WEBVTT

NOTE There is No Accounting for the Fed

1
00:00:00.000 --> 00:00:05.840
Good afternoon and thank you, it's a pleasure to be here and have the opportunity to address

2
00:00:05.840 --> 00:00:10.760
you on the subject of the Fed, more about that in a second.

3
00:00:10.760 --> 00:00:15.080
And it is indeed an honor to be on the program that will culminate with the awarding of the

4
00:00:15.080 --> 00:00:21.780
Gary G. Schlaubalm Prize for Lifetime Defense of Liberty to my very good friend and colleague

5
00:00:21.780 --> 00:00:22.780
Walter Block.

6
00:00:22.780 --> 00:00:31.020
I have had the great fortune to have had an office right next to Walters for the past

7
00:00:31.020 --> 00:00:33.740
ten years and this is our eleventh.

8
00:00:33.740 --> 00:00:40.060
So I consider that just a wonderful thing.

9
00:00:40.060 --> 00:00:45.860
Before I get started, I have to tell you a story about something that happened to me

10
00:00:45.860 --> 00:00:47.740
just over 20 years ago.

11
00:00:47.740 --> 00:00:56.840
I went down to participate in actually two conferences in El Salvador sometime in the

12
00:00:56.840 --> 00:01:10.860
fall of I guess it was 1989 and the first program was a panel that I was on and you

13
00:01:10.860 --> 00:01:16.640
know people ask questions and that kind of stuff and afterwards I was sitting next to

14
00:01:16.640 --> 00:01:26.520
to a fellow from the Stanford Institute, Alvin Rabushka.

15
00:01:26.520 --> 00:01:32.160
He looked at the next program and he saw that I was going to be on right before him on the

16
00:01:32.160 --> 00:01:35.440
next one when we were actually giving talks.

17
00:01:35.440 --> 00:01:40.400
Rabushka turned to me and he said, and we just met that day, and he said, well, what

18
00:01:40.400 --> 00:01:42.160
are you going to say, Bill?

19
00:01:42.160 --> 00:01:46.480
And I said, well, it's pretty simple, I'm going to tell them they need to quit printing

20
00:01:46.480 --> 00:01:52.480
Money, they need to cut their taxes, they need to free up international trade, get rid

21
00:01:52.480 --> 00:01:59.880
of all barriers to international trade, they need to deregulate their economy. As I started

22
00:01:59.880 --> 00:02:05.200
to talk, his face got longer and longer and he started to turn white and he says, what

23
00:02:05.200 --> 00:02:13.040
What am I going to say?

24
00:02:13.040 --> 00:02:24.680
As I listened to Doug and Tom and Joe and David this morning, I had that same feeling.

25
00:02:24.680 --> 00:02:28.720
So I'm going to get a little bit off the topic.

26
00:02:28.720 --> 00:02:32.880
I will talk about what, not counting for the Fed, but I'm going to get a little bit off

27
00:02:32.880 --> 00:02:48.000
First of all, the National Bureau of Economic Research, the NBER, who is the official arbiter

28
00:02:48.000 --> 00:02:54.600
of the business cycle in the United States and determines when business cycles, you know,

29
00:02:54.600 --> 00:03:00.200
when we're in recovery, when we're in expansion, when we're in contraction, when we're in recession,

30
00:03:00.200 --> 00:03:10.300
and those types of things says that we entered into a recession in December of 2007 and we

31
00:03:10.300 --> 00:03:18.700
got out of that recession at the end of June in 2009. So, you know, that the recession

32
00:03:18.700 --> 00:03:25.120
lasted for about 18 months, a year and a half, and that we have been in recovery ever since

33
00:03:25.120 --> 00:03:34.400
Well, I beg to differ. I understand that the people at the NBER have degrees from Harvard

34
00:03:34.400 --> 00:03:39.720
and Yale and Princeton and all that, which in some ways makes them suspect to me because

35
00:03:39.720 --> 00:03:49.560
I happen to check. And, you know, Benny the paper hanger has his PhD from MIT. And so

36
00:03:49.560 --> 00:03:55.000
I started looking. A number of these people have their PhDs from MIT, which makes me think

37
00:03:55.000 --> 00:04:02.400
that they are, perhaps with respect when it comes to economics, idiot savants in the sense

38
00:04:02.400 --> 00:04:10.320
that they're very good at doing mathematics but really don't understand economics. In

39
00:04:10.320 --> 00:04:20.560
my opinion, we are in a depression. The main thing that the NBER looks at to determine

40
00:04:20.560 --> 00:04:28.560
Whether we are in a recession or not is two consecutive quarters of negative growth of GDP.

41
00:04:28.560 --> 00:04:32.560
Now by GDP they mean inflation adjusted GDP.

42
00:04:32.560 --> 00:04:39.560
In other words, real growth, negative real growth for two consecutive quarters.

43
00:04:39.560 --> 00:04:49.560
Unfortunately, GDP is one of these aggregate numbers which in many ways is meaningless.

44
00:04:49.560 --> 00:04:59.560
And the way it is calculated would scare you if you actually saw what the government does to calculate this.

45
00:04:59.560 --> 00:05:06.560
Equally important, someone this morning mentioned John Williams' shadow government statistics,

46
00:05:06.560 --> 00:05:16.560
where he puts out numbers that are, in my opinion, far more accurate than the official numbers put out by the government.

47
00:05:16.560 --> 00:05:21.560
The way you get to real GDP is you calculate nominal GDP.

48
00:05:21.560 --> 00:05:35.560
You try and find out the total amount of money that was spent in the economy in a given period of time on newly produced final goods and services.

49
00:05:35.560 --> 00:05:39.560
That's what GDP is. That's nominal GDP.

50
00:05:39.560 --> 00:05:43.560
How do you get from that to real GDP?

51
00:05:43.560 --> 00:05:55.560
Well, you use a deflator, a price index of some sort, and you adjust it then for inflation.

52
00:05:55.560 --> 00:06:04.560
Now, I think it was Joe earlier mentioning yes, but each of us has our own individual price index,

53
00:06:04.560 --> 00:06:09.560
the price index that is relevant to each of us, and that's true.

54
00:06:09.560 --> 00:06:23.400
But when this real GDP numbers come out, they use the standard government concepts, and in this case, they use the gross domestic product deflator, the GDP deflator.

55
00:06:23.400 --> 00:06:29.560
I want to tell you that they changed the way they calculate this deflator.

56
00:06:29.560 --> 00:06:35.840
A few years ago, they went from base weights to chain weights.

57
00:06:35.840 --> 00:06:45.040
Chain weights are a way to make the inflation rate look like it's not as severe as it is.

58
00:06:45.040 --> 00:06:51.980
They do other things to make the official inflation rate understate the actual rate

59
00:06:51.980 --> 00:06:54.320
of inflation.

60
00:06:54.320 --> 00:07:04.240
If you understate the actual rate of inflation, then you necessarily overstate the amount

61
00:07:04.240 --> 00:07:12.700
of Real Growth in the Economy. So when they tell us that the economy has been in recovery

62
00:07:12.700 --> 00:07:23.440
since the middle of 2009, I say they're out of touch with reality. More importantly, looking

63
00:07:23.440 --> 00:07:31.640
at GDP doesn't really give us a clue as to the real severity of the economy we're in

64
00:07:31.640 --> 00:07:42.120
And now, according to John Williams' shadow government statistics, we have over 20% unemployment

65
00:07:42.120 --> 00:07:53.680
right now. By any measure, 20% unemployment is a depression. Even the government, when

66
00:07:53.680 --> 00:08:01.080
it puts out its U3, which is the third measure of unemployment, the U3, that it has, that's

67
00:08:01.080 --> 00:08:05.640
That's the one that you hear on the newspapers and newspapers and on the TV.

68
00:08:05.640 --> 00:08:11.480
That's the one that this week they said, oh it was 9.1% last month in September, but in

69
00:08:11.480 --> 00:08:15.840
October it went down to 9%.

70
00:08:15.840 --> 00:08:18.120
Well that's what they say with U3.

71
00:08:18.120 --> 00:08:24.840
But if you go look at U6, where U6 takes into account not only those people who are

72
00:08:24.840 --> 00:08:33.720
Unemployed, but those who are underemployed and those who are marginally attached to the economy.

73
00:08:36.040 --> 00:08:45.000
Even the government admits that by U6, roughly one in six people in our economy is unemployed.

74
00:08:45.000 --> 00:08:56.000
That's a depression, folks. That's not a recession, and it's certainly not recovery.

75
00:08:56.000 --> 00:09:08.000
Okay? Well, how did we get here? We got here the same way Europe got where it is. We have

76
00:09:08.000 --> 00:09:22.000
We have a welfare-warfare state. The government makes war. Now, Europe's pretty much given up on the warfare part of that, but the welfare part, they've seen us and raised us.

77
00:09:22.000 --> 00:09:34.520
So, governments go out and spend money. They can't raise the taxes for it. People will

78
00:09:34.520 --> 00:09:42.400
not pay the amount of taxes that the government wants to spend. Whether it's our government,

79
00:09:42.400 --> 00:09:47.360
or the Greek government, or the British government, or the German government, it doesn't make

80
00:09:47.360 --> 00:09:55.720
make any difference. That's why all the nations of Western Europe, the European Union, and

81
00:09:55.720 --> 00:10:06.400
the United States run budget deficits, can't get enough money. Well, if you can't raise

82
00:10:06.400 --> 00:10:11.320
the money through taxes, what can you do? You can go out and try to borrow it. Now,

83
00:10:11.320 --> 00:10:17.160
by this I mean legitimate borrowing. And the problem with that is if the governments go

84
00:10:17.160 --> 00:10:37.160
And particularly in places like the Eurozone, although we had heard about, you know, sovereign debt being, because it was sovereign debt having zero risk, it turns out the people sitting on Greek bonds and Italian bonds and Portuguese bonds, et cetera, they're experiencing real risk.

85
00:10:37.160 --> 00:10:44.160
The people sitting on Greek bonds and Italian bonds and Portuguese bonds, et cetera, they're

86
00:10:45.300 --> 00:10:52.300
experiencing real risk. Well, the third way, of course, to finance the government's deficits

87
00:10:54.660 --> 00:11:01.660
is by printing money. Now, when I say printing money, I'm including the electronic version

88
00:11:01.660 --> 00:11:22.660
Governments always want control of the money stock. They always want control of the money stock. They want to be in control because politicians,

89
00:11:22.660 --> 00:11:31.340
Whether they be kings and emperors, or presidents or prime ministers, or parliamentarians, congressmen,

90
00:11:31.340 --> 00:11:41.540
whatever, always want to spend more money than they have. Who wouldn't? They're spending

91
00:11:41.540 --> 00:11:49.580
other people's money, OPM. So why wouldn't they want to spend money? Well, they run into

92
00:11:49.580 --> 00:11:54.980
to a problem, they can't raise as much taxes as they want, they can't borrow the money,

93
00:11:54.980 --> 00:12:01.980
so they have to print it. And of course, the problem, on one hand, the warfare state, but

94
00:12:02.180 --> 00:12:08.380
on the other hand, the welfare state. And the welfare state part is, they have gone out

95
00:12:08.380 --> 00:12:15.380
and told us that any problem we have should be solved and it should be solved by the government.

96
00:12:15.380 --> 00:12:45.380
and it should be solved by the government and that means we have come as a people to depend on the government more and more whether it is to pay for the education of our children, for your social security check, for Medicare, for everything we have come to depend on the government we are no longer that self-reliant there are many

97
00:12:45.380 --> 00:12:49.300
There are many self-reliant individuals in the country, but the country as a whole is

98
00:12:49.300 --> 00:12:56.300
no longer self-reliant. That's been true in Europe for quite some time. So the government

99
00:12:56.300 --> 00:13:03.300
has to get its hands on new money, okay? Now, let me bring it. Some people think the solution

100
00:13:05.700 --> 00:13:12.700
is to go to a gold standard. Well, it depends on what you mean by a gold standard. If you

101
00:13:15.380 --> 00:13:21.940
If by a gold standard you mean a government gold standard, such as the gold standards

102
00:13:21.940 --> 00:13:30.500
that existed in Europe under the Latin Monetary Union in the latter part of the 19th century

103
00:13:30.500 --> 00:13:38.140
and the early part of the 20th century, or whether you mean the gold standard as it existed

104
00:13:38.140 --> 00:13:43.220
in Britain in the United States, again in Britain a longer period of time, but certainly

105
00:13:43.220 --> 00:13:53.940
in the United States from 1880, 1879 actually on, you know, until we went off of it in 1933,

106
00:13:53.940 --> 00:13:56.700
Britain went off in 1914.

107
00:13:56.700 --> 00:14:02.100
That won't work either because as soon as you go to war, as soon as you go to war, people

108
00:14:02.100 --> 00:14:04.020
won't pay the taxes.

109
00:14:04.020 --> 00:14:07.820
Wars are extremely expensive.

110
00:14:07.820 --> 00:14:10.960
Just ships are very, very expensive.

111
00:14:10.960 --> 00:14:17.320
The cost of a modern aircraft carrier would scare you and that's without the planes and

112
00:14:17.320 --> 00:14:22.880
the planes themselves are all cost tens of billions of dollars and they have at least

113
00:14:22.880 --> 00:14:25.280
80 planes on a modern aircraft carrier.

114
00:14:25.280 --> 00:14:29.800
It's very expensive, the government can't get the taxes, okay?

115
00:14:29.800 --> 00:14:32.200
So what is the government to do?

116
00:14:32.200 --> 00:14:34.580
Got to print money.

117
00:14:34.580 --> 00:14:40.360
But if you're on a gold standard, you can't print money or at least you're limited in

118
00:14:40.360 --> 00:14:44.600
in the amount because people will take their paper money and come back in and all their

119
00:14:44.600 --> 00:14:47.600
bank deposits and say, give me gold.

120
00:14:47.600 --> 00:14:51.640
And so what happens invariably when you're on that kind of government gold standard is

121
00:14:51.640 --> 00:14:56.960
that eventually the government goes off the gold standard, okay, whether it was Britain

122
00:14:56.960 --> 00:15:03.800
in 1914 and other nations in 1914, whether it was the United States going, how would

123
00:15:03.800 --> 00:15:17.800
How would you describe it? 95%, 98% off the gold standard in 1933 and with Nixon finishing the job in 1971, you know, but you go off the gold standard.

124
00:15:17.800 --> 00:15:29.800
So that's not a protection. The only real protection is not so much a gold standard, but private money.

125
00:15:29.800 --> 00:15:36.960
people agree to use among themselves as a medium of exchange whatever they agree

126
00:15:36.960 --> 00:15:47.280
voluntarily to use. Now most of us in the Austrian economics area sort of assume

127
00:15:47.280 --> 00:15:52.800
that what would be used would be gold, that people would choose to use gold, but

128
00:15:52.800 --> 00:15:58.600
it well might be that people would use gold and silver, you know, but not by

129
00:15:58.600 --> 00:16:07.600
bi-metallic, not with a fixed ratio of exchange between them, but with the ratio varying between them.

130
00:16:07.600 --> 00:16:18.600
In point of fact, the fact that we had a bi-metallic system caused us a lot of problems.

131
00:16:18.600 --> 00:16:28.600
It started with the, what was it, the act of, I guess 1791, but Bob's looking at me, was it 1790, Bob, 91?

132
00:16:28.600 --> 00:16:37.600
Okay, where we set up our monetary standards and interestingly enough, by the way, and I'll mention this right now,

133
00:16:37.600 --> 00:16:44.600
the gold standard that we were on was unconstitutional. We were on a gold standard and it was unconstitutional.

134
00:16:44.600 --> 00:17:00.600
In 1791, we determined that we would have both gold and silver coins, the most common coin in use of any size at that time in the United States was the Spanish milled dollar.

135
00:17:00.600 --> 00:17:12.600
By weighing a whole bunch of them and taking the average, they came to the conclusion that the Spanish milled dollar had 371.25 grains of pure silver in it.

136
00:17:12.600 --> 00:17:16.600
And they said, ah, that's what a dollar is.

137
00:17:16.600 --> 00:17:20.600
And then they said, okay, and we're going to have some gold coins.

138
00:17:20.600 --> 00:17:23.600
But they weren't gold dollars.

139
00:17:23.600 --> 00:17:27.600
They were gold eagles and double eagles and half eagles.

140
00:17:27.600 --> 00:17:33.600
And they specified the weight of gold in the eagle,

141
00:17:33.600 --> 00:17:50.600
Such that it was a ratio of 15 ounces of silver to 1 ounce of gold, which got us in trouble because the world market rate at that time was about 15.5 ounces of silver to 1 ounce of gold.

142
00:17:50.600 --> 00:17:59.600
And of course Gresham's law came into play, which meant that overvalued goods drive undervalued goods of the same type out of the market.

143
00:17:59.600 --> 00:18:06.600
So the overvalued silver drove the undervalued gold out of the market, but the people in

144
00:18:06.600 --> 00:18:10.520
the United States understood, now I'll come back to this other part in a second, but the

145
00:18:10.520 --> 00:18:16.400
people in the United States understood that our monetary unit was the silver dollar.

146
00:18:16.400 --> 00:18:23.320
And so in the 1830s, when they wanted to make an adjustment, they did make an adjustment,

147
00:18:23.320 --> 00:18:27.120
but they didn't change the weight of the silver dollar, they changed the weight of the gold

148
00:18:27.120 --> 00:18:33.760
and EGLE. Why is that? Because if you read the Constitution of the United States, there

149
00:18:33.760 --> 00:18:38.960
are some clauses where money is mentioned, you know, and it says, Congress shall have

150
00:18:38.960 --> 00:18:44.720
the power to coin money and regulate the value thereof. Coin money, not print money, right?

151
00:18:44.720 --> 00:18:50.960
Didn't say anything about that. States were specifically prohibited from printing money.

152
00:18:50.960 --> 00:18:56.080
Article 1, Section 10, no state shall emit bills of credit. Bills of credit was the then

153
00:18:56.080 --> 00:18:59.240
and Current Term for Paper Money.

154
00:18:59.240 --> 00:19:04.560
So they said states can't print money, the federal government can coin money, and the

155
00:19:04.560 --> 00:19:08.640
reason the federal government couldn't print money was because they had experience with

156
00:19:08.640 --> 00:19:14.000
the continental dollars and the expression not worth a continental was very current,

157
00:19:14.000 --> 00:19:15.000
right?

158
00:19:15.000 --> 00:19:21.480
And so what happened was they didn't give the federal government the power to print

159
00:19:21.480 --> 00:19:23.240
paper money.

160
00:19:23.240 --> 00:19:31.200
And of course, the 10th Amendment says explicitly that if the Federal Government hasn't been

161
00:19:31.200 --> 00:19:38.520
given an express grant of power to do something, then it can't do it. Only the states or the

162
00:19:38.520 --> 00:19:47.360
people can exercise that power. But then you go into the Constitution and you find the

163
00:19:47.360 --> 00:19:56.760
The dollar mentioned specifically twice in there. Once in Article 1, I think it's Section

164
00:19:56.760 --> 00:20:06.920
9, where it gives Congress the power to restrict the import of slaves. It doesn't use the

165
00:20:06.920 --> 00:20:14.760
word slaves, but that's what they're talking about. After the year 1908, in other words,

166
00:20:14.760 --> 00:20:21.040
For 20 years, you can import slaves, state's good, but not after that.

167
00:20:21.040 --> 00:20:28.240
But in that same thing, it said the states, the Congress, can tax each imported slave

168
00:20:28.240 --> 00:20:31.400
no more than $10.

169
00:20:31.400 --> 00:20:38.400
And later on, in the Sixth Amendment, I think it's the Sixth Amendment, but you know, it

170
00:20:38.400 --> 00:20:46.400
It says that you have a right to a trial at common law in matters where $20 or more is

171
00:20:46.400 --> 00:20:53.880
at stake. Well now, if they thought that you were going to be able to print paper money

172
00:20:53.880 --> 00:21:01.220
and inflate the value of $20 down to nothing or $10 down to nothing, why would they have

173
00:21:01.220 --> 00:21:05.560
bothered mentioning the dollar in there? They thought they were talking about something

174
00:21:05.560 --> 00:21:16.560
The Spanish mill dollar, or the dollar then that we created which had the same silver content as the Spanish mill dollar.

175
00:21:16.560 --> 00:21:26.560
Later on, in the 19th century, as we went to use more and more gold, still gold eagles and double eagles and that kind of stuff,

176
00:21:26.560 --> 00:21:33.560
Eventually, the government, right at the turn of the century, officially put us on a gold standard.

177
00:21:33.560 --> 00:21:36.560
I think the year was 1900, exactly.

178
00:21:36.560 --> 00:21:40.560
Well, that's wrong.

179
00:21:40.560 --> 00:21:44.560
There's no warrant for that in the Constitution.

180
00:21:44.560 --> 00:21:48.560
The warrant in the Constitution is for us to have silver money.

181
00:21:48.560 --> 00:21:50.560
It's what it is.

182
00:21:50.560 --> 00:21:55.560
I mean, you can't have gold coins, but that can't be your standard.

183
00:21:55.560 --> 00:21:59.520
be a standard, the silver is a standard. Now that doesn't mean that that's the best thing

184
00:21:59.520 --> 00:22:04.880
in the world and maybe we should have amended the Constitution. But if you don't like the

185
00:22:04.880 --> 00:22:10.120
way things are turning out under the Constitution, then the concept of a living Constitution

186
00:22:10.120 --> 00:22:16.440
where a majority of judges happens to be non-on the Supreme Court now, it wasn't always that,

187
00:22:16.440 --> 00:22:21.440
where a majority of five out of nine judges can decide what the Constitution means, we

188
00:22:21.440 --> 00:22:25.440
These five people can say it means whatever they want it to say.

189
00:22:25.440 --> 00:22:29.440
So, enough about that.

190
00:22:29.440 --> 00:22:33.440
A little bit of...

191
00:22:33.440 --> 00:22:37.440
How much time do I have?

192
00:22:37.440 --> 00:22:41.440
All right.

193
00:22:41.440 --> 00:22:45.440
Well, about...

194
00:22:45.440 --> 00:22:49.440
Get carried away. Sorry about that.

195
00:22:49.440 --> 00:23:03.440
About three years ago, four years ago, it became apparent to some people that the U.S. economy and the world economy was in pretty bad shape.

196
00:23:03.440 --> 00:23:18.440
In my opinion, the downturn actually started in 2006, and we've been in a downturn ever since and a depression has just gotten worse and worse.

197
00:23:18.440 --> 00:23:26.640
Every now and then, serendipity occurs. I was really getting into the events, looking

198
00:23:26.640 --> 00:23:31.880
at this, what's going on in the economy, it's turning down and we're really having a mess.

199
00:23:31.880 --> 00:23:39.960
And in the very beginning, January, I guess it was or so, of 2008, I was asked, well,

200
00:23:39.960 --> 00:23:43.760
what elective are you going to teach in the fall? And I said, you know, something I've

201
00:23:43.760 --> 00:23:46.560
I've been wanting to teach for a long time,

202
00:23:46.560 --> 00:23:48.880
current issues in macroeconomics.

203
00:23:48.880 --> 00:23:52.040
And one of the students who was in that class,

204
00:23:52.040 --> 00:23:55.520
a very fine student, is with us today.

205
00:23:55.520 --> 00:23:58.160
And at any rate, it was just an absolute wonderful,

206
00:23:58.160 --> 00:24:00.920
wonderful class because, or absolutely wonderful,

207
00:24:00.920 --> 00:24:03.640
because I had not just that wonderful student,

208
00:24:03.640 --> 00:24:05.680
but about 12 or 15 really great students.

209
00:24:05.680 --> 00:24:08.160
And what we did was we read the Wall Street Journal

210
00:24:08.160 --> 00:24:09.400
and we looked at the things in there

211
00:24:09.400 --> 00:24:11.800
and we discussed what was going on in there

212
00:24:11.800 --> 00:24:41.800
In preparing for that, I did something which I hadn't normally done. Up until then, I was a typical macroeconomist when looking at the Fed. I said, gee, what's the Fed doing in terms of monetary policy? What are they doing with respect to open market operations? What are they doing with respect to discount rates? What are they doing with respect to the reserve ratio? I didn't really look at their balance sheet. Then I started looking at their balance sheet.

213
00:24:41.800 --> 00:24:49.800
And when I started looking at their balance sheet, I realized that there was something terribly wrong there.

214
00:24:49.800 --> 00:24:59.800
And I actually filed a Freedom of Information Act request, which I'll tell you about in just a second,

215
00:24:59.800 --> 00:25:06.800
but comes that fall and we're in class, and if I had to describe that class,

216
00:25:06.800 --> 00:25:12.120
Last, I think probably the best way to describe it would have been with respect to the Fed,

217
00:25:12.120 --> 00:25:20.120
the acronym of the day, because that's the semester, the term starting in September 2008

218
00:25:20.120 --> 00:25:25.640
when they started coming out with the term Asset Backed Securities Loan Facility, called

219
00:25:25.640 --> 00:25:33.000
the TALF, the Money Market Investor Funding Facility, MMIFF, the Asset Backed Commercial

220
00:25:33.000 --> 00:25:39.720
The Paper Money Market Funding Facility, the CPFF, the Primary Dealer Credit Facility,

221
00:25:39.720 --> 00:25:46.720
the PDCF, the Term Securities Lending Facility, TSLF, and the Term Auction Facility, the TAF.

222
00:25:47.720 --> 00:25:51.440
They're coming up with all these things. It reminds me of what's going on in Europe right

223
00:25:51.440 --> 00:25:55.700
now. The fact of the matter is, what were they doing? They were looking at all these

224
00:25:55.700 --> 00:26:02.520
financial institutions that were up to their ears in debt. They had liabilities over here

225
00:26:02.520 --> 00:26:07.280
and some equity, they had these assets at book value that weren't worth anywhere near

226
00:26:07.280 --> 00:26:11.160
what they said they were worth, and if they wrote them down, they'd be bankrupt. They

227
00:26:11.160 --> 00:26:16.280
wouldn't have any more capital left. So what was the Fed doing with all these programs?

228
00:26:16.280 --> 00:26:20.400
When you get all through, you blow all the smoke away about how long the term was and

229
00:26:20.400 --> 00:26:24.880
the amounts and all that kind of stuff, they were doing several simple things.

230
00:26:24.880 --> 00:26:29.800
Number one, they were going to the financial institutions and saying, we'll take the junk

231
00:26:29.800 --> 00:26:36.400
paper off of your books in exchange for some good paper that we have, treasury securities.

232
00:26:36.400 --> 00:26:44.000
So we'll take it off. That was one of the big things, just swapping good paper for junk

233
00:26:44.000 --> 00:26:49.780
paper. The other thing that they were doing was lending them money with the junk paper

234
00:26:49.780 --> 00:26:59.280
for securities. And the third thing they were doing was buying the junk paper. So their

235
00:26:59.280 --> 00:27:06.040
balance sheet started the balloon. The balance sheet, which at the end of 1999, the Fed's

236
00:27:06.040 --> 00:27:19.640
balance sheet was $670 billion. By the end of 2008, was $925 billion. So that was up

237
00:27:19.640 --> 00:27:26.440
35% over eight and three quarters years. You'd say, gee, that's real restraint for the Fed.

238
00:27:26.440 --> 00:27:32.040
The balance sheet actually shrunk from the beginning of January till the beginning of

239
00:27:32.040 --> 00:27:38.800
September of 2008 from 925 to 905 billion.

240
00:27:38.800 --> 00:27:44.880
It was at that point that Benny and the gang went wild.

241
00:27:44.880 --> 00:27:58.280
From the September 3rd of 08 to October 2nd, it jumped from $905 billion to $1.5 trillion,

242
00:27:58.280 --> 00:28:07.400
a 66% increase in one month. Think about that. And then after that, by the end of the year,

243
00:28:07.400 --> 00:28:14.160
it had gone up to $2.265 trillion. In other words, they just ballooned the Fed's balance

244
00:28:14.160 --> 00:28:21.120
sheet, to get this junk paper out off of these banks, keep the banks and these other things

245
00:28:21.120 --> 00:28:22.120
going and all that.

246
00:28:22.120 --> 00:28:27.360
Anyway, to make a long story short, I started looking at this stuff very seriously and I'll

247
00:28:27.360 --> 00:28:31.440
give you the current numbers, not the ones from that time.

248
00:28:31.440 --> 00:28:35.240
The Fed puts out a release, a statistical, they put out a whole series of statistical

249
00:28:35.240 --> 00:28:36.240
releases.

250
00:28:36.240 --> 00:28:44.240
The Federal Reserve's statistical release H41 from November 2nd, that's this past Thursday,

251
00:28:44.240 --> 00:28:53.720
shows assets of 2.825 trillion, liabilities of 2.773 trillion, means that their capital

252
00:28:53.720 --> 00:29:00.560
is 52 billion. That's a leverage rate of 53 to 1. Now if you believe that, you can

253
00:29:00.560 --> 00:29:04.440
understand why people panic and say, oh the Fed could go bankrupt, the Fed this, the Fed

254
00:29:04.440 --> 00:29:10.360
said that, oh man, we're in trouble and all that. But I tell you, the Fed balance sheet

255
00:29:10.360 --> 00:29:19.640
is fraudulent. It's fraudulent. The Fed has no liabilities. If you look at the bulk of

256
00:29:19.640 --> 00:29:27.800
that $2.77 trillion of liabilities, just over $1 trillion is Federal Reserve notes. That's

257
00:29:27.800 --> 00:29:34.200
that paper money you and I use. How is that a liability to them? What are you going to

258
00:29:34.200 --> 00:29:39.320
So, take your Federal Reserve notes to the Fed and say, give me something? What are they

259
00:29:39.320 --> 00:29:45.280
going to give you? Just new Federal Reserve notes. Then the banks and depository institutions

260
00:29:45.280 --> 00:29:52.320
have over 1.6 trillion of deposits at the Fed. If they go to the Fed, they say, we want

261
00:29:52.320 --> 00:29:58.140
our deposits. Okay, here's paper money. Where does the Fed get the paper money? It's printed

262
00:29:58.140 --> 00:30:03.580
by the Bureau of Engraving and Printing of the U.S. Treasury and sold to the Fed for

263
00:30:03.580 --> 00:30:10.700
a nickel, whether it's a $1 note or a $100 note, it sold to the Fed for a nickel the

264
00:30:10.700 --> 00:30:17.540
cost of production and delivery. Well, at one time it's true when those things were

265
00:30:17.540 --> 00:30:22.700
redeemable in gold they were liabilities but they're not liabilities anymore. So I started

266
00:30:22.700 --> 00:30:34.260
When a Federal Reserve bank engages in a transaction whereby it acquires Federal Reserve notes

267
00:30:34.260 --> 00:30:37.860
from the Bureau of Engraving and Printing of the U.S. Treasury and is recording the

268
00:30:37.860 --> 00:30:42.180
transaction in its accounting journal, which account does it debit and which account does

269
00:30:42.180 --> 00:30:48.860
it credit? And for how much? Just tell me that. And then I got back a response. The

270
00:30:48.860 --> 00:30:53.720
The Federal Reserve pays the Bureau of Engraving and Printing for the production cost of the

271
00:30:53.720 --> 00:30:58.020
currency. That's that nickel. As opposed to the face value. They don't give them face

272
00:30:58.020 --> 00:31:01.720
value for it. Well, that's where their profit is, right? I mean, wouldn't you love to be

273
00:31:01.720 --> 00:31:12.720
able to buy $100 bills for a nickel? My wife would. So would my daughter. I wouldn't. That's

274
00:31:12.720 --> 00:31:25.720
And then they say, once currency is delivered to a Federal Reserve Bank, transfers it out of or among Reserve Banks, they are recorded at face value.

275
00:31:25.720 --> 00:31:30.720
Well, where is this jump in value shown on the books? And it's not shown anywhere.

276
00:31:30.720 --> 00:31:39.720
And so then I looked at their audited statements, and they do have audited statements, it's audited by Deloitte and Touche, and you can find this on the web.

277
00:31:39.720 --> 00:31:50.460
Accounting Principles for Entities with the Unique Powers and Responsibilities of a Nation's

278
00:31:50.460 --> 00:31:57.320
Central Bank have not been formulated by accounting standard-setting bodies. The Board of Governors

279
00:31:57.320 --> 00:32:03.800
has developed specialized accounting principles and practices that it considers to be appropriate

280
00:32:03.800 --> 00:32:06.400
for the Nature and Function of a Central Bank.

281
00:32:06.400 --> 00:32:12.840
In other words, they jury-rigged the books to get what they want.

282
00:32:12.840 --> 00:32:17.680
The conclusion that I draw is that the Fed, as the U.S. government, is an institution

283
00:32:17.680 --> 00:32:19.920
that's corrupt to its core.

284
00:32:19.920 --> 00:32:25.680
So I leave you with this, Ron Paul says, end the Fed.

285
00:32:25.680 --> 00:32:27.920
In my opinion, he's too soft-hearted.

286
00:32:27.920 --> 00:32:32.600
I say end the Fed and put them all in jail.