Economic info every American needs to know

A lot of people are being told that Americans are getting screwed by our government’s rescue plan, but most Americans don’t really know how.  To give the reader a good example of why this bailout reeks of “mismanagement,” all we’d have to do is look at banks and their excess reserves.

Now, as a little background information, every US bank dealing with more than $43.9 million is ordered by the Federal Reserve to have roughly 10% of their deposit money as reserves on hand (12).  This means that if people put $100 in the bank, the bank has to have about $10 on hand and can lend the remaining $90 to other people.  Allowing banks to hold only a fraction of their loaned amount on hand is known as fractional reserve banking, and it essentially allows banks to create money (something that you and I would be thrown in jail for.  Check that last link out)(1)(2).

With that in mind, if one were to take a good look at a 1935 Time Magazine article, they would find that our bank reserve increase in the 1920’s –which created a credit bubble which collapsed in 1929–had only been 600 million dollars (3). At the article’s moment in 1935, American banks were holding 3 billion dollars in excess bank reserves, which meant that they could potentially create 30 billion dollars in loans, which could have torn the economy apart with rampant inflation and price bubbles similar to both of the ones we’ve experienced in the last decade.  This was a serious concern back then, and it would be a concern today if we but had an active citizenry.

For those of you wondering why, have a look for yourself (4).

It looks as though after the “bailouts” we’re looking at 650 billion dollars of excess bank reserves, which means that–should Americans really get back into buying things–we’d be dealing with a problem far larger than what led to the credit collapse of 1929.  After all, if they were only dealing with a 600 million dollar bank reserve increase in the 1920’s, and we’ve got a 650 billion dollar increase in the last two years, any high-schooler could do the math and realize that the ability of banks to create deposit accounts ten times our excess reserve amounts could destroy the dollar.  After all, we only have a 14 trillion dollar economy according to the CIA, and those numbers are artificially high (5)(6).

So anyway, the Federal Reserve has the capability to combat inflation, and they’re probably going to be effectively raising interest rates and raising the required bank reserves to make sure that we don’t turn into Zimbabwe.  But even if they were to raise those interest rates, the banks would still be holding on to that bailout money.  This means the government gives our money to the banks, and then the banks can’t lend it to our poorer citizens (due to drastic interest rate increases, which would out-price many people).  This, as you might notice, would put the brakes on our housing market.

Even more interesting than a rise in excess bank reserves is the fact that the excess money doesn’t exist because the banks are actually rich.  The banks received this money from the government in exchange for government ownership of banking shares, essentially giving control of banking decisions to the Federal Reserve.  Even more fishy than that, though?  Not all of the banks were failing when they received your money.  Our nine largest banks were forced into ceding control of their company to the government, under threat of CEO firings. This isn’t a bailout, it’s a power grab disguised as protection (7).

And now that our banks have been bullied into ceding control to the government, President Obama wants more control for the Federal Reserve, even though they apparently can already force banks to surrender control, and banks can’t even pay the bailout funds back without government permission (giving our Dear Leader the power to keep them under his thumb as long as he sees fit) (8)(9).  And this is even despite the fact that our current economic troubles come from both over-inflation of the money supply through the Fed’s policies and government planning in the first place (10)(11).

If the president and congress were really interested in a free market like they say they are, they would be engaging in some trust-busting to keep Americans safe from companies that are “too big to fail.”  Instead, what they’ve done is create executive orders which give them the power to assume complete control over large companies, which then then make forcibly larger through mergers, which benefits them while indebting you (13).  So our administration isn’t only FOR the large corporations they claim to oppose, but they’re for taking control out of private hands and putting it into their own.

Place us in danger, forcefully grab control, pull the rug out from under the poor people.  Politics as usual.

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1) Fractional reserve banking

http://en.wikipedia.org/wiki/Fractional-reserve_banking

2) How money is created

http://www.chrismartenson.com/crashcourse/chapter-7-money-creation

3) 1935 Time article about excess reserves

http://www.time.com/time/magazine/article/0,9171,848213,00.html

4) St Louis Fed: excess reserves

http://research.stlouisfed.org/fred2/graph/?s[1][id]=EXCRESNS

5) CIA factbook: US

https://www.cia.gov/library/publications/the-world-factbook/geos/US.html

6) Our government’s fuzzy numbers

http://www.chrismartenson.com/crashcourse/chapter-16-fuzzy-numbers

7) Nine banks forced to accept TARP money

http://finance.yahoo.com/news/Documents-Paulson-forced-9-apf-15243002.html?sec=topStories&pos=5&asset=&ccode

8) Obama wants more power for Federal Reserve

http://www.cbsnews.com/stories/2009/06/17/politics/main5093719.shtml

9) Banks can’t give back TARP money

http://www.latimes.com/business/la-fi-tarp10-2009jun10,0,1405965.story

10) Info about when easy money became available

http://www.federalreserve.gov/fomc/fundsrate.htm

11) Government creates booming sub-prime industry

http://www.nytimes.com/1999/09/30/business/fannie-mae-eases-credit-to-aid-mortgage-lending.html?sec=&spon=&pagewanted=all

12) Reserve requirements in the US

http://www.federalreserve.gov/pubs/supplement/2008/02/table1_15.htm

13) The Fed forces mergers

http://www.washingtontimes.com/news/2009/jun/12/bofa-says-fed-forced-merrill-merger/

http://www.youtube.com/watch?v=u-yU7PqwEMM

This entry was posted on 24. June 2009 at 17:35 and is filed under politics, economy. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response or trackback from your own site.

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