fed.

[tabnloz]

This is %100 Martin Armstrong quotes and are the collection of what he has recently said about the Fed.

There is a long, in depth thread here, discussing Armstrong

https://bitcointalk.org/index.php?topic=1082909.0

[Thenoticer]

This is %100 Martin Armstrong quotes and are the collection of what he has recently said about the Fed.

There is a long, in depth thread here, discussing Armstrong

https://bitcointalk.org/index.php?topic=1082909.0

Correct. Except it's hard to read, and has many pages of shouting. And this thread is to talk about his opinions specifically on the fed.

[Thenoticer]

http://www.armstrongeconomics.com/archives/39887

..snip..
The Federal Reserve was established in 1913 with the directive that to stimulate they would buy directly corporate paper – NEVER government. When banks were reluctant to lend, the Fed would buy the corporate paper and that would prevent unemployment. Thanks to World War I, the structure of the Fed was altered and they were directed to buy government bonds. That directive was never reversed. Today, while most central banks have stuck to buying mainly government or quasi government bonds which do not directly stimulate the economy,they have failed to comprehend the significant difference between buying corporate debt issues compared to government. This is a primary misconception of how to manage an economy and holds a large key as to why QE has failed combined with raising taxes and increasing tax enforcement to pay for QE.

...Snip...

[johnyj]

These are minor issues, as long as printed money can hold its value, things can be solved easily. Average Joe are stubbornly believe in the value of fiat money, so money printing will always work, just a matter of time when the money eventually trickle down

For example, if the government borrowed trillions and hired millions of people to do almost useless job, these people will get a high salary so that they can spend on everything else, then producers of these things will find new customer and new sale, and also start to hire more and return more tax to government

The system has only one weakness: If people start to lose the confidence in fiat money, then none of the monetary policies gonna work. But it seems after several hundred years of practice, bankers are fully aware of how to make sure people do not lose confidence in fiat money (They carefully watch the inflation indicator to not trigger a panic, and by the time that inflation is high, they have already spent all their money in exchange of assets and resources)

[Thenoticer]

The central banks are simply trapped. They have bought in bonds under the theory that this will stimulate the economy by injecting cash. But there are several problems with this entire concept. This is an elitist view to say the least for the money injected does not stimulate the economy for it never reaches the consumer. This attempt to stimulate by increasing the money supply assumes that it does not matter who has the money. If we are looking only at the institutional level, then this will not contribute to DEMAND inflation only ASSET inflation by causing share markets to rise in proportion to the decline in currency value.

The European Central Bank (ECB) then pushes interest rates negative to punish savers and consumers for not spending money that never reaches their pocket. Negative rates promotes hoarding cash outside of banks which in turn then inspires the brilliant idea of eliminating cash to force the objective and end hoarding. But negative rates have been simply a tax on money. The attempt to “manage” the economy from a macro level without considering the capital flow within the system is leading to disaster.

Then we have the problem that the central banks in attempting QE operations, cannot figure out how to reverse the process. They cannot sell the debt back to the market thereby defeating the original concept of creating elastic money supply. You increase the money supply during a recession to prevent banks being forced to sell assets to meet a panic demand for cash. Transactional banking has altered the classic borrow short lend long operations of banks cancelling out the idea of requiring and elastic money supply. All central banks can do now is allow the bonds they bought to mature and expire. If they attempt to sell the bonds they bought back into the marketplace, they will drive rates higher in a panic.

These are minor issues, as long as printed money can hold its value, things can be solved easily. Average Joe are stubbornly believe in the value of fiat money, so money printing will always work, just a matter of time when the money eventually trickle down

For example, if the government borrowed trillions and hired millions of people to do almost useless job, these people will get a high salary so that they can spend on everything else, then producers of these things will find new customer and new sale, and also start to hire more and return more tax to government

The system has only one weakness: If people start to lose the confidence in fiat money, then none of the monetary policies gonna work. But it seems after several hundred years of practice, bankers are fully aware of how to make sure people do not lose confidence in fiat money (They carefully watch the inflation indicator to not trigger a panic, and by the time that inflation is high, they have already spent all their money in exchange of assets and resources)

[Thenoticer]

http://www.armstrongeconomics.com/archives/39941

The FED v Bias & Prejudice
Posted on December 2, 2015 by Martin Armstrong

COMMENT: If the Fed is so smart and understands the problem with low/negative interest rates, then why didn’t it hike rates in September?  Better yet, why didn’t they raise rates YEARS ago?  The Fed has kept rates near zero for seven years but now suddenly realizes that this is a problem?

I am surprised that you think so highly of them.  The Fed consists of a bunch of academics with no real-world experience, no different than the ECB.

REPLY: Your bias and prejudice blind you. The ECB is run by Mario Draghi who is ex-Goldman Sachs. Mario Draghi faces a currency that is collapsing and a power structure that is fundamentally flawed. This is entirely different from the problems facing the Fed. Europe is in deep recession that is intensely deflationary. That is not the case yet in the USA.

Yellen has inherited a nightmare. It was Ben Bernanke who made the mess we are in today. He lowered rates, bought in long-term bonds the Fed cannot now sell and must wait for them to simply mature. Yellen is trapped for she cannot reverse QE and sell the bonds Bernanke bought and she is facing a meltdown in pension funds because rates are too low for too long. Yellen has no escape. You are also blind to how politics functions and all you are doing is listening to the bullshit that is spun by pretend analysts who know nothing about what really goes on behind the curtain.

The mere fact that the IMF came out publicly to ask the Fed not to raise rates in June was a political maneuver to counteract Yellen. Things of this nature are discussed behind the curtain – never in front. The IMF turned to the press to STOP Yellen because she would have raised rates back in June. It was  Ben Bernanke who listened to the bankers and created insanity.

It is clear that Ben Bernanke lacked any experience as an academic to run the Fed. He became a professor at Harvard after graduating. If you have no real world experience, you will never understand reality. Book smart does not cut it in finance.

Bernanke bought in 30 year bonds to help reduce the competition with mortgages and to inject cash into the system from a very book perspective looking at the economy in theory, not in reality.. The bankers then complained they needed excess reserve facility to earn money if they had no more bonds. Creating this facility defeated the very purpose of QE and ensured that there would be no inflation for the banks did not lend the money out. The money created did not stimulate for two reasons. First, the Chinese sold their long-term debt holdings and reduced their maturity. Then the excess reserves allowed banks to park money rather than lend it. Dropping rates to virtually zero and paying the banks 0.25% defeated everything intended to restart liquidity and inflation.

Hence, the Fed is in danger of losing its sovereignty allowing itself to delay its domestic policy objectives for international concerns. Your bias and prejudice prevent you from even seeing what the crisis is all about..

 BTW – that highway bill has emerged from a House-Senate conference committee that will pay for the roads by reducing the 6 percent annual dividend paid to the banks on Fed stock. The Fed should now eliminate the excess reserve facility and stop the welfare for the banks paying them for money the Fed does not even use.