zaterdag 22 oktober 2011

De Amerikaanse Centrale Bank is een privé ondernemening

Hier enige achtergrondberichten.

(1) Kucinich introduces A.M.I. bill to rebuild American finances & economy
(2) How Short Sellers Fleece Investors - Ellen Brown
(3) John Hotson: Government Debt problem is caused by shift of
money-creation from Bank of Canada (at low interest) to private banks
(4) Fed lawyer testifies: Fed Banks are "Not Agencies" but "Independent
Corporations" with "Private Boards of Directors"
(5) Video: Fed lawyer testifies in court, "they're not agencies. ...
Each Federal Reserve Bank bank .. their stock is owned by the member
banks in the district, 100% privately"
(6) Greece Should ‘Default Big,’ Says Man Who Managed Argentina’s 2001

(1) Kucinich introduces A.M.I. bill to rebuild American finances & economy

Date: Wed, 21 Sep 2011 23:44:01 -0500 From: AMI <>

Dear Friends of the American Monetary Institute,


On Wednesday September 21st Congressman Dennis Kucinich (D,Ohio, 10th
District) took a crucial and heroic step to resolve our growing
financial crisis and achieve a just and sustainable money system for our
nation by introducing the National Emergency Employment Defense Act of
2011, abbreviated NEED. Read his announcement

While the bill focuses on our nation's unemployment crisis, the remedy
proposed contains all of the essential monetary measures being proposed
by the American Monetary Institute in the American Monetary Act. These
are what decades of research and centuries of experience have shown to
be necessary to end the economic crisis in a just and sustainable way,
and place the U.S. money system under our constitutional checks and
balances. Yes, it can be done!

By the way, there is still time for you to join the AMI Seventh Annual
AMI Monetary Reform Conference (Sept. 29-Oct. 2) in Chicago and
participate in our preliminary conversation of how best to move forward.
To be a part of this remarkable moment in history, you can register for
the conference at or by phone
at 224-805-2200.
The conference registration, at $395 per person, ends on Friday! To
register after the deadline, there is an additional charge of $100 to
process the registration. Go to
to register.

Warm regards to all,
Stephen Zarlenga

The Kucinich / AMI bill would replace the present Keynesian debt-based
money system - where banks create money by making loans of ten or more
times the amount of money they have on hand - with a government money
system, where government creates the money as money, not debt, and
spends it into circulation for things the country (i.e. the people)
really need, like infrastructure.

(2) How Short Sellers Fleece Investors - Ellen Brown

Financial Warfare: "Sheared by the Shorts". How Short Sellers Fleece

by Ellen Brown

Global Research, September 29, 2011

  “Unrestrained financial exploitations have been one of the great
causes of our present tragic condition.” -- President Franklin D.
Roosevelt, 1933

Why did gold and silver stocks just get hammered, at a time when
commodities are considered a safe haven against widespread global
uncertainty? The answer, according to Bill Murphy’s newsletter, is that the sector has been the target of massive
short selling. For some popular precious metal stocks, close to half the
trades have been “phantom” sales by short sellers who did not actually
own the stock.

A bear raid is the practice of targeting a stock or other asset for
take-down, either for quick profits or for corporate takeover. Today the
target is commodities, but tomorrow it could be something else. When
Lehman Brothers went bankrupt in September 2008, some analysts thought
the investment firm’s condition was no worse than its competitors’. What
brought it down was not undercapitalization but a massive bear raid on
9-11 of that year, when its stock price dropped by 41% in a single day.

The stock market has been plagued by these speculative attacks ever
since the four-year industry-wide bear raid called the Great Depression,
when the Dow Jones Industrial Average was reduced to 10 percent of its
former value. Whenever the market decline slowed, speculators would step
in to sell millions of dollars worth of stock they did not own but had
ostensibly borrowed just for purposes of sale, using the device known as
the short sale. When done on a large enough scale, short selling can
force prices down, allowing assets to be picked up very cheaply.

Another Great Depression is the short seller’s dream, as a trader
recently admitted on a BBC interview. His candor was unusual, but his
attitude is characteristic of a business that is all about making money,
regardless of the damage done to real companies contributing real goods
and services to the economy.

How the Game Is Played

Here is how the short selling scheme works: stock prices are set by
traders called “market markers,” whose job is to match buyers with
sellers. Short sellers willing to sell at the market price are matched
with the highest buy orders first, but if sales volume is large, they
wind up matched with the bargain-basement bidders, bringing the overall
price down. Price is set by supply and demand, and when the supply of
stocks available for sale is artificially high, the price drops. When
the bear raiders are successful, they are able to buy back the stock to
cover their short sales at a price that is artificially low.

Today they only have to trigger the “stop loss” orders of investors to
initiate a cascade of selling. Many investors protect themselves from
sudden drops in price by placing a standing “stop loss” order, which is
activated if the market price falls below a certain price. These orders
act like a pre-programmed panic button, which can trigger further
selling and more downward pressure on the stock price.

Another destabilizing factor is “margin selling”: many speculative
investors borrow against their holdings to leverage their investment,
and when the value of their holdings goes down, the brokerage may force
them to come up with additional cash on short notice or else sell into
the bear market. Again the result is something that looks like a panic,
causing the stock price to overreact and drop precipitously.

Where do the short sellers get the shares to sell into the market? As
Jim Puplava explained on on September 24, 2011, they
“borrow” shares from the unwitting true shareholders. When a brokerage
firm opens an account for a new customer, it is usually a “margin”
account—one that allows the investor to buy stock on margin, or by
borrowing against the investor’s stock. This is done although most
investors never use the margin feature and are unaware that they have
that sort of account. The brokers do it because they can “rent” the
stock in a margin account for a substantial fee—sometimes as much as 30%
interest for a stock in short supply. Needless to say, the real
shareholders get none of this tidy profit. Worse, they can be seriously
harmed by the practice. They bought the stock because they believed in
the company and wanted to see its business thrive, not dive. Their
shares are being used to bet against their own interests.

There is another problem with short selling: the short seller is allowed
to vote the shares at shareholder meetings. To avoid having to reveal
what is going on, stock brokers send proxies to the “real” owners as
well; but that means there are duplicate proxies floating around.
Brokers know that many shareholders won’t go to the trouble of voting
their shares; and when too many proxies do come in for a particular
vote, the totals are just reduced proportionately to “fit.” But that
means the real votes of real stock owners may be thrown out. Hedge funds
may engage in short selling just to vote on particular issues in which
they are interested, such as hostile corporate takeovers. Since many
shareholders don’t send in their proxies, interested short sellers can
swing the vote in a direction that hurts the interests of those with a
real stake in the corporation.

Lax Regulation

Some of the damage caused by short selling was blunted by the Securities
Act of 1933, which imposed an “uptick” rule and forbade “naked” short
selling. But both of these regulations have been circumvented today.

The uptick rule required a stock’s price to be higher than its previous
sale price before a short sale could be made, preventing a cascade of
short sales when stocks were going down. But in July 2007, the uptick
rule was repealed.

The regulation against “naked” short selling forbids selling stocks
short without either owning or borrowing them. But an exception turned
the rule into a sham, when a July 2005 SEC ruling allowed the practice
by “market makers,” those brokers agreeing to stand ready to buy and
sell a particular stock on a continuous basis at a publicly quoted
price. The catch is that market makers are the brokers who actually do
most of the buying and selling of stock today. Ninety-five percent of
short sales are done by broker-dealers and market makers. Market making
is one of those lucrative pursuits of the giant Wall Street banks that
now hold a major portion of the country’s total banking assets.

One of the more egregious examples of naked short selling was relayed in
a story run on FinancialWire in 2005. A man named Robert Simpson
purchased all of the outstanding stock of a small company called Global
Links Corporation, totaling a little over one million shares. He put all
of this stock in his sock drawer, then watched as 60 million of the
company’s shares traded hands over the next two days. Every outstanding
share changed hands nearly 60 times in those two days, although they
were safely tucked away in his sock drawer. The incident substantiated
allegations that a staggering number of “phantom” shares are being
traded around by brokers in naked short sales. Short sellers are
expected to cover by buying back the stock and returning it to the pool,
but Simpson’s 60 million shares were obviously never bought back to
cover the phantom sales, since they were never on the market in the
first place. Other cases are less easy to track, but the same thing is
believed to be going on throughout the market.

Why Is It Allowed?

The role of market makers is supposedly to provide liquidity in the
markets, match buyers with sellers, and ensure that there will always be
someone to supply stock to buyers or to take stock off sellers’ hands.
The exception allowing them to engage in naked short selling is
justified as being necessary to allow buyers and sellers to execute
their orders without having to wait for real counterparties to show up.
But if you want potatoes or shoes and your local store runs out, you
have to wait for delivery. Why is stock investment different?

It has been argued that a highly liquid stock market is essential to
ensure corporate funding and growth. That might be a good argument if
the money actually went to the company, but that is not where it goes.
The issuing company gets the money only when the stock is sold at an
initial public offering (IPO). The stock exchange is a secondary market
– investors buying from other stockholders, hoping they can sell the
stock for more than they paid for it. In short, it is gambling.
Corporations have an easier time raising money through new IPOs if the
buyers know they can turn around and sell their stock quickly; but in
today’s computerized global markets, real buyers should show up quickly
enough without letting brokers sell stock they don’t actually have to sell.

Short selling is sometimes justified as being necessary to keep a brake
on the “irrational exuberance” that might otherwise drive popular stocks
into dangerous “bubbles.” But if that were a necessary feature of
functioning markets, short selling would also be rampant in the markets
for cars, television sets and computers, which it obviously isn’t. The
reason it isn’t is that these goods can’t be “hypothecated” or
duplicated on a computer screen the way stock shares can. Short selling
is made possible because the brokers are not dealing with physical
things but are simply moving numbers around on a computer monitor.

Any alleged advantages to a company or asset class from the liquidity
afforded by short selling are offset by the serious harm this sleight of
hand can do to companies or assets targeted for take-down in bear raids.
With the power to engage in naked short sales, market makers have the
market wired for demolition at their whim.

The Need for Collective Action

What can be done to halt this very destructive practice? Ideally,
federal regulators would step in with some rules; but as Jim Puplava
observes, the regulators seem to be in the pockets of the brokers and
are inclined to look the other way. Lawsuits can have an effect, but
they take money and time.

In the meantime, Puplava advises investors to call their brokers and ask
if their accounts are margin accounts. If so, get the accounts changed,
with confirmation in writing. Like the “Move Your Money” campaign for
disciplining the Wall Street giants, this maneuver could be a
non-violent form of collective action with significant effects if enough
investors joined in. We need some grassroots action to rein in our
runaway financial system and the government it controls, and this could
be a good place to start.

(3) John Hotson: Government Debt problem is caused by shift of
money-creation from Bank of Canada (at low interest) to private banks

From: "Israel Shamir" <> Date: Sat, 17 Apr 2010
16:26:36 +0300

Myths about Government Debt Exploded and Debunked

The rise of the public debt over the past few decades has NOT been
caused by excessive government spending. It has been caused by excessive
interest rates that now siphon off one in every three dollars of our
taxes. Spending on social programs has actually gone down in relative
terms, as a share of GDP. So if controlling the deficit is necessary, it
should be done primarily through interest rate reduction, not by
underfunding and slashing the public sector.

This text was mentioned in the 1 August 2010 French Connection show with
David Pidcock.  Pidcock's radio show is available here.  See also the
outstanding video presentations by Mr. Pidcock and Mohammed Rafeeq
titled Perspectives of Moral Political Economy.  Both gentlemen are long
time interview guests of Daryl Bradford Smith at TFC.

The successful local currency initiative mentioned is Ithaca Hours.  Out
from under the Usurers' Yoke since 1991!



Harold Chorney Assoc. Professor of Political Economy and Public Policy
Concordia University, Montreal

John Hotson Professor of Economics, University of Waterloo

Mario Seccareccia Assoc. Professor of Economics, University of Ottawa


Governments these days find it easy to defend cuts in services and programs.

All they have to do is point to their annual deficits and their total
accumulated debts.

In the case of the federal government, the annual projected deficit is
about $30 billion and its net accumulated debt about $420 billion.

This public debt provides the politicians with a convenient excuse for
cutting spending or raising taxes or both.

“We're broke,” they tell us plaintively. “We can't afford to increase
public services, or even keep them at their present level.”

The same excuse is used to defend a failure to stimulate the economy and
create more jobs.

That would sink us even further into debt, they protest. “We can't let
the deficit get any larger.”

In their obsession with the monetary deficit, however, the politicians
are ignoring the much more serious deficits that we are running up in
our human capital and public infrastructure. It will benefit Canadians
not at all if the price we pay for getting the financial deficit under
control is the decline of our health care, our education, our social
programs, and our public sector. These are the "deficits' we really
should be concerned about!

The rise of the public debt over the past few decades has not been
caused by excessive government spending. It has been caused by excessive
interest rates that now siphon off one in every three dollars of our
taxes. Spending on social programs has actually gone down in relative
terms, as a share of GDP. So if controlling the deficit is necessary, it
should be done primarily through interest rate reduction, not by
underfunding and slashing the public sector.

Unfortunately, most Canadians either don't realize that the deficit is
interest-rate driven, or if they do, believe that interest rates are set
by uncontrollable economic and market forces. In any event, they are
intimidated by all the dire warnings they hear about the dangers of
deficit financing. They accept "the big lie" that governments must get
out of debt, even if that means cutting services or raising taxes in the
midst of a deep recession.

For too long government monetary policies have been excluded from public
scrutiny and debate. The political and bureaucratic "high priests" who
set these policies would have us believe they're too .complicated for
average Canadians to understand. In fact, they are not at all difficult
to grasp, when they're properly explained.

It's time to debunk the myths that have been spread about government
indebtedness. It's time to question the politicians feeble excuse that
"the deficit made us do it "--or, more commonly, "the deficit won't let
us do it.”

This booklet not only demystifies the deficit. It challenges the "logic"
of current government priorities. It provides us with facts and figures
justifying our demand that governments abandon the economic fallacies of
the 1930s and start alleviating the economic misery of the 1990s.

The political and financial "high priests" who set monetary policy would
have us believe it's too complicated for average Canadians (Brits and
others) to understand. In fact, the ways that governments collect,
borrow and spend money are not at all difficult to grasp, when properly


As the deep recession dragged into 1992, Finance Minister Don
Mazankowski said he couldn't do anything about it. His hands were tied,
he said. The federal government was broke. The cupboard was bare. The
deficit and accumulated national debt were so enormous that his first
priority had to be to reduce them--even if that meant prolonging the
recession and making it even worse.

So his budget contained almost nothing to revive the sick economy. With
interest payments on the debt gobbling up one-third of tax revenue, his
response was to keep taxes high and axe more public services and agencies.

Like Martin Luther before him, Mazankowski in effect proclaimed: 'Here
stand I. I cannot do otherwise."

But it doesn't take an economist to see that in fact he could. All you
have- to do is imagine what the government would do if it got involved
in another Gulf War--or if that war were still raging. Would Mazankowski
have brought down the same kind of budget? Would he have said, 'We'd
like to keep on fighting, but we're broke, so we're calling our troops
back"? Not on your life!

Did Canada surrender half way through World War II because the national
debt had grown even larger than the Gross Domestic Product? Of course
not! Somehow the extra money was found. If it wasn't by raising taxes or
borrowing from the private banks, why, the Bank of Canada simply created
all the money the government needed - and at near-zero interest rates, too!

When World War II ended, the national debt relative to the national
income was more than twice as large as it is now. But was the country
ruined? Did we have to declare national bankruptcy? Far from it!
Instead, Canada's economy boomed and the country prospered for most of
the post-war period.

Why isn't the same thing happening today? Why was a much larger national
debt shrugged off in 1945, while today's much smaller debt (as a
percentage of GDP) is being used as an excuse to let the economy stagnate?

The answer can be found at the Bank of Canada. During the war, and for
30 years afterward, the government could borrow what it needed at low
rates of interest, because the government’s own bank produced up to half
of all the new money. That forced the private banks to keep their
interest rates low, too.

When World War II ended, Canada's national debt relative to national
Income was twice as high as It Is today. Yet the economy boomed and the
country prospered for most of the post-war period

Since the mid – 1970s however; the Bank of Canada, with government
consent, has been creating less and, less of the new money while letting
the private banks create more and more. Today our bank creates a mere 2%
of each year's new money supply, while allowing the private banks to
gouge the government--and of course you and me, as well--with
outrageously high interest rates. And it is these extortionate interest
charges that are the principal cause of the rapid escalation of the
national debt. If the federal government were paying interest at the
average levels that prevailed from the 1930s to the mid 1970s, it would
now be running an operating surplus of about $13 billion!

Mazankowski and the Tory government he represents are engaging in a
colossal flim-flam. He knows as well as we do that a sovereign
government can always find money to do whatever it really wants to do:
such as fight a costly war; or dispense billion-dollar handouts to
profitable corporations. So what he was really telling us in his budget
speech was that his government was willing to spend the money required
to save Kuwait, but is not willing to spend the money needed to save the
Canadian economy.

The finance minister, of course, would argue that, yes, the additional
money could be found to stimulate the economy, but it would be
inflationary. Having plunged the country into a deep recession in order
to 'wring inflation out of the economy, the Tory government says it
doesn’t want to trigger another rise in living costs.

So the war on inflation is another war the government thinks is worth
fighting, even after it's won. Even if its continuing anti-inflation
measures have the effect of raising taxes and interest rates, while
pushing down personal incomes and corporate profits (bank profits
excepted. of course), and. throwing hundreds of thousands of Canadians
out of work.

The toll of economic ruin and human deprivation exacted by the federal
government and the Bank of Canada will become even more devastating if
the counterproductive policies of restraint are pursued much longer.

If the federal government had been paying interest at the levels that
prevailed prior to the 1980s, it would now be running an operating
surplus of about $13 billion.


Whenever an economic downturn requires more government spending, the hue
and cry over "the deficit" breaks out anew. And this despite the obvious
responsibility of the state, in times of low demand and high
unemployment, to restore demand and create more jobs. In the process,
unavoidably, the government deficit increases because its tax revenue
drops during a recession while it must spend more to help the
recession's victims.

Such was the situation during the Great Depression of the 19305. Such
was the situation in the recession of 1981-82, and now again in the much
worse downturn of 1991-92.

The entire history of public indebtedness incurred to finance public
activities is linked with the rise in our living standards over the last
100 years. Most of the credit is given to the private enterprise system.
Far less appreciated is the fact that society has also benefited
enormously from the roads, hospitals, schools, and other public
facilities and programs that are provided by government--and which
business needs as much as private citizens do.

Nevertheless, the myth priests that the public sector does not
contribute to--but rather subtracts from--the overall wealth of the
nation. It's a myth that underlies the fierce opposition of most
business executives to deficit financing.

Their real objection is not so much to the deficit, per se, but to the
expansion of the public sector that deficits permit. Lest there be any
doubt about that, simply ask yourself whether the same outcry is raised
about the growing reliance on credit (deficit financing by another name)
on the part of both business and consumers.

In fact, the explosion of private credit has been far greater than the
increase of public debt. Total private sector debt has soared by more
than 1496 a year over the past decade, compared with a much more modest
growth of 696 annually in total public sector debt. Indeed, the combined
debts of about $1,600 billion owed by households, corporations and
financial institutions are nearly triple the debts owed by all levels of
government!Because of its far more vulnerable nature, this kind of
private debt is much more risky and potentially serious than public
debt. Still, apart from an occasional murmur about the overextension of
credit to companies and individuals, hardly any criticism is heard.
Certainly nothing to compare with the torrents of abuse and hysteria
about the "evils" of public debt and the "dangers" of growing government

We are constantly warned by business people and media commentators that
government deficits are now .out of control" and have reached historic
heights. "I1ds is patently untrue. Measured against either personal
income in .the case of the provinces, or the GDP in the case of the
federal government, the accumulated public debt is nowhere near the
levels it reached during the 1930s or in the immediate post-war period.
The current ratio of accumulated federal debt to the GDP, for example is
61%, which is just a little over half the ratio of 110% reached during
World War II.

The increase of private credit has been far greater than the increase of
public debt. The combined debts of households, corporations and
financial Institutions are nearly triple the debts owed by all levels of


The attack against deficit finance is essentially an attack against
government, and it has been going on for the last hundred years or more.
Literally thousands of artic1es and editorials in the commercial press
since the early 1900s have decried government deficits and called for
cuts in public services along with balanced budgets.

The media have been filled with horror stories about the disastrous
consequences of 'uncontrolled government spending.' Ironically this
anti-deficit uproar is even more pronoul1ced during economic slumps than
during times of prosperity. A review of the business press over the past
75 years makes this point very clearly. The predictable business
response to a recession is to call for less, not more government
spending. 'That was its response to the Great Depression of the 1930s,
and the same corporate chorus of restraint and deficit reduction is
being heard today.

Too many business leaders learned nothing from the 1930s. Their ideology
remains unchanged. Their stubborn and doctrinaire refusal to consider
opposing views make them no better guides to wise economic policy today
than they were 60 years agoUnfortunately, it is their strident call for
cutbacks and belt-tightening measures that is being heeded again by most
governments--even 'though, in tough economic times, it is the worst
possible course to follow. It is in fact a lethal prescription for
recreating the widespread unemployment and suffering of the 1930s.

(The 11.1 % unemployment rate early in 1992 was not that far below the
average 13% rate that prevailed from 1930 to 1939.)

What was so drastically false in the no less false today. It's
not the deficit that causes recessions, high interest rates, and
unemployment. Rather the converse is true. As unemployment rises, tax
revenue declines even as the demand for government aid increases. And of
course the higher that interest rates are pushed up, the more government
revenue has to be dispensed in interest payments to support the debt.

Business leaders learned nothing from the Great Depression. Their demand
for deficit reduction is a lethal prescription for recreating the
widespread unemployment and suffering of the 1930s.


Real long-term and short-term rates of interest, though lower than they
were in the 1980s are still far too high, given the decline in the
inflation rate.

The unnatural and unjustified levels of these rates are exposed when we
compare them with the average rate of real interest over the period from
1933 to 1985--1.4%.

There's a direct correlation between high real interest rates and high
unemployment. For example, during the 19305, the long-term real interest
rate averaged 5.696, and during the 1980s and early 19905 they've
averaged 5.396. Both of those decades were periods of high unemployment.
In contrast the real rate of interest during the 1940s was only 1.896,
during the 1950s 1.296 and during the 1960s 3.2%. These were all decades
of low unemployment. Coincidence? Hardly

When the federal government has to pay interest on its debt of more than
6% in real terms, as compared with the historic level of 1.4% its costs
are tremendously inflated and controlling the deficit becomes much more
difficult. Indeed, a reduction to the traditional rate of 1.4% would
save the federal government $6 billion in debt charges in the first year
and $10 billion by the third year.

Thousands of years of sad experience with the concentration of wealth
and debt slavery caused all the ancient books of wisdom--including the
Bible and the Koran--to condemn the charging of immoderate rates of

But today we have a monetary system where money is a piece of paper or a
byte in a computer's memory--a system where the money supply can be
increased simply by borrowing it into existence from a bank. In such a
system, inflation and the over concentration of wealth can only be
avoided by charging a low rate of interest.

The conventional wisdom, however, is that inflation is the greatest
threat to the economy and must be restrained by raising interest rates.
This flies in the face -of the common-sense observation that rising
prices (inflation) are caused by rising costs, and that Interest rates
are costs. So raising them will raise prices, not lower them.

Also raised by this policy, of course, is the income of the
money-lenders, which explains why they subscribe so fervently to the
perverse doctrine that high interest rates are somehow
anti-inflationary. Certainly the world’s bankers and other money-lenders
have gained much from the nonsensical notion that, while giving workers
a big raise is inflationary, giving money-lenders a big raise is not.

Many economists rail against "wage push." and it's true that wages have
risen by 2,700% over the past 50 years. But in the same period
government tax revenue went up by 3,400% and net interest by 26, OOO%!
Yet most of the economic textbooks that deplore rising wages don't even
mention the tax and interest pushes. And it's not because they are
complex ideas-rather, they are simple and obvious--but because it would
be so embarrassing for economists to admit they've made a boner of such
magnitude: that their theory of monetary policy violates basic
principles of scientific logic.

The bankers have gained much from the nonsensical notion that, while
giving workers a raise in pay is inflationary, giving money lenders a
raise in interest rates is not.


One of the most pervasive myths about the government deficit is that
governments which spend more than they receive in revenue must borrow
the difference, thus increasing the public debt.

In fact a government can choose to create the needed additional money
instead of borrowing it from the banks, the public, or foreigners.

Business and the conservatives in politics and the media are horrified
by the suggestion that the government exercise its right to create more
money. They claim it would precipitate another ruinous bout of inflation.

But money creation is money creation - whether by a private bank or the
Bank of Canada; and a government in debt only to the government own bank
is not really in debt at all. If it wants to go through the rigmarole of
having the Treasure "borrow" from the central bank and, later pay
interest that is a minor matter of bookkeeping. As long as the central
bank's profits are returned to the Treasury, the results are much the
same as if the Treasury had created the money itself.

When the Bank of Canada was brand new back in the 1930s, it produced
most of the money supply from 1935 to 1939 and 62% of new money during
the last years of World War It This policy gave Canada the highest
employment rate it has ever had, very low interest rates, and very low

After the war years, and up to the mid1970s, the Bank of Canada
traditionally created enough new money to absorb (or "monetize") between
20% and 30% of the federal government deficit. Since the bank's
conversion to monetarism in 1975, however, it has steadily reduced its
share of the deficit, and therefore the broadly defined money stock. The
ratio is now down to 7.5%

There is no reason why the growth of Canada's money supply (averaging
about $22billion annually in recent years) could not be more
substantially created by the Bank of Canada. If that policy had been
followed, the federal government would not have been obliged to add to
its debts to pay interest on its old debts. Instead the Bank of Canada
has produced barely 2% of the money added in recent years, while the
chartered banks added the rest as they made loans to households,
businesses and all levels of government.

At the very least, the Bank of Canada and the chartered banks should
share the privilege of creating money on a 50-50 basis.

Those who dismiss such a proposal as' "inflationary" should be required
to explain why it would be more inflationary for the government's bank
to create $11 billion and the private banks $11 billon, rather than the
present practice of having the government's bank create $0. 7 billion
and the private banks $21.3 billion!

Clearly the current problem of the Canadian government's deficit is not
its absolute size, or its size relative to the GDP, but the insane way
it is being financed. A return to the policies of the World War II era,
when the Bank of Canada produced almost one-half of the new money at
near-zero interest would do wonders for the economy while greatly
shrinking the deficit.

In light of these facts why do so many people still believe that large
deficits cause economics problems, rather than being caused by economic
stagnation and inordinately high interest rate? No doubt this widely
held misconception reflects the success of the sustained business attack
on the deficit, but one would expect by now that many Canadians would
begin to question the business community's infallibility.


According to the Mulroney government, there are only two ways to control
the deficit. One is to raise taxes, and the other is to cut government

But in fact there is a third way to reduce the interest rate. The Bank
of Canada can set the rate of interest at which it lends to the
chartered banks at any number it chooses, and it can peg the rate on
government bonds, too. This was evident during World War II when it set
the rate on Treasury bills at as little as 0.36%, and on longer term
bonds at less than 2.5%. And this was at a time when government deficits
were as much as 27% of Canada's GDP and the money supply was increasing
at a 20% rate each year.

At present the deficit is less than 5% of GDP, and would not even exist
at all if the Central Bank had not raised interest rates beyond all
reason. In doing so, the Bank forced Ottawa to pay as much as 20.8% on
three month. Treasury bills when the bank was perfectly capable of
creating all the money the government needed at just 0.36%, as it did in
the 1940s.

Canada has been compared to a Third World country such as Mexico that
must continue to borrow just to make its interest payments. But our
federal government finds itself forced to borrow from private Canadian
banks and citizens to meet interest payments set at needlessly high
rates by another arm of government the Bank of Canada.

This is an outrageously artificial state of affairs. The Third World
countries at least face a real obstacle, since the financial terms and
conditions for their debts have been set by outside banking institutions
such as the International Monetary Fund and the World Bank., over which
they have no control. In Canada, on the other hand, the current “crisis”
of our federal deficit has been manufactured by none other than the high
interest-rate policy of the Bank of Canada.

In its early years, the Bank did a fairly good job of holding down
interest rates and serving the public interest. But, over the past few
decades, the Bank has become the "wholly controlled subsidiary" of the
private banks, rather than their overseer. That is why it now lets the
private banks create all but a tiny fraction of the nation's money
supply, and let their income from interest grow many times faster than
any other form of income.

To illustrate just how inexcusable the misconduct of Bank of Canada
officials has been, economist Jan Kregel suggests comparing the Bank
with the Coca Cola Company. This is a company run by executives who
obviously know what needs to be done to earn a high rate of return for
their shareholders. They've got a secret cola formula that guarantees
their product will account for at least half of all soft drink sales
world wide.

Now imagine a new management taking over Coca Cola. This new bunch gives
the secret formula to Pepsi, free. They tell soft drink consumers that
Pepsi is better for them, anyway. Then they shut down most of their
bottling plants. Not surprisingly, their market share plummets from 50%
to 2%.

The size and repayment of Third World countries' debts are determined
outside their borders by the International Monetary Fund and the World
Bank. In Canada, on the other hand, the size and repayment of our
government debts are determined by the Bank of Canada.

This scenario, of course, would never play itself out. Long before the
new gang of management wreckers could go this far to destroy Coca Cola,
the stockholders would have thrown the rascals out, and probably have
them jailed for breach or trust.

A far-fetched analogy? Not at all. We, the citizens of Canada are the
“stockholders” of the Bank of Canada, and we should be just as outraged
by the Bank's antics in recent years as our hypothetical Coca Cola
shareholders would have been. Because the Bank of Canada was set up and
for many years operated on our behalf to keep interest rates at a
reasonable level. It was an efficient low – cost “money machine” before
it was subverted by the inefficient high – cost private banks it was
supposed to regulate.

The first order of business for a post Mulroney-era government must be
to regain effective control of the Bank of Canada and make it the
primary source of money creation.

Deficit as % of Gross Domestic Product


Some of the severest critics of government deficits are themselves
“merchants of debt.” Take bankers, for instance. Not only is society
perpetually in debt to them, but they are also perpetually in debt to
society. Even in the best of times, only some 5% of the assets of a bank
are matched by the bank's equity. The rest is debt-financed-money owed
to depositors. '

A banker who forecloses on a farmer who can't pay his bills, while the
banker is himself insolvent, is in a dubious moral position. How to
lessen his guilt? Why, denounce the national debt and he'll feel better.

Never mind that the government has a far better asset-to-liability ratio
than the private sector. Never mind that the national debt grows more
slowly than other forms of debt except during wars and depressions.
Never mind that the only way to prevent depressions when private
borrowing dries up is for the government to spend more than taxes are
bringing in. Never mind that a banker lecturing the rest of us against
debt is like an arsonist warning us against playing with matches, Make a
speech demanding that the government stop going into debt to fund public
services, and you're sure to be applauded by your business, political
and media soul-mates.

Composition of Annual Deficits ($Billions)

85/86 86/87 87/88 88/89 89/90 90/91 91/92 92/93 93/94 94/95


Another business - supported myth is that high deficits "crowd out"
private investment. There might be a grain of truth in that claim if
large-scale gove~ment.borr6wing and spending took place during economic
boom times, thus eating up money that private investors might otherwise
use to expand production.

Our current debt situation, however, occurs in an environment of
large-scale unemployment, low consumer demand, and the underutilization
of people and resources. As such, there is no way that government
indebtedness or spending can displace private initiatives, because such
initiatives are not being taken. Rather, the wise infusion of government
funds in such hard times can stimulate economic activity and benefit
both the unemployed and the private sector.

Closely tied to this fallacy is another one – that deficits damage the
economy by reducing national savings. But there is no evidence to
support that allegation, either. On the contrary, past experience points
in the opposite direction.

Large deficits in the 1980s were accompanied by high rates of savings,
while small deficits (and even surpluses) in the 1960s were accompanied
by low rates of savings. Even though the current savings rate of 10% is
down from a high of 18% reached in the early 1980s, it is still at a
comparatively high level, even with the deficit.

Nor is Canada's savings rate unreasonably low by international
standards. Over a recent seven year period, the net savings rate by
households in Canada was 9.7% of net national income, compared with
6.296 in the U. S., 4.5% in Britain, and 8.9% in Germany.

Savings of course, have a worthwhile social function. They permit
households to invest in consumer durables and housing, and thus boost
the economy and create jobs. However, savings that are not invested for
this purpose - such as those in bank deposits - are going to waste.
They're unproductive.

A banker lecturing a government about debt is like an arsonist warning
us against playing with matches.

Any country in which unemployment rises as high as it is now in Canada
is trying to save too much through the acquisition of financial assets.
It is trying to save more than investors and other spenders are willing
to spend in order to achieve full employment. In such circumstances,
there is only one way that the economy can be stimulated so that the
needed additional jobs are opened up Governments must step in and fill
the spending vacuum.

A private debt that generates future wealth is considered justifiable.
So should a public debt that is incurred to create jobs.


One of the most enduring deficit myths is that there is no difference
between private debt and public debt, or the "burdens" they impose. In
fact, the two forms of indebtedness are entirely different.

In the case of an individual or a company, for example, the debt is owed
to outsiders and therefore can legitimately be considered a burden,
since it must be repaid out of future income. Default can lead to

In the case of Canada as a country, on the other hand, most of the debt
incurred is not owed to outsiders, but to its own citizens and financial
institutions, who consider the government's debt an asset. Furthermore,
unlike an individual or a company, a country like Canada just doesn't go

The other often-overlooked aspect of government debt is that its
"burden" is largely offset by the government's own assets. Debts secured
by assets are investments in the future wealth of the economy. Our
network of highways, transit systems, hospitals, ports, airports, power
plants, universities, schools, public buildings, Crown lands and natural
resources all represent enormous wealth-producing assets. Yet the
government's public accounts value these assets at the nominal value of
$1.00. Clearly this is absurd - just as absurd as the often heard claim
that “the government is broke.”

If households or corporations kept their accounts like that, it would
mean that people could never borrow to buy a home, or companies borrow
to invest in new plant and equipment.

Did you ever hear of a corporation that doesn't have large outstanding
debts? Of course not. It makes no sense not to borrow if you are making
capital investments. If the federal government followed the sound
accounting practices that business firms and households do, it would
only deduct each year's depreciation charges, not the full amount of new
capital spending.

The only sense in which private debt and public debt are comparable is
that in both cases the future cost of debt repayment can be measured
against the future stream of benefits.

A private debt that generates future wealth is considered justifiable.
But so is a public debt that is incurred to create jobs. If the debt is
not incurred, a government's future income will be lowered by the extent
to which it is necessary to meet the needs of those left jobless by the
lack of social capital investments.

Every road, school, hospital or airport that is neglected today simply
guarantees a more expensive burden for the future.

Critics of the deficit often bemoan the "legacy of public debt" that we
are bequeathing to future generations. Those future generations,
however, will be much worse off if, instead of a deficit, we leave them
a country plagued by ill-health, poverty, joblessness, decrepit schools,
and a crumbling infrastructure. A balanced budget will not be viewed as
an adequate substitute for social and economic security.

Critics of the deficit say it’s unfair to pass our debts on to future
generations. Those future generations, however, will be much worse off
if instead of a deficit, we bequeathe them a country plagued by
ill-health, poverty, joblessness, poor education, and crumbling highways.


The size of the federal deficit is grossly exaggerated by the failure to
make the necessary adjustments for inflation, for “double counting” and
for the normal ebb and flow of the business cycle. If the deficit or
even the accumulated federal debt of $420 billion--were properly
accounted for, it would be considerably smaller. Our concern should be
with the real debt--that is, the debt adjusted for inflation.

It stands to reason that the deficit should be reduced by the annual
rate of inflation, since the repayment in each succeeding year is mad~
in deflated dollars.

The deficit should also be reduced by separating from it all the debt
held by the Bank of. Canada and other federal government bodies ($23
billion), as well as the debt held by provincial governments and
municipalities ($22 billion). It makes no sense to count as a burden
interest payments made to other branches of the Crown. .

Adjusting the deficit to the business cycle reflects the inevitable drop
in government tax revenue that is caused by a recession, its consequent
rise in unemployment, and the need for more government spending for
social assistance.

It is misleading to judge the size of the deficit without taking these
factors into account. Some economists say that, if these adjustments
were all made, as they should be, the real deficit would be down from
$31 billion to less than $ 10 billion. And the remaining deficit could
be converted into a sizeable surplus if the many tax concessions and
handouts to profitable companies and wealthy individuals were
eliminated, and interest rates brought down to a reasonable level.

Attempts to revive the private sector by savaging the public sector are
equivalent to the ancient medical practice of bleeding to "cure" the


The federal government tries to defend its spending restraints during a
recession by arguing that deficit reduction is necessary to 'restore
business confidence" in the economy.

The premises of such a policy are that (a) only by restoring business
confidence can the economy be revitalized; and (b) any cuts in public
services or employees that flow from such spending restraints would be
good for the private sector.

These two assumptions are myths.

Let's concede that business confidence is important. No one denies that.
But consumer confidence is equally important. It would be futile for
business to produce more unless consumers were willing .to buy more, no
matter how “confident” business might become as the result of a lower

Public sector cutbacks do not build consumer confidence. They may
appease the government's business supporters, but they make average
citizens and workers very uneasy--particularly if they involve the
layoff of public employees.

In our mixed capitalist economy, the public sector employs up to 25% of
the work force. Government restraint that leads to job losses in
schools, hospitals, municipalities, and other public institutions are
rapidly spread through the whole economy, causing a multiplier-effect
loss of private sector jobs. Thus, for every increase in business
confidence that may follow public sector cutbacks, there will be an
equal or greater offsetting loss of consumer confidence.

Moreover, because of the interdependence of the public and private
sectors in Canada, cuts in one inevitably spill over into the other,
both through direct job loss and reduced spending. Attempts to revive
the private sector by savaging the public sector are equivalent to the
medieval practice of bleeding to "cure" the patient.

Business people don't seem to realize that income support programs such
as pensions, unemployment insurance, and social assistance are essential
to sustain a strong demand for private sector goods and services. In
opposing such government programs, they help to bring about the very
decline in their own profits which they so piteously lament.

Restoring business confidence in the economy is important. But it would
be futile for business to produce more unless consumers were willing and
able to buy more no matter how “confident” business might become as the
result of a lower deficit.


The only "reason" left for us to be concerned about the deficit is
because most of the big corporations want us to be concerned about it.
By deluding us that the deficit is a serious problem, they legitimize
their broader attack on the public sector and public services--which are
their real targets.

Instead of-attacking the role of government head on, the neoconservative
leadership of the business community seeks to reduce the role of
government and slash social programs by convincing us that otherwise the
deficit will soar out of control and the sky will fall.

(In the United States, incidentally, David Stockwell and other officials
with the Reagan administration now openly admit that, at the behest of
their corporate friends, they deliberately increased the deficit so that
it would justify later cuts in social program funding!)

The case for spending cuts rests on the dubious claim that Canada can no
longer afford to retrain its workers, to relieve poverty, to improve
education, to keep its people healthy, to protect the environment, or
maintain its public infrastructure.

Yet, for want of such government spending, children go hungry, students
drop out of school, workers lack needed skills, people without jobs turn
to crime, pollution poisons our air and water, and congestion chokes our

The deficit in public spending the failure to invest in social
capital--will in the long run be much more serious and impose a much
greater burden on our children and grandchildren than will the federal
deficit that politicians and executives so shrilly denounce. Indeed, it
will not only degrade the quality of life for millions of Canadians, but
it will have a crippling effect on Canada's productivity and

Productivity, we're continually reminded by business after-dinner
speakers, depends on growth in capital per worker. But three kinds of
capital are needed to ensure that workers are productive: private
capital, such as factories and machines; human capital, such as
education and training; and public capital, such as roads, airports,
schools, and other parts of the infrastructure.

Human and public capital--which business tends to overlook--are surely
just as important as private capital. In fact, in a global economy,
where private capital transcends national boundaries, there are only two
competitive advantages any country can give itself--a highly skilled
work force, and an efficient public infrastructure.

The case for spending cuts rests on the dubious claim that Canada can no
longer afford to keep its people healthy: well-educated, and gainfully


Why all the panic about government spending in Canada, anyway? By
international standards, our public spending is quite modest--and our
spending on social programs disgracefully inadequate.

According to the latest available data, Canada's social spending
accounted for 21.5% of GDP. This compares with a 25.6% average for the
major industrialized nations, and with a 30% average among the countries
of the European Community.

At its present downward slide, social spending in Canada will fall even
further to just 17.3% of GDP by the year 2000. That would be the second
lowest among the Group of Seven countries, only marginally above the
projected U.S. level of 16.4%.

By contrast, France and Germany are predicted to be spending nearly
twice that percentage on their public facilities and social programs by
the end of the decade.

Canada's inadequate social spending is reflected in its poverty rate,
which is among the worst among the Western nations. While 12% of
Canadians are officially poor, the rate in Germany, Sweden, Norway and
most other European countries is less than 6%.

The most shameful figure, of course, is that over half of Canadian
children in one-parent - families live in poverty--which is from three
to five times more than the comparable rates in Europe.

In the new global economy, there are only two competitive advantages any
country can give itself – a highly skilled work force and an efficient


No one denies that the deficit and the level of public indebtedness is a
cause for concern. What has to be clearly understood, however, is that
it's a problem caused mainly by unjustifiably h1~h interest rates.

To illustrate the key role of interest rates, all we have to do is
compare the effects of borrowing $1 million at 2% and borrowing the same
amount at 10%. At 2% it would take 36 years of compound interest for the
$1 million to double to $2 million. But at 10% interest, the same loan
would generate a $1 million return in just seven years! And in 36 years
it would double and redouble five times to $32 million!

The folly of the federal government's current high-interest rate policy
may be grasped by calculating what the deficit would be like today if
interest rates had been held to just a few points above the, Cost of
Living Index, which was its historic level before the Bank of Canada
launched its “holy war” against inflation. This year's deficit would not
only be completely eliminated, but the government would actually have a
$13 billion surplus!

It is ludicrous for the government to put billions of dollars into
circulation by borrowing from the private banks, when it can create the
extra money it needs, virtually free.

We have to keep in mind that our monetary economy only grows when the
money supply grows. Under the present debt-driven system, the only way
we can increase the money supply is by borrowing it into existence from
the private banks, thereby increasing our indebtedness to, them.

It can't be stressed too much that the private banks, unlike non-bank
lenders, create the money they lend. They do not--as is so widely
imagined, even by the bankers themselves--lend their depositors' money.
The amount of new money created by a bank loan, however, is only
sufficient to pay back the principal. No money is created to pay the
interest, except that which is paid to the holders of bank deposits.
That's why debts must continually grow faster and faster in order for
each layer of additional debt and interest to be paid. Indeed, the
higher the rate of interest, the faster the money supply must grow if
the economy is not to stall. If the system ever stops growing, or even
drastically slows down, it crashes.

The latest available data show that spending on social services in
Canada accounts for 21.5% of our GOP. This compares with a 25.6% average
for the major industrialized nations, and a 30% average among the
countries of the European Community.

If that strikes you as a very dumb and dangerous way to operate a
monetary system, you're right. C1early it would be much safer and more
sensible to have at least a large amount of the needed new money spent
into circulation debt free by the federal government--or lent by it
interest free to, the junior levels of government which lack the power
to create money.

Reform of the monetary system is therefore the key to controlling the
deficit and lowering the public debt. It would also help to increase
government revenue.

Can this be done without adding to the tax burden on low- and middle
income Canadians? Certainly! We have an extremely inequitable tax system
that allows the wealthiest individuals and business firms to escape
paying their fair share of taxes. A truly fair tax system would correct
this inequity. It would add billions to the government's coffers without
penalizing Canadian workers.

A wealth tax, for example, would net the federal government $3 billion a
year. Repealing the capital gains; tax deductions would bring in another
$3 billion.

Repealing the 5% tax credit to manufacturing rums, the fast write-offs
of capital investments, the tax subsidies for real estate developers,
the subsidies for business me entertainment, the subsidy for business
lobbying and advertising--these would yield a combined $ 7 billion to
the federal Treasury.

The kind of fair tax system created by these and other reforms would not
only make profitable corporations and the rich pay taxes on the same
basis as the rest of us. It would also help immensely to get rid of the
public debt that corporations and the rich are always complaining about!

A truly fair tax system would not only make the rich pay their fair
share of taxes; It would also help immensely to get rid of the public
debt the rich are always complaining about.

Re-Issued in 2010 By David M Pidcock

The Institute For Rational Economics

Forum For Stable Currencies

National Association For Victims of Fraud & Banking Malpractice

Robin Hood Tax and Cross Party Alliance Candidate SHEFFIELD CENTRAL

CCPA Popular Economics Series Editor: Ed Finn

Canadian Centre For Policy Alternatives ISBN 0-88627-118-5

independent, non-profit research organization. It is one of the few
national institutions addressing Canadian public policy issues from a
progressive point of view.

The Centre produces researches reports, books and organizes public
symposiums and conferences. Some key topics addressed by this Centre
include: social, economics and constitutional policy, free trade, tax
reform, industrial and employment policy, labour and human rights,
employment equity and technological change.

For more information about the Centre call or write: Canadian Centre for
Policy Alternatives /

Centre canadien de recherché en politiques de rechange 804 – 251 Laurier
Avenue West

Ottawa, Ontario K1P 5J6 Tel: (613) 563 – 1341

Fax: (613) 233 – 1458


Assistance for research and writing this publication was provided by the
Canadian Labour Congress and the National Union of Public and General
Employees. Cover design provided by the Canadian Union of Public
Employees. Translation and printing provided by the Public Service
Alliance of Canada. Charts courtesy of Canadian Dimension.


In 2010 - Scanned, Re-Set and Re-Issued

by David M Pidcock.

Forum For Stable Currencies – Robin Hood Cross Party Alliance

"The Deficit Made Me Do It!"

Harold Chorney, John Hotson, Mario Seccareccia

Editor: Ed Finn

ISBN # 0.88627-118.5 May 1992

(4) Fed lawyer testifies: Fed Banks are "Not Agencies" but "Independent
Corporations" with "Private Boards of Directors"

See the video of the court case (in item 5)

TUESDAY, JULY 26, 2011
Federal Reserve Attorneys: Fed Banks Are "Not Agencies" But "Independent
Corporations" With "Private Boards of Directors"

I noted yesterday that the Federal Reserve has admitted that its 12
member banks are private - not governmental - entities.

Reader Siesta00000 sent me the following post with links to C-Span video
of two of the Federal Reserve's senior counsel stating in court that
this is true [I've edited for readability]:

During the second circuit court of appeals case for FOX News & Bloomberg
v. Board of Governors lawyers in defense of the Fed make some revealing
statements during the arguments. At about 13:45, the Fed lawyer stated:

"We do not believe the Federal Reserve Board is an agency, the Board of
Governors, . . . the Federal Reserve Bank excuse me." (He made the
mistake of saying the Federal Reserve Board when he meant the Federal
Reserve Bank.)

He admitted the Federal Reserve Banks were not Federal Agencies in a
court of law. Watch the lawyer's statement: here [video will play
automatically once you click, but may take awhile to load. The videos
are pre-set to play the relevant section, so you need not keep track of
the times noted below.]

Another Federal Reserve lawyer goes further at 44:22 to state:
[The Federal Reserve Banks are] independent corporations [which carry on
the day-to-day operations. But emergency lending must be approved by the
Federal Reserve's Board of Governors.]
Watch the lawyer's statement: here.

At 46:23, the lawyer ... stated:
[The Federal Reserve Banks are] not agencies [and they have] private
board of directors.
The most [interesting] evidence is in this clip: here.
As a reader notes:
They want to be, or rather want to 'seem to be', government entities in
the public eye when it suits them, but then they claim in court they're
in fact privately owned and don't have to follow the same rules as
governmental institutions (i.e audits) when the government tries to
intervene or regulate.

A very intelligently set-up organisation, blame government when it suits
them, then hide from government when they need to be audited.


  corruptionandcoverupsworth said...
They want to be, or rather want to 'seem to be', government entities in
the public eye when it suits them, but then they claim in court they're
in fact privately owned and don't have to follow the same rules as
governmental institutions (i.e audits) when the government tries to
intervene or regulate.

A very intelligently set-up organisation, blame government when it suits
them, then hide from government when they need to be audited.

I can only hope and pray that the will of the American people overcomes
such a nefarious privately owned corporation.

JULY 26, 2011 10:48 AM
Angry Old Git said...
If, as the Federal Bank claims, it is not subject to Federal
legislation, then it cannot claim its protection.

Every loan it has made, while posing as a Government Bank, is void.
Creditors can now claim that the contracts failed to comply with the,
Universal Commercial Code, of 'Full disclosure.'

JULY 26, 2011 12:18 PM
  pjt said...
duh...with all due respect. Anyone, with just a small amount of
research, including the website of The Federal Reserve Bank of NY aka
"The Fed" clearly shows the owners are banks such as J.P. Morgan, Citi
Group, Goldman Sachs...the usual suspects..All, of course, private
banks. It has been this way since the Federal Reserve Act of 1913.

JULY 26, 2011 6:55 PM
Ralph Musgrave said...
It’s easy to criticise. But I notice a lack of suggestions above as to
what better alternatives there are. In the UK, the Bank of England is
supposed to be independent of government, but it is actually owned by
the Treasury. Is that a better alternative?

JULY 26, 2011 10:28 PM

Comment (Peter M.): Of course it's better that the BoE is owned by the
Treasury; Australia's RBA is too. But the Governor and the Board of
Directors seem to be from the Big End of tow. There's no point in having
Government ownership but Private management.

(5) Video: Fed lawyer testifies in court, "they're not agencies. ...
Each Federal Reserve Bank bank .. their stock is owned by the member
banks in the district, 100% privately"

Freedom of Information Cases
Jan 11, 2010

U.S. Court of Appeals | Second Circuit

The Second Circuit Court of Appeals heard oral argument in appeals
against the decisions in lower courts of Fox News Network LLC v. Board
of Governors of the Federal Reserve System and Bloomberg LP v. Board of
Governors of the Federal Reserve System. Both the Fox News Network and
Bloomberg asked, using the Freedom of Information Act, that the U.S.
Federal Reserve be forced to reveal the identities of financial
institutions that may have collapsed without assistance from the
government's emergency lending programs.

1 hour, 49 minutes


Yvonne Mizusawa
Federal Reserve System Board of Governors Senior Counsel:

{the following transcript from &start=2753&end=2874 was produced by
Peter Myers on October 5, 2011}

Yvonne Mizusawa
Federal Reserve System Board of Governors Senior Counsel:

Judge: But the overall eligibility requirements, and the nature of the
borrower or the eligibility of the borrower, based on its past
performance, is one that is set by the board?

M: Yes, your honor, we, our regulations do specify, overall, terms for
the lending, but the day to day operations of the banking activities are
conducted by the Federal Reserve Banks. They are banks, and indeed they
do lend, and they do ...

Judge: They're their own agency, then, essentially, in that regard?

M: They are not agencies, yes, they're not agencies, rather they are
persons under ... Each Federal Reserve Bank bank the stock is owned by
the member banks in the district, 100% privately, they have their
private Boards of Directors, the majority of those Boards are appointed
by the independent banks, private banks, in the district, they're not
agencies, they have no rule-making authority, and they do not have
adjucative authority.

Judge: Well that's strange, because the Board was relying on exemption
5, they described the regional banks as agencies.

M: ...

(6) Greece Should ‘Default Big,’ Says Man Who Managed Argentina’s 2001

By Eliana Raszewski and Camila Russo - Sep 14, 2011 9:18 AM ET

Mario Blejer, who managed Argentina’s central bank in the aftermath of
the world’s biggest sovereign default, said Greece should halt payments
on its debt to stop a deterioration of the economy that threatens the
European Union.

“This debt is unpayable,” Blejer, who was also an adviser to Bank of
England Governor Mervyn King from 2003 to 2008, said in an interview in
Buenos Aires. “Greece should default, and default big. A small default
is worse than a big default and also worse than no default.”

World Bank and International Monetary Fund officials will meet in
Washington Sept. 23-25 as European Union officials work to keep the
currency union from unraveling and the Greek crisis worsens. Europe is
facing “a full-blown banking crisis” said Mohamed El-Erian, chief
executive officer of Pacific Investment Management Co., in an interview

Rescue programs backed by the IMF and European Central Bank are
“recession-creating” efforts that will leave Greece saddled with more
debt relative to the size of its economy in coming years and stifle
growth, Blejer said. A Greek default would push Portugal to do the same
and would put Ireland “under tremendous pressure to at least
symbolically default” on some of its debt, he added.

‘Totally Ridiculous’

“It’s totally ridiculous what is going on,” Blejer, 63, said. “If you
assume that these countries do everything that is in the program, they
do all these adjustments and privatizations, at the end of 2012
debt-to-GDP will be bigger than this year.”

The statements by Blejer, who ran Argentina’s central bank in the months
after its default on $95 billion in debt, put him at odds with German
Chancellor Angela Merkel, who said the risks of contagion from a Greek
default are too big and that an “uncontrolled insolvency” would further
agitate turbulent global markets.

German coalition officials stepped up their criticism of Greece last
week after a delegation from the European Commission, European Central
Bank and IMF suspended a report on progress made in Athens toward
meeting the terms of its rescue program. The delay threatened to derail
a payment to Greece due next month.

“It doesn’t make sense to give money to Greece so Greece can pay the
Germans back,” Blejer said when asked about the aid programs. “All these
projects, all the euro projects don’t make sense economically.”

‘Recipe for Disaster’

Domenico Lombardi, a former IMF board official and a senior fellow at
the Brookings Institution in Washington, said a “disorderly default” in
Greece would be “a recipe for disaster.”

“The spreading of the European crisis has gone so far that it would be
really impossible to contain its spillover effects to the rest of the
euro area,” Lombardi said in an interview.

An orderly default with private investor engagement would be better for
Greece, he said.

Greece’s government now expects the economy to shrink more than 5
percent this year, more than the 3.8 percent forecast by the European
Commission, as austerity measures deepen a three- year recession. Prime
Minister George Papandreou approved a plan to help repair the budget
deficit at the weekend amid swelling resistance from Greeks.

It costs a record $5.8 million upfront and $100,000 annually to insure
$10 million of Greece’s debt for five years using credit-default swaps,
up from $5.5 million in advance on Sept. 9, according to CMA.

‘Very Complicated’

Blejer didn’t advocate Greece leaving the euro zone, which he said would
be a “very complicated” move that would force a rewriting of business
contracts and would push more lenders toward bankruptcy. Germany and
France will have to bear the brunt of financing efforts to help Greece
and other countries that default re-start their economies, he said.

“Someone will have to pay,” said Blejer, who is a vice chairman of
mortgage bank Banco Hipotecario SA (BHIP) and a board member of energy
company YPF SA. (YPFD) “If they are not willing to pay for the euro they
will have to get out of the euro.”

Greece’s 10-year bond yield rose 94 basis points, or 0.94 percentage
point, to 24.48 percent at 5 p.m. in New York, after earlier climbing to
a euro-era record of 25 percent.

Italian borrowing costs also jumped at a 6.5 billion-euro ($8.8 billion)
bond auction yesterday as contagion from Europe’s debt crisis leaves
investors shunning the region’s most-indebted nations. Italy’s Treasury
sold 3.9 billion euros of a benchmark five-year bond to yield 5.6
percent, up from 4.93 percent for similar maturity securities sold in July.

Argentina Crisis

Blejer took the reins of Argentina’s central bank for five months
starting in January 2002, when the country was reeling from the effects
of its default and the loss of four presidents in just over two weeks.
The government had just ended the peso’s one-to-one peg with the dollar
when Blejer accepted the position from then-President Eduardo Duhalde.

To help stabilize the currency after the devaluation, Blejer created
short-term bonds known as lebacs that paid an annual interest rate of as
much as 140 percent, he said.

Argentina’s economy shrank 10.9 percent in 2002 before starting a
nine-year growth streak, aided by rising commodity prices and an
expansion in neighboring Brazil.

Blejer left the central bank in June 2002 after disputes with
then-Economy Minister Roberto Lavagna over lifting restrictions on the
withdrawal of bank deposits.

To contact the reporters on this story: Eliana Raszewski in Buenos Aires
at; Camila Russo in Buenos Aires at

To contact the editors responsible for this story: Joshua Goodman at; James Hertling at

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