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Federal Reserve sets stage for Weimar-style hyperinflation
F. William Engdahl
Online Journal
Tuesday, Dec 16, 2008
The Federal Reserve has bluntly refused a request by a major US financial news service to disclose the recipients of more than $2 trillion of emergency loans from US taxpayers and to reveal the assets the central bank is accepting as collateral. Their lawyers resorted to the bizarre argument that they did so to protect ‘trade secrets.’ Is the secret that the US financial system is de facto bankrupt?
The latest Fed move is further indication of the degree of panic and lack of clear strategy within the highest ranks of the US financial institutions. Unprecedented Federal Reserve expansion of the Monetary Base in recent weeks sets the stage for a future Weimar-style hyperinflation, perhaps before 2010.
On November 7, Bloomberg filed suit under the US Freedom of Information Act (FOIA) requesting details about the terms of 11 new Federal Reserve lending programs created during the deepening financial crisis.
The Fed responded on December 8 claiming it’s allowed to withhold internal memos as well as information about ‘trade secrets’ and ‘commercial information.’ The central bank did confirm that a records search found 231 pages of documents pertaining to the requests.
The Bernanke Fed in recent weeks has stepped in to take a role that was the original purpose of the Treasury’s $700 billion Troubled Asset Relief Program (TARP). The difference between a Fed bailout of troubled financial institutions and a Treasury bailout is that central bank loans do not have the oversight safeguards that Congress imposed upon the TARP. Perhaps those are the ‘trade secrets’ the hapless Fed Chairman, Ben Bernanke, is so jealously guarding from the public.
(ARTICLE CONTINUES BELOW)
Coming hyperinflation?
The total of such emergency Fed lending exceeded $2 trillion on Nov. 6. It had risen by an astonishing 138 percent, or $1.23 trillion, in the 12 weeks since Sept. 14, when central bank governors relaxed collateral standards to accept securities that weren’t rated AAA. They did so knowing that on the following day a dramatic shock to the financial system would occur because they, in concert with the Bush administration, had decided to let it occur.
On September 15, Bernanke, New York Federal Reserve President Tim Geithner, the new Obama Treasury Secretary-designate, along with the Bush administration, agreed to let the fourth largest investment bank, Lehman Brothers, go bankrupt, defaulting on untold billions worth of derivatives and other obligations held by investors around the world. That event, as is now widely accepted, triggered a global systemic financial panic as it was no longer clear to anyone what standards the US government was using to decide which institutions were ‘too big to fail’ and which not. Since then the US Treasury secretary has reversed his policies on bank bailouts repeatedly leading many to believe Henry Paulson and the Washington administration, along with the Fed, have lost control.
In response to the deepening crisis, the Bernanke Fed has decided to expand what is technically called the Monetary Base, defined as total bank reserves plus cash in circulation, the basis for potential further high-powered bank lending into the economy. Since the Lehman Bros. default, this money expansion rose dramatically by the end of October at a year-year rate of growth of 38 percent, which has been without precedent in the 95-year history of the Federal Reserve created in 1913. The previous high growth rate, according to US Federal Reserve data, was 28 percent in September 1939, as the US was building up industry for the evolving war in Europe.
By the first week of December, that expansion of the monetary base had jumped to a staggering 76 percent rate in just three months. It has gone from $836 billion in December 2007, when the crisis appeared contained, to $1,479 billion in December 2008, an explosion of 76 percent year-on-year. Moreover, until September 2008, the month of the Lehman Brothers collapse, the Federal Reserve had held the expansion of the Monetary Base virtually flat. The 76 percent expansion has almost entirely taken place within the past three months, which implies an annualized expansion rate of more than 300 percent.
Despite this, banks do not lend further, meaning the US economy is in a depression free-fall of a scale not seen since the 1930s. Banks do not lend in large part because under Basle BIS lending rules, they must set aside 8 percent of their capital against the value of any new commercial loans. Yet the banks have no idea how much of the mortgage and other troubled securities they own are likely to default in the coming months, forcing them to raise huge new sums of capital to remain solvent. It’s far ‘safer’ they reason to pass on their toxic waste assets to the Fed in return for earning interest on the acquired Treasury paper they now hold. Bank lending is risky in a depression.
Hence the banks exchange $2 trillion of presumed toxic waste securities consisting of Asset-Backed Securities in subprime mortgages, stocks and other high-risk credits in exchange for Federal Reserve cash and US Treasury bonds or other government securities rated (still) AAA, i.e., risk-free. The result is that the Federal Reserve is holding some $2 trillion in largely junk paper from the financial system. Borrowers include Lehman Brothers, Citigroup and JPMorgan Chase, the US’s largest bank by assets. Banks oppose any release of information because that might signal ‘weakness’ and spur short-selling or a run by depositors.
Making the situation even more drastic is the banking model used first by US banks beginning in the late 1970s for raising deposits, namely the acquiring of ‘wholesale deposits’ by borrowing from other banks on the overnight interbank market. The collapse in confidence since the Lehman Bros. default is so extreme that no bank anywhere dares trust any other bank enough to borrow. That leaves only traditional retail deposits from private and corporate savings or checking accounts.
To replace wholesale deposits with retail deposits is a process that in the best of times will take years, not weeks. Understandably, the Federal Reserve does not want to discuss this. That is clearly also behind their blunt refusal to reveal the nature of their $2 trillion assets acquired from member banks and other financial institutions. Simply put, were the Fed to reveal to the public precisely what ‘collateral’ they held from the banks, the public would know the potential losses that the government may take.
Congress is demanding more transparency from the Federal Reserve and US Treasury on its bailout lending. On December 10, in Congressional hearings by the House Financial Services Committee, Representative David Scott, a Georgia Democrat, said Americans had ‘been bamboozled,’ slang for defrauded.
Hiccups and hurricanes
Fed Chairman Ben S. Bernanke and Treasury Secretary Henry Paulson said in September they would meet congressional demands for transparency in a $700 billion bailout of the banking system. The Freedom of Information Act obliges federal agencies to make government documents available to the press and public.
In early December, the Government Accountability Office (GAO) issued its first mandated review of the lending of the US Treasury’s $700 billion TARP program (Troubled Asset Relief Program). The review noted that in 30 days since the program began, Henry Paulson’s office had handed out $150 billion of taxpayer money to financial institutions with no effective accountability of how the money is being used. It seems Henry Paulson’s Treasury has indeed thrown a giant ‘tarp’ over the entire taxpayer bailout.
Further adding to the troubles in the world’s former financial Mecca, the US Congress, acting on largely ideological grounds, shocked the financial system when it refused to give even a meager $14 billion emergency loan to the Big Three automakers — General Motors, Chrysler and Ford.
While it is likely that the Treasury will extend emergency credit to the companies until January 20 or until the newly elected Congress can consider a new plan, the prospect of a chain-reaction bankruptcy collapse of the three giant companies is very near. What is being left out of the debate is that those three companies account for a combined 25 percent of all US corporate bonds outstanding. They are held by private pension funds, mutual funds, banks and others. If the auto parts suppliers of the Big Three are included, an estimated $1 trillion of corporate bonds are now at risk of chain-reaction default. Such a bankruptcy failure could trigger a financial catastrophe which would make what has happened since Lehman Bros. appear as a mere hiccup in a hurricane.
As well, the Federal Reserve’s panic actions since September, by their explosive expansion of the monetary base, has set the stage for a Zimbabwe-style hyperinflation. The new money is not being ‘sterilized’ by offsetting actions by the Fed, a highly unusual move indicating their desperation. Prior to September the Fed’s infusions of money were sterilized, making the potential inflation effect ‘neutral.’
Defining a Very Great Depression
That means once banks begin finally to lend again, perhaps in a year or so, that will flood the US economy with liquidity in the midst of a deflationary depression. At that point or perhaps well before, the dollar will collapse as foreign holders of US Treasury bonds and other assets run. That will not be pleasant as the result would be a sharp appreciation in the Euro and a crippling effect on exports in Germany and elsewhere should the nations of the EU and other non-dollar countries, such as Russia, OPEC members and, above all, China not have arranged a new zone of stabilization apart from the dollar.
The world faces the greatest financial and economic challenges in history in coming months. The incoming Obama administration faces a choice of literally nationalizing the credit system to insure a flow of credit to the real economy over the next five to 10 years, or face an economic Armageddon that will make the 1930s appear a mild recession by comparison.
Leaving aside what appears to have been blatant political manipulation by the present Bush administration of key economic data prior to the November election in a vain attempt to downplay the scale of the economic crisis in progress, the figures are unprecedented. For the week ended December 6, initial jobless claims rose to the highest level since November 1982. More than 4 million workers remained on unemployment, also the most since 1982, and, in November, US companies cut jobs at the fastest rate in 34 years. Some 1,900,000 US jobs have vanished so far in 2008.
As a matter of relevance, 1982, for those with long memories, was the depth of what was then called the Volcker Recession. Paul Volcker, a Chase Manhattan appendage of the Rockefeller family, had been brought down from New York to apply his interest rate ‘shock therapy’ to the US economy in order as he put it, ‘to squeeze inflation out of the economy.’ He squeezed far more as the economy went into severe recession, and his high interest rate policy detonated what came to be called the Third World Debt Crisis. The same Paul Volcker has just been named by Barack Obama as chairman-designate of the newly formed President’s Economic Recovery Advisory Board, hardly grounds for cheer.
The present economic collapse across the United States is driven by the collapse of the $3 trillion market for high-risk subprime and Alt-A home mortgages. Fed Chairman Bernanke is on record stating that the worst should be over by end of December. Nothing could be further from the truth, as he well knows. The same Bernanke stated in October 2005 that there was ‘no housing bubble to go bust.’ So much for the predictive quality of that Princeton economist. The widely-used S&P Schiller-Case US National Home Price Index showed a 17 percent year-year drop in the third quarter, trend rising. By some estimates it will take another five to seven years to see US home prices reach bottom. In 2009, as interest rate resets on some $1 trillion worth of Alt-A US home mortgages begin to kick in, the rate of home abandonments and foreclosures will explode. Little in any of the so-called mortgage amelioration programs offered to date reach the vast majority affected. That process, in turn, will accelerate as millions of Americans lose their jobs in the coming months.
John Williams of the widely-respected Shadow Government Statistics report recently published a definition of depression, a term that was deliberately dropped after World War II from the economic lexicon as an event not repeatable. Since then all downturns have been termed ‘recessions.’ Williams explained to me that some years ago he went to great lengths interviewing the respective US economic authorities at the Commerce Department’s Bureau of Economic Analysis and at the National Bureau of Economic Research (NBER), as well as numerous private sector economists, to come up with a more precise definition of ‘recession,’ ‘depression’ and ‘great depression.’ His is pretty much the only attempt to give a more precise definition to these terms.
What he came up with was first the official NBER definition of recession: Two or more consecutive quarters of contracting real GDP, or measures of payroll employment and industrial production. A depression is a recession in which the peak-to-bottom growth contraction is greater than 10 percent of the GDP. A Great Depression is one in which the peak-to-bottom contraction, according to Williams, exceeds 25 percent of GDP.
In the period from August 1929 until he left office, President Herbert Hoover oversaw a 43-month long contraction of the US economy of 33 percent. Barack Obama looks set to break that record, to preside over what historians could likely call the Very Great Depression of 2008-2014, unless he finds a new cast of financial advisers before Inauguration Day, January 20. Required are not recycled New York Fed presidents, Paul Volckers or Larry Summers types. Needed is a radically new strategy to put virtually the entire United States economy into some form of an emergency ‘Chapter 11’ bankruptcy reorganization where banks take write-offs of up to 90 percent on their toxic assets, in order to save the real economy for the American population and the rest of the world. Paper money can be shredded easily. Not human lives. In the process it might be time for Congress to consider retaking the Federal Reserve into the Federal government as the Constitution originally specified, and make the entire process easier for all. If this sounds extreme, revisit this article in six months.
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28 Responses to “Federal Reserve sets stage for Weimar-style hyperinflation”
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December 16th, 2008 at 6:15 am
It is time to take back what is ours people, this federal reserve is nothing but unconstitutional crooks and douchebaggery is afoot in our fed gov.
Traveler Reply:
January 14th, 2009 at 10:06 pm
It is so obvious that we, the USA does not or never has had a Treasury of the People. It is in fact a private banking system operating on its own internal bias with the “blessing” of Congress to manipulate its fiat phoney currency in exchange of keeping score. Do you think for one instance that the culture of amazon indians are aware of the so called economic “crisis”. No of course not, they are self sufficient. What is money? We are slaves to the almighty dollar. We are so pathetic. No men, no ruggedness, no self reliance, just dependent children rewarded with a cookie when we do good and obey. Subliminal software in all TV programming by the way. Turn off the moniker of mind adjustment. You will be better offf. why the push to make sure everyone is tuned in with the digital conversion. We are sick and so dependent.
December 16th, 2008 at 6:39 am
“If the American people ever allow private banks to control the issuance of their currency, first by inflation and then by deflation, the banks and corporations that will grow up around them will deprive the people of all their property until their children will wake up homeless on the continent their fathers conquered.” Thomas Jefferson
Any questions?
December 16th, 2008 at 6:41 am
Love the author’s suggestions, but we all know they’re an impossibility with the regime. The United States is doomed to suffer the wholesale state/bank-led destruction of the last vestiges remaining from its once-powerful manufacturing/industrial economy (which has been exported to China). Brace yourselves for February.
December 16th, 2008 at 7:46 am
Thomas Jefferson was so frickin smart. As a Inventor of a Government one could see
how it could be abused and where the weak links exist. Those guys sat around an probably
said what if this and what if that. Plus they knew the HOLD the Rothschild Central Bankers
had on Europe and all the Wars and the causes. The Federal Reserve Sucks.
December 16th, 2008 at 7:48 am
either get means to survive out of society, or prepare to fight your fellow neighbor in the soup lines, note, those lines will run out of soup as well
December 16th, 2008 at 8:41 am
Its unreal. Maybe that was the plan all along. Doubt yourself, doubt your ability to comprehend that propaganda is a weapon of mass destruction. Doubt the conspiracies swirling around you everywhere. Doubt that a plot so devious could be anything but Science Fiction. Brand the people who see beyond propaganda as mentally ill and all will be set. Doubt that Democracy in America is dead. Doubt that the water, sky, food and energy are controlled by the richest of the rich. Doubt that the stock exchanges are nothing more than legal casino’s. Doubt that professional sports are rigged. Doubt everything that isn’t covered on the local or cable “news” programs. Doubt will not save you from the loss of your freedom.
December 16th, 2008 at 8:57 am
Lyndon Larouche is the only person to propose a plan of nationalizing the Fed, and keeping every one in their houses with his home owners and bank protection act. He also addressed the hyperinflationary storm that is about to come with these actions by the fed, he has actually been right about a lot of what is happening, and for many years…
December 16th, 2008 at 9:12 am
That was the Zionizts plan from the beginning.
Destroy unions, middle class, make You work
for nothing, at the same time destroy Russia,
Iran and Saudi Arabia by dropping oil prices.
Steal all Your money through declaration of
emergency situation.
The only miscalculation they made:
the end of the US will be the end of Israel.
December 16th, 2008 at 10:06 am
Yup. Day after ChristMyth, mobs descend on stores to RETURN their presents for CASH to make good on monthly obligations, bills and such. The stores have no cash, and are shuttered within the week. Kaboom!
Unable to get dough for the gifts they received, folks will default on their debt within a month, bringing down a few banks and credit card companies. Kaboom!
It’s fitting that the holiday, now reduced from its pagan purity in ritual celbration of the winter solstice to a consumer orgy in mindless gluttony, will seal the deal for the global economy.
Meanwhile, has anybody seen the charts on ARMs. Engdahl touches on this. Adjusted Rate Mortgages are to ratchet skywards through 2010. So the foreclosure rate will at least stabalize at its already catastrophic level, or will, gasp, increase.
And this Madoff scandal receives no play in Engdahl’s piece, but deserves mention because that snake oil shuckster has ripped off powerful players around the world, including large foreign banks. Lawsuits will result. Hitmen may be hired. It is without a doubt yet another straw on the back of the camel that is global faith in the greenback.
Engdahl pushes the hyperinflationary collapse back to the end of 2009. I’d say he is being conservative. There’s a flock of black swans in flight now. They’re coming home to roost.
December 16th, 2008 at 10:14 am
The Fed is designed for the Brave Men Of Paper so they can jerk people around and keep
their buddies in the Position of “Massa”
December 16th, 2008 at 11:03 am
The Communist States of Amerika? article #2: http://patriotscave.blogspot.com/
God bless Alex Jones and his awesome top-notch staff. You guys are the bomb.
December 16th, 2008 at 12:36 pm
can u say liberty tree……
December 16th, 2008 at 1:30 pm
I want public lynchings…. rockerfellers, rothschilds,bushes,clintons, CFR’s, Bilderbergs, trilaterals, etc, etc,etc.
oh and also the holejob who’s idea it was to put every landfill in the u.s. right next to a main water source. That one has bugged me for years.
Aholes……
December 16th, 2008 at 2:01 pm
Stop the National Infrastructure Reinvestment Bank Act!
Alex, why aren’t you talking about this yet?
I love your show; I listen every day, and as soon as I get my school grant money I’m going to support you by purchasing a prisonplanet tv subscription and End Game, burning copies and sharing my password with loved ones who are still alseep.
So, can you do me the return favor of PLEASE researching this and bringing it up on the show. We only have a matter of weeks before Obama signs this thing and it will DESTROY the country.
All of the off-air work you do will be impeded. Please Alex, look into this before it’s too late and this robbery of our property and treasury is used to silence the truth movement!
Remember all those public sidewalks and streets you guys get to stay on and keep talking?
THEY WON’T BE PUBLIC ANYMORE!!!
No more Bilderberg investigations. No more protests in front of the Fed. Got it?
December 16th, 2008 at 2:52 pm
Thomas Jefferson predicted what would happen to us under banker control 200 years ago! He was right.
And isn’t the “trade secrets” argument also used by voting machine companies to refuse to allow their machines to be publicly inspected?
This is A REALLY bogus argument when it comes to determining public policy. So who ACTUALLY does determine public policy then? Corporate owners? Bankers? The Bilderberg Group? It’s certainly not us.
Oops now I can’t fly anymore because I said the Bild word.
December 16th, 2008 at 5:25 pm
Said it before, will say it again, this is nothing more than a debt transfer from the rich to the poor.
December 16th, 2008 at 6:58 pm
Remember back in the eighties, Kris Kristofferson’s “Amerika”?
We joked about how ‘extreme’ it was.
No joke!
deja vu
primegood
December 16th, 2008 at 7:07 pm
who can understand all this?
December 16th, 2008 at 8:17 pm
Well SHIT!.. I am a well driller. I haven’t worked since Halloween. I still have a job thankfully to a really good boss. But as of January, its really up in the air. This article is more than likely what will happen, how many millions of people are going to be homeless.
You can’t shred Human lives. We have worked too Damn Hard to let our Gov’t bury us. I can not even imagine 2 or 6 million homeless that were fucked by our gov’t financial crisis.
Makes you wonder what City will take the FIRST Nuclear hit and then what city is next, then start over? OR it will get better???????????? ya um no.
December 16th, 2008 at 9:44 pm
What’s a little hyper-inflation between friends? You do know that all hyper-inflation achieves is the taxation of saving, investments, pensions etc., at 100%. I mean, why should anyone squeal just because EVERYTHING they have worked for is taken from them, and given to the government, and its chums?
A better way at looking at the situation is this. Increasingly, the population of the West is skewing old. This could not continue unadjusted. The old tend to own the majority of the investments, so they are increasing the target for robbery. In this climate, they should consider themselves lucky they are not facing compulsory euthanasia.
But seriously, while the above is technically true, the collapse of of previous capitalist system was required to remove the comfy situation that prevented the sheep of the West from being pro-war. Global War requires global pain, especially in those whose attitudes are most important when it comes down to enabling said war.
Soon, so very soon, its time for nukes, plague weapons, and every kind of chemical poison. Luckily, Humanity has been preparing for just such an occasion, and our stockpiles of all the ‘killingest’ kinds of weapons are massive, well prepared, and ready to go. Life is all set to wink out on this planet, just as it appears it did so on Mars aeons ago.
December 16th, 2008 at 10:30 pm
!!!!!!!!! FIRE THEM NOW !!!!!!! WE NEED A MIRACLE ….. THE CORRUPT EVIL SOULS !!!!!!
December 16th, 2008 at 10:32 pm
!!!!!!!!! FIRE THEM NOW !!!!!!! WE NEED A MIRACLE TO SAVE OUR COUNTRY PEOPLE AND MONEY ….. FROM THESE CORRUPT EVIL SOULS !!!!!!
December 16th, 2008 at 10:34 pm
All you boneheads that keep electing Democrates & Republicians just STFU you get what you voted for.
December 16th, 2008 at 11:22 pm
Guys/Gals
Let an honest banker tell you this. This is the end of times as we know it. I am afraid for my dear children…..
Help your fellow man in the months to come, store food and love your family.
-the end
December 16th, 2008 at 11:41 pm
You folks want to know what makes me (VERY) (ANGRY)?
That my wife & I are horrifyed by what the NWO has done to OUR country and how my FATHER gave his LIFE in defence of this land !!
“WELL NEW WORLD ORDER YOU HAVE A FEW PROBLEMS NOW DON’T YOU”
So alot of us on this sight will be standing up to you and you folk’s on here remember the one’s that will soon be paying for your freedom with thier (LIVES)!!
So all I can say is this ,UNITED,FREE & SOVERIGN BY MY OATH!
Our children are counting on us.
And on a last note I allso would like the GOV SPYS on here to Take the time to look at this Power point prestation Before you Betray this land again– http://www.ae911truth.org/flashmov11.htm
December 16th, 2008 at 11:57 pm
All right, all right! I admit I have received all of this money and I have spent it supporting stay cats. Ha ha, ha!!! it will all be spent before you find us!!
Meow
December 17th, 2008 at 3:57 am
@#17 “Remember back in the eighties, Kris Kristofferson’s “Amerika”?”
“We joked about how ‘extreme’ it was.”
Kristofferson is a Bilderberger from way back. A classic scumbag Rhodes ’scholar’.
Look up Cecil Rhodes to see who these MFs aspire to be like.
http://www.prysonandpetrone.co.....llery.html