Taxpayer trillions fuel a monster messDavid Hirst February 11, 2009 WHATEVER the final stimulus package presented to the US Congress overnight, investors will be contemplating the fact that the US has already "committed" $US9 trillion ($A13.5 trillion) and the likely addition of another $US800 billion will push taxpayers to almost $US10 trillion to bail out the US economy and banks.
It almost goes without saying that such a monstrous amount of money being created out of thin air will have implications for the world economy. What exactly they are, and will be, time will tell. The first sign may be a lift in US stock indices that will send the Australian market, and then world markets, off and running. Or, as investors contemplate the breadth of the "stimulus", they might be off and running.
Whatever, the story here is that we are all captives of a "commitment" of money that reportedly exceeds all money spent by the US in the Depression, World War II, and the Korean, Vietnam and Gulf wars.
It is an almighty amount. As Bloomberg wrote yesterday, the new package will raise the Government's commitment to solving the financial crisis to "enough to pay off more than 90 per cent of the nation's home mortgages". Yet home mortgage holders have barely seen a trickle of this money. Where has it gone? We don't know.
The Federal Reserve, Treasury and Federal Deposit Insurance Corporation have lent or spent almost $US3 trillion over the past two years and pledged to provide up to $US5.7 trillion more if needed. Bloomberg adds: "The Senate is to vote early this week on a stimulus package totalling at least $US780 billion that President Barack Obama says is needed to avert a deeper recession. That measure would need to be reconciled with an $US819 billion plan the House approved last month.
"Only the stimulus package to be approved this week, the $US700 billion Troubled Asset Relief Program passed four months ago and $US168 billion in tax cuts and rebates approved in 2008 have been voted on by lawmakers. The remaining $US8 trillion in commitments are lending programs and guarantees, almost all under the authority of the Fed and the FDIC. The recipients' names have not been disclosed."
Senator Byron Dorgan, a North Dakota Democrat, said on the Senate floor last week: "We've seen money go out the back door of this government unlike any time in the history of our country. Nobody knows what went out of the Federal Reserve Board, to whom and for what purpose. How much from the FDIC? How much from TARP? When? Why?"
Well the truth is the US taxpayer cannot be told. Treasury and the Federal Reserve, the latter a privately owned, profit-making cartel, have refused freedom of information requests from Bloomberg and Fox for details on the grounds of confidentiality.
Most Americans and almost every Australian I know see the Federal Reserve as like our Reserve Bank or the central banks of the world. But it is not. Few know how the Federal Reserve functions. It is in an enviable position for those who own the bank, the richest people on earth.
This is how the Fed scheme works: The US issues Treasury bonds. It then sells them to the Fed, which buys the bonds from thin air, with money created by a computer stroke — a bookkeeping entry. The money from nowhere then goes to the US Government and the Fed holds the bonds. Then the US Government pays interest on the bonds that the US itself issued.
That is as good as it gets, for the interest is money in the bank for the private owners of the Fed. They might well be the bankers whom the Fed is granting untold and untellable sums to — the lucky few who are running the scheme.
The consequence is that the Fed is more powerful than any other force on earth, apart from nature. The Fed controls the US money supply yet there is no reference to the Fed in the US constitution. There has been no constitutional amendment to create the Fed. The Fed's existence has never come before the Supreme Court. It was established through a bill passed through an almost empty Congress at the behest of a small group of bankers lead by J.P. Morgan in 1913.
Where is all this likely to take us? The clear message is that the bank bail-out/guarantee/subsidy strategy is doomed to failure because "Anglo" governments, including Australia's, don't understand, or don't want to understand, that the size of the debt burden has to contract dramatically and permanently.
Bail-out policies designed to keep the property and credit bubbles going will only prolong the agony and bleed taxpayers to death because the losses are way beyond the capacity of government. Paul Krugman, Robert Shiller and many others advocate spending on productive infrastructure to get around the liquidity trap where both consumers and companies have to save and pay down debt.
Kevin Rudd, Gordon Brown and Barack Obama are not doing anything about that. Instead, they are re-arming the bank robbers with billions and accelerating tax cuts. This approach is insane because it will hasten the Big "D".
Perhaps an ill-spent $US10 trillion will fix what a misspent $US4 trillion failed to do, although there remains a breed of simple philosophers who believe that when in a hole, stop digging. But if $US10 trillion fails, will the masters of money have learnt anything — or will they once again ask for more?