ledeagenda.com

From the Mises.org:

The zero-interest-rate policy of the Fed is sold to the public as a benign economic rescue in the public interest. The stark reality is that this policy is a disguised tax implemented by the Fed. It takes income from savers and hands it as a subsidy to borrowers. It also facilitates and funds the fiscal deficit policies of central government. Such a well disguised tax is a boon for governments. The cruelest tax of all is this 100 percent tax on interest income, disguised and rationalized as “good” policy. 

The zero-interest-rate policy deserves closer scrutiny. Would a saver willingly agree to an economic environment of zero interest rates? Certainly not. Would a debtor prefer a zero interest rate? Absolutely. The saver and the debtor would, under normal, willing-economic-participant conditions, negotiate a “price” for the use of money saved. That price for the use of funds is interest.

The central bank enters the negotiation between saver and borrower, and by counterfeiting money it destroys the negotiating base of the saver. Counterfeiting money through policies of unlimited liquidity provision is a “price control” over interest rates, instituted to force interest rates down and eventually spiral them downwards out of control to zero. The interest income of the saver is eventually taxed to extinction at zero interest rates.

It is basic economic theory that price control actually reduces the availability of the item subject to the control. It should therefore come as no surprise that available credit is falling despite unrestrained liquidity provision at zero interest rates. Banks have no direct cost implication when they hold funds at zero (apart from opportunity cost). Thus there is no direct cost penalty for doing nothing.

Not exploiting a lending opportunity in a high default-risk environment, where the margin between a zero-interest cost of funds and the lending rate is insufficient to protect bankers against default risk, is an entirely rational choice for bankers. While the intended consequence is to increase the availability of credit, the ultimate “zero-rate” intervention actually reduces credit availability. One wonders how significant this unintended consequence would be in the absence of Cash for Clunkers, the now-expanded subsidy policy for housing purchases, and the constant Fed, Treasury and Federal Housing Finance Agency support for Freddie Mac and Fannie Mae. We shall find out when fiscal deficits can no longer fund such excesses.

WSJ: 1 in 4 Borrowers Is Underwater

From Gary North, as seen on LewRockwell.com:

Gold does not have intrinsic economic value. No resource in history does. History is the realm of change. In such a world, there is no intrinsic economic value.

There is imputed economic value. There is historic economic value. Neither of these concepts of economic value rests on a theory of the supposed autonomy from free market pricing.

In a free society, final users of any asset have authority over its free market pricing. Owners of gold possess uncommon authority, for gold allows people to invest on the assumption that the larceny in men’s hearts focuses on money, and central banks in turn control the supply of money. Those who do not trust the wisdom, motivation, and tools of central bankers have a way to express their lack of trust. They can buy some gold coins.

This upsets politicians. It also upsets court economists, who are well-paid sycophants of central bankers. The more unreliable the decisions of the central bankers, the more upset the economists are with owners of gold. They do not want the price of gold to rise. Such an increase would signal a voice of protest by a small group of private citizens.

If you would like to protest the extension of centralized government power over your life and society in general, buy a few gold coins. I like protests that can turn a profit. This is such a protest.

From Breitbart:

The dollar’s position as the world’s leading reserve currency faces increased pressure as the financial crisis allows emerging economies greater influence on the world stage, analysts said.

A report last week in The Independent claiming that China, Russia and Gulf States are among nations prepared to ditch the dollar for oil trades has heightened the uncertainty surrounding the US currency’s future. The dollar slumped against rivals last week in the wake of the British daily’s controversial report.

“The US dollar is being hurt by the continued talk of a shift away from a dollar-centric world,” said Kit Juckes, an analyst at currency traders ECU Group.

“Three conclusions stand out very clearly. Firstly, the shift in economic power away from the G7 economies is continuing. “Secondly, there is a growing acceptance amongst those winners that one consequence of this power shift will be to strengthen their currencies.”

And finally, as long as the US economy is not strong enough for any rise in interest rates to be conceivable for a long time, the dollar’s underlying downtrend will remain in place,” added Juckes.

From Bloomberg:

Gold rose to a record on speculation that currencies will depreciate, spurring inflation and boosting the appeal of the precious metal for investors seeking to preserve their wealth.

Gold futures climbed as high as $1,045 an ounce in New York, topping the previous record of $1,033.90 in March 2008. The spot price is headed for a ninth straight annual gain, the longest rally since at least 1948. The dollar fell as much as 0.7 percent against a basket of six major currencies.

“Gold is acting like the ultimate currency,” said Chip Hanlon, the president of Delta Global Advisors Inc. in Huntington Beach, California. “Central banks are following the same monetary course and trying to stimulate and inflate their way back to growth. Everyone’s concerned about the dollar, but it’s not like you can hate the dollar and fall in love with the euro or the yen.”

U.S. President Barack Obama has increased the nation’s marketable debt to an unprecedented $6.78 trillion as he borrows to spur the world’s largest economy. Goldman Sachs Group Inc. predicts the country will sell about $2.9 trillion of debt in the two years ending next September.

Gold futures for December delivery climbed $24.40, or 2.4 percent, to $1,042.20 an ounce at 11:16 a.m. on the Comex division of the New York Mercantile Exchange. Prices may reach $1,400 within six months, Hanlon said. Gold for immediate delivery in London gained as much as 2.6 percent to a record $1,043.78. The metal has climbed 18 percent this year.

From Lew Rockwell:

Reporters at the Wall Street Journal have uncovered something very intriguing while they were combing through the billing records of Jenner and Block, whose chairman, Anton Valukas is currently moonlighting as the examiner of the Lehman Bankruptcy Case. In J&B’s August fee statement, the firm discloses information that as part of its estate recoupment process, it has been contemplating suing none other than the Federal Reserve.

During its final days Lehman was a revolving door for Fed cash coming in (and promptly leaving) as the situation demanded. Whether borrowing at the Fed’s discount window against garbage collateral (no doubt consisting of worthless toxic commercial real estate – yet, we will never know: the Fed has just appealed the decision to disclose who/what/why got access to its processing of taxpayer bailout funding, which likely means that unless some Second Circuit/SCOTUS judge finds it deep in his/her soul that representing the American public is more important than siding with Wall Street as always, that information will never see the light of day), using the TAF program, or otherwise, Lehman ended up gobbling an ungodly amount of cash from the Fed which was subsequently improperly yanked by the Chairman, instead of being used to satisfy pari passu creditor claims. According to the WSJ:

 The New York Fed lent Lehman $46.2 billion in cash and Treasury securities for $50.6 billion in collateral, according to Federal Reserve affidavits filed in bankruptcy court. As a result of Lehman’s sale to Barclays PLC following its bankruptcy, the New York Fed was later paid back in cash, with the Treasury securities returned. Lehman’s broker-dealer also borrowed tens of billions of dollars from the Fed in the period from Sept. 11 through Sept. 15 last year.

From Bloomberg:

The Federal Reserve filed a notice it will appeal a judge’s order requiring the central bank to identify the companies that benefited from its emergency loans.

The filing with the U.S. Court of Appeals in New York today was authorized by Solicitor General Elena Kagan, the Obama administration’s top courtroom lawyer, according to Charles Miller, a spokesman for Kagan.

“Public disclosure is likely to cause substantial competitive injury to these financial institutions including the loss of public confidence in the institution, runs on banks and possible failure of some institutions,” the Fed said in its notice, which asks to put the lower court’s order on hold until the appeal is prepared.

Bloomberg LP, the New York-based company majority-owned by Mayor Michael Bloomberg, sued the Fed on Nov. 7 on behalf of its Bloomberg News unit, demanding details about the Fed borrowers and the collateral they put up. That information is “central to understanding and assessing the government’s response to the most cataclysmic financial crisis in America since the Great Depression,” Bloomberg said in the suit.

“One way or the other, the Fed is going to have to come clean,” Representative Alan Grayson, a Florida Democrat, said today in a statement delivered through his spokesman, Matt Stoller. Grayson helps oversee bailout programs as a member of the U.S. House Financial Services Committee.

Extending Credit

“There is not a single American who does not have a stake in how the Federal Reserve and other major banks operate,” Lucy Dalglish, executive director of the Arlington, Virginia-based Reporters Committee for Freedom of the Press, said an interview. “To deny American taxpayers simple information about how their money was used and by whom is inexcusable.”

Manhattan Chief U.S. District Judge Loretta Preska had set today as the deadline for the appeal of her Aug. 24 ruling ordering the Fed to disclose information. Fed lawyer Kit Wheatley asked Preska on Aug. 27 to halt enforcement of the order to give the central bank time to get Kagan’s consent.

From Bloomberg:

The Federal Reserve Board has rejected a request by U.S. Treasury Secretary Timothy Geithner for a public review of the central bank’s structure and governance, three people familiar with the matter said.

The Obama administration proposed on June 17 a financial- regulatory overhaul including a “comprehensive review” of the Fed’s “ability to accomplish its existing and proposed functions” and the role of its regional banks. The Fed was to lead the study and enlist the Treasury and “a wide range of external experts.”

Some top central bank officials, after agreeing to the review, saw a potential threat to Fed independence after the Treasury released the proposal, two of the people said. The Obama plan said the Treasury would consider recommendations from the review and “propose any changes to the Fed’s governance and structure.”

…

U.S. lawmakers have also called for a review of the Fed’s power and structure, saying Fed Chairman Ben S. Bernanke overstepped his authority as he bailed out creditors of Bear Stearns Cos. and American International Group Inc. while battling a crisis that led to $1.62 trillion in writedowns and losses at financial firms.

No Work Done

While the report requested by the Treasury hasn’t been formally scrapped, no work has been done on the project, which was due Oct. 1, the people said. Treasury spokesman Andrew Williams declined to comment, as did Fed spokeswoman Michelle Smith.

The central bank is performing its own reviews of possible operational changes following the financial crisis. Fed Governor Elizabeth Duke is leading an internal study of the roles of the directors that serve on each of the boards at regional Fed banks.

“The institution is trying to keep a low profile,” said Vincent Reinhart, a resident scholar at the American Enterprise Institute in Washington and the former director of Division of Monetary Affairs at the Fed Board. “To publish a report now invites comment on that report.”

‘Associated Costs’

The Senate passed 96-2 a nonbinding budget amendment in April supporting “an evaluation of the appropriate number and the associated costs” of the district banks. The measure was sponsored by Senate Banking Committee Chairman Christopher Dodd, a Connecticut Democrat, and Alabama Senator Richard Shelby, the senior Republican on the panel.

House Financial Services Committee Chairman Barney Frank, a Massachusetts Democrat, has also called for more scrutiny of the central bank, saying last year he aims to probe how the 12 regional Fed presidents are appointed and their role in setting interest rates. The Fed banks are semi-private entities, each overseen by a nine-member board of directors.

Legislation in both houses of Congress would allow for audits by the Government Accountability Office of the central bank’s monetary policy and other operations. Bernanke opposes the measure, which was introduced in the House by Representative Ron Paul of Texas, a Republican. Frank has scheduled a committee hearing on the issue for Sept. 25.