Federal Reserve

Alan Grayson amendment to restrict Federal Reserve on Foreign Currency Swaps

Update: This amendment passed by voice vote.

Frankly, I just don't understand foreign currency swaps. It's above my pay grade.

Yet, we have an amendment, by Rep. Alan Grayson and Ron Paul, to restrict the Federal Reserve on issuing foreign currency swaps.

The amendment restricts the Federal Reserve by requiring five Federal Reserve members of the board of Governors approve as well as the U.S. Treasury Secretary.

The Bank of International Settlements, Switzerland, has written a paper on the U.S. dollar shortage and the international policy response, from what happened by the fall of 2008. Below is a graph of the sudden increased foreign currency swaps issued by the Federal Reserve:

currency FX swaps fed
Src: Zero Hedge, click on image to enlarge


Bernanke, the Dollar and Commodities

Ben Bernanke has come out with a now, now, there, there on the falling dollar:

The Federal Reserve is monitoring currency markets “closely” and will conduct policy in a way that will “help ensure that the dollar is strong”, Ben Bernanke said on Monday in rare comments on the US currency.

The Fed chairman also indicated that the US central bank would not ignore the impact of rising commodity prices when evaluating the outlook for inflation. He said he would not rule out using interest rates to combat new asset price bubbles, even though he did not see obvious mispricing in the US at this stage.

Hmmmm, no obvious mispricing. Does that include the oil speculative bubble of 2008?

Meanwhile Gold is through the roof, in part due to the dollar decoupling.


kitco gold

New COP Report - Guarantees Created Significant Moral Hazard

On Friday you were probably bowled over by the unemployment rate. So astounded, we missed this major report release by COP, the Congressional Oversight Panel on TARP.

The Report, Guarantees and Contingent Payments in TARP and Related Programs is another damning condemnation on corporate socialism to the point of moral hazard. Yet, at the same time, the report says taxpayers will likely profit from the huge TARP gamble. Well, well, if the government is turning the world into a glorified casino with U.S. taxpayer money, all the while guaranteeing the bonuses profits of large banks, at least it looks like we won't take the loss.

Sacrificing the Economy to the Volcano God

Hundreds of years ago the Incas would sacrifice virgins to appease their Volcano God.
The Gods and methods of sacrifice may have changed, but the tradition remains.

Like the Incas of old, we find ourselves helpless against forces we do not understand. The foundations of our economy shake and falter in terrifying ways.
In our desperation for answers we turn to High Priests of Economics who tell us these evils have befallen us because of our sins. We must sacrifice the innocent to the Volcano God or it will destroy us all.

The High Priests of Economics never explain exactly how these sacrifices will fix the economy, nor do they mention that the sins in question might be their own. Yet we still rush to offer up our children's futures through unpayable debts while never considering that there might be better alternatives.

Too Big To Fail - Today's Financial Services Committee Hearings

Federal Reserve Chair Ben Bernanke testified and then stonewalled another Q&A today in the House Financial Services Committee.

First to Fed. economic forecasts, otherwise known as gardening:

Job insecurity, together with declines in home values and tight credit, is likely to limit gains in consumer spending. The possibility that the recent stabilization in household spending will prove transient is an important downside risk to the outlook.

Fed's Follies & Systemic Risk Regulation

The administration’s proposal sets out to restore the shadow banking system and all the various securities markets that have arisen in the past fifteen years or so, including credit default swaps. The underlying presumption is that these markets serve public purpose, that they can be restored, and that they should, in fact, be restored.

The presumption is not correct. - James K. Galbraith

Against the backdrop of blocking a Federal Reserve audit by the Senate, we have additional questions being raised on the Federal Reserve as Systemic Risk Regulator.

War of the Audit


Regulation Power - Where are the Checks and Balances?

Before us we have the proposal to expand the powers of the Federal Reserve as the systemic risk regulator.

Consider this:

Thus within 18 months of taking office, Obama will likely have appointed five of the seven Fed governors . The central bank is designed to be independent from politics, so a president's best chance of influencing how the Fed will regulate banks or respond to economic changes is through these appointments.

The Federal Reserve acts independently of government, with pretty much only these appointments, each a 14 year term, and confirmation of each governor by the Senate.

fed reserve org. chart

Considering we cannot find out which institutions received Federal money or where the $12.82 trillion dollars of Federal Reserve financial commitments are, isn't this making the Democratic aspects of financial regulation even worse?

During the Bush administration we had then Treasury Secretary Hank Paulson, acting as CEO in Chief, strong arming banks and even Congress into passage and use of the TARP. No other ideas were seriously considered and Congress simply handed over the cash with a lot of scare tactic rhetoric.

Is Congress Starting to Get It?

Congress still has a long way to go in representing their constituents and not their special interest benefactors (eg. cram down bill) but we should give credit when credit is due. Yesterday, two potentially significant pieces of legislation were signed by the President: Helping Families Save Their Homes Act of 2009 and the Fraud Enforcement and Recovery Act of 2009. These pieces of legislation are potentially significant not so much because of their main objectives (which are significant in their own way) but for two potentially powerful amendments included in each.

Helping Families Save Their Homes Act of 2009