Sent: Friday, July
31, 2009 7:08 AM
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Subject: Reality Check - Why Bernanke Is In Panic
Mode
Gary North's REALITY
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Bernanke video: He
stutters; he stammers; he is
in visible panic mode
over Ron Paul's bill to
audit the Federal
Reserve. Watch it. You'll
love it!
Then send it to your
friends.
https://tinyurl.com/mxuobu
Issue
879
July 31, 2009
WHY BERNANKE IS IN PANIC MODE
Usually, when Ben
Bernanke is interviewed, he has the
demeanor of a college professor in the
presence of freshman
students. Of course, as a full professor, he did
not have
to teach freshmen. That is for untenured
assistant
professors to do. Stammering and stuttering are
therefore
a real departure for him. There is a reason for
this.
For the first time since 1914, there is a
public
debate in Congress over the Federal Reserve's power.
Never
before has a majority of the House of Representatives
called for
what should always have existed: Congressional
scrutiny over the FED's
money.
Bernanke says
that Ron Paul's bill to audit the
Federal Reserve is a bill to audit Federal
Reserve policy.
Yet the bill says nothing about auditing policy. So,
what
is he talking about?
Bernanke says that
Congress can have access to an
audit at any time. Sure it can -- an
audit vetted and
sanitized by the FED, where no one knows which banks
got
what bailout money. This is an audit in the way a CIA
audit is
an audit. The main differences are these: (1) the
CIA legally operates
only outside the borders of the United
States; (2) the CIA can assassinate
any uncooperative
Congressman who insists on a full audit. The FED does
not
have the second power, but it is not limited by the first
restriction.
What has Bernanke panicked is this: the
Federal
Reserve has bailed out the biggest banks and has let over
50
little ones die. This is crony capitalism at its
most
notorious.
The threat is that Congress
will discover what should
be obvious: the biggest banks last October almost
went
bankrupt. Bernanke and Paulson admitted this to
Congressional
leaders. This is how they got the leaders to
authorize the Treasury
bailout. This is why the FED
swapped marketable Treasury debt for
unmarketable toxic
debt at face value with the biggest
banks.
Which banks? The FED refuses to
say.
This is the heart of the matter. This
is what has
Bernanke in a panic. If Congress compels a full audit --
a
real audit, not a FED-controlled audit -- individual
members of Congress
will discover that the American
financial system is a house of cards. A
few of them will
release the results of the audit to the public. This
will
include Website publishers, who will go over the audit,
line by
line. The mainstream media will face being scooped
by newsletter
writers, so they will try to publish first.
The public will find out which banks are not
safe.
This is what has Bernanke in panic
mode.
The public will pull deposits out of the
biggest,
least safe banks and open new accounts at banks that
look
safer. That will bust some very big
banks.
There is no way that the FDIC could cover
the losses
of even one of these giant banks. It is down to
$12
billion in assets, mostly T-bills. It would have to come
to
Congress for the line of credit that Congress has
extended: $500
billion.
The banking cartel would face a
breakdown. Why?
Because the public would finally learn which big banks
got
how much money, how much Treasury debt for toxic assets,
and on what
terms.
KEEPING DEPOSITORS IN THE DARK
Bernanke says this bill is all about criticizing
Federal Reserve
policy. Not really. It is all about
exposing policy to the
public, and letting them decide
where to deposit their
money.
This thought of depositors finding out
which banks are
at risk is what the Federal Reserve was created in 1913
to
prevent. The banking cartel must prevent banks runs
from
spreading. If the public had explicit information on what
the
FED did and why, the public would be in a position to
pull their money out of
illiquid, economically insolvent
large banks.
Bernanke feigns a fear of Congress setting policy.
What he is afraid of is
depositors setting policy. He does
not want depositors to see which
banks are at risk.
The bankers live in fear of
their depositors.
Depositors can bust a bank in a matter of
days. All they
need to do is write a check or send a bank wire
transfer
from their present bank to a different bank. If too
many
depositors pull money out of Bank A to send to Banks B, C,
or D, Bank
A goes under. The FDIC has to have a Friday
afternoon emergency session
where it absorbs the bad assets
of Bank A and opens bidding for the good
assets.
The big banks love this when they are
not the targets
of the bank run. They can buy up millions of dollars
of
good assets, while palming off the bad assets to the FDIC.
If the FDIC
can't cover the losses, then Congress picks up
the tab. A sweet deal
for the surviving banks!
But what if the
surviving banks are being held
together with accounting gimmicks.
Example: the FED
"lends" Treasury bills (marketable) at face value to
big
banks that are sitting on a hundred billion dollars in
unmarketable
assets: bad real estate loans. The receiving
banks list the Treasury
bills as their capital. The
government auditors are then instructed to
evaluate the
solvency of the banks in terms of the quality of their
loans
-- in this case, T-bills. No problem!
But
these assets are borrowed from the FED. In
theory, the FED can force
the banks to swap back at face
value. At that point, the banks are
technically bankrupt.
These assets have no liquid market.
The solvency of the American banking system
rests on
smoke and mirrors. Bernanke knows this. Congress
is
ignorant. Congress thinks things are probably OK. But
a
majority of House members want to be safe. They don't want
the
folks back home to believe that they are asleep at the
wheel, which Congress
has been since 1914 with respect to
the Federal Reserve. So, a majority
of House members co-
sponsored Ron Paul's bill to audit the
FED.
Barney Frank understands the threat.
He has bottled
the bill up in committee. This way, members who
support
the bill can tell the folks back home that it's not
their
fault. If they are asked about this, they can say, one by
one,
"I am really sorry. I did my best, but the bill is
bottled up in
committee. There is nothing I can do."
Of course there is something they can do.
They can
vote to bring the bill to the floor for a vote. There,
they
will be exposed to the folks back home. Did they vote
"yes" to audit
the FED? By co-sponsoring the bill, they
can tell the folks back home,
"I'm with you on this." By
letting Frank bottle it up in committee,
they can plead
powerlessness. Nice.
It's all smoke and mirrors. It's all about not
letting depositors find
out how their banks are doing.
BERNANKE IS CONTEMPTUOUS OF
CONGRESS
Bernanke said this on-camera: "The
public does not
want Congress to set monetary policy." If that really
is
the case, then it is odd what the United States
Constitution says about
this. Consider Article 1.
Section 1. All
legislative powers herein granted
shall be vested in
a Congress of the United
States, which shall consist
of a Senate and House
of Representatives.
Then Article 8 spells out the powers of
Congress.
These include:
To coin money,
regulate the value thereof, and of
foreign coin, and
fix the standard of weights and
measures;
To provide for the punishment of
counterfeiting
the securities and current coin of
the United
States.
That surely appears as though Congress does have
lawful power over
money. That in turn seems as though the
public can ask Congress to
fulfill its duties. That seems
as though Congress has the legal right
to audit or set
policy for the private agency -- the Federal Reserve
Bank
of New York -- that executes the monetary policy of the
government
agency, the Board of Governors of the Federal
Reserve
System.
The way that the public kept both
Congress and the
commercial banks under control was through the
silver
standard, up until about 1815, and then by the
international gold
coin standard until late 1913, when the
Senate rushed through the Federal
Reserve Act when most
members had gone home for the Christmas recess.
President
Wilson signed the bill into law that evening: a very
fast
track.
When Dr. Bernanke showed contempt
for Congress in the
name of the American people, he forgot to mention
an
alternative to both the Federal Reserve and Congress: the
gold coin
standard. That system lodged the power of the
veto in the hands of the
public. That was why commercial
bankers, central bankers, and
politicians joined forces to
ridicule both the gold standard and the earlier
silver
standard.
A precious metal coin
standard -- coins payable at a
government-fixed price on demand for paper
money -- gives
the public too much authority over monetary policy.
This
gives them too much authority over government tax policy:
no
inflation tax.
The Federal Reserve Act
transferred legally sovereign
power over money from Congress to the Board of
Governors of
the FED. The Board of Governors labored under
the
restraint of the gold coin standard domestically until
Roosevelt
unilaterally abolished it in 1933. Then Nixon
unilaterally abolished
the last remaining traces of the
international gold standard in 1971.
That let the Federal
Reserve System with nearly uncontested power over
money,
with only the infamous and much-denigrated "bond
vigilantes"
possessing an independent veto over FED policy.
Bernanke is adamant: any attempt by Congress to
monitor the activities of the
FED is an assault on Federal
Reserve sovereignty. The Constitution
lodges such
sovereignty in Congress, but Congress delegated
this
sovereignty to the not-yet operational Federal Reserve in
late
1913.
Ron Paul's bill is the first bill
ever to gain
widespread support in the House to transfer the right
to
audit the FED to Congress. This is the first time since
1914 that
any Congressman has persuaded a majority of his
colleagues to assert the
legal sovereignty that the
Constitution delegates to Congress with respect to
money.
This is why Bernanke is in panic mode.
This is the first chink in the FED's armor
since 1914.
This bill is a nightmare for the FED. Yet the
FED's
staffers are going to get paid their above-market salaries
and keep
their fully vested pensions, with or without an
audit by Congress.
PANIC IN THE BOARDROOMS
The real
panic is in the boardrooms of the largest
banks. This bill will allow
Congress to see the specifics
of the sweetheart arrangement that big banks
have had with
the FED. Congress will get the statistical facts,
and
newsletter writers will interpret them for subscribers --
rich
subscribers.
The big bankers know that their
banks would be
insolvent without Federal Reserve bailouts,
Treasury
Department bailouts, and smoke-and-mirrors accounting.
They know
that any light thrown on the system's smoke-and-
mirrors accounting will
reveal the insolvency of the
biggest banks.
The directors of these banks do not want the
public to
be able to get access to these facts by means of a full-
scale
audit of the Federal Reserve System. The paper
trail, meaning the
digital money trail, leads to their
banks. This terrifies them.
It should.
The big bank bankers are now in full
defensive mode.
They see the threat. They dare not go public with
warnings
about letting the public gain access to full information
about
the bailouts since last September. This would appear
to be
self-serving, which it would unquestionably be. So,
they let Bernanke
be their spokesman, as if Bernanke and
the Board of Governors were not
enforcers of the fractional
reserve banking
cartel.
This puts Bernanke on the spot. He
dares not tell his
interviewers that the United States Constitution lodges
in
Congress legal sovereignty over the money of the United
Stares.
He does not want to remind the public of this
Constitutional fact. So,
he denigrates Congress as
incompetent to set monetary policy. He is
therefore
contemptuous of the Constitution, but he dares not let this
slip
out. That would not be prudent.
If Ron
Paul's bill is kept bottled up, this will be
grist for the mill of a growing
number of Americans who
have only recently learned about the existence of
the
Federal Reserve System. From the beginning, the Federal
Reserve
was designed to be a mystery to the public. This
strategy succeeded for
over 90 years. But Ron Paul's
Presidential campaign at long last began
to gain attention
for the FED. The campaign took place in 2008.
That was
the year of the crash and the desperation
bailouts.
This was bad
timing for the FED. This bad timing led
this year to widespread member
support in the House of
Representatives for an audit of the FED. Worse
yet, the
bill was sponsored by Ron Paul -- the FED's
greatest
Congressional opponent in this generation. This is very
bad
news for the banking cartel. It took place on
Bernanke's watch.
He is in panic mode.
CONCLUSION
The
Federal Reserve has lost a lot of its legitimacy.
It has also lost a lot of
its secrecy. By opposing the
audit, Bernanke is positioning himself as
an anti-
democratic representative of the Wall Street banks.
Of
course, this is what every FED chairman has been. But this
is the
first time since 1914 that any FED chairman has had
to adopt this positioning
in full public view.
This is bad news for the
Federal Reserve. When the
economy gets worse, as it will, the FED will
receive its
share of the blame, which is considerable.
Bernanke is the
primary visible agent of the FED. He
will no longer get a free
ride. The critics are at long
last getting a hearing by the informed
public -- the people
with lots of money deposited in large banks. This
is why
he has been going on television to present his case. No
other
FED chairman in history has been forced to do this.
This is a sign of the
degree of panic in the boardrooms.
The more
often Bernanke goes on TV, the more people
will think: "Methinks he doth
protest too much."
This is a very good
thing.
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