Check It Out for Tuesday, June 30th
Matthew Cardinale at IPS News on the US Congress pushing for Federal Reserve Audit: "A majority of the U.S. House of Representatives is now in support of a historic bill by Republican lawmaker Ron Paul to audit the Federal Reserve (the Fed), the privately run central bank that sets monetary policy for the United States.
"A similar bill in the U.S. Senate was proposed by Democratic Socialist Sen. Bernie Sanders, and has three right-wing Republican co-sponsors.
"Meanwhile, a House committee recently approved an amendment offered by left-leaning Democrat Dennis Kucinich to a bill granting more oversight to the Government Accountability Office, which would audit the Fed's response to the economic crisis specifically.
"Notably, the amendment passed committee unanimously, with broad bipartisan support, and now heads to the full House for action.
" 'The Fed has taken a number of extraordinary and unprecedented steps to address the financial crisis,' Kucinich told IPS in an email. 'In so doing, it has committed over one trillion dollars to the purchase and financing of many different kinds of assets. It has selectively intervened in certain economic sectors, while it has ignored others.'
" 'All of these interventions mark a departure from traditional monetary policy, raise significant public policy questions, and impact taxpayers considerably,' Kucinich said.
"Fed Chairman Ben Bernanke is 'not revealing what they did with the two trillion dollars they created on their books. It was loans to banks for sure. There have been several actions under the Freedom of Information Act to get them to say who they were to and what the terms were, but they won't do it,' Ellen Brown, author of 'Web of Debt', told IPS.
"Most people in the United States do not understand what the Federal Reserve is or what it does, except some know the Fed sets a federal interest rate, which in turn affects interest rates on some variable private loans.
"However, the Fed's impact is much greater than this. Essentially, the Fed, which is made up of private bank representatives, can determine how much money is in the nation's money supply."
Michael Hudson at Counterpunch writes about the arrival of debt deflation and what the jump in the US savings rate really means.
"Happy-face media reporting of economic news is providing the usual upbeat spin on Friday’s debt-deflation statistics. The Commerce Department’s National Income and Product Accounts (NIPA) for May show that U.S. “savings” are now absorbing 6.9 percent of income.
"I put the word “savings” in quotation marks because this 6.9 per cent is not what most people think of as savings. It is not money in the bank to draw out in rainy-day emergencies like losing one’s job, as thousands are every day. The statistic means that 6.9 per cent of national income is being earmarked to pay down debt – the highest savings rate in 15 years, up from actually negative rates (living on borrowed credit) just a few years ago. The only way in which these savings are “money in the bank” is that they are being paid by consumers to their banks and credit card companies.
"Income paid to reduce debt is not available for spending on goods and services. It therefore shrinks the economy, aggravating the depression. So why is the jump in “saving” good news?
"It certainly is a good idea for consumers to get out of debt. But the media are treating this diversion of income as if it were a sign of confidence that the recession may be ending and that Obama’s “stimulus” plan is working...The reality is that most consumers have little real choice but to pay. Unable to borrow more as banks cut back credit lines, their “choice” is either to pay their mortgage and credit card bill each month, or lose their homes and see their credit ratings slashed, pushing up penalty interest rates near 20 per cent To avoid this fate, families are shifting to cheaper and less nutritious food, eating out less or at fast food restaurants, and cutting back on vacation spending. So it seems contradictory to applaud these “savings” (that is, debt-repayment) statistics as an indication that the economy may emerge from depression in the next few months. While unemployment approaches the 10 per cent rate and new layoffs are being announced every week, isn’t the Obama administration taking a big risk in telling voters that its stimulus plan is working? What will people think this winter when markets continue to shrink? How thick is Obama’s Teflon?
"As recently as two years ago consumers were buying so many goods on credit that the domestic savings rate was zero....
"Today, homeowners no longer can re-finance their mortgages and compensate for their wage squeeze by borrowing against rising prices for their homes. Payback time has arrived – paying back bank loans, whose volume has swollen to include accrued interest charges and penalties. New bank lending has hit a wall as banks are limiting their activity to raking in amortization and interest on existing mortgages, credit cards and personal loans.
"Many
families are able to remain financially afloat by running down their
personal savings and cutting back their spending to try and avoid
bankruptcy. This diversion of income to pay creditors explains why
retail sales figures, auto sales and other commercial statistics are
plunging vertically downward in almost a straight line, while
unemployment rates soar toward the 10 per cent level. The ability of
most people to spend at past rates has hit a wall. The same income
cannot be used for two purposes. It cannot be used to pay down debt and
also for spending on goods and services. Something must give. So more
stores and shopping malls are becoming vacant each month. And unlike
homeowners, absentee property investors have little compunction about
walking away from negative equity situations – owing creditors more
than the property is worth.
"Banks and credit-card companies are girding for economic shrinkage. It was in anticipation of this state of affairs, after all, that they pushed so hard from 1998 onward to make what finally became the 2005 bankruptcy laws so pro-creditor, so cruel to debtors by making personal bankruptcy an economic and legal hell.
"So, to avoid this fate, People are putting more money away, but not into savings accounts. They are indeed putting it into banks, but in the form of paying down debt. To accountants looking at balance sheets, savings represent the increase in net worth. In times past this was mainly the result of a buildup of liquid funds. But today’s money being saved is not available for spending. It merely reduces the debt burden being carried by individuals. Unlike Citibank, AIG and other Wall Street institutions, they are not having their debts conveniently wiped off the books. The government is not nice enough to buy back their investments that had lost up to half their value in the past year. Such bailouts are for creditors and money managers, not their debtors.
"The story that the media should be telling is how today’s post-bubble economy has turned the concept of saving on its head.
"This is not what people expected a half-century ago. Economists wrote about how technology would raise productivity levels, people would be living in near utopian conditions by the year 2000. The textbooks need to be rewritten.
"To get an idea of how oppressive the debt burden really is, I should note that the 6.9 per cent savings rate does not even reflect the 16 per cent of the economy that the NIPA report for interest payments to carry this debt, or the penalty fees that now yield as much as interest yields to credit-card companies – or the trillions of dollars of government bailouts to try and keep this unsustainable system afloat. How an economy can hope to compete in global markets as an industrial producer with so high a financial overhead factored into the cost of living and doing business is another story."
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