The billions and trillions and zillions are after us.
Yesterday,
on January 9th 2014, the Monetary Policy and Trade Subcommittee of the
House Financial Services Committee held a hearing named “Federal Reserve
Oversight” to discuss the Quantitative Easing Program of the Federal
Reserve. Witnesses included Benn Steil, senior fellow and director of
international economics, Council on Foreign Relations; Allan H. Meltzer,
professor of political economy, Tepper School of Business, Carnegie
Mellon University; Desmond Lachman, resident fellow, American Enterprise
Institute; and Arvind Subramanian, senior fellow, Peterson Institute
for International Economics, and senior fellow, Center for Global
Development.
The witnesses gave the pros and cons of continuing or stopping QE in their views, with Lachman and Subramanian calling for continuing the QE because of its supposed positive influence on international growth, while Meltzer said it should be stopped immediately and we should return to an era of stability like Bretton Woods.
The one very notable point in the hearing was what Allan Meltzer said after a long period of questions coming from Congressman to the Witnesses about the effects of tapering QE related to job growth, and international markets. Meltzer said the whole discussion was avoiding the real issue. Meltzer echoed the warning given by EIR’s Paul Gallagher during a January 10th, 2013 conference call,1 when Meltzer pointed out that while everyone is talking about QE and its effect on the economy, no one is pointing out the fact that 92% of the QE is going to idle reserves. He said, “look, we are here talking about the effect of a small percent. The real risks involved in QE is the 92%.” He described it as “a tidal wave” of some $3 trillion in currently idle reserves sitting in the banks. “It’s a lot of money and can create a lot of problems. The idea that the U.S. can buffer the problems are wrong.”
Meltzer steered the discussion back to the same question again later on in the hearing, stating that the real danger to the world economy now in the effects of flooding the economy with U.S. dollars in the unwinding process of the QE. He asked, ‘“where is so much liquidity going to go and what is going to be the effect?” He said the Administrations tying together the goal of unemployment with the time to end the QE is stupid. QE should be ended now, and there should be a plan to get rid of all of the assets and prevent their damage to the economy.
The real solution is to pass Glass-Steagall, which would pull the plug on the threat of the mass of speculation, by wiping out the speculative assets off the books, and release the economy from the burden of skyrocketing commodity prices and other dangers when they come pouring out of the banks.
Another matter of note worth looking into was an issue raised by one of the Congressman concerning the possible danger of an international “swap facility,” recently made permanent. He asked whether Congress should be concerned with what he heard that the Federal Reserve has made a permanent swap facility with the 5 major central banks. The witness from the CFR said not to worry, that it was necessary to make the swap market permanent between these banks, and that since interest rate is zero and “there is no credit rate risk,” that everything is fine, and that it would be crucial in a crisis to prevent contagion. The Congressman wondered whether this meant that anyone of the countries could get bailed out at anytime at our expense, to which he was told it was of no concern. The issue echoed the exposure of the international bail in regime by LaRouchePAC last year.
The witnesses gave the pros and cons of continuing or stopping QE in their views, with Lachman and Subramanian calling for continuing the QE because of its supposed positive influence on international growth, while Meltzer said it should be stopped immediately and we should return to an era of stability like Bretton Woods.
The one very notable point in the hearing was what Allan Meltzer said after a long period of questions coming from Congressman to the Witnesses about the effects of tapering QE related to job growth, and international markets. Meltzer said the whole discussion was avoiding the real issue. Meltzer echoed the warning given by EIR’s Paul Gallagher during a January 10th, 2013 conference call,1 when Meltzer pointed out that while everyone is talking about QE and its effect on the economy, no one is pointing out the fact that 92% of the QE is going to idle reserves. He said, “look, we are here talking about the effect of a small percent. The real risks involved in QE is the 92%.” He described it as “a tidal wave” of some $3 trillion in currently idle reserves sitting in the banks. “It’s a lot of money and can create a lot of problems. The idea that the U.S. can buffer the problems are wrong.”
Meltzer steered the discussion back to the same question again later on in the hearing, stating that the real danger to the world economy now in the effects of flooding the economy with U.S. dollars in the unwinding process of the QE. He asked, ‘“where is so much liquidity going to go and what is going to be the effect?” He said the Administrations tying together the goal of unemployment with the time to end the QE is stupid. QE should be ended now, and there should be a plan to get rid of all of the assets and prevent their damage to the economy.
The real solution is to pass Glass-Steagall, which would pull the plug on the threat of the mass of speculation, by wiping out the speculative assets off the books, and release the economy from the burden of skyrocketing commodity prices and other dangers when they come pouring out of the banks.
Another matter of note worth looking into was an issue raised by one of the Congressman concerning the possible danger of an international “swap facility,” recently made permanent. He asked whether Congress should be concerned with what he heard that the Federal Reserve has made a permanent swap facility with the 5 major central banks. The witness from the CFR said not to worry, that it was necessary to make the swap market permanent between these banks, and that since interest rate is zero and “there is no credit rate risk,” that everything is fine, and that it would be crucial in a crisis to prevent contagion. The Congressman wondered whether this meant that anyone of the countries could get bailed out at anytime at our expense, to which he was told it was of no concern. The issue echoed the exposure of the international bail in regime by LaRouchePAC last year.
Footnotes
1"There
will be a trigger, there might very well be a take off all of the a
sudden in the price of food, because of the declines the real production
of food, which is going on in conditions of drought, and under
conditions of very rapid price fluctuations, of all the inputs to food,
and of the food itself. Food commodities themselves. This could very
well trigger it, but the basic mechanism that you are looking at, is
that the central banks, led by the Federal Reserve, and the European
Central Bank are printing trillions and trillions of new currency,
putting into circulation directly through the major national and
international bank holding companies.
And the reason given by them themselves, why they claim this is not
an inflationary policy, is that the vast bulk of that new capital and
new liquidity given to these banks in this way, is being then put right
back into the Federal Reserve, and the other major central banks, and
the national central banks of Europe. The banks are putting it right
back into the central banks, as what are called excess bank reserves.
And they are being paid interest by the central banks on those reserves
for the first time. The Federal Reserve has never done this before. Its
the first time in its hundred year history that it has paid interest to
get banks to put this money right back into the Federal Reserve. The ECB
doing the same thing.
At a certain point, when a sudden speculative bubble grows up, or starts to escalate, as for example with a trigger escalation in the prices of food, watch that unused trillions come pouring out into commodity speculation, for example, and suddenly set off hyperinflation. So its not something that can be predicted at a given time. After all, in Wiemar Germany, the worst and most famous case, or most infamous case, they did this kind of money printing to pay unpayable government debts for more than two years, with no apparent inflationary impact until all the sudden it exploded and consumed the currency, and the entire economy. So we can't say when, we can say it will happen."
At a certain point, when a sudden speculative bubble grows up, or starts to escalate, as for example with a trigger escalation in the prices of food, watch that unused trillions come pouring out into commodity speculation, for example, and suddenly set off hyperinflation. So its not something that can be predicted at a given time. After all, in Wiemar Germany, the worst and most famous case, or most infamous case, they did this kind of money printing to pay unpayable government debts for more than two years, with no apparent inflationary impact until all the sudden it exploded and consumed the currency, and the entire economy. So we can't say when, we can say it will happen."
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