Bernanke Tries To Stop The Federal Reserve From Being Audited
Federal Reserve Chief Ben Bernanke spoke at the Bank of Japan on May 25, 2010, demanding that central banks be considered "independent" of politics....
Federal Reserve Chief Ben Bernanke spoke at the Bank of Japan on May 25, 2010, demanding that central banks be considered “independent” of politics. “In undertaking financial reforms, it is important that we maintain and protect the aspects of central banking that proved to be strengths during the crisis and that will remain essential to the future stability and prosperity of the global economy,” Bernanke said. His meaning was perfectly clear. Congress — don’t pass legislation that allows you to audit the Federal Reserve. He said, “Chief among these aspects has been the ability of central banks to make monetary policy decisions based on what is good for the economy in the longer run, independent of short-term political considerations. Central bankers must be fully accountable to the public for their decisions, but both theory and experience strongly support the proposition that insulating monetary policy from short-term political pressures helps foster desirable macroeconomic outcomes and financial stability.”
Bernanke’s speech comes right after Congress nearly unanimously passed a measure on May 11th, granting authorization to the Government Accountability Office (GAO). Congress told the GAO to audit the Federal Reserve’s emergency-response programs. In a very split Congress, between Democrats and Republicans, imagine that this was nearly unanimous, one of the only bi-partisan measures passed in years. This measure is part of the bank reform legislation. “This makes it clear that the Fed can no longer operate under the kind of secrecy it has been operating under,” said Sen. Bernie Sanders. The measure also grants authorization to the GAO to engage in audits of any financial institutions that borrowed Fed Funds during the financial crisis. And finally, the measure also authorizes the GAO to engage in continuing audits of the Fed’s policies.
Why is the Fed so opposed to this audit? Might it be that one of their “undocumented” actions is their direct participation in the Plunge Protection Team (PPT) and they do not want it exposed? German Economy Minister Rainer Bruederle announced on May 28th, that the US Federal Reserve actively buys and sells stocks in the secondary market. The Fed is actively involved in currency intervention to realize profit from their stock purchases. “It is a regular procedure of central banks,” to intervene in currency markets, Bruederle said. “It is not a secret,” that central banks have a foreign exchange rate target,” he added. Bruederle comments follow statements made by in Switzerland, that the Swiss National Bank purchased Euros to bolster the single currency.
Bernanke was very adamant about Fed independence during his May 25 speech. He said, “A broad consensus has emerged among policymakers, academics, and other informed observers around the world that the goals of monetary policy should be established by the political authorities, but that the conduct of monetary policy in pursuit of those goals should be free from political control.” “Undue political influence on monetary policy decisions can also impair the inflation-fighting credibility of the central bank, resulting in higher average inflation and, consequently, a less-productive economy.” Again, he reiterates — stay away from the Fed.
In January, Charles Biderman, CEO of TrimTabs Investment Research, pronounced that the Treasury, the Fed and major Wall Street firms like Goldman Sachs were having direct impact in the stock market rally each and every day, driving prices higher and higer. Biderman, without hesitation, observed that the normal source of funds flowing into the market could not substantiate a $6 trillion increase in U.S. stock-market capitalization. “We cannot identify the source of the new money that pushed stock prices up so far so fast,” Biderman said. Biderman made sure to elaborate that financial inflow was not coming from traditional sources such as companies, hedge funds, retail investors, pension funds, or foreign investors. “We know that the U.S. government has spent hundreds of billions of dollars to support the auto industry, the housing market, and the banks and brokers. Why not support the stock market as well?”
Suspicions that the Fed has been a long standing participant in the Plunge Protection Team (PPT) have reigned forever, even though the Fed actively denies their participation. If the Fed is audited, they will be forced to reveal how funds are controlled, where they go and to whom, how often, and how much.If the Fed artificially inflated the stock market and thereby caused rising stock valuations through undercover PPT activities, this will be determined by the audit.
During his speech, Bernanke said, “In some situations, a government that controls the central bank may face a strong temptation to abuse the central bank’s money-printing powers to help finance its budget deficit.” Could he be saying right here that the Fed is part of the PPT? “As we move along the path of reform, however, it is crucial that we maintain the ability of central banks to make monetary policy independently of short-term political influence.”
The “official” role of the Plunge Protection Team was to prevent another 1987 “Black Monday”. The PPT now has the U.S. Treasury at its finger tips, and can manipulate stock markets through derivative trading. Wikipedia defines derivatives as “a financial instrument – or more simply, an agreement between two people or two parties – that has a value determined by the price of something else (called the underlying).”
Propping up the Market through derivative trading by the Fed was revealed by the Guardian as early as 2001. “A secretive committee – the Working Group on Financial Markets, dubbed ‘the plunge protection team’ – includes bankers as well as representatives of the New York Stock Exchange, Nasdaq and the US Treasury. It is ready to co-ordinate intervention by the Federal Reserve on an unprecedented scale.” The fed buys equities from mutual funds, pension funds, and other institutional sellers when there is evidence of panic selling in conjunction with international financial institutions.
The PPT makes use of U.S. Treasury assets to artificially amplify commodity and stock prices through derivative trading. Executive Order 12631 signed by Ronald Reagan handed the Fed authorization to establish a “Working Group” on Financial Matters consisting of 1) the Chairman of the Board of Governors of the Federal Reserve 2) the Secretary of the Treasury 3) the Chairman of the Commodity Futures Trading Commission 4) the Chairman of the Securities and Exchange Commission. As of late, this “Working Group” has been extended to include large brokerage firms (Goldman Sachs).
The GAO audit will expose the Plunge Protection Team. Former Federal Reserve Board member Robert Heller stated that “Instead of flooding the entire economy with liquidity, and thereby increasing the danger of inflation, the Fed could support the stock market directly by buying market averages in the futures market (through derivatives), thereby stabilizing the market as a whole.” What is the impact to the stock market that is used to being bolstered up after the Fed is audited? Could it be that finally the market must stand on its own 2 feet, either make it or lose it, no more being held up with bobby pins and rubber bands by the Treasury without the approval of US taxpayers.
During his speech, Bernanke said, “We are committed to exploring new ways to enhance the Federal Reserve’s transparency without compromising our mandated monetary policy and financial stability objectives.” The question is…when did participation in the PPT become mandated? When did currency manipulation to increase stock valuations become mandated, and if so, by whom?
The bank reform bill that was just passed by the Senate and House oversees usage of derivative trading, a key resource of the Fed and the PPT. “We are sending a clear message to Wall Street, the party is over. Never again will reckless behavior on the part of the few threaten the fiscal stability of our people,” said House Speaker Nancy Pelosi. “The legislation will finally protect Main Street from the worst of Wall Street.”
Isn’t this the reason the Fed opposes bank reform, especially given the section concerning Fed oversight? Bernanke himself said on Tuesday, “As has been demonstrated during financial panics for literally hundreds of years, the ability of central banks to independently undertake such lending allows for a more rapid and effective response in a crisis. The nature and scope of the independence granted regulatory agencies is likely to be somewhat different than that afforded monetary policy.” The PPT is definitely different…
Barbara Cohen has been a professional day trader for over 10 years. She has trained hundreds of students to trade the Futures Market with Shadowtraders online day trading strategies. As the CIO, Barbara frequently hosts Shadowtraders daily online trading chatroom. Before you purchase any trading software, make sure you attend Shadowtraders , and