http://www.bloomberg.com/…

The Federal Reserve intends to hire a veteran lobbyist as it seeks to counter skepticism in Congress about the central bank’s growing power over the U.S. financial system, people familiar with the matter said.

Linda Robertson currently handles government, community and public affairs at Johns Hopkins University in Baltimore, and headed the Washington lobbying office of Enron Corp., the energy trading company that collapsed in 2002 after an accounting scandal. She was also an adviser to all three of the Clinton administration’s Treasury secretaries.

Robertson would help the Fed manage relations with lawmakers seeking greater oversight of a central bank that has used emergency powers to prevent Wall Street’s demise. While she wasn’t tied to Enron’s fraud, her association with the firm may raise questions, analysts said.

“Some members of Congress think there are votes in attacking the Fed” after it “unnecessarily and unwisely entangled monetary policy with fiscal policy,” said former St. Louis Fed President William Poole. “The Fed is going to have a tricky time of unwinding what has been done” and will need to “keep in touch with members of Congress more thoroughly,” said Poole, now senior fellow with the Cato Institute in Washington.

They may not mention Paul but it was his presidential campaign and now his HR1207 which is putting some fire under the Fed’s feet.

http://www.forbes.com/

Extraordinary times require extraordinary actions. Nowhere is that more apparent than in the bold policy moves undertaken by the Federal Reserve over the past two years. The financial crisis forced the Fed to be aggressive and creative in its attempts to provide liquidity to credit markets that had frozen up. These were necessary steps, and mostly applauded.

But the very boldness of its actions has put the independence of the Fed at risk. Congress is now clamoring to audit the Fed, and some of the policy proposals currently under discussion at the Federal Reserve will only increase the threat to its independence.

Without independence, the political cycle would subject the central bank to political pressures that, in turn, would impart an inflationary bias to monetary policy.

On this view, politicians in a democratic society are short-sighted because they are driven by the need to win their next election. This is borne out by empirical evidence. A politically insulated central bank is more likely to be concerned with long-run objectives.A variant of the argument for central bank independence is that control of monetary policy is far too important to put in the hands of politicians. As a group, they have repeatedly demonstrated the lack of political will power to make difficult economic decisions. But now they want to assert control over the Fed. The bill, HR 1207, introduced by Sen. Bernie Sanders (who brought you the “Employ Americans First Act”) and Rep. Ron Paul, would assert greater control over the Fed. As Ron Paul writes on his Web site: “Auditing the Fed is only the first step towards exposing this antiquated insider-run creature to the powerful forces of free-market competition. Once there are viable alternatives to the monopolistic fiat dollar, the Federal Reserve will have to become honest and transparent if it wants to remain in business.”

Great! Obviously, monetary policy is so falling-off-a-log simple that your elected representatives can insert themselves via the demand for transparency into decisions of true complexity and subtlety. Why am I not feeling reassured?

I believe cy_cy says it all:

Quoth Cooley- “Without independence, the political cycle would subject the central bank to political pressures that, in turn, would impart an inflationary bias to monetary policy.”

Is this sentence for real? Perhaps you could summon a grad student to investigate the “inflationary bias” pre-Fed and post-Fed. (I realize you’re too busy.)

Since the Fed’s inception, the dollar has lost over 98% of its value. Before the Fed, the dollar would actually GAIN value as time passed (thanks to productivity gains.) Are you implying that the so-called “independent fed” should be patting itself on the back for (so far) preventing hyper inflation?

You clearly imply that Ron Paul wishes to bring transparency to monetary policy so that he himself can make macro monetary calls (manipulating interest rates, reserve rates, etc.) You imply that he is not qualified to be making these decisions. I am sure he would agree: his entire point is that no individual or small group can centrally determine interest rates.

The fact that you would so horribly misstate Paul’s monetary thesis suggests you either have not bothered to research his thesis (yet have the audacity to write an article about it anyway), or you do know what he is trying to say, but you grossly misconstrued his message so that you could shout it down. Either option is an overwhelming suggestion of both intellectual bankruptcy and, in light of your career choices as a writer and an educator, severe moral bankruptcy as well.

Tags: The Fed, HR 1207, Intellectual Cowardice

http://abcnews.go.com/…

The Securities and Exchange Commission today unanimously proposed new measures to make it tougher to profit by short selling stocks, including reinstating the uptick rule, although it will be months before any changes take effect.

Short selling is commonly defined as the practice of selling borrowed stocks, and then attempting to purchase them later at a lower price, thereby profiting from the drop in price.

SEC chief Mary Schapiro warned at this morning’s open meeting in Washington that “Short selling may also be used to illegally manipulate stock prices. … In addition, unrestricted short selling can exacerbate a declining market in a security.

“In the past 18 months, we have seen every major stock market around the world experience steep declines and extreme volatility in securities prices,” she said. “Although we are not aware of specific empirical evidence that the 2007 elimination of short sale price tests contributed to this volatility in the U.S. markets, many members of the public have come to associate short selling with that volatility, and with a loss of investor confidence.”

I believe it was Ludwig von Mises who when asked what was it that kept an economy from being socialist replied a functional exchange market. Looks like they are futher taking that away from us. Note how she says “specific empirical evidence.” Of course there isn’t. We are living in the times of the ban. There is evidence and plenty of theory regarding short selling but they really couldn’t care less. As is pointed out in the last sentence quoted above: “many members of the public have come to associate short selling with that volatility, and with a loss in investor confidence.” And why have they come to that conclusion? Perhaps it’s because the bureaucrats and central bankers use speculators as scapegoats for their own economic mistakes? Take a look throughout history. Every time there is a crisis, panic, resession, depression, what have you… those in power, those who created the problem, blame it or try to blame it on others. Nothing more than a distraction. For every short seller there is a buyer.  Why not blame those who buy from short sellers?

http://www.huffingtonpost.com/…

For more than a year, the U.S. Federal Reserve System has been increasingly acting as the world’s central bank, injecting hundreds of billions of dollars into foreign government treasuries in an effort to increase liquidity in those countries.

The foreign central banks have used the U.S. currency to bail out financial institutions within their borders. The Fed program links its balance sheet directly to the fates of foreign central banks at a time when they’re on the ropes.

The program has so far gone unreported in the mainstream media and is a major expansion of Federal Reserve involvement in the global economy. It represents a stark break from the prior role of the Fed, moving it into territory more traditionally occupied by the International Monetary Fund (IMF).

The program puts both the Fed and the foreign central banks at increased risk. If the bailed-out banks can’t repay the loans, the foreign central bank is still on the hook to the Fed. It would have to raise the money by selling debt — which most Europeans are finding difficult today — or raise taxes or cut spending, actions that further exacerbate the economic crisis. Or, the foreign central bank could default, leaving the U.S. holding a bag of foreign currency of plummeting value.

http://globaleconomicanalysis.blogspot.com/…

In a fiat world, money is printed into existence by the central bank – in the United States the Fed. Given there is nothing backing up this money, it is inherently worthless. However, one can think of as real. It was printed (even if only electronically), therefore it exists.

In addition to the previously mentioned money supply, fractional reserve lending allows credit to be extended by banks and financial institutions on top of that inherently worthless money. Indeed, banks and financial institutions have leveraged credit to base money at ratios of 30-1, 50-1 or even higher.

It’s pretty amazing if you think about it: Credit is extended with 30-50 times leverage on inherently worthless paper.

Ponzi Financing

Borrowers have to pay interest on the amount borrowed. However, the interest and the debt cannot possibly be paid back except by an ever expanding Ponzi scheme of lending. That scheme can last only as long as everyone believes the debt can be paid back and the market value of that debt keeps rising.

It’s a faith based system in which banks extend loans and hold the credit on the books (or in many cases off the books in various structured instruments). The banks are thought of as being well capitalized as long as the value of credit on the books in relation to their reserves meets some ridiculously low minimum set by the Fed.

This is how the system works, using the term “works” loosely.

Day of Reckoning

The day of reckoning comes when asset prices start falling, defaults soar, and the value of credit on the books starts plunging. That day of reckoning has arrived.

A great writeup. Take the time to read it.

So far, so good, on credit moves: Bernanke says

Federal Reserve Board Chairman Ben Bernanke said the innovative programs he has engineered have been relatively successful to get the markets backed on its feet after being “knocked for a loop” by the financial crisis.

But he admitted the central bank hasn’t done a good job explaining the new policies to Congress or the investing public and said the central bank was designing a new website to help explain the new policies.

Yes… because once we all understand the new version of the free lunch policy things will get back on track.

Best line of the article has to be:

“We are doing this not because we have some nefarious scheme. We are trying to help the American economy recover. And we are using whatever means we have to overcome what has been an enormous blow from this financial crisis,” he said.

Not nefarious?

nefarious: adj. Infamous by way of being extremely wicked.

wicked: adj.

1. Evil by nature and in practice: “this wicked man Hitler, the repository and embodiment of many forms of soul-destroying hatred” (Winston S. Churchill).
2. Playfully malicious or mischievous: a wicked prank; a critic’s wicked wit.
3. Severe and distressing: a wicked cough; a wicked gash; wicked driving conditions.
4. Highly offensive; obnoxious: a wicked stench.
5. Slang. Strikingly good, effective, or skillful: a wicked curve ball; a wicked imitation.

I’d say that inflation and manipulation of the market is extremely wicked, severe and distressing and highly offensive… infamously so.