Page 1 of 2 Bernanke's neck on the line
By Julian Delasantellis
They're back, the huge, hulking city sized spacecraft that suddenly appear from
the blackness of deep space to take positions above the metropolises of America
and around the world.
In Robert Wise's 1951 The Day the Earth Stood Still, Klaatu (Michael
Rennie) seemed peaceful enough; it was his butt-kicking, robot supervisor Gort
that drove audiences home with nightmares. In George Pal's 1953 adaptation of
the 1898 HG Wells novel, The War of the Worlds, the spaceships weren't
that big, nor were the Martian invaders who piloted them; they just had real
big hungers to kill (and eat) the human race.
In Roland Emmerich's 1996 Independence Day, the big ships are over major
US and world cities once more, spending a few hours
calibrating their communications before laserblasting the cities out of
existence. Finally, the current US ABC television network drama V revisits
the story first told by NBC's similarly named 1983 miniseries, about how
seemingly friendly aliens appear over the cities in their spaceships; they
promise great technological advance to the human race, but their reality is
anything but.
In 1962, Rod Serling's CBS network science fiction anthology, The Twilight Zone,
looked at the concept of alien races traveling to Earth to help the human race
with a touch of whimsy. An alien race, the Kannamits, has landed on Earth;
their ambassador tells the United Nations that his people's lofty ambitions to
help humanity are contained in a book, To Serve Man, written in the
alien's own indecipherable language. A military linguist, unknowingly on his
way to the Kannamits' meat lockers, learns the secret too late - To Serve Man
is a cookbook.
Away from the silver screen and the idiot box, some people, including
apparently a majority in the US Congress, believe that the alien invaders have
never been vanquished, that they are here and that they rule, in poorly cloaked
obscurity. They're there, in every bank in America, from the vaults in the
basement to the executive boardrooms in the penthouses. Looking horizontally,
the belief is that the aliens are there as well, from every truck-stop ATM
right to your banking website.
But unlike the Kannamits, these aliens' language is perfectly decipherable.
They call themselves the "Federal Reserve Bank", and the weapon of choice for
the homegrown resistance movement that has arisen to fight the bank is not
neutron bombs or laser pistols, but the audit - a weapon they feel will
overthrow the tyrants' rule and return freedom and democracy to the people.
It's normal for any mortal creature to view the new and inexperienced with good
measures of awe, wonderment and perhaps fear; this must be the explanation for
the now almost century of hostility that has attended upon the creation and
operation of America's third central bank, the Federal Reserve Bank of the
United States.
The Fed was born from the fire of the panic of 1907, what would come to be the
nation's worst financial crisis until the Great Depression 22 years later. It
was during this crisis that it became obvious that, under a private sector,
gold-based system, the liquidity needed to fuel a complex, industrially based
economy could disappear virtually instantaneously.
In 1907, America was saved from total financial ruination only through the
intervention of industrialist (more frequently described at the time as "robber
baron") JP Morgan, who pledged resources of his own to backstop the
government's accounts, and strong-armed some of his fellow oligarchs to do
likewise.
But money under a central banking system would turn out to be a far different
construct than before. Here it was called "fiat money", money backed by no
other storehouse of value than the government's pledge and word to maintain its
value.
This was what was so hard for many to be accustomed to, for the use of a
physical standard of exchange, which in the vast majority of times meant gold,
seemed to be older than human civilization itself; the history of its usage as
a medium of exchange and storehouse of value stretched so far back into ancient
times that one might actually have reason to believe that its place in history
was a matter of divine intervention.
There are dozens of references to gold in both the Bible's Old and New
testaments, from Genesis 13:2, "Now Abram was very rich in livestock, in silver
and in gold" to Revelation 9:20, "And the rest of the men which were not killed
by these plagues yet repented not of the works of their hands, that they should
not worship devils, and idols of gold, and silver, and brass, and stone, and of
wood: which neither can see, nor hear, nor walk."
In those ancient times, the tents where pure gold was measured and assayed into
coinage was seeped by kings in mystery and cloaked with religious obscurantism;
the hope being that some of the majesty of the infinite might accrue to this
most mundane but vital of earthly pursuits.
In 1717, Sir Isaac Newton advised the British Mint that "I humbly represent
that a pound weight Troy of Gold, eleven ounces fine & one ounce allay, is
cut into 44ฝ Guineas, & a pound weight of silver, 11 ounces, 2
pennyweight fine, & eighteen pennyweight allay is cut into 62 shillings,
& according to this rate, a pound weight of fine gold is worth fifteen
pounds weight six ounces seventeen pennyweight & five grains of fine
silver, recconing a Guinea at 1ฃ, 1s. 6d. in silver money."
Perhaps the founders of the Federal Reserve had this in mind when they seemed
to deliberately go out of their way to make the operating structure, ownership
and management of the new central bank as hard to understand as possible.
The only way to really explain what the Federal Reserve System is is to explain
what it is not. It is not a traditional member of the executive branch; neither
the president nor a congressional leader can order it to raise or lower
interest rates. It is not a member of the private sector's banking system like
a standard commercial bank, and its core function is not to generate a profit.
From Boston to San Francisco, America has been carved up into 12 distinct
Federal Reserve "regions" with a Federal Reserve regional bank (as in the
Federal Reserve Bank of Boston, or the Federal Reserve Bank of Kansas City)
exercising some measure of regulatory supervision over the banks in their
areas. Further adding to the confusion is that each of the regional Federal
Reserve banks is structured as a private corporation, with its stock "owned" by
its private members, but, since the private banks cannot trade or sell the
stock, the private banks exercise no operational control over operations or
policies of the Fed regional banks.
Over the years, these deliberate ambiguities, which defined the Fed's relations
with the private banking system, along with the innate suspicion that was
always destined to accrue to any institution that seemed to steal the
Promethean thunder of seigniorage from the gods, meant that those with a more
conspiratorial frame of mind would always look at the Fed with a raised eye of
suspicion.
Most of these resided in the dark passageways of American political
ultra-conservatism, even today. "Federal Reserve" and "Bolshevik Revolution"
returns 73,000 hits on Google, while the various organizations the extreme
right considered to be nothing but Bolshevik Trojan Horses operating in the
West - the Rothschilds, the Bilderburgs, the 33rd degree Masons, and the
Council on Foreign Relations - returned 431,000, 283,000, 2,010,000 and 195,000
hits with "Federal Reserve" respectively.
Almost since its inception, the Federal Reserve has been in the crosshairs of
the US extreme right, but with so many other more readily available targets,
from Franklin Delano Roosevelt's New Dealers to the civil rights marchers of Dr
Martin Luther King frothing up the mouths of conservatives from the era of
radio to that of podcasting, the Fed always had to settle for the second-best
clips at the ammo dump.
Thus, at any summer suburban barbecue, you might fall victim to the misfortune
of being harangued by the local cul de sac's Fed-threat freak, but you'd be
just as, or even more, likely to be spending the occasion with the group
bemoaning how much the local teachers or baseball players were making, or maybe
passing time with the guy idly wondering how he could parlay his experience as
a supervisor on the factory loading dock into a contract to supply Pamela Lee
Anderson with her silicone supplies.
Until now. In the past few months, the anti-Fed guerrillas have, much like
Fidel Castro moved down from the hills in 1958 to capture Havana, seized the
American political process. Just last year there was hope that Barack Obama's
election as president might go a long way towards blunting the sharp edges of a
bitterly fractured polity, but the rise of the anti-Fed right shows just how
far that dream has receded from view just from the attempt to approach it.
Ron Paul, the US Congressman from the Texas 14th Congressional district south
of Houston, is most known for his long toiling in the fields of anti-Fed
polemics and propaganda. He is also long known as just about the most fiscally
conservative member of the House's Republican caucus, and Paul has run for the
presidency twice; in the 1988 general election on the Libertarian ticket,
finishing third behind George H W Bush and Michael Dukakis, with 0.5% of the
vote, and in the 2008 Republican presidential primaries and caucuses, finishing
fourth in total delegate count behind Mitt Romney, Mike Huckabee and the
eventual winner, John McCain.
Until very recently, the contemporaneous US Republican party and Paul seemed to
be a rather poor fit. The September 11, 2001, terrorist attacks had America
moving away from Paul's ideas of a non-interventionary foreign policy based not
on millenarian ideology and permanent alliances but on personal interests;
likewise, the big US government fiscal deficits, based on increased defense
spending for the wars to be fought in the Islamic world; tax cuts not matched
with spending cuts; and a poll-generated-and-driven conception of
"compassionate conservatism" through government spending on the middle class,
offended Paul's sense of fiscal probity.
Although far from a social liberal on issues such as abortion or gay rights, he
did take sufficient offense at some of the Christian fundamentalists' efforts
to legislate state-enforced solutions to these essentially interpersonal
dilemmas that he also ran afoul of White House political advisor Karl Rove's
wildly successful 2002-4 effort to organize and placate Christian conservatives
into a subservient, reliable voting bloc.
But that was the Washington DC of a long time ago, in a galaxy far, far away -
the imperial city of an empire yet to suffer the indignities and pillage of the
financial crisis.
Like Vladimir Lenin in Zurich, Paul might have gone like this until the end,
just another fringe extremist voice in a country that produces them like bad
stand-up comedians. Then, the crisis broke, and the sealed train was dispatched
to take Paul back to the center of power.
From about the time that the financial crisis progressed to such a stage that
it required immediate and sustained federal government attention, one thing
became clear as to how the triumvirate of George W Bush, Treasury Secretary
Henry Paulson and Fed chairman Ben Bernanke was going to handle it - they were
going to let the Federal Reserve do a lot of the heavy lifting.
This seemed to please all the participants just fine. Bush and Paulson got the
assistance of an influential policy actor who could, what with the standard
executive branch needing to submit their actions to congress for review,
oversight and possible veto, act much quicker in a crisis. Bernanke's Fed got,
as if it had tapped a trunk line from a nuclear power station, power, and lots
of it. No matter their denials, what bureaucrat really doesn't want to have
that?
Therefore, the Fed was there from the first of the major financial system
rescues of the current crisis, the $30 billion line of credit the Fed provided
JP Morgan to buy out Bear Stearns in March 2008; and as Fannie and Freddie
faltered in the summer, the Fed was still there, as it was with the huge
Troubled Asset Relief Program rescue package and its successors from September
onwards.
This was what created so much perplexity among the people. They saw the
headline rips about the Fed role in all the rescues, with all those big
billion-dollar price tags, and did a MEGO ("my eyes glaze over") when hearing
about all the new special lending Fed programs that they couldn't understand
and had no intention of trying to - things such as the TAF (term auction
facility), the TSLF (the term securities lending facility) and the PDCF
(primary dealer credit facility).
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