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and first time that i would like to did was so he's
offer of instead we trust ben bernanke his war on the great panic
and this is probably i'm very interested in doing a lot of liam turks
if the air
our greg great to have you here now the
let's start at the very beginning
so
what exactly is the fact that i know we've had discussion on the show before
out but i have to confront so that's a little confused about
what part of his private and what part of it is pub
several reserved was created by congress in nineteen thirty
response to a financial panic attack from but our similarities but the ones
that we had
we have recently gone through
job is to control the amount of credit you kind of me
fit to serve at the lender of last resort
spectral may get in trouble
in the wake structured now there's a seven-member board of governors in
washington
their government employees they're appointed by a print the president
they're paid for by the fed it hundred-percent government
what unusual is that there are also twelve regional federal reserve bank
spread throughout the country
they are technically owned by the commercial banks in their districts so
they don't make any money at that
and that's the bank from the districts
elect
outfit for the nine directors of each of these
federal reserve bank
and the idea was to make it
a little bit independent of politicians but still be part of the government it's
very unusual
hit kind of a historical anomaly hit now up for review because of all that we've
been in the past two years why it's so far
the guys on the phone including brenneke are of government officials government
officials hundred-percent
appointed by the president
confirmed by the senate disliked a member of the supreme court of the
secretary of transportation but
because the regional banks like doctor was leaves of the new york fred
their prices
they're technically private institutions created by the government
uh... the president of the regional fed banks
are appointed by private sectors
directors
in their districts
subject to the approval of the government please washington
are so the government has had some
them but the private cora banks to set
okay now so we got a public-private mix now here comes a critical question
where did they get all
the magic of money
yeah
it very hard to understand better centrally
the fed if the jacket
printing press
they can create money
and they can destroy it it use to be that they would actually do it with
dollar bills trading dollar bills for government securities
now they do electronically when this crisis
started if it had eight hundred billion dollars of securities
and won't permit
today they have to traders work
they created it themselves that the magic of federal bank
success
all right now it work if you can get it if it's not bad at that i
can i get a couple billion often they will consider nobody has yet to take a
critical yes through well and yet never first of all
uh... you know it's a sincere however they up
what authority do they have to create
what you just said we are going from eight hundred billion two trillion they
just created one point two trillion dollars what authorities
half of the country
under the constitution the congress at the right
uh... coin money and regulated they have delegated that power
to the federal reserve
though the federal rivera can in normal times at normal time
go into the market put cash into the market
and get government securities in return and what it wants to take right out of
the economy because the river
itself government security from a portfolio and takes credit out
and how we know how do you know that that's happening defeating interest-rate
they control the weapon that interest rate for the prices of money when the
fed is putting money in interest rates go down they take money out by versus
okay but it is that's how they do it says you know it's just a matter of
bringing trace asked up-and-down i get it and i'm not
stock flight
but if it's a matter of creating money om when did congress do not authority
was that back in nineteen thirteen yep ambekar making thirteen is it that
limitless can they say
you know what
now we feel like creating ten trillion dollars one of the region director
ektu preventive
so upsetting to a lot of politicians that they were elected it basically
if lim now of course for congress to any date change the law and prevent
the fed from doing
but at this point the fed we give the fed the power to create money the
congress does
and the fed decide how much money they want to create if they create too much
money we get inflation
if they don't create enough money
we don't have enough credit the economy and we have a really bad recession
smells you sweetie talk about creating money in a suicide is throwing a lot of
people for a loops because normally the way government
use the word back from the biggest
he would collect taxes so now would be a revenue when you've got a from somebody
data from joanne sally and bob and you collect that money together and then you
spend that money
and that's how the money was created now
how
the fed is
getting it from revenue sakura
creating it
prepared work through the banking
systems and it has a portfolio of government securities which you can buy
and sell
wanted five security
print money literally print money
and i put money into the system that then the banks can lend out
if the bank paula bank had on the
books with government securities and you came for a loan it wouldn't have any
cash to give you
so it gets imparted cash from the amount of
reserves that the fed create
and the company unusual because all central bank all over the world
worked its way what's unusual about this episode
it how much money to fit created
in a hurry
in order to prevent that from falling into another great depression sequence
brenneke learned from his study of the great depression at the fed didn't
create enough money
in the twenty to thirty two we had a horrible economy
he was trying to do the opposite this time around it so far easier to succeed
would lesko he is the author of thin instead we trust
now before we get to what happened
in this was the resistance one last thing but now those reason if it doesn't
warmly create a trillion dollars and for example you know give to the american
government also endured opposites con is because that's going to cause inflation
is going to devalue the dollar i think it either
cause other economic problems for and that's why they don't want to do it on a
regular basis so now we get to what happened today
uh... or or over this period of time here
now of
seem to have tremendous power since we talked about their of with
they decided to create this money the issue i have his where does it go okay
so we just talked about at working from
which is state press the couple buttons on a computer but for reasons
i think or somewhat logical inactivity scientist and admiration but what does
the money go
but they can operate usually through the bank
and when the markets are functioning normally they do all the through the
banks of the threat of bank that they deal with in the bank
prefer money crafted system
one problem that the fed count of the time that the usual channels were caught
but they are creating money and all sorts of unusual way
decrypted say
fact lent money industrial corporation at work
but gave them how you use in return
they went into the market and they've bought mortgages in mortgage-backed
security
in order to get money into that market and they are buying treasury bills on
the open market they're trying to find other way to get credited the economy
could be usual channel the banks
work lots of the money would go into the bank
the banquet hall dot would not let this so they're looking for other ways to get
credited to the economy
sid
are they giving it a single at all or they're not giving it the city
they have lent money citigroup it blood money to all the big bank and make it
collateral in return
that what happened in this episode by the end
at the fall of two thousand eight verde keep that enough
we can't keep creating enough money to keep the system going
he and treasury secretary paulson went to congress
seven hundred billion dollars if you put it the old-fashioned way
they didn't rate didn't activate
borrowed money on the market plot of the from
foreigners like the chinese
and that money they invested in citibank and bank of america the other banks to
keep them from going under spicer mrs
they got from tar that to give the citibank setter i i get that money that
extra money that they did
what sylvie few which if you don't return is hard money that adds to our
deficit ok and as far the normal budgetary process threat what-if
citibank doesn't turned up other kind of money that the fed created and loan to
them
the better provoked eliminating any parent can work together
pizza property the hold on to a bond security
something called collateral and if citibank can't pay it back
the fed has got to take that collateral
and then a cappella to make a couple
so the fed is not supposed to lend money and left that think they can get it back
now unrepentant they can occur
along well there are reports
hooked up in the bear stearns rescue and in the i_d_ rescue that
probably isn't going to be worth as much of a place where they'll take a loss
when the fed turns a profit it usually does it give the profit after paying an
expensive over to the treasury
they will give less money over to the treasury append money
i mean big-deal softball suits so they can let's stay with us one point two
trillion they lost two hundred billion
doodling prepare my people at the videotape let's say they did
what does that money
get taken as i get taken out of the treasury how does that work at that time
that money that that that would have given the treasury department but would
effect make the deficit better
do you want me to death stare
because prepare to take the money and it looked over at the end of the year
and get rid of the treasury
if the fed has a big block will have less money to get to the treasury give
left one of the treasury than the depth of the fix why did why are they not
selma's where there since they are putting the money businesses with a some
insight iris
and people like congressman bruce a question on this and ron paul enough and
so both sides of the aisle
and the cells are recently where we put them on but i don't think that court
bennett bent
patriot because quite a bit about
who they've lent money to through these extraordinary program you can go online
and c
how much money they went to bear stearns at what that money
what kind of security they got mixed changes emily with the other big banks
the one thing they won't disclose is in the ordinary course of business if a
bank
that the fed look we got a problem here we have a lot alone for the loan to a
good but we have a lot of depositors they want their money right away
hills m we don't have the money to give it to the right away
and we can't get the loan money back right away but
we think the people of the four th
and the fed leave the mud lent the money to tide them over its called the lender
of last resort function
and their pets are committed to we put out a list of all the banks the cayman
borrowed from a directly at a pitch like that's that would create more panic that
more people take money out of the best to create a run of the facts
so that the information that they are saying we can't get to the left but
uh... barrister and
in ninety-three bacon as
really extraordinary
stuff in the candidate of the dollar that they do this close
complex there since they're up against it now because people are sufficiently
americans have always been suspicions about concentrations of
special power they were
dundas see how much power the fed had and for the fed puts out more
information and people faith i don't know if they want more because they
don't really trust brenneke
and they don't trust the fed and that the huge problem for the institution
david real quick see as we were sort of science
desert anything
ansys that if we had another cataclysmic collapse veggie black coleman let's see
goleman turns into a black hole that at some point the fed collapse
predicted
stream liam likely that would like to think that the u_s_ government was
bankrupt and
so far the u_s_ government has shown that in a crisis people all around the
world of money
would rather lend money to the u_s_ government that uh... anybody else so i
think it's unlikely that will get that political very unlikely
alright there's so much more this and i'd love to have you back on the talk
more about it effect but the book is called instead we trust and burning his
war on the great panics will put up on the untruths that some and our library
and get a from their yahoo
wessel thanks so much for doing a silencer welcome