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The Real IMF Assault
Posted on May 20, 2011
By Nomi Prins
Last November, at the European Banking Congress and Central Bank Conference in Frankfurt, Germany, it was DSK (in a pot-calling-kettle-black sort of way) who pointed out the dangers of our own debt being so high and the necessity that the Fed bolster the dollar. That didn’t exactly endear him to Fed Chairman Ben Bernanke, who spent his speech defending QE2 and blaming dollar problems on a slowly recovering global economy, while avoiding mention of the debt-bank connection.
Avoidance, it turns out, is a useful strategy. Last week, Bernanke urged Congress to approve another debt cap increase. The Fed has amassed $2.5 trillion of debt on its books (including $1.5 trillion in treasurys shell-gamed from the Treasury Department and nearly $1 trillion of mortgage-related securities it won’t sell for fear of hurting the values of similar securities on the banks’ books). It’s being used for nothing helpful to the general economy. A simple transfer of any of it would solve the debt cap problem in a nanosecond. Going a step further, an exchange of any of the $1.4 trillion of excess bank reserves receiving interest from the Fed would do the same.
Our public debt ballooned under Timothy Geithner by more than $4 trillion. But rather than even considering taking some back from the Fed’s balance sheet, Treasury Secretary Geithner threatened to halt civil service retirement and disability payments to free up borrowing capacity, repeating almost verbatim similar threats made by John Snow, George W. Bush’s treasury secretary at the end of 2004.
This is exactly the kind of thing going on in Europe, with a mild twist. If we can’t raise enough debt for banks, we’ll take it from citizens. Even though creating debt (massive debt) for this reason has not helped the general economy, nor will it.
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