HR 1207 is having a hearing tomorrow on auditing The Federal Reserve.
There has been much made of whether a Fed Audit would "compromise" Fed independence.
This is the wrong standard to apply.
The correct standard is whether The Fed should, under the law, be truly independent in the first place. There I look to The Constitution.
Section 8. The Congress shall have power to lay and collect taxes, duties, imposts and excises, to pay the debts and provide for the common defense and general welfare of the United States; but all duties, imposts and excises shall be uniform throughout the United States;
To borrow money on the credit of the United States;
To regulate commerce with foreign nations, and among the several states, and with the Indian tribes;
To establish a uniform rule of naturalization, and uniform laws on the subject of bankruptcies throughout the United States;
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;
Notice two things:
- It is Congress that has the right to borrow money, not Treasury. Those are very different branches of government (legislative .vs. executive.) Ergo "Treasury Bills" are in fact, absent explicit authorization (and no, a "debt ceiling" is not explicit authorization) unenforceable against The United States (are the Chinese aware of what our Constitution says, and that under a plain reading of it they are in fact holding worthless toilet paper should we so decide?)
and
- It is Congress that has the right to regulate the value of money (through control of its issuance and value), not The Fed or Treasury (the executive.) That power rests in the legislative branch of government - and nowhere else.
These Constitutional provisions stand, 230-some years later, unchanged by lawful amendment.
Now let's talk about what The Fed has usurped on their own initiative in direct contravention of The Constitution, and therefore, as it stands at present, The Fed is operating in a form and fashion that requires The Congress (singularly and in conjunction, where each member has taken an oath to uphold and defend the Constitution from all enemies, foreign and domestic) to act. I shall list each of my charges and specifications along with the evidence thereupon against The Fed as currently constituted:
Congressman Grayson asked Bernanke during direct Congressional testimony who the beneficiaries of the $500 billion in swap lines were. Bernanke said he did not know.
Ben Bernanke along with Hank Paulson channeled over $100 billion in US Taxpayer funds through AIG to bail out banks who had entered into derivative positions with AIG. There was no appropriation initiated in the House of Representatives permitting either The Fed or Treasury to expend those funds (they were neither taken from TARP or in fact any other existing allocation.) The Fed justified this as "making a loan" (which it is permitted to do against sound collateral) but independent examinations, including that of the GAO, have called into question whether the firm will ever be able to pay. A loan without reasonable belief of ability to pay is not a loan - it is in fact an appropriation that requires Congressional Authorization.
The Fed has been aware of the spread between Debt and GDP growth for more than two decades. The Fed Chairman is a Degreed Professional (he in fact holds a PhD) and thus must be presumptively aware of the fact that two "compound" functions; that is, debt and GDP, where one has a larger exponent than the other, must as a matter of mathematics run away from one another.
The evidence supporting both the mathematics and the debt-to-GDP spread is as follows:
The first of these is a simple plot of the described functions, the latter is a simple plot of data from both The Fed's own "Z1" and government GDP tables from the Bureau of Economic Analysis, with both rate-of-change numbers being taken as the annual rate-of-change (against the prior year in the same quarter) expressed in each quarterly measurement. This is then plotted as an arithmetic difference, showing whether GDP is growing faster than total systemic debt (positive) or systemic debt is growing faster than GDP (negative.) Positive numbers on the above chart thus denote increasing systemic stability while negative numbers denote decreasing systemic stability.
These two charts demonstrate that at no time since 1980 has the monetary and regulatory policy of The Federal Reserve, when expressed in terms of debt growth related to GDP growth, been on a sustainable path over any material period of time. In fact the above chart demonstrates that a condition of improving stability has existed for a period of ONLY ONE YEAR in the last 28.
At no time has The Fed expressed to Congress the mathematical facts behind debt and GDP growth and in fact both Greenspan and Bernanke have asserted to Congress that the monetary system of the United State is stable. This is a lie.
Compare the above "theoretical" exponential growth chart against the actual debt and GDP chart from 1980 to the present day:
Does this look familiar? The above two charts - a basic plot of exponential functions and the Ponzi Finance Indicator - explain why.
Since The Federal Reserve's mandate is to promote "sustainable growth in an environment of price stability", yet it has a nearly-unbroken record over the last 28 years of failure to do so, statements of intent made to Congress must give way to the actual realized results of Fed policy.
History records that in each and every case since 1980 when the economy has slowed down The Fed has responded to this condition not through exercising control over debt growth by tightening standards as demanded by the above graph but rather The Fed has further loosened credit by various means, including but not limited to:
- Drops in the Federal Funds rate.
- Loosening or ignoring restrictions on the granting of credit.
- Willful refusal to police lenders and other banks in the granting of unsustainable credit, including but not limited to the period of time when the subprime fiasco was underway.
- Effective removal of reserve requirements on banks, such as Greenspan's "sweep account" ruling that allowed banks to hold an effective zero reserve despite law and regulation requiring otherwise.
- Agreement with "financial reform" that allowed cross-entity lending and financial ties (e.g. lobbying for the repeal of Glass-Steagall.)
- Allowing regulated banking entities to hold off-balance-sheet exposures, even after ENRON detonated in 2001 and Sarbanes-Oxley was subsequently passed.
- The issuance of "23A" exemption letters, literally by the dozen in 2007 and 2008, allowing affiliate limits otherwise in force to be exceeded and thereby further increasing total system leverage.
- A demand for a formal ability to set bank reserve requirements to zero (buried in the EESA/TARP legislation and passed last fall.)
As such it is clear on the mathematical evidence along with the actions taken that The Fed has willfully and intentionally damaged systemic credit stability in The United States over a period of nearly 30 years in direct contravention of Article 1, Section 8 of the US Constitution.
The Federal Reserve has established three "Maiden Lane" LLCs for the purpose of purchasing equity interest in debt instruments. Despite multiple requests from Congress the exact make-up of those credit instruments and their valuations has been intentionally and notoriously withheld from both Congress and The American People.
At the time of Bear Stearns' failure the firm believed it had a committed credit line from the NY Fed that was suddenly pulled without giving the firm any meaningful amount of time to secure other funding. This was the proximate cause of Bear Stearns' collapse.
Less than 24 hours after Bear Stearns failed investment banks were allowed access to the Discount Window. Had Bear Stearns been given access to the discount window it is highly likely that it would not have failed at all.
No reasonable explanation for what appears "on its face" to have been a rank raid on the company coordinated and executed by The Federal Reserve for the benefit of JP Morgan has ever been proffered by The Fed.
There is reason to believe that The Fed may be hiding mark-to-market impairments and losses on their balance sheet. Specifically, The Fed intends to purchase more than $1 trillion of Agency (Fannie and Freddie) paper and debt in a program now due to end in early 2010 and has in fact bought hundreds of billions in such securities.
However, Fannie and Freddie are operating under US Conservatorship at the present time, and have consumed nearly $100 billion in bailout funds themselves. Without these funds to the present date both firms would have collapsed and these securities would be worth only their recovery value.
These securities are explicitly denoted on their face not to carry any "full faith and credit" guarantee by The United States, to wit:
It is therefore reasonable to expect that The Fed should be reserving against potential credit loss, yet The Fed has disclosed no such reserve. Why?
Henry Paulson was known to have communicated with Ben Bernanke prior to the "surprise" discount rate cut in August of 2007. It is illegal to trade on inside information. However, soon after the phone records reveal that this conversation took place the markets turned around and a large number of "long" positions were established (or short positions covered) for what at the time appeared to be no reason whatsoever.
The next morning the "surprise" rate cut was announced immediately in front of options expiration.
Literal billions of dollars changed hands that morning on what clearly, on its face, were an enormous number of illegal trades. Nobody has been identified in connection with these trades and no charges have been brought.
Who did Ben Bernanke and Hank Paulson communicate with and did any employee of any of those firms place those trades? Why has there been no investigation or prosecution of those who clearly did trade on inside information?
Ben Bernanke said in sworn Congressional testimony in the video at http://www.youtube.com/watch?v=WA9Rm77rq-4 (1:14 in) that he will not monetize The Federal Debt.
However, at the time he made this statement, prior and subsequent, The Fed was indeed monetizing the debt in that they were and have been buying recently-issued Treasury debt through creating "new reserves" - that is, "printing money."
This is the definition of monetizing debt and appears to be a clear case of perjury. Why has Congress permitted this apparent lawless act to stand unchallenged?
I believe the evidence is clear, compelling, and in the case of the mathematical facts, irrefutable.
I believe that representatives of The Federal Reserve have made false and unfounded pronouncements before Congress and The American People over the past decades yet they have not been held to account.
The Federal Reserve appears to have been involved in a pattern of conduct in its decision-making and lending that has favored certain institutions over others, rather than acting as a neutral arbiter and "policeman" of Congressionally-enacted mandates and regulations.
The Federal Reserve has willingly acted in concert with Wall Street to blow asset bubbles that, mathematically, could not possibly lead to sustainable economic growth in an environment of price stability, in direct contravention of its charter. This conduct has spanned nearly three continuous decades and is a matter of mathematical fact and record.
The Federal Reserve's current lending and other programs have been executed in an environment of intentional secrecy while it is clear "on its face" that The Constitution provides Congress with the exclusive right to view and regulate all of the functions that The Federal Reserve currently engages in.
While Congress is empowered to delegate it's authority, it is inexcusable for The Federal Reserve to resist or otherwise attempt to obstruct any desire by Congress (or the people, under the general standard of a representative republic in which government must take place "in the sunshine") for a full and complete audit of The Federal Reserve's activities, both now and on a continuing forward basis.
I therefore call for HR1207 to pass in the House, be taken up and pass unaltered by The Senate, and to be signed by The President of The United States.
In addition I call upon Congress to hold The Federal Reserve to account for its outrageous dereliction of duty toward its stated goal, that of promotion of sustainable economic growth in an environment of price stability, over the previous 30 years.
To the extent that these actions have taken place in concert with private actors, including but not limited to Fed District Banks and Wall Street firms, and have involved the willful and intentional hiding of losses, misrepresentation of credit quality, or other acts that can be reasonably construed as a separate and distinct offense under existing law I call for immediate investigation and prosecution of those criminal offenses, irrespective of the identity of the actors involved.
