Is Fed’s Kohn Lying?

The above chart represents the total credit market debt owed by the US Federal government, domestic non-financial sectors. As you can see, the “RECOVERY” is being created by borrowing money from the taxpayers to bailout the banks. The hope is that this will stimulate lending and help to get GDP growing again.

Federal Reserve Vice-Chairman Kohn issued the following statement (quoted by Bloomberg):

We are not trying to favor some sectors over others,..

We are not taking significant credit risk that might end up being absorbed by the taxpayer,” Kohn said in a speech at a conference at Vanderbilt University. “For almost all the loans made by the Federal Reserve, we look first to sound borrowers for repayment and then to underlying collateral.”

In my opinion, these are outright lies.

Firstly, if the Fed were not trying to favor certain sectors, then why has the majority of the Fed assistance gone directly to the financial industry?

The second statement, which implies that the Fed looks to sound borrowers first and for collateral, is completely outrageous. Remember that the Fed would not be in a position of having to support the banks, if the banks were “sound”. The reason that the Fed is even loaning to the banks is that the banks are NOT sound. They are on the verge of complete failure.

The Federal Reserve has gotten too large and too powerful. The lies and deceit coming from the Fed is growing. The taxpayers are on the hook for everything. This country is giddy with the 20% rally in the stock market - but the pain of having to pay back trillions of $$ in Fed bailouts has not even begun to be felt yet. The Fed is trying to pump up the banks to prevent them from failing.

The reasons for failure have yet to be addressed: rising unemployment; overleveraged consumers etc. There is a lot of discussion about the increase in our savings rate. The suggestion is that Americans are now saving more. This savings rate is meaningless by itself. One needs to look at the level of consumer indebtedness. This provides an insight into how much longer the consumer will need to spend less and save more.

This chart above is the Consumer Credit Outstanding as a percentage of GDP. The chart begins in 1947 and ends in 2009. There is nothing in this chart that indicates to me that we’ve even begun any sort of “de-leveraging” process that would get us back down to levels of the early 50’s or even the 1960’s.

We need to grow as a nation. We need to put people back to work and we need to EARN, not BORROW. Without true growth in the economy, it’s only manufactured growth. Manufactured growth is not long lasting and any hopes for a speedy recovery cannot, in good faith, be pinned on manufactured growth.

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Comment by Rachael

2009-05-09 12:48:21

Any person who is even listening to anything coming out of the mouths of the Fed and Treasury is foolish. They are only trying to keep “the frog in the frying pan” as they calculate when, and how, to turn up the heat.

NOTE: Frog is the taxpayer!

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