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Monday, November 23, 2009

Is Geithner Getting Scapegoated?

This story is amusing, cited many locations. There's a rumor circulating that Treasury Secretary Timothy Geithner will be forced to resign. High-ranking State bureaucrats don't get fired; they resign to "pursue other opportunities".

Circulating the rumor makes it true. A lot of people are angry because the economy is still lousy. The blame must be focused somewhere. A corrupt system cannot be blamed. The only other solution is to replace one figurehead with another figurehead.

I was surprised that Ben Bernanke was re-nominated for a second term as Federal Reserve chairman. After thinking about it, it makes sense. If Ben Bernanke were not re-nominated, then that would raise the issue "Did the Federal Reserve do something wrong?" Discussing that issue is absolutely forbidden. Ben Bernanke must be re-nominated to preserve the illusion of Federal Reserve magnificence.

With fiat debt-based money, the Federal Reserve scientifically creates inflationary booms and recessions/depressions. It is not an economic force of nature that there are booms and busts. It's a consequence of a corrupt system and the fact that State insiders are protected from negative consequences when they gamble and are wrong. That's the whole point of the Compound Interest Paradox.

With TARP, the Treasury Secretary did have some discretion over how State bailout money was allocated. However, the Treasury Secretary has negligible power compared to the Federal Reserve. The Treasury Secretary could only allocate TARP. The Federal Reserve can lend as much money as they please to whoever they please, with no obligation to publicly disclose what they did.

In the USA monetary system, the money printing power does *NOT* lie with the Treasury Secretary. Physical Federal Reserve Notes are printed by the US Treasury. However, they are then sold to the Federal Reserve for the printing cost, and not the face amount. The Federal Reserve insiders then sell the Federal Reserve Notes to the financial industry for the face amount when they "monetize the debt". Normally, the Federal Reserve "monetizes the debt" with electronically created money. Sometimes, a purchase is made with physical Federal Reserve Notes to increase the supply of circulating physical money.

The difference between the face amount and printing cost is seignorage profit. However, this seignorage profit does not accrue to the Federal government. The seignorage profit accrues mostly to financial industry insiders. The Federal government does claim some seignorage profit via inflationary deficit spending. However, the total amount of money supply inflation is greater than the amount of deficit spending by the Federal government.

The primary beneficiaries of inflation are not State parasites directly employed by the Federal government. The primary beneficiaries of inflation are State parasites who work in the financial/looting industry.

When the Federal government has deficit spending, the Federal government does not directly print and spend brand new money. Instead, the Treasury department prints new Treasury bonds. These bonds are then purchased mostly by the financial industry insiders. They turn around and sell approximately 10% of these bonds to the Federal Reserve via "open market operations". Via the magic of fractional reserve banking with a 10:1 reserve ratio, the banksters create the remaining money required to buy the rest of the national debt.

New Treasury bonds increase the inflation rate, but not the money supply. Then, via "monetizing the debt", the Federal Reserve keeps interest rates artificially low while increasing the money supply. The Federal Reserve keeps the Fed Funds Rate at 0%-0.25%, so printing more Treasury debt decreases real interest rates further below zero.

Why does a trader at a large bank buy Treasury debt? The trader borrows at the Fed Funds Rate, currently 0%-0.25%, and buys Treasury debt yielding 2%-4%. The difference is illicit interest arbitrage. With leverage ratios of 30x, 100x, or more, the banksters make huge profits from buying Treasury debt.

As an individual, I'd be a fool to buy Treasury debt. I'd get ripped off by inflation. I don't get the perk of borrowing at the Fed Funds Rate and buying Treasury debt and using huge leverage ratios. The monetary system is set up to facilitate the looting of State parasites. The cost is paid by everyone else as inflation.

"China owns the national debt!" is another evil fnord. China's government owns an unleveraged investment in Treasury debt. They are getting ripped off by inflation. The Treasury debt yields only a couple percent, while true inflation is 20%-30% or more.

Treasury debt yields are low even though inflation is high. This occurs because the Federal government repurchases its own debt. This occurs via the middlemen of the financial industry and Federal Reserve, which obfuscates the corruption.

The Treasury secretary has very little power. Compared to the Federal Reserve, the US Treasury has negligible influence.

Replacing one State figurehead with another State figurehead accomplishes nothing. The evil fnord is "Blame the individual and don't blame the corrupt system!" It seems that Geithner is being set up as the scapegoat for a struggling economy. The real blame lies with a corrupt monetary system, a corrupt taxation system, and excessive government regulations.

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