Jerome Hayden “Jay” Powell, chairman of the Federal Reserve Banks (Fed), has implicitly somewhat directly attacked the Modern Monetary Theory (MMT).
Speaking live in the first digital conference of its kind, after mentioning all the recent measures taken by Fed in light of the unprecedented curfewing of the ‘free’ west, Powell said:
“I would stress that these are lending powers and not spending powers. The fed can not grant money to particular beneficiaries. We can only make loans to solvent entities that the [erm] with the expectation that the loans will be repaid.
Many borrowers and the economy will benefit [from the availability of these loans], but for others getting a loan that may be difficult to repay may not be the answer.
In this cases direct fiscal support may be needed. Elected officials have the power to tax and spend and to make decisions about where we as a society should direct our collective resources.”
Powell therefore is stating there has been no change to the monetary and banking system of the United States, with the above being his opening statement of the digital conference ahead of the questions session.
That comes days after a statement by Raymond Thomas Dalio, an American billionaire hedge fund manager serving as the co-chief investment officer of Bridgewater Associates since 1985.
Dalio effectively said the dollar has entered it’s last phase because the Fed is now directly buying government bonds without going through commercial banks.
In what can be read as a direct response to that, in an answer to a CNBC reporter asking whether fed loaning to only solvent entities is not giving assistance to those who need it the least, Powell said “we operate under the laws that congress passes.”
We are going places, he said, and providing help in places we never had. Nonetheless these are lending powers which require security to our satisfaction.
Can’t lend to insolvent companies, he continued. Can’t make grants. Fed is bound to implement the powers Congress gives us, he concluded.
Loans For the Poor, Grants For the Rich
The economy of the United States has contracted by 4.8% during the first quarter of 2020, so that’s before everyone was locked up with Europe seeing a contraction of 3.8%. Both around the same level as the 2008 banking collapse.
Wuhan was locked on the 23rd of January, from which point a gradual increase in caution followed with we’d estimate probably around 50% catching the flu and so not going to work between January and March.
In addition it is probable people took precaution and didn’t go out as much as they may have done in other circumstances, but general activity was at somewhat normal levels so a 5% drop for the first quarter is surprising.
The second quarter which we’re still in has been and remains in a near total shut down across pretty much all of Europe and America.
Now two, three, and if we go back to January even four months on and close to five, fashionistas in Italy still can’t go and make clothes, the New York governor threatened to round up jews mourning the passing of a rabbi, Boris Johnson repeats what he said two months ago in claiming this week is the most important, while Merkle goes on about some small rise in new flu cases as the season changes and thus argues we should continue to eat dirt.
The economy is estimated to pretty much collapse this quarter, down 14% while under the real seasonally adjusted measure, the Congressional Budget Office says the economy will fall by an astonishing 40%.
That’s beyond Great Depression levels, with this better named as the curfew economy crisis of a managed flu collapse.
Asked if he was worried about the spike the federal government debt, Powell said now was not the time to worry.
The time to worry about whether one should burn down their own house is of course after they’ve burned it rather than in the act of it to stop and wonder what on earth are they thinking of.
In this context, the obvious debate now on whether the Fed is still fit for purpose and whether the dollar monetary system is still fit for today.
The Dollar on Trial
In his insistence that Fed can not make grants, Powell referred to a specific section of the Federal Reserve Act of 1913, a piece of legislation which was the outcome of many battled by all means including, although to a lesser extent, even by might.
“In unusual and exigent circumstances, the Board of Governors of the Federal Reserve System, by the affirmative vote of not less than five members [out of 9], may authorize any Federal reserve bank… to discount for any participant in any program or facility with broad-based eligibility, notes, drafts, and bills of exchange when such notes, drafts, and bills of exchange are indorsed or otherwise secured to the satisfaction of the Federal Reserve bank… Provided, That before discounting any such note, draft, or bill of exchange, the Federal reserve bank shall obtain evidence that such participant in any program or facility with broad-based eligibility is unable to secure adequate credit accommodations from other banking institutions…
The Board shall establish procedures to prohibit borrowing from programs and facilities by borrowers that are insolvent.”
So says the specific section Powell referred to in order to emphasize fed is not giving money printed out of nothing, they are instead giving it with legal requirements for it to be returned with interest.
Where that interest comes from is an obvious question they refuse to answer, just as who receives these loans is a secret to the public, but has to be disclosed under confidentiality clauses to the Committee on Banking, Housing, and Urban Affairs of the Senate and the Committee on Financial Services of the House of Representatives.
Interestingly neither senators nor representatives can be members of the fed board, of which there are nine according to this act. Three selected by commercial banks, three are Class B directors chosen by the public, which means the government presumably, and three Class C directors are chosen by the board itself with the board also selecting among themselves the chair which then has to be approvingly appointed by the President who of course can reject the selection, but apparently can’t actually pick whoever he wants as the board does that with the President seemingly only limited to yes or no.
According to this act the Federal Reserve Banks are actually owned by commercial banks and fully, which had and have the opportunity to buy 6% of $100 shares from which they get a dividend of 0.5% a month, translating to 6% a year.
It appears the government has no shares in Fed and thus no gains from any profits it acquires through its money printing and while the act provides for the public to potentially buy shares, that’s only if there was or is insufficient demand from commercial banks to buy all the available shares.
Meaning the public has no ownership over fed either through the government or directly, and the only input it has on the fed is the appointment of 30% of the board, and the ability of the president to say no to whatever chair the bankers choose.
As much Powell has made very clear in stating Fed is pretty much a bank that prints money out of nothing when making a loan and requires that money to be paid back with interest, an interest that magically comes from somewhere no one quite knows.
Diane Swonk, chief economist at Grant Thornton, said the consensus among economists is that the U.S. will need another $2 trillion in aid and stimulus on top of the nearly $3 trillion Congress has already approved.
That’s close to twice the entire yearly tax intake of the United States Government with debt levels rising by some 10x since 2008 and may therefore by the end of this decade reach $100 trillion.
The suggested alternative by the Modern Monetary Authority is for the government itself to manage monetary supply through creating new money to funnel it into the market through spending, while also having the power to reduce supply by taking money out of circulation through taxes, fines, and licenses.
That would be the pre-fed system and the one directed by the constitution which says only Congress can print money.
Making the fed unconstitutional, and its role of performing a public function in legally counterfeiting money while maintaining profits from this activity as private profits for commercial banks only, a highly controversial one in light of the current circumstances where arguably they are breaching the Federal Reserve Act of 1913 for that says:
“The Board of Governors of the Federal Reserve System and the Federal Open Market Committee shall maintain long run growth of the monetary and credit aggregates commensurate with the economy’s long run potential to increase production.”
Commensurate, meaning if the economy is not growing then the monetary supply or aggregate credit extensions should not be growing either.
Since 2008 fed has done the opposite in breach of the law which Powell says constrains their ability to make grants, but at the same time seemingly ignores its constrains on their ability to make loans too, which they have gotten around with this loophole of section 13(3) that conveniently allows banks to get around legal constrains while the public, here including the government itself, of course has to follow the law.
1913, a time of no cars, no electricity, no planes, no radio, certainly no iphones or bitcoin, yet still the time of our money.
When all has changed in unrecognizable ways, it still remains the case there has been no change whatever on this monetary system which leads one to only wonder whether intellectual advancements are really so selective, or whether it is more the case thieves have become too good at protecting their ill gotten gains.