81.5% of Money Created through Quantitative Easing Is Sitting There Gathering Dust … Instead of Helping the Economy

Fed Has Been a Total Failure

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 now Professor of Public Affairs at the Lyndon B. Johnson School of Public Affairs at the University of Texas at Austin – notes today:

There is a massive misconception about where the Bernanke Fed’s stimulus landed. Although the Bernanke Fed has disbursed $2.284 trillion in new money (the monetary base) since August 1, 2008, one month before the 2008 financial crisis, 81.5 percent now sits idle as excess reserves in private banks. The banks are not required to hold excess reserves. The excess reserves exploded from $831 billion in August 2008 to $1.863 trillion on June 14, 2013. The excess reserves of the nation’s private banks had previously stayed at nearly zero since 1959 as seen on the St. Louis Fed’s chart. The banks did not leave money idle in excess reserves at zero interest because they were investing in income earning assets, including loans to consumers and businesses.

This 81.5 percent explosion in idle excess reserves means that the Bernanke Fed’s new money issues of $85 billion each month have never been a big stimulus. Approximately 81.5 percent (or $69.27 billion) is either bought by banks or deposited into banks where it sits idle as excess reserves. The rest of the $85 billion, approximately 18.5 percent (or $15.72 billion) continues to circulate or is held as required reserves on banks’ deposit accounts (unlike unrequired excess reserves).

What’s Professor Auerbach talking about?

We’ve repeatedly pointed out that the Federal Reserve has been intentionally discouraged banks from lending to Main Street – in a misguided attempt to curb inflation – which has increased unemployment and stalled out the economy.

We noted in 2010:

[T]he 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.

Auerbach explained in 2010:

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 MarchApril 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.

Ellen Brown added some details in 2011:

Bruce Bartlett, writing in the Fiscal Times in July 2010, observed:

Economists are divided on why banks are not lending, but increasingly are focusing on a Fed policy of paying interest on reserves — a policy that began, interestingly enough, on October 9, 2008, at almost exactly the moment when the financial crisis became acute. . .

Historically, the Fed paid banks nothing on required reserves. This was like a tax equivalent to the interest rate banks could have earned if they had been allowed to lend such funds. But in 2006, the Fed requested permission to pay interest on reserves because it believes that it would help control the money supply should inflation reappear.

. . . [M]any economists believe that the Fed has unwittingly encouraged banks to sit on their cash and not lend it by paying interest on reserves.

At one time, banks collected deposits from their own customers and stored them for their own liquidity needs, using them to back loans and clear outgoing checks. But today banks typically borrow (or “buy”) liquidity, either from other banks, from the money market, or from the commercial paper market. The Fed’s payment of interest on reserves competes with all of these markets for ready-access short-term funds, creating a shortage of the liquidity that banks need to make loans.

By inhibiting interbank lending, the Fed appears to be creating a silent “liquidity squeeze” — the same sort of thing that brought on the banking crisis of September 2008. According to Jeff Hummel, associate professor of economics at San Jose State University, it could happen again.  He warns that paying interest on reserves “may eventually rank with the Fed’s doubling of reserve requirements in the 1930s and bringing on the recession of 1937 within the midst of the Great Depression.”

The bank bailout and the Federal Reserve’s two “quantitative easing” programs were supposedly intended to keep credit flowing to the local economy; but despite trillions of dollars thrown at Wall Street banks, these programs have succeeded only in producing mountains of “excess reserves” that are now sitting idle in Federal Reserve bank accounts.A stunning $1.6 trillion in excess reserves have accumulated since the collapse of Lehman Brothers on September 15, 2008.

The justification for TARP — the Trouble Asset Relief Program that subsidized the nation’s largest banks — was that it was necessary to unfreeze credit markets. The contention was that banks were refusing to lend to each other, cutting them off from the liquidity that was essential to the lending business.  But an MIT study reported in September 2010 showed that immediately after the Lehman collapse, the interbank lending markets were actually working.  They froze, not when Lehman died, but when the Fed started paying interest on excess reserves in October 2008. According to the study, as summarized in The Daily Bail:

. . . [T]he NY Fed’s own data show that interbank lending during the period from September to November did not “freeze,” collapse, melt down or anything else. In fact, every single day throughout this period, hundreds of billions were borrowed and paid back. The decline in daily interbank lending came only when the Fed ballooned its balance sheet and started paying interest on excess reserves.

Heck of a job, Bernanke …

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  • Chris

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  • Tonto

    Simply lowering, or ending, the payment of interest on reserves, would cause inflation. The interest payment mechanism is in part how inflation is generally being held in check, in check in relationship to what would otherwise happen with the massive money printing that has occurred were that newly printed money out in the marketplace seeking yield. That inflation would destroy the economy fast.

    That FED money-printing was necessary to keep overly leveraged US banks from collapsing due to the contraction of credit when the housing mortgage industry collapsed under the weight of a fraudulent credit-investment scheme, (in fact, a government induced bubble). The mortgage industry collapse was the result of government efforts to instill growth in the economy (and the irrepressible corruption of those efforts) after the dot.com collapse.

    A simplistic analysis will say, lower or end interest payments on reserves to increase lending of all this money that was printed up and essentially handed over to the banks at near zero interest (to keep them from collapsing). But there is no free lunch. Such a move would cause inflation, an inflation that would cripple the economy. Again there is no free lunch.

    Similarly simplistic analysis would demand raising the minimum wage to end the increasing poverty that nearly five years later continues to rampage coast to coast. It is a popular appeal, and a common populist appeal. But there is no free lunch. When the minimum wage is raised, people get laid off, and inflation again rises, negating the intended benefit. And raising the minimum wage will cause some businesses to simply crumple to dust.

    Economic growth is not promoted by 1) the credit economy, 2) knee jerk reactions, or, 3) populist economic policy decisions. The common sense rule is that government (including the FED) CANNOT create real growth in the economy. The reason for this is, government either must tax or increase public indebtedness to hire people, or, cause others to hire people (as was the case when government moved headfirst into the whirling blades of the housing mortgage industry as a remedy to the economic decline of the dot.com bubble bursting).

    It’s not time to find fault with FED policy, if we are really looking to IMPROVE our economic outlook.

    It’s time to get back to work at building something that is actually useful to a sustainable human existence on the planet, even if that something is a better mode of living than the leisure society’s highly regulated, credit-consumption, inflation-economy that has evolved due to repeated collapses that stretch back hundreds of years, and which have been repeatedly exacerbated by the common and ignorant reactions to these repeated failures.

    Everyone decries feudalism. But feudalism is a proven system under which a sustainable existence existed for thousands of years.

    Maybe I am reaching too far, BUT, as I look around in society today, I would guess that probably 95% of the populace is fit for being nothing more than serfs (slaves), serfs whose rate of reproduction is controlled by the abject poverty, a result of their ability to sustain only this modest station in life. Before you find fault, take a walk down some local street. Look at the people you pass in the street. Size them up. Talk to them, if you must. I am pretty sure, you’ll agree with me. The population today is full of slave-material. (Sure it would be nice if everyone could be as rich as Bill Gates under some pie-in-the-sky public banking scheme, but everyone cannot be that rich without destroying the planet very quickly.)

    Of course there are others, humanitarian others who swim with these public banking genius-minnows, others who really do want to see how many people the planet can hold, now in a highly regulated and controlled socialist system meant to keep everyone alive, corralled, caged, humiliated, with no privacy or dignity left, and living in human excrement ten feet deep. Some human populations can live like that. It’s certainly not the American ethic I grew up with. A lot of people are already living like that in the inner cities where dope and crime run rampant, and in rural America too, where ignorance is as common as the dandelion.

    But none of this has anything to do with a freedom to live a -human- existence. Most people alive today live a trough-like existence common to hogs and animals that crawl on their bellies. They are high on anti-depressants, have lots of tattoos, kids in therapy, and they usually either weigh something approaching 400 pounds or 67 pounds, because they have an obsessive compulsive eating disorder that arose from pacing back and forth in their cage all day long…

    • thumper

      where are you? I am a medical neurogeneticist at a major research university and have all but given up on 95% of humanity for the reasons you cite. I often feel utterly alone and hopeless walking among the blind, it is refreshing to find on rare occasion one whose insight penetrates teh intentional obfuscation of the propaganda machinery. this is not the america I grew up with either, and I retreat to the living past of the mountain northwest in search of her.

  • robertsgt40

    I suspect a large portion of the “reserves”(created out of thin air), will be used to buy up real assets for pennies on the dollar after the Fed finishes choking off the economy. It’s been done before. Wash/Rinse/Repeat

  • gozounlimited

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  • 5 dancing shlomos

    dont know nuthin bout money.
    is “dust” wall st slang for” money for nuthin, chicks for free”?

  • Spencer Bradley Hall

    “Low Inflation in a World of Securitization” FRB-STL:

    “U.S. credit conditions may not drastically improve until sources of market funding start to recover. The Bank of England has moved away from asset purchases toward incentivized lending schemes that loan high-quality collateral (gilts) to banks, which can then be used to obtain cheap funding in repo markets. Given the U.S.’s reliance on market-based credit, similar policies to subsidize repo borrowing may have more impact than continuing to increase bank reserves”

    Remember. The caveat is that: POMOs between the FRB-NY & the CBs create reserves, but POMOs between the CBs & the non-banks create new money. If you lower IOeR, then the CBs will buy securities from the non-banks (as they always did between 1942 & 2008). Lowering the IOeR, as professor Lance Brofman says: “would set off a scramble for competing riskless instruments such as t-bills and repos which would significantly reduce the leveraged mREITS borrowing costs”

    Makes no sense. The NBs do not compete with the CBs:

    It’s classic. The CBs outbid the NBs for durations (funding) under the Central Bank’s remuneration rate. That’s what the FRB-SLT’s paper implies. Just like the 1966 S&L crisis.

    Remember the caveat is: POMOs between the FRB-NY & the CBs create reserves, & POMOs between the CBs & the non-banks create new money. I.e., if you lower IOeR, then the CBs will buy securities from the non-banks (as they always did between 1942 & 2008).

    In other words the eligible securities the “desk” bought were owned by the CBs (not the NBs). Ergo, the NB’s ownership of wholesale funding was largely transferred to the CBs before the Fed acquired any SOMA securities – or the NBs funding sources couldn’t be renewed or matured, etc. (that’s dis-intermediation, not deleveraging). I.e., directly or indirectly, the NBs assets fell by c. 6 trillion while the CBs assets have offset roughly half that decline (grew by c. 3.6 trillion).

    Gov’ts & reserves can’t be “perfect substitutes”. Neither the Fed, nor the DFIs, are financial intermediaries (& there’s no liquidity trap).

    SOMA held gov’ts aren’t “more liquid” or more “fungible” (as they’re impounded by the Reserve Bank via one-way flows). The “arbitrage opportunity” is buying T-Bills at repressed rates & then selling them to the FRB-NY for their higher policy yield. The Fed withdrawals liquidity by buying gov’ts – then replaces them with idle, unused, illiquid (non-tradable), & contractionary: IBDDs.

    No, the solution is to reverse the flow of funds…to get the CBs out of the savings/collateral business [by lowering the remuneration rate & thereby narrowing the corridor (& arbitrage opportunities), thus reducing the NB’s core retail & wholesale funding liabilities costs].

    This course of action would not reduce the size of the CB system, the volume of earnings assets held by the CB system, the income received by the CB system, or the opportunities of the CBs to make safe & profitable loans. Quite the contrary in fact. By promoting the welfare & health of the most important lending sector of the economy (the NBs), the health & vitality of the whole national economy will improve. The aggregate demand for loan funds will expand, the volume of CB “bankable” loans will grow, & so will the CB system, – the Federal Reserve being willing.

  • http://www.magicbailbond.com/locations/orlando-bail-bonds-2/‎ Skilled Bail Bonds

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  • Henning Heinemann

    Good read.

  • Bev

    Monetary.org The American Monetary Institute advocates a true Debt-Free money:

    http://www.monetary.org/american-money-scene-5-august-16-2009/2009/08

    Historical experience has taught us what we need to do:

    1. Put the Federal Reserve System into the U.S. Treasury.
    2. Stop the banking system creating any part of the money supply.
    3. Create new money as needed by spending it on public
    infrastructure, including human infrastructure, e.g. education and
    health care.

    These 3 elements must all be done together, and are all in draft legislative form as the proposed American Monetary Act see: http://www.monetary.org/wp-content/uploads/2013/01/HR-2990.pdf
    snip

    The correct action is for Congress to fulfil its constitutional responsibilities to furnish the nation with its money by making the American Monetary Act law.

    The correct action for the States is to insist on this Federal action! Genuine monetary reform is the solution to the nation’s fiscal problems, and that can only be achieved at the national level.
    snip

    We don’t need any more diversions.

    We citizens have only so much energy and time to devote to changing our world for the better. Diverting good people into nonsense condemns us to continue suffering unnecessarily. This time of crisis must be used for real reform, not diversions.

    So what is the solution?

    It’s the monetary system which must be changed to end the fiscal crisis, and State governments cannot do this – it’s a matter for the Federal Government.

    Under present constitutional and legal conventions, the only institutions that can create money without debt are national treasuries and/or central banks. State governments within a federal nation cannot do this – the problem can only be solved at the national level.

    Proposals promoting anything else would require a constitutional amendment, which is not necessary.
    ……

    http://www.monetary.org/wp-content/uploads/2013/12/Viable-Solution-to-Economic-Crisis.pdf

    A VIABLE SOLUTION TO THE ECONOMIC CRISIS
    by Robert Poteat, for AMI

    December 23, 2013, will be the one hundredth anniversary of the signing of the Federal Reserve Act. This Act is arguably the greatest attack on humanity in all of history. It is the culmination of centuries
    of political, financial, intellectual, and moral corruption. The corruption has only increased in the one hundred year history of the Federal Reserve Banking System.
    …….

    http://www.monetary.org/wp-content/uploads/2012/08/ChicagoPlanRevisited.pdf

    The Chicago Plan Revisited

    Michael Kumhof (Deputy Division Chief, Modeling Dept., IMF) applies modern computer modeling to the Chicago Plan, which support the monetary reforms of HR 2990 and dispel the widespread fears of inflation under a government money system.

    http://monetary.org/wp-content/uploads/2011/11/DesignOpenMacro.pdf

    Workings of A Public Money System of Open Macroeconomies
    - Modeling the American Monetary Act Completed -
    ( A Revised Version)
    by Kaoru Yamaguchi
    Doshisha University

    ……

    All nations need to do this. How else are we going to fund the massive money needed to even try to reduce the future terrible damage of Fukushima, eventually all other nuclear power plants at the end of their life cycle, and climate change for the many generations it will take?

    copied from post at http://www.maxkeiser.com/2014/01/want-to-reduce-incomewealth-inequality-abolish-the-engine-of-inequality-the-federal-reserve/#Y3eFa4gYHJf2Ae8L.99

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  • TFJ

    What happened to the concept of a free market? There is nothing free about our financial markets at all and it has been that way for decades. While I appreciate the candor of this post, I am a bit astounded at the suggested solutions. Fact is, our dollar has last 95% of its purchasing power under the control of the private cartel of the Federal Reserve which is privately held not Federal and has no reserves at all.

    Fact is, as long as these private bankers have control over our money supply and interest rates there will always be massive debt and inflationary policies. The only thing that will change it will be the demise of the petro dollar which will expose the inflationary money supply in full when Euro Dollars come flooding back into our market rather than being retained to purchase oil in exchange for military protection in the Middle East.

    All that is done in our economy is done with the interests of the largest banks in mind not the people. It will always be that way as long as the Federal Reserve cartel controls our money supply and interest rates. The largest banks/financial organizations have transferred their bad debt already to us through the bail outs and now they are being supplied reserves (possibly to purchase private assets as the economy tanks) under the smoke screen of QE which again benefits them not the public which is assuming that debt in the long run through the hidden tax of inflation which is demonstrated by rising costs for basics like food and energy etc.

    The only real solution to our economic problems is to phase out the Fed as quickly as possible by eliminating legal tender laws that force us to use their system to pay for goods and services. Additionally, let interest rates be determined by market forces not some propeller heads who are acting with their primary interests in mind first and the publics secondarily.

    Right now we have a system inspired by the Communist Manifesto not the U.S. Constitution. There is NO free market. It is a controlled market under the thumb of the ultra rich who use the Federal Reserve as a primary tool of control as stated under the 5th plank of the manifesto: Centralization of credit in the hands of the State, by means of a national bank with State capital and an exclusive monopoly.

    Until that system is terminated we will see more and more money manipulation until the system finally collapses because eventually the reality of unbacked fiat currency is that it always reaches a state of hyper inflation and eventual collapse entirely with the currency returning to its original value of zero! It came from nothing but blips on a screen with nothing behind it of value and will ultimately return to the same state if allowed to continue. And then none of the above will mean a thing because our survival as a society will replace it.(And personally I think that is where they are heading us anyway so they can eventually trot in their New World Order as George W. Bush, Kissinger, Clinton and others have stated it.)

 

 

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