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Thread: Ben Bernanke: The Federal Reserve caused the Great Depression

  1. #1

    Ben Bernanke: The Federal Reserve caused the Great Depression


    [QUOTE](Best Syndication) Secretary of the Treasury, Henry Paulson, unveiled his proposal for regulatory change today. His plan involves giving sweeping new powers to the Federal Reserve, which worries many people inside and outside the media. Paulson says his plan will reduce duplication in government.

    [B]The problem with the plan involves the Federal Reserve’s role. The Fed is a non-government bank for which the government has no control, other than picking the Chairman and the Board of Governors. After that selection, the Fed can do what it wants.[/B] Even the Federal Reserve considers itself independent because it’s “decisions do not have to be ratified by the President or anyone else in the executive or legislative branch of government, it does not receive funding appropriated by Congress.” (Quote from the Federal Reserve website)

    [B]It makes very little sense to give regulatory powers to an entity outside the government. Back in 1913, when the Federal Reserve Act was passed, there were questions raised about the wisdom of giving private bankers control over the money supply.[/B] Now the Bush Administration wants to go beyond that and give the Feds regulatory control.

    An Investor's Business Daily article posted on CNN explains the problem. “Since the Fed is a quasi-governmental entity "owned" by the banks it regulates, it's perhaps better positioned to understand the rest of the industry's ills than another massive federal regulatory agency would be. That said, the past record of Fed mistakes doesn't inspire a lot of confidence.”

    I don’t see any reason to turn any control over regulation or the economy to any entity outside the government. Originally the Federal Reserve was set up to avoid a depression. Within two decades of the Fed’s creation, we entered the Great Depression.

    [B]Was the Federal Reserve able to get America out of the depression? In fact, their involvement made the depression last longer. Even the current Federal Reserve Chairman suggests that the Federal Reserve not only caused the depression, but made it last longer than it should have.[/B]

    [B]The Federal Reserve Chairman, Ben Bernanke, told a crowd celebrating Milton Freidman’s 90th birthday, “Let me end my talk by abusing slightly my status as an official representative of the Federal Reserve. I would like to say to Milton and Anna: Regarding the Great Depression. You're right, we did it. We're very sorry. But thanks to you, we won't do it again.”[/B]

    [B]Those who objected to the Federal Reserve back in 1913 warned us that the bankers would be able to manipulate the economy to buy assets. [/B]The Federal Reserve is called the “lender of last resort” because they print the money and determine how much money to print.

    The Fed recently gave a member bank, JPMorgan Chase, a $30 billion line of credit to help them buy Bear Stearns. Loans of this sort have not been made since the Great Depression.

    Although it is difficult pass such sweeping legislation in their last year in office, Paulson says he wants to get the ball rolling. He recommends that the Federal Reserve share authority with the SEC and other agencies in the government.

    [B]Paulson wants to give the Federal Reserve power to “monitor” corporate disclosures. This information could be used to help banks determine the best assets to buy-up and which ones to avoid. We believe there could be a conflict of interest[/B], but Paulson disagrees. “To do its job as the market stability regulator, the Fed would have to be able to evaluate the capital, liquidity and margin practices across the financial system and their potential impact on overall financial stability,'' Paulson said.

    The new regulations might go beyond just monitoring the corporate disclosures. Paulson wants to give the Federal Reserve and the private member banks like JPMorgan Chase the authority to write the rules and regulations. He says this could help prevent a financial crisis. But, as other’s have suggested, the legislation could give the fox the right to guard the chicken coop.

    By Dan Wilson
    Best Syndication News Writer[/QUOTE]

    If The Federal Reserve caused the very thing it was designed to prevent and lived prosperously without it for 150 years.... why do we still have it? Discuss.

  2. #2

    If The Federal Reserve caused the very thing it was designed to prevent and lived prosperously without it for 150 years.... why do we still have it? Discuss.[/QUOTE]what were the terms of the loan that the Fed gave Chase?

  3. #3
    [QUOTE=2foolish197;2461685]what were the terms of the loan that the Fed gave Chase?[/QUOTE]

    The Mother of All Government Bailouts
    by CBS News

    [QUOTE]Even in a sophisticated financial world light years away from the New Deal, the Federal Reserve Bank felt Bear was “too big to fail” - or at least “too connected to fail” - because it was so deeply involved in so many aspects of the homeownership economy. In order to force a buyout, it offered JPM a sweetheart loan, the likes of which no student borrower has ever seen. The $29-billion line of credit comes at the discount interest rate - currently 2.5 percent - over 10 years. This is a rate normally restricted to overnight loans, applied only in special cases to loans that last as long as four weeks.

    [B]The only collateral for this loan is the $30 billion in Bear Stearns’s un-sellable mortgage-backed securities, the real value of which is - shall we say - difficult to assess when no one is buying. And unlike most loans the Fed makes, it has no recourse here if the collateral loses some or all of its value. In fact, the CRS report notes, “[T]he agreement has some characteristics more in common with an asset sale than a loan.”[/B] The report adds dryly that JPM was unwilling to hold onto these assets itself, perhaps because it “could have believed that the assets were worth . . . significantly less than the current market value of $30 billion.”

    [B]“This is not really a loan,” says Garrett. “It’s a put option on these securities by the Fed vis-ŕ-vis JP Morgan.”

    JPM has no obligation to repay this loan[/B] - which, again, is not really a loan at all, for the Fed will begin selling off the “collateral” before it is repaid. As the new Congressional Research Service report explains:

    In the event that the proceeds from the asset sales exceed $30 billion and the outstanding interest, the Fed will keep the profits. In the event that the loan principal and interest exceed the funds raised by the liquidation, the first $1 billion of losses would be borne by JPMorgan Chase, and any subsequent losses would be borne by the Fed. . . .

    Nor does the irony end there. If the government actually does recoup its $29 billion plus interest, the next billion dollars raised from the sale goes to JPM (after all, the collateral was valued at $30 billion). And JPM is further entitled to interest on that billion at 4.5 percent above the discount rate that it is theoretically paying to the government on its $29-billion loan. Of course, there is little danger of this actually happening - no one expects the Fed to make a profit on this deal. If it could, then the deal probably would never have been made.[/QUOTE]

  4. #4
    Join Date
    Apr 2003
    Greenwich Village, NY
    [QUOTE=jefethegreat;2461696]The Mother of All Government Bailouts
    by CBS News

    I didnt read your articles but I can say the fed didn't cause the great depression but its actions definitely contributed to the severity. I do not remember the head of the NY fed, but at the time he was the most important fed governor, and he passed away either right before or after it started to happen. The NY Fed wanted to expand monetary policy, which would have alleviated the extent of some problems.

    In what I remember being a political move, another regional chair (maybe DC, I really need to look it up and refresh my memory on this) took power and did exactly the opposite of what the NY fed did. It contracted monetary policy and caused a run on the banks.

    The details here are obviously foggy, but that is the story in a nutshell.

    when/if I have time Ill provide more details.But its a well chronicled story and can be looked up pretty easily.

  5. #5
    Join Date
    Apr 2003
    Greenwich Village, NY
    quick nuggut I found...and I dont know why I said DC, I know they dont have one. brain fart. back to packing

    Since the 1930s, economic historians have focused on Strong's central role in setting early Federal Reserve policies; the likely relationship between these policies to the Great Depression; the possibility that, had he lived, Strong might have averted the slump; and Strong's involvement in international economic affairs, especially central banks' efforts during the 1920s to restore international currency stability.

    Several historians have suggested that Strong's economic policies during the 1920s were fundamentally sound and that, had he survived, he might well have taken more decisive action than did his successors in the Federal Reserve System to deal with the slump that developed into the Great Depression. In their Monetary History of the United States, Milton Friedman and Anna Schwartz argue that the root cause of the Great Depression was the Federal Reserve System's "great contraction" of money in the late 1920s and the early 1930s. Indeed, they even suggest that the term 'Great Contraction' should replace the traditional nomenclature of 'Great Depression.' Friedman and Schwartz undermine one of Hoover's major arguments when they point out that the 1920s were a period of minimal inflation when the monetary expansion failed even to match the growth in national income. They agree with Hoover, however, in ascribing to Strong a dominating position within the System, certainly that of first among equals. In their view, "foreign considerations were rarely important in determining the policies followed but were cited as additional justification for policies adopted primarily on domestic grounds whenever foreign and domestic considerations happened to coincide." [16] Moreover, one of the major problems affecting Federal Reserve monetary policy was that after Strong's death in 1928, the System suffered a year of stasis, since a "dispute [over raising the discount rate] between the [Federal Reserve] Board and the New York Bank largely paralyzed monetary policy during almost the whole of the important year 1929." While tensions between the Board and the member banks had always existed, "So long as Benjamin Strong was alive, his unquestioned preeminence kept the struggle submerged.... Strong's death in October 1928, preceded by a few months of inactivity, triggered a phase of overt conflict." Although Friedman and Schwartz attribute the onset of the Depression to the collapse of the banking system, they also believe that Strong's absence was a major reason for the inadequate Federal Reserve response. [17]

    Lester V. Chandler largely agrees with Friedman and Schwartz, arguing as they do that by raising interest rates and contracting money and credit in the late 1920s, the Federal Reserve System initiated the deflationary monetary policy that led to the Great Depression. As the Depression developed, the System only half-heartedly relaxed its monetary stringency. As a result, between 1929 and 1932 the money supply effectively fell by almost 25 percent and thereby created a vicious spiral of continuous intensification of the Great Depression's effects. For most of 1929, inconclusive battle was joined within the Federal Reserve System as to whether commercial paper resulting from the financing of "speculative" transactions should be eligible for discount, with several members of the Board, notably the two long-time directors Adolph Miller and Charles Hamlin, arguing that ruling it ineligible would discourage stock speculation. According to Chandler, then, in the early 1930s the Fed radically failed to meet the need s of the economy, thereby helping to precipitate the greatest contraction in United States history. [18] The popular historian John Brooks suggests that, had Strong "been given another year of life, his full attention would surely have focused on the American situation and his firm hand might have done much to set things to rights in time." [19] Although Chandler rather hedges his bets, the final pages of his biography of Strong seem to endorse this viewpoint, as does an article by the economist Robert L. Hetzel. [20]

  6. #6
    The fed is unconstitutional in the first lets expand their power!:eek:


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