Spinning Recession – Redistribution of Wealth from the Working Class to Corporate America

Unfortunately, we have another example of the US government spinning the data to give billions of dollars to financial institutions. About 3 weeks ago we were at the pinnacle of the credit crisis. Countrywide and other lenders were insolvent. Major banks would not lend money to each other because each bank knew they had significant exposure to bad debts but no one else knew how bad the situation was. The banks were thinking, “If I have this type of exposure who knows what is on the books or the bank that wants a loan?”

Since banks no longer keep sufficient reserves to cover the deposits the banks were facing runs on the bank. The banks only keep a very small percentage of their client’s money. Over the years the US Federal Reserve has reduced the required deposit reserve allowing banks to leverage their positions to ever greater amounts. If all the clients ask for their money in a short period of time the bank would have to liquidate their investments to raise cash. The investments would be sold at current market value (much lower than the amount written on the books since these are illiquid assets).

In this situation, the banks would stop repaying deposits, close their doors and declare bankruptcy. This would cause other banks in the world to have less faith in the US system and the ongoing reallocation of resources would favor the EU over the US. This would in turn eliminate 40% of GDP generated by the smoke and mirrors “service economy”.

The FED needed to do something however the people, rightly so, wondered why the US economy should pay for the speculative mistakes of the financial institutions. Strangely enough, out of the blue yonder, four days before the FED meeting on interest rates the Payrolls report showed a loss of 4,000 jobs during the previous period. Even more unusual was the drop in government employees and teachers. Somehow, just as schools were hiring new teachers for the opening of the school year the government lost 28,000 employees? The Wall Street Journal reported that the data was fishy. Adding up all of the States data the national data should have increased government payrolls by 88,000 instead of losing 28,000.

Again, strangely, the revised data present on Friday October 5, 2007 for the month of September increased the number of government jobs upward by about 50,000 employees. So the FED decreased the FED funds rate by 50 basis points based on the government employment data showing a loss of 4,000 jobs driven by losing teaching jobs at the beginning of the school year. The drop in FED funds rates allows financial institutions to get rid of speculative positions. The dollar drops 3% creating a 36% inflation rate for the month of September and costing all Americans 3% of their total wealth in one month. The next month’s payroll data shows that the very data that allowed the FED to lower rates was tremendously wrong. If it smells like a turd, looks like a turd, feels like a turd, do you need to taste it to know it is a turd?

The same institutions that are taking billion dollar handouts from your tax dollars and devaluing your savings are promoting personal responsibility for the average citizen. You must lose your house to foreclosure yet the companies can make bad decisions, speculate and get bailed out by the government using your money. This is just wrong. It is time to let your government know that you will not stand for this. Congress must investigate the FED and the way this information was compiled and presented and in the case of malfeasance ask Federal Reserve Chairman Ben Bernanke to resign.

Tags: Government Politics Recession Corporate America Finance Illegal Immigration Economy Reaganomics