Auditing the Fed

[saysmydoctor]

http://www.huffingtonpost.com/2009/08/28/frank-bill-mandating-comp_n_271384.html

How do we all feel about this?

[apoemtothedead]

I had my cursor over the first word and only saw the 'a' and 'ing' of the first word and assumed it said "abolishing the fed." I was slightly worried since I thought you were smarter than those whackjobs.

[saysmydoctor]

Hahaha, and I want to bring back the gold standard as well!

[xshady121]

Thank god this is going to pass.

This was discussed back in March or so after I saw Ron Paul give a speech about it.

[thatwasamoment]

Geithner shared his thoughts on the bill here:

http://digg.com/dialogg/Timothy_Geithner_1

[Praetor]

I support this resolution.

[perceptrons]

Geithner shared his thoughts on the bill here:

http://digg.com/dialogg/Timothy_Geithner_1
I was just going to link to this.

[Brand-new-123]

It's about time.

[MyNameIsRoss]

http://en.wikipedia.org/wiki/Ponzi_scheme

[.invisible ink.]

hell yes.

[PaulKariya]

Awesome.

This is off topic but just take a look at the S&P trajectory (in real terms - not nominal) over the last 10 years and you'll see that all gains were liquidity driven. The Fed's balance sheet was increased by a huge amount. The underlying market did absolutely nothing for the duration of the entire credit bubble (http://www.zerohedge.com/article/presenting-liquidity-bubble).

[Machu505]

Ron Paul does something good for a change.

[Until The Bombs]

Should've always been audited year in year out. Every public corporation is required to be audited, a body that has such a vast effect on the public should be no different. Wish I was the partner at one the big four firms that gets this job.

[PaulKariya]

Should've always been audited year in year out. Every public corporation is required to be audited, a body that the public has such a vast effect on the public should be no different. Wish I was the partner at one the big four firms that gets this job.

I don't know if I'd want to do that much work. It's going to take forever if it every happens.

[Until The Bombs]

I don't know if I'd want to do that much work. It's going to take forever if it every happens.

Haha. Yes it will. Massive undertaking. Which I why I do slightly question how effective the audit can/will be,

[asmolitor]

Awesome.

This is off topic but just take a look at the S&P trajectory (in real terms - not nominal) over the last 10 years and you'll see that all gains were liquidity driven. The Fed's balance sheet was increased by a huge amount. The underlying market did absolutely nothing for the duration of the entire credit bubble (http://www.zerohedge.com/article/presenting-liquidity-bubble).

how?

http://static.seekingalpha.com/uploads/2009/3/4/saupload_sp500_20inflation_20adjust ed_20long_20term_20chart_thumb1.png

http://www.bankrate.com/chart_cof_2/chart_img.aspx?tf=31&ct=Line&prods=1&gs=380,500&st=zz&c3d=False&defBorder=true&import=keyinterestrates&Percent=True&su=100

unless i'm not understanding your version of liquidity (i'm assuming as it relates to the credit bubble) then the lowering of interest rates should lead to market gains, and increases in rates should lead to market losses. but in effect, that's the opposite of what happened at the turn of the decade - the lowered interest rates were a response, not a catalyst. even if the process behind it is correct, the fed funds rate rose in the midst of the bubble and didn't delay growth - and now, we're at zero bound with stagnant growth. the article didn't seem to clarify how liquidity negates market growth.

but i'm skeptical in the first place of even entertaining the theory based on a goldwater avatar and the comments in the kennedy thread.

[PaulKariya]

how?

http://static.seekingalpha.com/uploads/2009/3/4/saupload_sp500_20inflation_20adjust ed_20long_20term_20chart_thumb1.png

http://www.bankrate.com/chart_cof_2/chart_img.aspx?tf=31&ct=Line&prods=1&gs=380,500&st=zz&c3d=False&defBorder=true&import=keyinterestrates&Percent=True&su=100

unless i'm not understanding your version of liquidity (i'm assuming as it relates to the credit bubble) then the lowering of interest rates should lead to market gains, and increases in rates should lead to market losses. but in effect, that's the opposite of what happened at the turn of the decade - the lowered interest rates were a response, not a catalyst. even if the process behind it is correct, the fed funds rate rose in the midst of the bubble and didn't delay growth - and now, we're at zero bound with stagnant growth. the article didn't seem to clarify how liquidity negates market growth.

but i'm skeptical in the first place of even entertaining the theory based on a goldwater avatar and the comments in the kennedy thread.

It's not saying that liquidity negates market growth - it's saying that the nominal gains we saw during the 2000's were due solely to liquidity. During the boom in the 1990's there was huge innovations that were good for the economy as a whole (if we ignore the dot coms). During the bubble of the 2000's there was no real secular shifts in the economy - the economy wasn't inovating or producing like it was during the 90's.

So, what they did is take the SPX and divide it by the total number of domestic reserves (m2) and foreign custodial holdings (the Fed is allowing foreign central banks to swap out agency debt into treasuries, which is allowing them to monetize debt) which shows that all gains were nominal. The economy wasn't producing enough to justify the huge gains in the stock market and the only reason there were huge (nominal) gains is because of all the credit supplied by the Fed.

But to address your other point, no the lowering of interest rates by a central bank does not lead to real economic growth. The resource base of the economy has not changed. In a real economy the lowering of interest rates is due to savings, in order to get money to save we have to produce more. When the Fed lowers interest rates there is no corresponding increase in production - too much money seeks out increasingly marginal investment opprtunities.

[PaulKariya]

Another reason the Fed doesn't want to be audited is because the huge shell game they've been playing with other central banks will be revealed.

What the foreign central banks have been doing is selling their agency debt to the Federal Reserve (which were funded by money printed out of thin air) and then buying Treasury bonds from the US government with the money the Fed has printed out of thin air. This is effectively monetizing the debt and keeping up the illusion of demand for US assets. Chris Martenson has a very excellent post about this that is far more detailed than what I just wrote. You can check it out here (http://www.chrismartenson.com/martensonreport/shell-game-how-federal-reserve-monetizing-debt).