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Towards a Worldwide Inflationary Depression

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The Anglo-American Empire is in an ongoing State of Collapse

Bob Chapman
International Forecaster
June 5, 2011

According to our calculations we have been in an inflationary depression since February of 2009. Everyone looks back on the deflationary depression of the 1930s as a benchmark or a reference. As far as we are concerned the 1930’s depression only ended when the powers behind government arranged another war. Few talk about the recession of the early 1920s, which only lasted two years and was caused by the newly formed Fed, which financed US participation in World War I. They raised interest rates, which enticed citizens to save, which provided money for loans for research and expansion. The Fed, other than raising rates, stayed neutral, as did the Treasury. The result was the recession ended quickly. A bad story with a happy ending, which contributed to the roaring 20s, which the Fed eventually turned into a depression via their interference.

There was no deficit spending in the 1920s and funded debt fell by 1/3rd. That went on from 1945 to 1960. Today we have a different kettle of fish, which consists of perpetually kicking the can down the road, hoping some miracle will save the day, when those who caused these problems know full well the situation cannot now be saved without purging the system and allowing maleinvestment and speculation to die a normal death in bankruptcy. The Fed, Wall Street and speculators cannot bring about recovery, but they try anyway. Those who agree with these elitists are fools and they will pay a high price for not listening.

The Treasury is issuing $2.16 trillion in debt annually and if the Fed purchases 80% that works out to $1.7 trillion a year. As QE2 comes to end this month there will be few to buy that $1.7 trillion in treasuries and the system will collapse into deflationary depression. That means the Fed has to keep doing what it is doing. If the Fed stops we’ll have deflationary depression with a year. If they continue doing what they are doing we will have hyperinflation in 2 to 2-1/2 years.

Today’s worldwide crisis centered in the US, UK and Europe did not have to happen. It was not caused by incompetence and greed. It was designed to destroy the economic and financial system to a point where the inhabitants of these countries would beg for world government. It began, as we know it on August 15, 1971, when the US went off the gold standard. Since then the dollar has lost 98% of its value versus gold, silver and in some cases other currencies. As this became the monetary future, events were put in place to move almost all industry and some services out of the US, UK and Europe, better known as free trade, globalization, offshoring and outsourcing. In addition unsustainable debt was created to make sure the system collapsed. Of course, as far as the elitists are concerned, there is no problem – there is just a period of adjustment. Part of this adjustment is the extension of the short-term debt limit to $16.3 trillion from $14.3 trillion.

When, we ask, will Social Security and Medicare be cut? Trillions in taxes were paid for this old age and survivor’s pension. From its very inception the money was looted from the general fund and the bonds issued are not worth the paper they are written on. Mandated benefits can never be covered as the taxes are at this very moment being looted. This is a reflection of what is happening in the entire global system, a hallmark of socialism. As the debate rages, we can assure you the elderly will get screwed again with major cuts in Social Security and Medicare.

As we said earlier the longer the inevitable is delayed the worse the result will be. We do not know what untoward event will bring on the inevitable, but it is there lurking somewhere. When it happens it will be like a bolt out of the blue.

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The Anglo American empire is in an ongoing state of collapse, which they deliberately caused themselves in order to subdue and enslave humanity. We saw the faux adulation afforded to the illegal alien who calls himself president. The Anglo American special relationship still is firm at the upper levels. This includes their joint role of guardians of civilization. Just more Illuminist sanctimonious crap. The key to globalist power is control of the world banking system and we plan to take that away from them. This is not 1348, and there will be no exile from Venice. There will only be long prison terms, a confiscation of all family wealth and execution for those who have betrayed our country. This time the Illuminists will suffer the unthinkable. Something they have not suffered in the last 1,000 years.

The Fed is now holding just under $2.8 trillion in bonds of which they say $1.6 trillion is in Treasury paper. The rest is in Agency securities and toxic bonds. By the end of June they should be over $3 trillion. Our question is what is the real figure? How much do they have or are they committed for with other nations that are not visible? Remember, it took two years and a trip to the Appeals Court to force the Fed to tell us what they were secretly hiding from us. As a result they have no credibility, so anything they say has to be taken with a grain of salt. From June to June, we expect that $1.6 trillion to grow to $3.3 trillion and the Fed may well have to disperse another $500 to $850 billion to keep the system afloat. That would bring to figures to $3.8 to $4.15 trillion. That should be enough to keep the system afloat, provide 50% hyperinflation and tend to the beginnings of WW III. The creation of war will be the distraction needed to force inflation, debt and monetary problems into a second position. Who worries about money and purchasing power when they may be dead shortly? This is the pattern the elitists have followed for centuries.

At the same time the amount of Treasuries purchased by foreign investors and other nations are falling and that we believe will continue. The question then arises how much additional paper will the Fed have to absorb – another $600 billion a year? We do not know that answer, but it doesn’t look good.

We believe after having seen Mr. Strauss-Kahn set up for extinction as head of the IMF and as the main challenger to Mr. Sarkozy, that there is a power struggle going on between the European and the Anglo American interests to above all make sure that the dollar remains the world reserve currency no matter what the circumstances. This is really the main battle that is going on. The Europeans want the SDR, the British and Americans the dollar. The latter’s thinking is that since WW II the US has again and again saved the world economy, being the engine that has driven all economies. In the recent case of China it is the same as well. If US markets had not approved and opened their markets to China’s exports and most favorite nation treatment, China would not be where it is today. The American elitists believe the dollar deserves its position no matter how much they have damaged it.

You can see Europe going all out to make sure French Finance Minister Christine Lagarde becomes head of the IMF. They want a European running the IMF in spite of the fact that Strauss-Kahn said in 2007 that the next leader of the IMF would not be a European. That is why the Mexican finance minister, Mr. Carstens, threw his hat in the ring. He is in reality the US designate. An additional reason that has brought Lagarde strong European support is that Sarkozy wants to get rid of her, because she is doing a good job. Another reason we see conflict within the inner sanctum is that Greece could bring down the ECB and the euro and it seems the elitists would like that. It switches focus away from a falling dollar and destroys its main competitor, the euro. This is a titanic struggle that most observers are missing. It makes Strauss-Kahn’s arrest and termination at the IMF and his fall from socialist party grace a diversion. The battles are for the continued supremacy of the US dollar and more control over the IMF via Carstens. US interests want a Greek default and a euro breakup. The US rating agencies continue to attack the ratings of all of the weak euro counterparts and at the same time short European country bonds. The UK is in this with the US up to their eyeballs. The US and UK have left Europe to swing in the wind. This is what is really going on in Europe. Remember, there is no honor among thieves.

Late developments from our contacts in Greece tell us the bankers, EU and IMF had best forget about collateralizing debt (Mnemonic). The entire country is now aware of what the bankers are up too. What put the frosting on the cake was that a publication in the Netherlands said as a result of the secret deal, the Turks would get a Greek Island and raise their flag over it. That has really enraged the Greeks. PM Papandreou told 30 of his party legislators (Voulefles) that if they didn’t vote for collateralization he will fire them and replace them with people off the street. He obviously thinks he is a dictator because that is beyond his legal authority. Each day 150,000 people are surrounding the Vouli, the Parliament and the members are growing. PM Papandreou now only moves by helicopter, obviously fearful of assassination. One thing is for certain he will have difficulty ever living in Greece again. A woman professor said on TV that a Patriotic resistance has already started in Crete and in many smaller cities; people are signing up in the new movement. The police cannot handle the massive crowds and the military is securely behind the people. The bankers had best give it up and walk away. They are going to lose this one and it means the end of the euro zone and the EU.

Switching back we must remind you again that the Fed is monetizing $900 billion, not $600 billion as you have been told. Without that number the Fed could not have accomplished all of its Treasury buying. Of the almost $2.8 trillion in bonds some $900 billion are toxic waste, that is about 33%. We do not know their value, but we would guess it to be close to $200 billion, which the American taxpayer will get to pay for – that is a $700 billion loss, if that is what it works out to be. By what has happened over the last few years we conclude the Fed is the main source of economic instability. There is very little savings and that is understandable with virtually zero deposit interest rates. The Fed can throw money and credit at the problems, but in the final analysis you have to have a large pool of savings to borrow from. For some time there was negative savings. Presently they are 4% to 5%, which is inadequate to launch a permanent recovery. Quantitative easing only temporally solves the problem. The Fed’s approach has driven what savings there are and funds from QE2 into speculation and that does not create recovery. Loose monetary policy diverts funding away from positive recovery activities to speculation and into bubbles. The Fed’s policies will bring about one or two conclusions: hyperinflation is obvious as an extension or present policies. The other is a cessation of creation of money and credit, which will bring about a falling economy and economic contraction. At least at this juncture the Fed continues on Plan A – expansion. At the same time we are told an increase in interest rates are a long way off. Toward this end the Fed’s balance sheet is quickly expanding and we do not see any slowdown ahead. An increase from 15% to 17% might not seem like much, but it is, especially when savings numbers are falling causing a loss in underlying momentum. This is negative for Treasuries because 80% of buying has to continue to come from the Fed via monetized money created out of thin air.

If anyone believes higher inflation is going to act as a governor on monetary growth they are mistaken. The Fed has little concern regarding inflation and price stability, if they did they wouldn’t be doing what they are doing. The government lies about the CPI figures and the Fed swears to it. The figures are far higher than stated and anyone who believes official figures is very remiss in professional evaluation.

Between the Fed and Congress $1.8 trillion has been spent to achieve 1.8% growth in the first quarter and all indications are that the economy is slowing again. We thought the carryover in the first quarter would have been 2-1/2% to 3-1/4%, but that didn’t happen. We expected a further slowing in the second quarter to 2% and then negative growth for the remainder of the year. We’ll stick to that projection, but the slippage will come from a lower level. Unless QE3 is already underway we should see minus 2% for the second half of the year. What professionals and investors have to understand is that what the Fed is doing doesn’t work and the Fed knows that. The longer they create money and credit the higher inflation will rise along with gold, silver and commodities and the lower the dollar will fall versus other currencies, but more importantly the lower the US dollar will fall versus silver and gold.

The same kind of condition exists in Europe with the same systemic corruption we see worldwide. The current Greek government is an excellent example. It is probably the most dishonest since WWII. And that includes the mid-80s communist government of George’s father, Andres of the Papandreou crime family. As we look back we wonder what EU countries were thinking of when they knew they were subsidizing a lifestyle Greeks could never afford? Government workers were retiring at 50. Living standards have been cut 30% to 40% and retirement is now 70 years. These are appropriate measures, but the changes should have been stretched over years. The shock has essentially crippled the economy. Even Draco was not that cruel. The very concept agreed to by the Greek administration to put $400 billion in assets into the hands of foreign experts is something that will harbor strife for years to come. It must be remembered that the banks and governments should have never made those loans in the first place. Who is to know whether these fellow EU socialists are going to do any better than the Greeks have done? The European and British banks want their money back, and it will be interesting to see if they are successful.

In the US a similar situation exists. Even if there is debt approval on August 2nd, the damage caused by the impasse will continue far into the future because printing of money and credit by the Fed is certainly not the answer and financial people worldwide are well aware of that. If legislation is not passed, real interest rates will rise from today’s ridiculously low levels very quickly. That means bonds would plunge along with the stock market, which in turn means all Treasury fiscal needs would have to be filled in a vacuum by the Fed. Hyperinflation and a dollar collapse would be the final outcome.

As a result of this predicament the only real asset the US has that is worth anything are the portfolios of Fannie Mae, Freddie Mac, Ginnie Mae and FHA. Instead of nationalization their holdings would be sold off to collateralize outstanding US debt to the debtors. That would be $6 trillion worth. Or perhaps 401Ks and IRAs could be commandeered by Congress in behalf of the state and given to creditors. The Americans thus robbed of their lifetime assets would receive worthless government guaranteed annuities. Those assets would probably be exchanged for perhaps $0.50 on the dollar or $0.33 on the plunging dollar. Can you see what your government has been doing and continues to do to you in order to further enrich those in government, on Wall Street and in banking? This is what you have worked so hard for – betrayal. This is probably where this is all headed and you are the victims. You cannot do much about the situation, as the Greeks and others cannot, short of a military coup. This is where you stand and this is where this is all headed and you had best prepare for it, because if you do not you will be very sorry.

Former attorney general John Ashcroft cannot be sued for his role in detaining an American Muslim, even though the government did not charge the man with a crime or bring him as a witness in a terrorism investigation, the Supreme Court ruled yesterday.

Justice Antonin Scalia said using the federal “material witness’’ statute to detain Abdullah al-Kidd as a material witness in a terrorism investigation does not give Kidd a right to sue, because no court precedent had found such a use of the statute unlawful. “Qualified immunity gives government officials breathing room to make reasonable but mistaken judgments about open legal questions,’’ Scalia wrote. “When properly applied it protects all but the plainly incompetent or those who knowingly violate the law. Ashcroft deserves neither label.’’

All eight justices hearing the case agreed that Kidd’s suit against Ashcroft could not go forward; Justice Elena Kagan sat out the case because she had worked on Ashcroft’s behalf as President Obama’s solicitor general. But there was disagreement about the government’s action in the case and the treatment Kidd received.

Kidd maintains that in his more than two weeks of detention, he was strip-searched, shackled, interrogated without an attorney present, and treated as a terrorist.

Justice Ruth Bader Ginsburg, in a separate opinion joined by Justices Stephen Breyer and Sonia Sotomayor, said Kidd’s ordeal “is a grim reminder of the need to install safeguards against disrespect for human dignity, constraints that will control officialdom even in perilous times.’’

Republican presidential candidate Ron Paul dismissed House Speaker John Boehner’s call for spending cuts to match any increase in the federal debt ceiling, saying a fiscal catastrophe is coming whether or not the country exhausts its borrowing power.

“I don’t take it seriously,” the Texas congressman said of Boehner’s demand. Paul predicted Congress would “go up to the last minute” before the Aug. 2 deadline and then raise the nation’s $14.3 trillion legal debt limit, yet fail to solve the problems underlying the nation’s soaring deficits.

“The catastrophe comes regardless, because as long as they encourage more spending, then we go over a cliff,” Paul, who said he will vote against raising the limit, said in an interview for “Political Capital with Al Hunt,” airing this weekend. “So I want to stop us,” Paul said.

He dismissed discussion of a possible cap on future spending, saying it would be “too little, too late.”

“Do you think the American people are going to believe that we’re going to cut in the future?” added Paul, 75. He said any reductions promised beyond this year’s budget amount to “pie-in-the-sky talking.”

On presidential politics, Paul said that while other Republican candidates seeking to take on President Barack Obama in 2012 are echoing his themes on spending and debt, he is the only one who has a record that matches the rhetoric.

There’s Nothing like giving the president sweeping war-making authority that he neither wants nor needs to show just how concerned you are about terrorism. But a vote last Friday by the GOP-led House to place language in the 2012 National Defense Authorization Bill to give President Obama and his successors virtually unlimited authority to combat terrorism seems more intended to ignite a debate in Washington than to put fear into terrorists around the world.

The move seeks to express the House GOP’s desire for a global war on terrorism as envisioned by President Bush rather than the more limited fight against Islamic extremism articulated by President Obama. Politics aside, a responsible debate should focus on just how much war-making authority the president needs. No one disputes the president’s ability to order troops into battle to combat any emergency; the House, in its zeal to show toughness, is galloping so far ahead as to give the president advance approval for future wars against regimes that support Al Qaeda, the Taliban, or anyone associated with them.

On Sept. 14, 2001, Congress passed a measure known as the Authorization for the Use of Military Force. It allowed the president “to use all necessary and appropriate force” against those nations, individuals, and groups that, by the president’s determination, “planned, authorized, committed, or aided’’ the terrorist attacks of three days earlier. It was a broad grant of power, with important and, in hindsight carefully crafted language that tethered military action to 9/11 and the specific goal of preventing attacks on the United States.

The new language approved by the House last week removes any reference to 9/11, granting the president the authority to use whatever military force he considers necessary against those “who are part of, or are substantially supporting, Al Qaeda, the Taliban, or associated forces.’’ The authorization also moves America away from preventing attacks toward a full military engagement with terrorist groups, even those who may not target the United States. It would permit military action if a terrorist’s “associated force’’ targeted America’s “coalition partner.’’ Neither term is defined.

Such broad language is unnecessary. Neither President Bush nor President Obama has felt constrained by the language in the 2001 resolution. If military action needs to be taken unrelated to 9/11, then a president can seek new authorization. That’s what Bush did in the runup to war in Iraq.

How to interpret and amend the 10-year-old authorization-of-force measure should be a matter of serious debate one that should focus on what the president needs to protect against real enemies not on an indefinite untethering of presidential authority. The recent House language gives a dangerous new life to the war on terror, rather than putting it to rest. Senate debate on the bill, set for later this month, must excise the language.

Unemployment, as measured by Gallup without seasonal adjustment, stood at 9.2% at the end of May – unchanged from mid-May and down slightly from 9.4% at the end of April. It is also slightly lower than it was at the same time last year (9.5%).

The percentage of Americans employed part time but wanting to work full time was 10% at the end of May, unchanged from 9.9% at the end of April. This figure is up slightly from the end of May 2010, when 9.6% of the workforce was working part time but wanted full-time employment.

Underemployment which includes both part-time workers wanting full-time employment and the unemployed has remained flat since mid-March. Underemployment was 19.2% at the end of May, unchanged from 19.3% a month ago and 19.1% a year ago.

Employers in the U.S. announced fewer job cuts in May than a year earlier, signaling the labor market is improving.

Planned firings dropped 4.3 percent to 37,135 last month from May 2010, according to figures released today by Chicago- based Challenger, Gray & Christmas Inc. Government and nonprofit agencies had the most cutbacks.

Announced job reductions in the first five months of 2011 were down 21 percent from the year-earlier period, consistent with other data that indicate the economic expansion is prompting companies to retain staff. A report this week will show the world’s largest economy added jobs for the eighth consecutive month, according to a Bloomberg News survey.

“It is unlikely that we will see a sudden resurgence in corporate downsizing in the months ahead unless there is a major shock to the economy,” John A. Challenger, chief executive officer of Challenger, Gray & Christmas, said in a statement. While there are recent “signs of weakness” that include slower manufacturing and a struggling housing market, the report suggests “employers do not see these as long-term problems,” he said.

Compared with April, job-cut announcements rose 1.8 percent. Because the figures aren’t adjusted for seasonal effects, economists prefer to focus on year-over-year changes rather than monthly numbers.

Government and nonprofit entities led the firings with 14,755 announcements in May. The cutbacks are bleeding into the private sector, reflected in a “mini-surge” in firings in aerospace and defense, the report said. Cuts of 5,778 in May brought that industry’s reduction to 17,570 in the first five months, compared with 19,150 firings for all of 2010.

California led all states with 5,174 announced job cuts in May, while Louisiana had the next-largest reductions, at 4,600.

U.S. employers in May added the fewest number of workers in eight months and unemployment unexpectedly rose to 9.1 percent, underscoring Federal Reserve concerns the expansion is failing to boost the labor market.

Payrolls increased by a less-than-projected 54,000 last month, after a revised 232,000 gain in April that was smaller than initially estimated, Labor Department figures showed today in Washington. The median forecast in a Bloomberg News survey called for payrolls to rise 165,000. The jobless rate climbed to the highest level this year from 9 percent a month earlier.

The ADP Employment Change for May is a stunningly low 38k; 175k was expected.Today’s ADP National Employment Report suggests that employment growth slowed sharply in May.

Employment in the nonfarm private-business sector rose 38,000 from April to May on a seasonally adjusted basis. A deceleration in employment, while disappointing, is not entirely surprising. In the first quarter, GDP grew at only a 1.8% rate and only about 2¼% over the last four quarters. This is below most economists’ estimate of the economy’s potential growth rate and normally would be associated with very weak growth of employment.

The ADP Employment Change has been much stronger that the NFP for the past several months. Perhaps ADP employment is another metric that is now softening due to seasonal adjusting.

Companies in the U.S. added fewer workers than forecast in May; a sign that job growth is struggling to gain momentum, data from a private report based on payrolls showed today.

Employment increased by 38,000 last month, the smallest increase since September, from a revised 177,000 in April, according to figures from ADP Employer Services. The median estimate in the Bloomberg News survey called for a 175,000 advance for May.

Such gains in employment are insufficient to help the world’s largest economy accelerate after a surge in food and fuel costs earlier this year. Businesses added 207,000 jobs last month after a 268,000 gain in April and the jobless rate dipped to 8.9 percent from 9 percent, economists project a Labor Department report to show in two days. “Although labor conditions remain weak we anticipate further improvement taking hold in the coming months as conditions gradually improve,” Maxwell Clarke, chief U.S. economist at IDEAglobal in New York, said before the report. “As conditions improve, we expect to see some further downward pressure in the unemployment rate.” Estimates for the ADP data ranged from increases of 125,000 to 200,000, according to the Bloomberg survey of 37 economists.

The productivity of U.S. workers slowed in the first quarter and labor costs rose as companies boosted employment to meet rising demand.

The measure of employee output per hour increased at a 1.8 percent annual rate after a 2.9 percent gain in the prior three months, revised figures from the Labor Department showed today in Washington. Employee expenses climbed at a 0.7 percent rate after dropping 2.8 percent the prior quarter.

Rising costs of inputs such as energy and components means companies may look to contain labor costs, a sign hiring may not accelerate. A report tomorrow is projected to show employers hired 170,000 workers in May, down from 244,000 the prior month, according to economists’ estimates.

Federal Reserve officials are in no hurry to respond to recent indications U.S. economic growth has hit another soft patch, despite chatter in financial markets that the Fed might start a new program of U.S. Treasury-bond purchases to boost growth…

In comments Wednesday, Cleveland Fed president Sandra Pianalto said the Fed’s current stance was appropriate and added the recovery was likely to continue, even though growth “may be frustratingly slow at times.”

Mr. Bernanke has argued that past bond purchases haveworked, but it has have taken a political toll on the Fed. Critics in Congress and overseas say the Fed is fueling inflation globally.

“They don’t want to do QE3,” said Vincent Reinhart, an economist who formerly ran the Fed’s influential division of monetary affairs.

For all the attention given to almost $4-a-gallon gas, the biggest threat to containing U.S. inflation may be the shift away from homeownership, which is pushing up the cost of leases across the nation’s 38 million rented residences.

Shelter represents about 40 percent of the consumer price index excluding food and energy and accounted for almost one quarter of the 1.3 percentage point rise in April. That share has grown as falling home prices shake Americans’ confidence in housing as an investment.

Federal Reserve Chairman Ben S. Bernanke and his colleagues say they will hold interest rates at record lows for an “extended period,” based on an assessment that slack in the economy from 9 percent unemployment will help subdue core inflation and any threat of accelerating prices likely will be “transitory.” Not everyone agrees with that judgment.

“They should have looked at rents,” said Maury Harris, chief U.S. economist in New York at UBS Securities LLC, whose team at UBS was the most accurate inflation forecaster over 2009 and 2010, according to Bloomberg calculations. “They’re putting too much weight on the ‘slack is all that matters’ theory. It matters but, for heaven’s sake, it’s not all that matters.”

Housing has become “a contributor to inflation, and it continues to rise,” agreed Bruce McCain, chief investment strategist at the private-banking unit of KeyCorp in Cleveland, with $22 billion in assets under management. That’s partly why he’s advising clients to look at “specifically, a heavier mix of equities, and maybe the use of TIPS to mitigate the effects inflation could have over 10 years or longer.”

A wave of surprisingly weak data on the U.S. economy may spur Federal Reserve policy makers to support growth by making it clear they’re in no hurry to shrink the central bank’s record balance sheet.

There’s a “strong possibility” that the Federal Open Market Committee will say following the June 21-22 meeting that it will keep reinvesting proceeds from maturing debt for a while, said Michael Feroli, chief U.S. economist at JPMorgan Chase & Co. in New York. Previously, the FOMC has said it will keep the benchmark interest rate near zero for an “extended period” without a similar pledge about its balance sheet.

Yesterday’s reports showing manufacturing grew at the slowest pace in more than a year in May and employers added fewer jobs than forecast prompted Feroli to cut his estimate for second-quarter economic growth. The slowdown may push policy makers to consider what options are left after their second $600 billion round of asset purchases sparked a Republican backlash. Saying the balance sheet won’t shrink immediately could dispel any notion that the Fed is about to push up borrowing costs.

“The idea of extending the period in which they maintain this level of accommodation is an easy call, a natural call and the right call,” said Neal Soss, chief economist for Credit Suisse Holdings USA Inc. in New York. A third round of asset purchases “is so contentious within the committee and the broader political environment, that they aren’t going to go there. That makes it very unlikely.”

Credit Suisse Group AG, Goldman Sachs Group Inc. and Royal Bank of Scotland Group Plc each borrowed at least $30 billion in 2008 from a Federal Reserve emergency lending program whose details weren’t revealed to shareholders, members of Congress or the public.

The $80 billion initiative, called single-tranche open- market operations, or ST OMO, made 28-day loans from March through December 2008, a period in which confidence in global credit markets collapsed after the Sept. 15 bankruptcy of Lehman Brothers Holdings Inc.

Units of 20 banks were required to bid at auctions for the cash. They paid interest rates as low as 0.01 percent that December, when the Fed’s main lending facility charged 0.5 percent.

“This was a pure subsidy,” said Robert A. Eisenbeis, former head of research at the Federal Reserve Bank of Atlanta and now chief monetary economist at Sarasota, Florida-based Cumberland Advisors Inc. “The Fed hasn’t been forthcoming with disclosures overall. Why should this be any different?”

The Federal Reserve Bank of New York, which oversaw ST OMO, posted aggregate data about the program on its website after each auction, said Jeffrey V. Smith, a New York Fed spokesman. By increasing the availability of short-term financing when private lenders were under pressure, “this program helped alleviate strains in financial markets and support the flow of credit to U.S. households and businesses,” he said.

This article was posted: Sunday, June 5, 2011 at 3:09 am





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