Pat Garofalo
Oct 7, 2011
http://thinkprogress.org/economy/2011/10/07/338887/1-facts-biggest-banks
The Occupy Wall Street protests that began in New York City more than three weeks ago have now spread across the country. The choice of Wall Street as the focal point for the protests — as even Federal Reserve Chairman Ben Bernanke said — makes sense due to the big bank malfeasance that led to the Great Recession.
While the Dodd-Frank financial reform law did a lot to ensure that a repeat of the 2008 financial crisis won’t occur — through regulation of derivatives, a new consumer protection agency, and new powers for the government to dismantle failing banks — the biggest banks still have a firm grip on the financial system, even more so than before the 2008 financial crisis. Here are eleven facts that you need to know about the nation’s biggest banks:
– Bank profits are highest since before the recession…: According to the Federal Deposit Insurance Corp., bank profits in the first quarter of this year were “the best for the industry since the $36.8 billion earned in the second quarter of 2007.” JP Morgan Chase is currently pulling in record profits.
– …even as the banks plan thousands of layoffs: Banks, including Bank of America, Barclays, Goldman Sachs, and Credit Suisse, are planning to lay off tens of thousands of workers.
– Banks make nearly one-third of total corporate profits: The financial sector accounts for about 30 percent of total corporate profits, which is actually down from before the financial crisis, when they made closer to 40 percent.
– Since 2008, the biggest banks have gotten bigger: Due to the failure of small competitors and mergers facilitated during the 2008 crisis, the nation’s biggest banks — including Bank of America, JP Morgan Chase, and Wells Fargo — are now bigger than they were pre-recession. Pre-crisis, the four biggest banks held 32 percent of total deposits; now they hold nearly 40 percent.
– The four biggest banks issue 50 percent of mortgages and 66 percent of credit cards: Bank of America, JP Morgan Chase, Wells Fargo and Citigroup issue one out of every two mortgages and nearly two out of every three credit cards in America.
– The 10 biggest banks hold 60 percent of bank assets: In the 1980s, the 10 biggest banks controlled 22 percent of total bank assets. Today, they control 60 percent.
– The six biggest banks hold assets equal to 63 percent of the country’s GDP: In 1995, the six biggest banks in the country held assets equal to about 17 percent of the country’s Gross Domestic Product. Now their assets equal 63 percent of GDP.
– The five biggest banks hold 95 percent of derivatives: Nearly the entire market in derivatives — the credit instruments that helped blow up some of the nation’s biggest banks as well as mega-insurer AIG — is dominated by just five firms: JP Morgan Chase, Goldman Sachs, Bank of America, Citibank, and Wells Fargo.
– Banks cost households nearly $20 trillion in wealth: Almost $20 trillion in wealth was destroyed by the Great Recession, and total family wealth is still down “$12.8 trillion (in 2011 dollars) from June 2007 — its last peak.”
– Big banks don’t lend to small businesses: The New Rules Project notes that the country’s 20 biggest banks “devote only 18 percent of their commercial loan portfolios to small business.”
– Big banks paid 5,000 bonuses of at least $1 million in 2008: According to the New York Attorney General’s office, “nine of the financial firms that were among the largest recipients of federal bailout money paid about 5,000 of their traders and bankers bonuses of more than $1 million apiece for 2008.”
In the last few decades, regulations on the biggest banks have been systematically eliminated, while those banks engineered more and more ways to both rip off customers and turn ever-more complex trading instruments into ever-higher profits. It makes perfect sense, then, that a movement calling for an economy that works for everyone would center its efforts on an industry that exemplifies the opposite.
|
|
|---|
|
|
|---|
Showing posts with label Federal Reserve. Show all posts
Showing posts with label Federal Reserve. Show all posts
Saturday, October 15, 2011
How Is Credit Created?
From WashingtonsBlog.com:
The model of money creation that Obama’s economic advisers have sold him was shown to be empirically false over three decades ago.
The first economist to establish this was the American Post Keynesian economist Basil Moore, but similar results were found by two of the staunchest neoclassical economists, Nobel Prize winners Kydland and Prescott in a 1990 paper Real Facts and a Monetary Myth...
Australian economist Steve Keen notes that in a debt based society, expansion of credit comes first and reserves come later.
This angle of the banking system has actually been discussed for many years by leading experts:
“[Banks] do not really pay out loans from the money they receive as deposits. If they did this, no additional money would be created. What they do when they make loans is to accept promissory notes in exchange for credits to the borrowers’ transaction accounts.”
- 1960s Chicago Federal Reserve Bank booklet entitled “Modern Money Mechanics”
“The process by which banks create money is so simple that the mind is repelled.”
- Economist John Kenneth Galbraith
“[W]hen a bank makes a loan, it simply adds to the borrower’s deposit account in the bank by the amount of the loan. The money is not taken from anyone else’s deposit; it was not previously paid in to the bank by anyone. It’s new money, created by the bank for the use of the borrower.“
- Robert B. Anderson, Secretary of the Treasury under Eisenhower, in an interview reported in the August 31, 1959 issue of U.S. News and World Report
“Do private banks issue money today? Yes. Although banks no longer have the right to issue bank notes, they can create money in the form of bank deposits when they lend money to businesses, or buy securities. . . . The important thing to remember is that when banks lend money they don’t necessarily take it from anyone else to lend. Thus they ‘create’ it.”
-Congressman Wright Patman
Indeed, the Fed is pushing to eliminate all reserve requirements. If banks can lend without having any reserves, then agreeing to extend credit obviously comes before having the reserves...
We Don’t Need the Giant Banks To Do It
If private banks can create credit out of thin air – without actually having excess reserves – then the government could do so as well. In other words, if banks don’t need to have extra money lying around before they can make loans, then states and local governments don’t either...
Moreover, as the Congressional Research Service confirms, the government has been loaning vast sums to the biggest banks at practically no interest, and then borrowing the money back from the banks at much higher interest.
Why do we need to spend huge sums of money to have the banks loans our own money back to us?
Indeed, a new report from Demos – a non-partisan public policy organization – in conjunction with the Center for State Innovation, issued a report in April looking at the potential for “partnership banks” across the country, including 11 states already considering such legislation...
Partnership Banks can raise revenue for states without raising taxes, and increase loans to small businesses precisely when Wall Street banks have cut back on lending and raised public borrowing costs. A Partnership Bank would act as a “banker’s bank” to in-state community banks and provide the state government with both banking services at fair terms and an annual multi-million dollar dividend.
If modeled on the successful Bank of North Dakota, Partnership Banks in other states would:
* Create new jobs and spur economic growth. Partnership Banks are participation lenders, meaning they partner—never compete—with local banks to drive lending through local banks to small businesses. If Washington State had a fully-operational Partnership Bank capitalized at $100 million during the Great Recession, it would have supported $2.6 billion in new lending and helped to create 8,212 new small business jobs. A proposed Oregon bank could help community banks expand lending by $1.3 billion and help small business create 5,391 new Oregon jobs in its first three to five years. All of this would be accom- plished at a profit, which Partnership Banks should share with the state.
* Generate new revenues for states directly, through annual bank dividend payments, and indirectly by creating jobs and spurring local economic growth…
* Lower debt costs for local governments. Like the Bank of North Dakota, Partnership Banks can get access to low-cost funds from the regional Federal Home Loan Banks. The banks can pass savings on to local governments when they buy debt for infrastructure investments. The banks can also provide Letters of Credit for tax-exempt bonds at lower interest rates.
* Strengthen local banks even out credit cycles, and preserve real competition in local credit markets. There have been no bank failures in North Dakota during the financial crisis. BND’s charter is clear that its goal is to “be helpful to and to assist in the development of [North Dakota banks]… and not, in any manner, to destroy or to be harmful to existing financial institutions.” By purchasing local bank stock, partnering with them on large loans and providing other sup- port, Partnership Banks would strengthen small banks in an era when federal policy encourages bank consolidation.
* Build up small businesses. Surveys by the Main Street Alliance in Oregon and Washington show at least 75 percent support among small business owners. In markets increasingly dominated by large corporations and the banks that fund them, Partnership Banks would increase lending capabilities at the smaller banks that provide the majority of small business loans in America.
These various proposals would “move general revenue deposits out of the Wall Street banks that dominate the banking business today, and use them to capitalize a new local public structure with a mission to grow the local economy.”
Let’s Give the Giant Banks Some Competition
Some people are understandably skeptical of state banks. Specifically, they don’t trust state politicians to exercise fiscal constraint, or they think that states with their own public banks would spend money on frivolous projects.
I understand and respect both concerns.
But as financial writer Yves Smith notes, state banks – even if imperfect – would at least give some competition to the too big to fails which have driven our economy into a ditch, and which are state-supported anyway:
The most important potential use of this type of bank in our era could again be to level the playing field with powerful interests, in this case, the TBTF banks...
Before readers argue that this is tantamount to socialism, that would be better than what we have now. As we noted in an earlier post “Why Do We Keep Indulging the Fiction That Banks Are Private Enterprises?“:
Big finance has an unlimited credit line with governments around the globe. “Most subsidized industry in the world” is inadequate to describe this relationship. Banks are now in the permanent role of looters, as described in the classic Akerlof/Romer paper. They run highly leveraged operations, extract compensation based on questionable accounting and officially-subsidized risk-taking, and dump their losses on the public at large.
The usual narrative, “privatized gains and socialized losses” is insufficient to describe the dynamic at work. The banking industry falsely depicts markets, and by extension, its incumbents as a bastion of capitalism. The blatant manipulations of the equity markets shows that financial activity, which used to be recognized as valuable because it supported commercial activity, is whenever possible being subverted to industry rent-seeking. And worse, these activities are state supported.
Consider Fannie and Freddie pre-conservatorship. They were at least branded more accurately as “government sponsored enterprises” and “agencies” making their public/private role explicit. Yet they were over time allowed more and more latitude to act as private enterprises, particularly as far as employee pay was concerned. We know how that movie ended…
So, the reality is that banks can no longer meaningfully be called private enterprises, yet no one in the media will challenge this fiction. And pointing out in a more direct manner that banks should not be considered capitalist ventures would also penetrate the dubious defenses of their need for lavish pay. Why should government-backed businesses run hedge funds or engage in high risk trading, or for that matter, be permitted to offer lucrative products that are valuable because they allow customers to engage in questionable activities, like regulatory arbitrage? The sort of markets that serve a public purpose should be reasonably efficient and transparent, which implies low margins for intermediaries.
Right now, we have much of the banking sector operating so as to privatize gains and socialize losses. We might as well socialize the gains, as North Dakota does...
The Giant Banks Are ALREADY State-Sponsored … So Why Not Create Public Banks to at Least Share the Gains, Help Out Main Street, and Grow Our Local Economies?
June 13, 2011
http://www.washingtonsblog.com/2011/06/the-giant-banks-are-already-state-sponsored-so-why-not-create-public-banks-to-at-least-share-the-gains-help-out-main-street-and-grow-our-local-economies.html
The model of money creation that Obama’s economic advisers have sold him was shown to be empirically false over three decades ago.
The first economist to establish this was the American Post Keynesian economist Basil Moore, but similar results were found by two of the staunchest neoclassical economists, Nobel Prize winners Kydland and Prescott in a 1990 paper Real Facts and a Monetary Myth...
Australian economist Steve Keen notes that in a debt based society, expansion of credit comes first and reserves come later.
This angle of the banking system has actually been discussed for many years by leading experts:
“[Banks] do not really pay out loans from the money they receive as deposits. If they did this, no additional money would be created. What they do when they make loans is to accept promissory notes in exchange for credits to the borrowers’ transaction accounts.”
- 1960s Chicago Federal Reserve Bank booklet entitled “Modern Money Mechanics”
“The process by which banks create money is so simple that the mind is repelled.”
- Economist John Kenneth Galbraith
“[W]hen a bank makes a loan, it simply adds to the borrower’s deposit account in the bank by the amount of the loan. The money is not taken from anyone else’s deposit; it was not previously paid in to the bank by anyone. It’s new money, created by the bank for the use of the borrower.“
- Robert B. Anderson, Secretary of the Treasury under Eisenhower, in an interview reported in the August 31, 1959 issue of U.S. News and World Report
“Do private banks issue money today? Yes. Although banks no longer have the right to issue bank notes, they can create money in the form of bank deposits when they lend money to businesses, or buy securities. . . . The important thing to remember is that when banks lend money they don’t necessarily take it from anyone else to lend. Thus they ‘create’ it.”
-Congressman Wright Patman
Indeed, the Fed is pushing to eliminate all reserve requirements. If banks can lend without having any reserves, then agreeing to extend credit obviously comes before having the reserves...
We Don’t Need the Giant Banks To Do It
If private banks can create credit out of thin air – without actually having excess reserves – then the government could do so as well. In other words, if banks don’t need to have extra money lying around before they can make loans, then states and local governments don’t either...
Moreover, as the Congressional Research Service confirms, the government has been loaning vast sums to the biggest banks at practically no interest, and then borrowing the money back from the banks at much higher interest.
Why do we need to spend huge sums of money to have the banks loans our own money back to us?
Indeed, a new report from Demos – a non-partisan public policy organization – in conjunction with the Center for State Innovation, issued a report in April looking at the potential for “partnership banks” across the country, including 11 states already considering such legislation...
Partnership Banks can raise revenue for states without raising taxes, and increase loans to small businesses precisely when Wall Street banks have cut back on lending and raised public borrowing costs. A Partnership Bank would act as a “banker’s bank” to in-state community banks and provide the state government with both banking services at fair terms and an annual multi-million dollar dividend.
If modeled on the successful Bank of North Dakota, Partnership Banks in other states would:
* Create new jobs and spur economic growth. Partnership Banks are participation lenders, meaning they partner—never compete—with local banks to drive lending through local banks to small businesses. If Washington State had a fully-operational Partnership Bank capitalized at $100 million during the Great Recession, it would have supported $2.6 billion in new lending and helped to create 8,212 new small business jobs. A proposed Oregon bank could help community banks expand lending by $1.3 billion and help small business create 5,391 new Oregon jobs in its first three to five years. All of this would be accom- plished at a profit, which Partnership Banks should share with the state.
* Generate new revenues for states directly, through annual bank dividend payments, and indirectly by creating jobs and spurring local economic growth…
* Lower debt costs for local governments. Like the Bank of North Dakota, Partnership Banks can get access to low-cost funds from the regional Federal Home Loan Banks. The banks can pass savings on to local governments when they buy debt for infrastructure investments. The banks can also provide Letters of Credit for tax-exempt bonds at lower interest rates.
* Strengthen local banks even out credit cycles, and preserve real competition in local credit markets. There have been no bank failures in North Dakota during the financial crisis. BND’s charter is clear that its goal is to “be helpful to and to assist in the development of [North Dakota banks]… and not, in any manner, to destroy or to be harmful to existing financial institutions.” By purchasing local bank stock, partnering with them on large loans and providing other sup- port, Partnership Banks would strengthen small banks in an era when federal policy encourages bank consolidation.
* Build up small businesses. Surveys by the Main Street Alliance in Oregon and Washington show at least 75 percent support among small business owners. In markets increasingly dominated by large corporations and the banks that fund them, Partnership Banks would increase lending capabilities at the smaller banks that provide the majority of small business loans in America.
These various proposals would “move general revenue deposits out of the Wall Street banks that dominate the banking business today, and use them to capitalize a new local public structure with a mission to grow the local economy.”
Let’s Give the Giant Banks Some Competition
Some people are understandably skeptical of state banks. Specifically, they don’t trust state politicians to exercise fiscal constraint, or they think that states with their own public banks would spend money on frivolous projects.
I understand and respect both concerns.
But as financial writer Yves Smith notes, state banks – even if imperfect – would at least give some competition to the too big to fails which have driven our economy into a ditch, and which are state-supported anyway:
The most important potential use of this type of bank in our era could again be to level the playing field with powerful interests, in this case, the TBTF banks...
Before readers argue that this is tantamount to socialism, that would be better than what we have now. As we noted in an earlier post “Why Do We Keep Indulging the Fiction That Banks Are Private Enterprises?“:
Big finance has an unlimited credit line with governments around the globe. “Most subsidized industry in the world” is inadequate to describe this relationship. Banks are now in the permanent role of looters, as described in the classic Akerlof/Romer paper. They run highly leveraged operations, extract compensation based on questionable accounting and officially-subsidized risk-taking, and dump their losses on the public at large.
The usual narrative, “privatized gains and socialized losses” is insufficient to describe the dynamic at work. The banking industry falsely depicts markets, and by extension, its incumbents as a bastion of capitalism. The blatant manipulations of the equity markets shows that financial activity, which used to be recognized as valuable because it supported commercial activity, is whenever possible being subverted to industry rent-seeking. And worse, these activities are state supported.
Consider Fannie and Freddie pre-conservatorship. They were at least branded more accurately as “government sponsored enterprises” and “agencies” making their public/private role explicit. Yet they were over time allowed more and more latitude to act as private enterprises, particularly as far as employee pay was concerned. We know how that movie ended…
So, the reality is that banks can no longer meaningfully be called private enterprises, yet no one in the media will challenge this fiction. And pointing out in a more direct manner that banks should not be considered capitalist ventures would also penetrate the dubious defenses of their need for lavish pay. Why should government-backed businesses run hedge funds or engage in high risk trading, or for that matter, be permitted to offer lucrative products that are valuable because they allow customers to engage in questionable activities, like regulatory arbitrage? The sort of markets that serve a public purpose should be reasonably efficient and transparent, which implies low margins for intermediaries.
Right now, we have much of the banking sector operating so as to privatize gains and socialize losses. We might as well socialize the gains, as North Dakota does...
The Giant Banks Are ALREADY State-Sponsored … So Why Not Create Public Banks to at Least Share the Gains, Help Out Main Street, and Grow Our Local Economies?
June 13, 2011
http://www.washingtonsblog.com/2011/06/the-giant-banks-are-already-state-sponsored-so-why-not-create-public-banks-to-at-least-share-the-gains-help-out-main-street-and-grow-our-local-economies.html
Thursday, September 29, 2011
Bad policy decisions could push the US into a 'lost decade'
Bad policy decisions could push the US into a 'lost decade' and put the eurozone into recession, warns IMF
Philip Aldrick, Economics Editor
20 Sep 2011
http://www.telegraph.co.uk/finance/financialcrisis/8777693/Bad-policy-decisions-could-push-the-US-into-a-lost-decade-and-put-the-eurozone-into-recession-warns-IMF.html
Cutting its global forecasts sharply, the world's economic watchdog said the global economy had entered a "dangerous new phase" and urged policymakers to tread a careful line between aggressive deficit reduction and growth. Central banks should stand ready to restart the printing presses to aid the recovery, it added in its twice-yearly World Economic Outlook.
"The recovery has weakened considerably. Strong policies are needed to improve the outlook and reduce the risks," Olivier Blanchard, the IMF's chief economist, said. "Markets have clearly become more sceptical about the ability of many countries to stabilise their public debt. Fear of the unknown is high."
Europe's leaders came under scathing criticism over the escalating debt crisis. "Europe must get its act together," Mr Blanchard said, adding that there was "widespread perception policymakers are one step behind the action". Urging a speedy implementation of the July 21 agreement to bolster the single currency area's €440bn bail-out fund, he said: "The eurozone is a major source of worry. This is a call to arms."
The warning came as Portugal's prime minister Pedro Passos Coelho said his country may need fresh aid if Greek defaults.
"In the case of a default of Greece, this aid could be necessary and it is important that our partners are convinced that it is worth helping Portugal, and in this case, Ireland, too," he said.
Weaker than expected growth in the US, the persistence of Europe's "sovereign debt and banking sector problems", high oil prices and the Japanese tsunami conspired to dramatically worsen the outlook since June. Global growth for this year has been revised down from 4.5pc to 4pc in the past three months – led by a one percentage point downward revision in US growth for this year to 1.5pc.
The UK was downgraded sharply, from June's 1.5pc prediction to just 1.1pc for this year and from 2.3pc to 1.6pc for 2012. Canada and much of Europe saw even bigger downgrades.
However, the forecasts were based on the assumption that President Barack Obama's $447bn jobs plan is approved and the eurozone crisis is resolved with no more than the small voluntary default on Greek debt already agreed. A worse outcome is a "distinct possibility", the IMF warned.
Under the IMF's "downside scenario" – a "shock" to European banks' capital, higher bad debts in the US and Asia, and slower US growth – "the US and the euro area would fall back into recession, with output in 2012 more than 3pc below projections".
Such a devastating hit would drag the UK back into recession, as the US and the Euro area are Britain's major trading partners. "It would be very difficult to see why the UK should be exempt from that as we don't have any ammunition to withstand it," Jürgen Michels, European economist at Citi, said.
Departing from its previous deficit-cutting mantra, the IMF stressed that countries must be careful not to choke off the recovery by cutting too hard too fast. Even the UK should consider back-ending George Osborne's £110bn austerity plan, by delaying spending cuts, if growth turns out to be "substantially" less than the 1.1pc expected this year, the IMF said.
"Countries with more fiscal space could choose a more back-loaded profile should the macroeconomic environment deteriorate substantially," it said. "In the systemically-important advanced economies, activity and confidence are still fragile. If fiscal consolidation were suddenly stepped up further at the expense of the disposable income of people with a high marginal propensity to consume, these economies could be thrown back into stagnation."
In the US, the IMF warned, if income tax relief and unemployment benefit are not extended and if Capitol Hill cannot agree a longer-term strategy for dealing with the $14.3 trillion public debt, "the result could be a lost decade for growth".
In Europe, policymakers must deal with the mushrooming banking crisis by "injecting new capital and restructuring weak but viable banks while closing others". If banks cannot raise funds privately, politicians "must make the case for injecting public funds". Allowing banks time to shrink their loan books would only further damage the recovery by prolonging the credit crunch, Mr Blanchard warned.
To keep the global ship afloat, the IMF called on central banks – particularly the Federal Reserve in the US – to restart money printing and keep interest rates low for longer. "Unconventional policies should continue until there is a durable reduction in financial stress," it said.
Philip Aldrick, Economics Editor
20 Sep 2011
http://www.telegraph.co.uk/finance/financialcrisis/8777693/Bad-policy-decisions-could-push-the-US-into-a-lost-decade-and-put-the-eurozone-into-recession-warns-IMF.html
Cutting its global forecasts sharply, the world's economic watchdog said the global economy had entered a "dangerous new phase" and urged policymakers to tread a careful line between aggressive deficit reduction and growth. Central banks should stand ready to restart the printing presses to aid the recovery, it added in its twice-yearly World Economic Outlook.
"The recovery has weakened considerably. Strong policies are needed to improve the outlook and reduce the risks," Olivier Blanchard, the IMF's chief economist, said. "Markets have clearly become more sceptical about the ability of many countries to stabilise their public debt. Fear of the unknown is high."
Europe's leaders came under scathing criticism over the escalating debt crisis. "Europe must get its act together," Mr Blanchard said, adding that there was "widespread perception policymakers are one step behind the action". Urging a speedy implementation of the July 21 agreement to bolster the single currency area's €440bn bail-out fund, he said: "The eurozone is a major source of worry. This is a call to arms."
The warning came as Portugal's prime minister Pedro Passos Coelho said his country may need fresh aid if Greek defaults.
"In the case of a default of Greece, this aid could be necessary and it is important that our partners are convinced that it is worth helping Portugal, and in this case, Ireland, too," he said.
Weaker than expected growth in the US, the persistence of Europe's "sovereign debt and banking sector problems", high oil prices and the Japanese tsunami conspired to dramatically worsen the outlook since June. Global growth for this year has been revised down from 4.5pc to 4pc in the past three months – led by a one percentage point downward revision in US growth for this year to 1.5pc.
The UK was downgraded sharply, from June's 1.5pc prediction to just 1.1pc for this year and from 2.3pc to 1.6pc for 2012. Canada and much of Europe saw even bigger downgrades.
However, the forecasts were based on the assumption that President Barack Obama's $447bn jobs plan is approved and the eurozone crisis is resolved with no more than the small voluntary default on Greek debt already agreed. A worse outcome is a "distinct possibility", the IMF warned.
Under the IMF's "downside scenario" – a "shock" to European banks' capital, higher bad debts in the US and Asia, and slower US growth – "the US and the euro area would fall back into recession, with output in 2012 more than 3pc below projections".
Such a devastating hit would drag the UK back into recession, as the US and the Euro area are Britain's major trading partners. "It would be very difficult to see why the UK should be exempt from that as we don't have any ammunition to withstand it," Jürgen Michels, European economist at Citi, said.
Departing from its previous deficit-cutting mantra, the IMF stressed that countries must be careful not to choke off the recovery by cutting too hard too fast. Even the UK should consider back-ending George Osborne's £110bn austerity plan, by delaying spending cuts, if growth turns out to be "substantially" less than the 1.1pc expected this year, the IMF said.
"Countries with more fiscal space could choose a more back-loaded profile should the macroeconomic environment deteriorate substantially," it said. "In the systemically-important advanced economies, activity and confidence are still fragile. If fiscal consolidation were suddenly stepped up further at the expense of the disposable income of people with a high marginal propensity to consume, these economies could be thrown back into stagnation."
In the US, the IMF warned, if income tax relief and unemployment benefit are not extended and if Capitol Hill cannot agree a longer-term strategy for dealing with the $14.3 trillion public debt, "the result could be a lost decade for growth".
In Europe, policymakers must deal with the mushrooming banking crisis by "injecting new capital and restructuring weak but viable banks while closing others". If banks cannot raise funds privately, politicians "must make the case for injecting public funds". Allowing banks time to shrink their loan books would only further damage the recovery by prolonging the credit crunch, Mr Blanchard warned.
To keep the global ship afloat, the IMF called on central banks – particularly the Federal Reserve in the US – to restart money printing and keep interest rates low for longer. "Unconventional policies should continue until there is a durable reduction in financial stress," it said.
Wednesday, August 31, 2011
$1.2 Trillion to Banks, You 0
Robert Oak
Sun, 08/21/2011
http://www.economicpopulist.org/content/12-trillion-banks-you-0
Bloomberg News has researched a bombshell story, the Federal Reserve gave $1.2 trillion in secret loans to banks during the financial crisis, from August 2007 until April 2010. This is in addition to the TARP bail outs which was publicly known.
The $1.2 trillion peak on Dec. 5, 2008 -- the combined outstanding balance under the seven programs tallied by Bloomberg -- was almost three times the size of the U.S. federal budget deficit that year and more than the total earnings of all federally insured banks in the U.S. for the decade through 2010, according to data compiled by Bloomberg.
The top three banks at peaking borrowing are: Morgan Stanley, $107.3 billion, Citigroup took $99.5 billion, Bank of America $91.4 billion, or a total of $298.2 billion. Gets worse, foreign banks amounted to half the loans.
Half of the Fed’s top 30 borrowers, measured by peak balances, were European firms. They included Edinburgh-based Royal Bank of Scotland Plc, which took $84.5 billion, the most of any non-U.S. lender, and Zurich-based UBS AG (UBSN), which got $77.2 billion. Germany’s Hypo Real Estate Holding AG borrowed $28.7 billion, an average of $21 million for each of its 1,366 employees.
Bloomberg had filed a Freedom of Information act in 2008 to find out the details on these loans. They finally won to be presented with 21,000 transactions and massive amounts of data to crunch.
Think about it, while people are foreclosed on with no help in sight and none reall to this day, we had another secret bailout happening to the tune of $1.2 trillion, with half of it bailing out banks not even incorporated in this nation.
Sun, 08/21/2011
http://www.economicpopulist.org/content/12-trillion-banks-you-0
Bloomberg News has researched a bombshell story, the Federal Reserve gave $1.2 trillion in secret loans to banks during the financial crisis, from August 2007 until April 2010. This is in addition to the TARP bail outs which was publicly known.
The $1.2 trillion peak on Dec. 5, 2008 -- the combined outstanding balance under the seven programs tallied by Bloomberg -- was almost three times the size of the U.S. federal budget deficit that year and more than the total earnings of all federally insured banks in the U.S. for the decade through 2010, according to data compiled by Bloomberg.
The top three banks at peaking borrowing are: Morgan Stanley, $107.3 billion, Citigroup took $99.5 billion, Bank of America $91.4 billion, or a total of $298.2 billion. Gets worse, foreign banks amounted to half the loans.
Half of the Fed’s top 30 borrowers, measured by peak balances, were European firms. They included Edinburgh-based Royal Bank of Scotland Plc, which took $84.5 billion, the most of any non-U.S. lender, and Zurich-based UBS AG (UBSN), which got $77.2 billion. Germany’s Hypo Real Estate Holding AG borrowed $28.7 billion, an average of $21 million for each of its 1,366 employees.
Bloomberg had filed a Freedom of Information act in 2008 to find out the details on these loans. They finally won to be presented with 21,000 transactions and massive amounts of data to crunch.
Think about it, while people are foreclosed on with no help in sight and none reall to this day, we had another secret bailout happening to the tune of $1.2 trillion, with half of it bailing out banks not even incorporated in this nation.
Thursday, August 18, 2011
The Market Has Spoken: Austerity Is Bad for Business
http://globalresearch.ca/index.php?context=va&aid=25916
Ellen Brown
Global Research, August 6, 2011
Web of Debt
It used to be that when the Fed Chairman spoke, the market listened; but the Chairman has lost his mystique. Now when the market speaks, politicians listen. Hopefully they heard what the market just said: government cutbacks are bad for business. The government needs to spend more, not less. Fortunately, there are viable ways to do this while still balancing the budget.
On Thursday, August 4, the Dow Jones Industrial Average fell 512 points, the biggest stock market drop since the collapse of September 2008.
Why? Weren't the markets supposed to rebound after the debt ceiling agreement was reached on Monday, avoiding U.S. default and a downgrade of U.S. debt?
So we were told, but the market apparently understands what politicians don't: the debt deal is a death deal for the economy.
Reducing government spending by $2.2 trillion over a decade, as Congress just agreed to do, will kill any hopes of economic recovery. We're looking at a double-dip recession.
The figure is actually more than $2.2 trillion. As Jack Rasmus pointed out on Truthout on August 4th:
Economists estimate the "multiplier" from government spending at about 1.5. That means for every $1 cut in government spending, about $1.5 dollars are taken out of the economy. The first year of cuts are therefore $375 billion to $400 billion in terms of their economic effect. Ironically, that's about equal to the spending increase from Obama's 2009 initial stimulus package. In other words, we are about to extract from the economy - now showing multiple signs of weakening badly - the original spending stimulus of 2009!
As others have pointed out, that magnitude of spending contraction will result in 1.5 million to 2 million more jobs lost. That's also about all the jobs created since the trough of the recession in June 2009. In other words, the job market will be thrown back two years as well.
We're not moving forward. We're moving backward. The hand-wringing is all about the "debt crisis," but the national debt is not what has stalled the economy, and the crisis was not created by Social Security or Medicare, which are being set up to take the fall. It was created by Wall Street, which has squeezed trillions in bailout money from the government and the taxpayers; and by the military, which has squeezed trillions more for an amorphous and unending "War on Terror." But the hits are slated to fall on the so-called "entitlements" - a social safety net that we the people are actually entitled to, because we paid for them with taxes.
The Problem Is Not Debt But a Shrinking Money Supply
The markets are not reacting to a "debt crisis." They do not look at charts ten years out. They look at present indicators of jobs and sales, which have turned persistently negative. Jobs and sales are both dependent on "demand," which means getting money into the pockets of consumers; and the money supply today has shrunk.
We don't see this shrinkage because it is primarily in the "shadow banking system," the thing that collapsed in 2008. The shadow banking system used to be reflected in M3, but the Fed no longer reports it. In July 2010, however, the New York Fed posted on its website a staff report titled "Shadow Banking." It said that the shadow banking system had shrunk by $5 trillion since its peak in March 2008, when it was valued at about $20 trillion - actually larger than the traditional banking system. In July 2010, the shadow system was down to about $15 trillion, compared to $13 trillion for the traditional banking system.
Only about $2 trillion of this shrinkage has been replaced with the Fed's quantitative easing programs, leaving a $3 trillion hole to be filled; and only the government is in a position to fill it. We have been sold the idea that there is a "debt crisis" when there is really a liquidity crisis. Paying down the federal debt when money is already scarce just makes matters worse. Historically, when the deficit has been reduced, the money supply has been reduced along with it, throwing the economy into recession.
Most of our money now comes into the world as debt, which is created on the books of banks and lent into the economy. If there were no debt, there would be no money to run the economy; and today, private debt has collapsed. Encouraged by Fed policy, banks have tightened up lending and are sitting on their money, shrinking the circulating money supply and the economy.
Creative Ways to Balance the Budget
The federal debt has not been paid off since the days of Andrew Jackson, and it does not need to be paid off. It is just rolled over from year to year. The only real danger posed by a growing federal debt is the interest burden, but that has not been a problem yet. The Congressional Budget Office reported in December 2010:
[A] sharp drop in interest rates has held down the amount of interest that the government pays on [the national] debt. In 2010, net interest outlays totaled $197 billion, or 1.4 percent of GDP--a smaller share of GDP than they accounted for during most of the past decade.
The interest burden will increase if the federal debt continues to grow, but that problem can be solved by mandating the Federal Reserve to buy the government's debt. The Fed rebates its profits to the government after deducting its costs, making the money nearly interest-free. The Fed is already doing this with its quantitative easing programs and now holds nearly $1.7 trillion in federal securities.
If Congress must maintain its debt ceiling, there are other ways to balance the budget and avoid a growing debt. Ron Paul has brought a creative bill that would eliminate the $1.7 trillion deficit simply by having the Fed tear up its federal securities. No creditors would be harmed, since the money was generated with a computer keystroke in the first place. The government would just be canceling a debt to itself and saving the interest.
The Trillion Dollar Coin Alternative
The most direct solution to the debt problem is for the government to fund its budget with government-issued money. One alternative would be for the Treasury to issue U.S. Notes, as was done in the Civil War by President Lincoln.
Another alternative was suggested in my book Web of Debt in 2007: the government could simply mint some trillion dollar coins. Congress has the Constitutional power to "coin money," and no limit is put on the value of the coins it creates, as was pointed out by a chairman of the House Coinage Subcommittee in the 1980s.
This idea is now getting some attention from economists. According to a July 29th article in the Johnsville News titled "Coin Trick: The Trillion Dollar Coin":
The idea just started to get serious traction the last few days as the debt stalemate has grown more intense and partisan. Yale constitutional law professor Jack Balkin floated it as an option in a CNN op-ed yesterday (July 28th).
Today the idea has gone mainstream. It is covered by NY Magazine, CNBC, and The Economist. Even Nobel economist Paul Krugman of the NY Times has weighed in. Annie Lowrey of Slate discusses it as one of several gimmicks the government could use to resolve the debt-ceiling debacle. Krugman added:
These things [like coin seigniorage] sound ridiculous - but so is the behavior of Congressional Republicans. So why not fight back using legal tricks?
The debt ceiling itself was a legal trick, a form of extortion based on a century-old statute that conflicts with the Constitution. However, said the Johnsville News article, "coin seigniorage is not a scam. It is legal . . . . This plan looks like it might be Obama's ace in the hole . . . ."
The article cites Warren Mosler, founder of MMT (Modern Monetary Theory), who reviewed the idea in a January 20th blog post and concluded it would work operationally.
Scott Fullwiler, associate professor of economics at Wartburg College, also did a comprehensive analysis and concluded that the trillion dollar coin alternative was unlikely to result in inflation. Comparing it to Ron Paul's plan, he wrote:
This option is much like Ron Paul's proposal-actually identical in terms of the effect on the debt ceiling and the Treasury-except that his proposal would destroy all of the Fed's capital (and then some), which is a potential problem politically . . . though not operationally, and which the Fed is therefore very unlikely to agree to.
On the inflation question, just because the Treasury has money in its account doesn't mean it can spend the funds. It needs the usual Congressional approval. To keep a lid on spending, Congress just needs to be instructed in basic economics. They can spend on goods and services up to full employment without creating price inflation (since supply and demand will rise together). After that, they need to tax -- not to fund the budget, but to pull excess money back in and avoid driving up prices.
Spending More While Borrowing Less
In an economic downturn, the government needs to spend more, not less, as history shows. This can be done while still balancing the budget, simply by taking back the government's Constitutional power to issue money.
The budget crisis is an artificial one, and the current "solution" will only guarantee a deeper recession and more widespread suffering. Rather than obsessing over deficits and debt, the government needs to turn its focus to jobs, sales and quality of life.
------------------------
Ellen Brown is president of the Public Banking Institute and the author of eleven books. She developed her research skills as an attorney practicing civil litigation in Los Angeles. In Web of Debt, she turns those skills to an analysis of the Federal Reserve and "the money trust." Her websites are http://WebofDebt.com and http://PublicBankingInstitute.org.
Ellen Brown is a frequent contributor to Global Research.
Please support Global Research
Global Research relies on the financial support of its readers.
Your endorsement is greatly appreciated
Subscribe to the Global Research E-Newsletter Spread the word! Forward to a friend!
Disclaimer: The views expressed in this article are the sole responsibility of the author and do not necessarily reflect those of the Centre for Research on Globalization. The contents of this article are of sole responsibility of the author(s). The Centre for Research on Globalization will not be responsible or liable for any inaccurate or incorrect statements contained in this article.
The CRG grants permission to cross-post original Global Research articles on community internet sites as long as the text & title are not modified. The source and the author's copyright must be displayed. For publication of Global Research articles in print or other forms including commercial internet sites, contact: publications@globalresearch.ca
http://www.globalresearch.ca/ contains copyrighted material the use of which has not always been specifically authorized by the copyright owner. We are making such material available to our readers under the provisions of "fair use" in an effort to advance a better understanding of political, economic and social issues. The material on this site is distributed without profit to those who have expressed a prior interest in receiving it for research and educational purposes. If you wish to use copyrighted material for purposes other than "fair use" you must request permission from the copyright owner.
For media inquiries: media@globalresearch.ca
Copyright © Ellen Brown, Web of Debt, 2011
Ellen Brown
Global Research, August 6, 2011
Web of Debt
It used to be that when the Fed Chairman spoke, the market listened; but the Chairman has lost his mystique. Now when the market speaks, politicians listen. Hopefully they heard what the market just said: government cutbacks are bad for business. The government needs to spend more, not less. Fortunately, there are viable ways to do this while still balancing the budget.
On Thursday, August 4, the Dow Jones Industrial Average fell 512 points, the biggest stock market drop since the collapse of September 2008.
Why? Weren't the markets supposed to rebound after the debt ceiling agreement was reached on Monday, avoiding U.S. default and a downgrade of U.S. debt?
So we were told, but the market apparently understands what politicians don't: the debt deal is a death deal for the economy.
Reducing government spending by $2.2 trillion over a decade, as Congress just agreed to do, will kill any hopes of economic recovery. We're looking at a double-dip recession.
The figure is actually more than $2.2 trillion. As Jack Rasmus pointed out on Truthout on August 4th:
Economists estimate the "multiplier" from government spending at about 1.5. That means for every $1 cut in government spending, about $1.5 dollars are taken out of the economy. The first year of cuts are therefore $375 billion to $400 billion in terms of their economic effect. Ironically, that's about equal to the spending increase from Obama's 2009 initial stimulus package. In other words, we are about to extract from the economy - now showing multiple signs of weakening badly - the original spending stimulus of 2009!
As others have pointed out, that magnitude of spending contraction will result in 1.5 million to 2 million more jobs lost. That's also about all the jobs created since the trough of the recession in June 2009. In other words, the job market will be thrown back two years as well.
We're not moving forward. We're moving backward. The hand-wringing is all about the "debt crisis," but the national debt is not what has stalled the economy, and the crisis was not created by Social Security or Medicare, which are being set up to take the fall. It was created by Wall Street, which has squeezed trillions in bailout money from the government and the taxpayers; and by the military, which has squeezed trillions more for an amorphous and unending "War on Terror." But the hits are slated to fall on the so-called "entitlements" - a social safety net that we the people are actually entitled to, because we paid for them with taxes.
The Problem Is Not Debt But a Shrinking Money Supply
The markets are not reacting to a "debt crisis." They do not look at charts ten years out. They look at present indicators of jobs and sales, which have turned persistently negative. Jobs and sales are both dependent on "demand," which means getting money into the pockets of consumers; and the money supply today has shrunk.
We don't see this shrinkage because it is primarily in the "shadow banking system," the thing that collapsed in 2008. The shadow banking system used to be reflected in M3, but the Fed no longer reports it. In July 2010, however, the New York Fed posted on its website a staff report titled "Shadow Banking." It said that the shadow banking system had shrunk by $5 trillion since its peak in March 2008, when it was valued at about $20 trillion - actually larger than the traditional banking system. In July 2010, the shadow system was down to about $15 trillion, compared to $13 trillion for the traditional banking system.
Only about $2 trillion of this shrinkage has been replaced with the Fed's quantitative easing programs, leaving a $3 trillion hole to be filled; and only the government is in a position to fill it. We have been sold the idea that there is a "debt crisis" when there is really a liquidity crisis. Paying down the federal debt when money is already scarce just makes matters worse. Historically, when the deficit has been reduced, the money supply has been reduced along with it, throwing the economy into recession.
Most of our money now comes into the world as debt, which is created on the books of banks and lent into the economy. If there were no debt, there would be no money to run the economy; and today, private debt has collapsed. Encouraged by Fed policy, banks have tightened up lending and are sitting on their money, shrinking the circulating money supply and the economy.
Creative Ways to Balance the Budget
The federal debt has not been paid off since the days of Andrew Jackson, and it does not need to be paid off. It is just rolled over from year to year. The only real danger posed by a growing federal debt is the interest burden, but that has not been a problem yet. The Congressional Budget Office reported in December 2010:
[A] sharp drop in interest rates has held down the amount of interest that the government pays on [the national] debt. In 2010, net interest outlays totaled $197 billion, or 1.4 percent of GDP--a smaller share of GDP than they accounted for during most of the past decade.
The interest burden will increase if the federal debt continues to grow, but that problem can be solved by mandating the Federal Reserve to buy the government's debt. The Fed rebates its profits to the government after deducting its costs, making the money nearly interest-free. The Fed is already doing this with its quantitative easing programs and now holds nearly $1.7 trillion in federal securities.
If Congress must maintain its debt ceiling, there are other ways to balance the budget and avoid a growing debt. Ron Paul has brought a creative bill that would eliminate the $1.7 trillion deficit simply by having the Fed tear up its federal securities. No creditors would be harmed, since the money was generated with a computer keystroke in the first place. The government would just be canceling a debt to itself and saving the interest.
The Trillion Dollar Coin Alternative
The most direct solution to the debt problem is for the government to fund its budget with government-issued money. One alternative would be for the Treasury to issue U.S. Notes, as was done in the Civil War by President Lincoln.
Another alternative was suggested in my book Web of Debt in 2007: the government could simply mint some trillion dollar coins. Congress has the Constitutional power to "coin money," and no limit is put on the value of the coins it creates, as was pointed out by a chairman of the House Coinage Subcommittee in the 1980s.
This idea is now getting some attention from economists. According to a July 29th article in the Johnsville News titled "Coin Trick: The Trillion Dollar Coin":
The idea just started to get serious traction the last few days as the debt stalemate has grown more intense and partisan. Yale constitutional law professor Jack Balkin floated it as an option in a CNN op-ed yesterday (July 28th).
Today the idea has gone mainstream. It is covered by NY Magazine, CNBC, and The Economist. Even Nobel economist Paul Krugman of the NY Times has weighed in. Annie Lowrey of Slate discusses it as one of several gimmicks the government could use to resolve the debt-ceiling debacle. Krugman added:
These things [like coin seigniorage] sound ridiculous - but so is the behavior of Congressional Republicans. So why not fight back using legal tricks?
The debt ceiling itself was a legal trick, a form of extortion based on a century-old statute that conflicts with the Constitution. However, said the Johnsville News article, "coin seigniorage is not a scam. It is legal . . . . This plan looks like it might be Obama's ace in the hole . . . ."
The article cites Warren Mosler, founder of MMT (Modern Monetary Theory), who reviewed the idea in a January 20th blog post and concluded it would work operationally.
Scott Fullwiler, associate professor of economics at Wartburg College, also did a comprehensive analysis and concluded that the trillion dollar coin alternative was unlikely to result in inflation. Comparing it to Ron Paul's plan, he wrote:
This option is much like Ron Paul's proposal-actually identical in terms of the effect on the debt ceiling and the Treasury-except that his proposal would destroy all of the Fed's capital (and then some), which is a potential problem politically . . . though not operationally, and which the Fed is therefore very unlikely to agree to.
On the inflation question, just because the Treasury has money in its account doesn't mean it can spend the funds. It needs the usual Congressional approval. To keep a lid on spending, Congress just needs to be instructed in basic economics. They can spend on goods and services up to full employment without creating price inflation (since supply and demand will rise together). After that, they need to tax -- not to fund the budget, but to pull excess money back in and avoid driving up prices.
Spending More While Borrowing Less
In an economic downturn, the government needs to spend more, not less, as history shows. This can be done while still balancing the budget, simply by taking back the government's Constitutional power to issue money.
The budget crisis is an artificial one, and the current "solution" will only guarantee a deeper recession and more widespread suffering. Rather than obsessing over deficits and debt, the government needs to turn its focus to jobs, sales and quality of life.
------------------------
Ellen Brown is president of the Public Banking Institute and the author of eleven books. She developed her research skills as an attorney practicing civil litigation in Los Angeles. In Web of Debt, she turns those skills to an analysis of the Federal Reserve and "the money trust." Her websites are http://WebofDebt.com and http://PublicBankingInstitute.org.
Ellen Brown is a frequent contributor to Global Research.
Please support Global Research
Global Research relies on the financial support of its readers.
Your endorsement is greatly appreciated
Subscribe to the Global Research E-Newsletter Spread the word! Forward to a friend!
Disclaimer: The views expressed in this article are the sole responsibility of the author and do not necessarily reflect those of the Centre for Research on Globalization. The contents of this article are of sole responsibility of the author(s). The Centre for Research on Globalization will not be responsible or liable for any inaccurate or incorrect statements contained in this article.
The CRG grants permission to cross-post original Global Research articles on community internet sites as long as the text & title are not modified. The source and the author's copyright must be displayed. For publication of Global Research articles in print or other forms including commercial internet sites, contact: publications@globalresearch.ca
http://www.globalresearch.ca/ contains copyrighted material the use of which has not always been specifically authorized by the copyright owner. We are making such material available to our readers under the provisions of "fair use" in an effort to advance a better understanding of political, economic and social issues. The material on this site is distributed without profit to those who have expressed a prior interest in receiving it for research and educational purposes. If you wish to use copyrighted material for purposes other than "fair use" you must request permission from the copyright owner.
For media inquiries: media@globalresearch.ca
Copyright © Ellen Brown, Web of Debt, 2011
Subscribe to:
Posts (Atom)
