The Fed Intervenes in US Dollar Gives Inside Information to Goldman Sachs
Executive Summary
- Why Did the Dollar Go Up
- The Video of the Exchange
- Excerpt from the Exchange Between Grayson and Bernanke
- The Fed is Private
- Why is the Fed Answering Questions at All?
This article was written in August 2009.
Why Did the Dollar Go Up?
Remember when the dollar went up when everyone thought it should be headed down? This interview between congressman Alan Grayson and Ben Bernanke could explain a strong reason why. In it, Bernanke reluctantly admits that the Fed used 1/2 a trillion in foreign currency operations. Since this is a central bank move to fight the tide, it must have cost us a considerable portion of that money (did we lose $100 billion of it, $200 billion of it? Will we ever know?) to prop up the dollar. I highly doubt the Fed has the authority to do this. The Fed claims the authority but Alan Grayson is questioning this. In fact, does the Fed have unlimited authority? Could they spend $2 trillion to prop up the dollar? Where exactly does the Fed’s authority end? Also, did any investment bank get inside information on this allowing them to go long on the dollar? For some reason, I think if you check Goldman’s currency positions at the time right before the massive intervention, they did go long on the dollar.
The Video of the Exchange
Excerpt from the Exchange Between Grayson and Bernanke
Grayson’s questioning focused on the Fed’s handouts to FOREIGN central banks in Europe and other countries. These “Central Bank Liquidity Swaps” rose from a total of $24 billion at the end of 2007, to over $553 billion by the end of 2008.
Grayson: “So who got the money?”
Bernanke: “Financial institutions in Europe and other counries.”
Grayson: “Which ones?”
Bernanke: “I don’t know.”
Gryson: “Half a trillion dollars and you don’t know who got the money?”Grayson: “Well, look at the next page [in Bernanke’s written report], the very next page has the U.S. dollar nominal exchange rate, which shows a 20 percent increase in the U.S. dollar nominal exchange rate at exactly the same time that you were handing out half a trillion dollars. You think that’s a coincidence?”
Bernanke: “Yes.”
Grayson: “hah-hah-hah-hah!”
The Fed is Private
Some comments have been made about Grayson laughing at Bernanke. However, Bernanke is lying and it is costing taxpayers billions, possibly trillions. Why is Bernanke lying about such an obvious fact that his intervention caused the dollar to increase in value? Why is he so uncomfortable answering this line of questioning? Bernanke seems to be using an opaque instrument (currency swap) to cover up the Fed’s move to increase the value of the dollar.
What is a Currency Swap?
Is a foreign exchange agreement between two parties to exchange principal and fixed rate interest payments on a loan in one currency for principal and fixed rate interest payments on an equal value. – Wikipedia
It sounds innocuous enough, but why $1/2 a trillion?
Many people who work in finance speak with extreme confidence, but don’t help much in pointing out the incontrovertible corruption in the system. In the beginning, we heard that mortgage-backed securities were great because they provided liquidity, but then we learned they have a tendency to melt down the financial system. Now, no one seems to condescend to us about mortgage-backed securities anymore, but if we allow it, the industry will keep coming up with new “instruments.”
One advantage to creating new instruments all the time is the ability to declare that its critics are ignorant (as other people would be to the amount of change in my pocket – that is right, only I know.) However, fraud is always opaque. The blog Taxes and Trade supported the swap as an extremely good idea. Here is an excerpt.
The Fed came up with something even better. They created dollars and then used the dollars to obtain foreign currencies by trading the dollars with foreign central banks for their currencies.
Here’s how a currency swap works. The Federal Reserve and the foreign central bank each create their own government’s bonds. Then they trade bonds of equal value with each other. Whenever the foreign central bank wants to trade back, they can. This strategy has three extremely beneficial effects:
1. It stabilizes currency markets. Foreign central banks get dollar reserves that will get sold right away, boosting their collapsing currencies versus the dollar.
2.It increases the money supply. In order to engage in these swaps both the Federal Reserve and the foreign central banks create new money, thus alleviating the world’s deflation. (Right now, the main problem in the world is deflation, as indicated by falling prices of stocks, oil, and precious metals.)
3. It weakens the dollar The immediate effect of the currency swaps is to weaken the dollar versus these other currencies, which helps the competitiveness of American products in world markets. – Trade and Taxes
However, the swaps did not weaken the dollar, they strengthened it. Something unasked in this analysis is why the Fed needs to create liquidity and why currency swaps are the way to do it. The Fed can create more liquidity anytime it wants, it does not need currency swaps to do so. That is the benefit of having control over a nation’s money supply. The problem generally is that while finance types tend to state that actions lead to specific outcomes, oftentimes the outcomes do not happen and a different outcome happens. So the credibility of finance has greatly declined.
Why is the Fed Answering Questions at All?
It’s important to know, the Fed is completely private. It only reports to its member banks and to investment banks. Bernanke can take his clothes off and show his bare ass to Grayson, and there is nothing Grayson or anyone else in Congress can do about it. The Fed is completely independent of the government and does not need to answer FOIA requests or any other types of requests.
https://www.bloomberg.com/apps/news?pid=newsarchive&sid=aKr.oY2YKc2g
https://www.bloomberg.com/apps/news?pid=20601087&sid=a7CC61ZsieV4
Bloomberg submitted a FOIA to the Fed and they fought it. The court ruled that:
“improperly withheld agency records” by “conducting an inadequate search” after Bloomberg News reporters filed a request under the information act. She gave the Fed five days to turn over documents it told the reporters it located, including 231 pages of reports, and said it must look for more at the Federal Reserve Bank of New York, which runs most of the loan programs.
However, what is going on here? While we appreciate the ruling and we think it’s right, it does not make legal sense. The Fed does answer requests in order to maintain the illusion that it is part of the Federal government, which it is not. Why is the judiciary providing these judgments and continuing the illusion that the Fed is public? The better approach is to admit the Fed is not subject to public inquiry, understand why, and then have the government take over the Fed. As long as the Fed is private, attempts to control it for the benefit of the population vs. banks will never take place.
Bernanke lies quite a bit. His constituents are concentrated financial power, not voters. He also does not work for the government, but somehow controls the currency of the government. He is enriching his constituents at great cost to voters.
Bernanke is lying in his exchange with Grayson, because he is trying to downplay the interventions on the part of the Fed, how they benefit the Fed’s elite constituents. Bernanke also has essentially gone rogue and is taking the Fed into a place it has not historically been by interpreting the Federal Reserve Act as broadly as possible. The total estimate of the corrupt bailout is $12.4 trillion at this point, and the Fed and Treasury continue to shovel US taxpayer dollars into the coffers of the ultra-wealthy.
References
Read about the Federal Reserve Act here.
https://en.wikipedia.org/wiki/Federal_Reserve_Act
https://en.wikipedia.org/wiki/Federal_Reserve_System#List_of_member_banks
https://tradeandtaxes.blogspot.com/2008/10/federal-reserve-doing-exactly-right.html