If the Euro fails, the 27-nations European Union will fall apart, bank lending will freeze, stock markets will likely crash, Europe’s economies would follow.
By Dr. Ileana Johnson Paugh Saturday, December 3, 2011
As the deadline for the Super Committee (Joint Select Committee on Deficit Reduction) to achieve a reduction in our government spending by at least $1.2 trillion passed on November 23, 2011, the automatic defense cut of $472 billion will be triggered.
This comes at a time when our Federal Reserve System has just lent $600 billion to the European Central Bank, which has lent money unwisely to European Union countries with a history of lavish spending on social programs.
Since 2008, the Federal Reserve System has bailed out banks to the tune of 7.2 trillion American taxpayer dollars, exacerbating our national debt. Should we thus continue to bail out Europe, and is it in our national security interest to do so when our defense budget is being cut at a time when China is flexing its muscles militarily and economically?
The Federal Reserve System is our “central” bank that encompasses 12 districts with member banks. These member banks are insured by FDIC (Federal Deposit Insurance Corporation) and must engage in fractional reserve banking, keeping a percentage of deposits in cash in the vault in order to prepare for a possible run-on-the-bank. This is, of course, ludicrous; the 20 percent cash could hardly cover such a scenario. The word “federal” should not make you think that it is connected to the government; it is just a private insurance company that insures depositors’ money up to $100,000.
Banks are not part of the government, they are private corporations owned by individuals who own stock. Banks do not represent the interest of the depositors or borrowers but the interest of the stockholders. To say that the Fed is our “central bank” is disingenuous at best.
Because the Federal Reserve System (Fed) controls the money supply and decides the interest rates for the U.S. dollar, it appears that it would represent the interest of the American people. Then, that would be wrong, since most people do not own stock in banks.
The Fed claims that our “central bank” conducts monetary policy independently from politicians and they are not influenced at all by our political environment. In theory that sounds lofty but in practice, politicians exert much influence.
It seems undemocratic to allow unelected bankers and economists to make monetary decisions that affect every American
It seems undemocratic to allow unelected bankers and economists to make monetary decisions that affect every American, but I am not so sure politicians in Congress would run monetary policy any better than they run our fiscal policy. There is a reason why our national debt is the largest in U.S. history – and I blame it all on Congress, but particularly the Democrat side who advocates for the nanny state.
The Fed manipulates interest rates and the money supply through open-market operations, the purchase and sale of government securities on the open market: T-bills, T-bonds, and T-notes. This gives banks more reserves or takes away reserves, thus triggering an expansion or contraction of the money supply. The Fed can print money at will and create voodoo deposits for its member banks.
The member banks of the Fed (not all banks are members of the Fed) borrow reserve funds from each other and pay an interest rate called “federal funds rate” for the privilege of borrowing reserve money. At the same time, the Fed manipulates how much money banks can borrow from the Fed directly via the “discount rate.” The Fed Chairman of the Board of Governors, Bernanke, announces from time to time, the level of interest rate charged that affects the entire U.S. economy and all domestic and international transactions.
When the Fed was established in 1914, it was a “lender of last resort,” meant to prevent the supply of money and credit from drying up during economic contractions, as it had happened often prior to its founding. The Fed has now become the world’s lender.
“An open-market purchase of Treasury bills by the Fed not only raises the money supply but also drives up T-bill prices and pushes interest rates down. Conversely, an open-market sale of Treasury bills, which reduces the money supply, lowers T-bill prices and raises interest rates.”
The Fed has a vested interest in the fate of the Euro. If the Euro fails, the U.S. dollar will increase in value, stocks and commodities will fall, treasuries and gold will rally and our country goes into deflation.
Deflation is a sustained decrease in the general price level. The Fed does not want deflation because it makes our debt more difficult to repay. If the dollar falls, the currency that has been the world’s reserve currency for 100 years will probably be replaced by the gold standard.
As the deadline for the Super Committee (Joint Select Committee on Deficit Reduction) to achieve a reduction in our government spending by at least $1.2 trillion passed on November 23, 2011, the automatic defense cut of $472 billion will be triggered.
Since 2008, the Federal Reserve System has bailed out banks to the tune of 7.2 trillion American taxpayer dollars, exacerbating our national debt. Should we thus continue to bail out Europe, and is it in our national security interest to do so when our defense budget is being cut at a time when China is flexing its muscles militarily and economically?
The Federal Reserve System is our “central” bank that encompasses 12 districts with member banks. These member banks are insured by FDIC (Federal Deposit Insurance Corporation) and must engage in fractional reserve banking, keeping a percentage of deposits in cash in the vault in order to prepare for a possible run-on-the-bank. This is, of course, ludicrous; the 20 percent cash could hardly cover such a scenario. The word “federal” should not make you think that it is connected to the government; it is just a private insurance company that insures depositors’ money up to $100,000.
Banks are not part of the government, they are private corporations owned by individuals who own stock. Banks do not represent the interest of the depositors or borrowers but the interest of the stockholders. To say that the Fed is our “central bank” is disingenuous at best.
Because the Federal Reserve System (Fed) controls the money supply and decides the interest rates for the U.S. dollar, it appears that it would represent the interest of the American people. Then, that would be wrong, since most people do not own stock in banks.
The Fed claims that our “central bank” conducts monetary policy independently from politicians and they are not influenced at all by our political environment. In theory that sounds lofty but in practice, politicians exert much influence.
It seems undemocratic to allow unelected bankers and economists to make monetary decisions that affect every American
It seems undemocratic to allow unelected bankers and economists to make monetary decisions that affect every American, but I am not so sure politicians in Congress would run monetary policy any better than they run our fiscal policy. There is a reason why our national debt is the largest in U.S. history – and I blame it all on Congress, but particularly the Democrat side who advocates for the nanny state.
The Fed manipulates interest rates and the money supply through open-market operations, the purchase and sale of government securities on the open market: T-bills, T-bonds, and T-notes. This gives banks more reserves or takes away reserves, thus triggering an expansion or contraction of the money supply. The Fed can print money at will and create voodoo deposits for its member banks.
The member banks of the Fed (not all banks are members of the Fed) borrow reserve funds from each other and pay an interest rate called “federal funds rate” for the privilege of borrowing reserve money. At the same time, the Fed manipulates how much money banks can borrow from the Fed directly via the “discount rate.” The Fed Chairman of the Board of Governors, Bernanke, announces from time to time, the level of interest rate charged that affects the entire U.S. economy and all domestic and international transactions.
When the Fed was established in 1914, it was a “lender of last resort,” meant to prevent the supply of money and credit from drying up during economic contractions, as it had happened often prior to its founding. The Fed has now become the world’s lender.
“An open-market purchase of Treasury bills by the Fed not only raises the money supply but also drives up T-bill prices and pushes interest rates down. Conversely, an open-market sale of Treasury bills, which reduces the money supply, lowers T-bill prices and raises interest rates.”
The Fed has a vested interest in the fate of the Euro. If the Euro fails, the U.S. dollar will increase in value, stocks and commodities will fall, treasuries and gold will rally and our country goes into deflation.
Deflation is a sustained decrease in the general price level. The Fed does not want deflation because it makes our debt more difficult to repay. If the dollar falls, the currency that has been the world’s reserve currency for 100 years will probably be replaced by the gold standard.
If the Euro fails, the 27-nations European Union will fall apart, bank lending will freeze, stock markets will likely crash, Europe’s economies would follow
If the Euro fails, the 27-nations European Union will fall apart, bank lending will freeze, stock markets will likely crash, Europe’s economies would follow, economic output would decline by large amounts, at least temporarily. The economic meltdown would spread across the globe, as we are interconnected through trade and borrowing.
According to Simon Nixon, “the crisis has only ever been partly about the sustainability of the sovereign debts of Greece, Ireland, Portugal, Italy, and Spain. More crucially, it has always been a political crisis, an institutional crisis, a crisis of governance.”
Some member states of EU lack financial discipline and those that do have discipline, have been reluctant to help those in trouble. Run-on-banks, people demanding their deposits immediately for fear of catastrophic failure, are possible on even the strongest banks.
Greece was given a reprieve of $11 billion from the Euro zone nations and the International Monetary Fund, another installment of the $150 billion it needed to pay its bills since May 2010.
Interestingly, the IMF was never intended to help countries like Greece that ran such disastrous economies and were dependent on the monetary policy of Brussels.
The International Monetary Fund was formed in 1944 with 45 members with the stated goal “to stabilize exchange rate and assist the reconstruction of the world’s international payment system.” Members contributed to a pool from which countries with payment imbalances could borrow on a temporary basis.
The International Monetary Fund (IMF) has now 187 member-countries with the stated objectives “to promote international economic cooperation, international trade, employment, and exchange rate stability, including making resources available to member countries to meet balance of payments needs.”
According to the Daily Mail and The Telegraph, unless Greece changes it culture of “greed, fiscal evasion, and waste,” no temporary measures would save it from collapse, it would just postpone the inevitable. Greece has been relying on EU funds that have flooded the country since 2001. It spent money lavishly on pensions, six-week vacations and free metro rides for 5 million Athenians, while few citizens have paid taxes. Collections rates are quite low. Greece currently lists 600 professions that permit people to retire at 50. Greece has four times as many teachers per pupil as Finland does, and Finland has the highest educational level in Europe.
It appears that the Occupy Wall Street crowd wants Greek style social benefits and totalitarian government a la North Korea. They are also asking for borderless international trade and borderless immigration except that goods do not have babies and do not require nanny state care from cradle to grave.
Italy’s debt is too big for Europe to rescue – the debt is 120% of its GDP. If Italy defaults on the $2.5 trillion debt, the currency used by 322 million people would crash and would send a tsunami across the globe.
The economist Nouriel Roubini believes that Italy should be restructuring its huge public debt. The European Financial Stability Facility, the International Monetary Fund, and even the European Central Bank cannot save it because there would not be enough money left to bailout Spain or Belgium afterwards.
“European Central Bank kept short-term interest rates low in Europe between 2003-2005 which caused housing booms in Greece, Ireland, Spain, Italy, risk taking, bad bank loans, busts, huge government borrowing to bail out banks or to finance spending when revenues fell during the ensuing recession.”
German Chancellor Angela Merkel wants to forge a stronger treaty between the EU members by forcing them to relinquish national sovereignty: submit budgets for EU approval before submission to national parliaments, sign up to strict new rules on the size of debts and deficits, and lawsuits for any breach of agreement in the European Court of Justice.
In the meantime, Uncle Sam has generously opened its coffers once again to help bankers across the globe and ungrateful countries, which have over borrowed and over spent because they refuse to live within their means and pay proper taxes. We lent money to Europe again after we borrowed it from China. Source @CanadaFreePress
