Bailing Out Obama: The Federal Reserve’s New Mandate
January 19, 2011 by John Myers
“Quis custodiet ipsos custodes?” (“Who watches the watchmen?”)
The Federal Reserve is a traitor to the American people and the nation it has sworn to protect. Recently, the Fed has acted less like a central bank and more like President Barack Obama’s personal piggybank. The Fed seems hell-bent on re-electing Obama for a second term regardless of what it costs.
How is the Fed doing this? By creating trillions of new dollars to re-flate a U.S. economy that is fundamentally flawed by the unprecedented spending of a President and Congress.
The Federal Reserve’s recklessness — orchestrated by Chairman Ben Bernanke — is putting at risk the savings of every American. His actions are straightforward — to create trillions in new aggregate dollars, making each existing dollar able to purchase less.
The central aim of America’s central bank seems simple: Hold together the economy until Obama is re-elected in November 2012. This month the Fed began a second round of quantitative easing, or QE2. This second round of cash creation is meant to jump-start the economy and silence Obama’s critics who complain he hasn’t engineered his promised recovery.
In December the Fed exceeded its authority for the first time when it began purchasing $600 billion in U.S. Treasury securities. Besides flooding the world with fresh money, Bernanke announced in January that he wants to keep interest rates low so the fledgling recovery can fly.
According to Forbes, the Fed’s actions have drawn opposition around the world.
“China, Russia, Brazil, Germany and the U.K. all believe that it will seriously weaken the dollar, possibly forcing other countries to devalue their own currencies and impose more trade restrictions against the U.S. Brazil and other emerging economies also fear that by loosening credit, the Fed could cause new destabilizing asset bubbles abroad.”
Forbes doesn’t point out that none of this is in the Fed’s charter. Instead the job of the Federal Reserve is to faithfully manage the economy and create stability for world markets.
I stumbled upon one of my old textbooks which said: “One of the statutory goals of the Federal Reserve System is to ensure stable prices. This goal can only be achieved if the public believes that the Federal Reserve is taking effective measures to ensure them.”
That is how the Fed is supposed to operate. Created in 1913, the Federal Reserve System had two prime directives: “The dollar over the President; the economy over the Party.”
And for nearly a century the Federal Reserve followed that code of conduct. It was through such actions that the Fed helped establish American economic dominance.
Even after President Franklin D. Roosevelt made it so citizens could not redeem dollars for gold, there have been extended periods when Americans trusted in the dollar more than they trusted gold. Consider President Ronald Reagan’s two terms and the decade that followed. During most of those years, Paul Volcker was Chairman of the Federal Reserve. The result was that between January 1980 and June 1999, the price of gold fell from $850 per ounce to $253 per ounce.
But that was a different era. Today the Federal Reserve and its Chairman no longer hold sacred protecting the purchasing power of the dollar. The once-independent Fed now seems intent on serving the President and promoting his economic policies.
Of course, Bernanke has been a loyal public servant to two Presidents. He was first appointed by President George W. Bush in the winter of 2006. Then Obama re-appointed him. Over those five years Bernanke has used every power at the Fed’s disposal to pump up the U.S. economy, even though it has delivered a devastating bear market for the greenback.
In a short statement given in Martha’s Vineyard in August 2009 with Bernanke at his side, Obama lauded the Fed chief’s “temperament, courage and creativity.” It was these personal characteristics, said Obama, that had helped Bernanke navigate America out of a Great Depression.
President Obama left out the one characteristic that Bernanke seems to have in spades — loyalty. Only loyalty can explain why Bernanke has been playing fast and loose with interest rates while initiating monetary policies that have spawned hundreds of billions of dollars in fresh new money.
Bernanke certainly has more than his share of critics. During his second Senate confirmation, 70 Senators voted in favor of Bernanke, but 30 voted against him. That was the narrowest margin by which a Fed chairman was ever won a nomination.
Still, Obama and many members of his administration applaud Bernanke. As long as he can keep the Chinese lending and investors from balking on Big Board stocks, Bernanke can help Obama be re-elected.
But holding the economy together won’t be easy. The Chinese and other foreign investors are growing restless about throwing money into U.S. Treasuries — those pesky bonds Washington needs to keep selling every week just to stay in business. Meanwhile, people like Congressman Ron Paul (R-Texas) are not turning a blind eye to Bernanke.
According to Paul: "There is something fishy about the head of the world’s most powerful government bureaucracy, one that is involved in a full-time counterfeiting operation to sustain monopolistic financial cartels, and the world’s most powerful central planner, who sets the price of money worldwide, proclaiming the glories of capitalism.”
And there is more to this than just Paul’s opinion. There is hard evidence that the United States — under the leadership of Obama and his loyal lieutenant, Bernanke — is headed for an inflationary maelstrom. Fueled by the Fed’s program of quantitative easing, MZM money supply has soared $475 billion in the past six months. This is the money the Fed lends to the banks which is then lent out at a multiple. That is why MZM is sometimes referred to as super-money, and can be a catalyst in creating inflation.
Another broad measure of money, M2, has also been rising at an alarming rate, as you can see in the chart below.
That the Fed is pushing such rapid monetary growth may underscore just how frightened Federal Reserve Governors are that we will see a double-dip recession, perhaps even a full-fledged depression. But remember, the Fed is supposed to be worried about protecting the integrity of the dollar. It appears instead that the Fed wants to protect itself along with the rest of the Ruling Elite.
More than 150 banks shut their doors last year. Five-hundred banks could close this year. The Federal Reserve will do whatever it takes to see that doesn’t happen, the dollar be damned.
One final thought — it is probably premature to celebrate the eviction of Obama from the White House in two years as much as we might like to. There are a lot of powers at work, the Federal Reserve included, that will be working to ensure the status quo.
Yours in good times and bad,
Myers’ Energy and Gold Report