Plan To Audit Federal Reserve Thwarted By Obama Administration

Chalk one up for our wonderful Congress and President!  Possibly the most important piece of legislation on the docket and one supported overwhelmingly by the populace just "withered on the vine".  Time to pop those champagne corks, ladies and gentlemen of  Washington, your need to obfuscate has once again taken precedence over the rights of the American people to understand what is being done with THEIR money!

Of course, we have to allow for the fact that politicians view tax collections as belonging to THEM.  They don't!  The Federal Reserve (Fed), so expert at creating asset bubbles, then justifying their existence by rushing in to fix those bubbles, remains shielded from any oversight.  What's a few trillion among friends?

Political pressure from the Obama administration, along with the Treasury and Fed, led Senate lawmakers to alter a provision pushed by Sen. Bernie Sanders (I., Vt.) that was gaining momentum.  It would have largely repealed a 32-year-old law that shields Fed monetary policy from congressional auditors.

Sen. Sanders, after the intense lobbying by the Obama administration and Fed officials, removed language in his amendment to the financial-regulation overhaul that would’ve opened the Fed’s monetary policy deliberations to audits by the congressional Government Accountability Office (GAO).  The original Sanders amendment eliminated those restrictions, which were passed by the Senate in 1978.  The bill prevented the GAO from reviewing the Fed’s monetary policy actions, discount window lending, open market operations and transactions with foreign central banks or governments.

The watered-down Sanders amendment requires a one-time audit of the Fed’s emergency credit facilities and an inspection of Fed governance, a review of the selection of regional bank directors and the operation of regional banks’ lending facilities.  The measure still requires the Fed to publicly identify borrowers from its emergency lending facilities and other special programs by December 1.  But, it doesn’t stipulate ongoing disclosure.  So what good is it?

The compromise, endorsed by Senate Banking Committee Chairman Christopher Dodd (D., Conn.) and the Treasury, would require the Fed to disclose more details about its lending during the financial crisis.  It would also require a one-time audit of those loans and a one-time review of Fed governance.  A formal vote was pushed back until next week.  Its endorsement by the Treasury is proof the bill has ZERO teeth.

"At a time when our entire financial system almost collapsed, we cannot let the Fed operate in secrecy any longer," Mr. Sanders said. "The American people have a right to know."

Fed Chairman Ben Bernanke, while insisting on a commitment to "openness" at the Fed, said in a letter to Congress the original Sanders measure would "seriously threaten monetary policy independence, increase inflation fears and market interest rates and damage economic stability and job creation."  Mr. Bernanke fails to mention in his letter that the Fed itself has caused economic and financial instability and has utterly mismanaged monetary policy and set the level of interest rates to cause the very financial crisis we're in. (Sarcasm intentional!)

A House bill sponsored by Rep. Ron Paul (R., Texas) that passed in December, contains a proposal similar to the original Sanders measure.  If the Senate bill were to pass, it would need to be reconciled in a conference committee.  Given the "compromise" bill, the reconciliation process cannot possibly lead to any legislation that would be effective.

Before the last-minute compromise, the Fed's foes appeared to be winning  and got a major boost when Senate Majority Leader Harry Reid (D., Nev.) said he would side with Mr. Sanders.

At least half a dozen Obama administration officials joined the high-pressure campaign, including Treasury Secretary Timothy Geithner and Rahm Emanuel, the White House chief of staff.  Administration aides credited Mr. Dodd with pushing back against the original amendment and developing an acceptable alternative.

The corrupt wheels of Washington continue to turn.  The fact is that an audit of the Fed is not opposed because it could interfere with the great job they do.  Rather, it is a desperate attempt to hide their utter incompetence and mismanagement, along with their surreptitious market operations designed to interfere with a free market to serve their political masters.

Marko's Take

Our latest You Tube video titled "Social In-Security:  The Problem" is now posted and can be accessed by clicking here http://www.youtube.com/markostaketv#p/u/0/twFn9XyP2rI.  We will post "Social In-Security: The Solution" subsequently.  Stay tuned for a 7 step plan on how to fix this mess.

First Quarter GDP Shows Recovery... But How Real Is It?

Yesterday, the preliminary estimate of 1st quarter Gross Domestic Product (GDP) was released, indicating an annualized growth rate of 3.2% - down from the 5.6% annualized rate for the 4th quarter of 2009.  Within minutes, officials of the Obama Administration were all over the media declaring the recession over and trumpeting the efficacy of their various stimulus plans.  Strangely, after blaming the weather for the lack of job growth in recent months, they failed to credit the weather for the excellent economic news.

As with any government economic report, the headline number is a facade to the real story underneath.  Worry not.  Marko's Take, along with our staff of experts, is here to dissect the report and reveal the truth as to what's really taking place.

Spending by consumers rose at a 3.6% rate, more than double the 4th quarter pace and faster than any quarter in the past three years.  But half the quarter's growth came from firms rebuilding inventories.

Consumer spending, which accounts for about 70% of the demand in the economy, remains the key.  Consumer confidence has improved quite a bit from the bottom of the financial crisis, but remains depressed. The University of Michigan's Consumer Sentiment Index, released Friday, dropped slightly to 72.2 in April from 73.6 in March — and was well below the pre-recession levels, which exceeded 90.

Friday's data showed reported inflation remains tame, even as the economy climbs out of recession.  The Federal Reserve's preferred gauge, the price index for Personal Consumption Expenditures, or the PCE deflator, excluding food and energy, rose an annualized 0.6% in the 1st quarter, compared with the 4th quarter's 1.8%.  The Labor Department's employment cost index, the broadest measure of wages and benefits, rose 0.6% in the first quarter from the fourth, and was 1.7% higher than a year earlier.

Long-time readers know that we are not only highly skeptical of any economic new emanating from Washington, but that we can see right through the BS.  Fortunately, we have the brilliant Dr. Williams and his fantastic site ShadowStats (http://www.shadowstats.com/) to assist us in this endeavor.

According to ShadowStats, the Alternate-GDP estimate for first-quarter 2010 was an approximate annual CONTRACTION of 1.5%. This reflects the bottom-bouncing at low levels of activity seen for much of the last year in key underlying economic series, not an economic recovery.

More disturbing is the analysis performed by Dr. Williams on the Money Supply.  With just more than two weeks of reporting on April money supply, weekly contractions in M2 (institutional money funds and large time deposits) suggest that the pace of decline in the broader M3 is accelerating, with the nominal year-to-year change reflecting a record annual decline of roughly 4.8% in April, versus a decline of roughly 3.7% in March, if weekly reporting showed no further changes for the balance April.

According to Dr. Williams, real year-to-year change appears likely to deteriorate from a 5.8% contraction in March to an unprecedented reading of a 7% annual decline.  Contracting annual growth in broad money supply nearly always precedes decelerating economic activity.

The contraction is money supply aggregates also signals systemic difficulties in the banking system.  A properly functioning U.S. banking system would be lending increasing amounts of money, not contributing to a slow downward spiral in consumer and business credit outstanding and a pending renewed decline in economic activity.

The best way to really gauge what's going on is to pay attention to what you see anecdotally.  Are you having trouble keeping up?  Are your friends and family struggling?  Are you paying more for food and gas and critical goods?  These are better indicators than what Washington reports.  Ultimately, if the "good" news is helping you, that what "good" is it?

Marko's Take

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Credit And Liquidity Contraction Spells Upcoming Economic Trouble

Despite the rash of "excellent" economic news suggesting that the weak recovery is gaining steam, the underlying fundamentals continue to spell trouble.  As we've repeatedly pointed out, the jobs picture is MUCH weaker than the administration would like us to believe.

Robert Reich, former Secretary of Labor under the Clinton adminstration, and no friend of Republicans, has weighed in with his own "take" on the employment situation.

According to an editorial in the Wall Street Journal, Reich wrote "Since the start of the Great Recession in December 2007, the economy has shed 8.4 million jobs and failed to create another 2.7 million required by an ever-larger pool of potential workers.  That leaves us more than 11 million jobs behind.  (The number is worse if you include everyone working part-time who'd rather it be full-time, those working full-time at fewer hours, and people who are overqualified for the jobs they're in.)  This means even if we enjoy a vigorous recovery that produces, say, 300,000 net new jobs a month, we could be looking at five to eight years before catching up to where we were before the recession began."

Reich points out that consumer demand is insufficient to facilitate a decent recovery, especially in light of the fact that the stimulus bill has now passed its peak.  Even with consumer demand on the upswing, it has a long way to go to reach pre-depression levels.

Since many, if not most, households rely on two wage earners, the unemployment and under-employment situation is affecting virtually every family.  Compounding that is the wealth effect of substantially lower home values and investments.

Consumers' debt burden is still very heavy, despite the fact that the wave of personal bankruptcies and defaults have reduced debt levels.  According to Reich "At the end of last year, debt averaged $43,874 per American, or about 122% of annual disposable income.  Most analysts believe a sustainable debt load is around 100% of disposable income, assuming a normal level of employment and normal access to credit — neither of which we are likely to have for some time."

Dr. Williams of ShadowStats (http://www.shadowstats.com/) confirms Reich's views in his latest piece.  Williams notes that real consumer credit in the first-quarter is down at a seasonally-adjusted annualized pace of 3.0% from the fourth-quarter.  Williams also concludes that the sluggishness in consumer income, combined with contracting debt are not indicative of a sustainable economic recovery.

On the corporate side, both Commercial Paper outstanding as well as Commercial and Industrial Loans are in virtual free fall.  As a result, money supply aggregates, such as real M-3, is now down a mind-numbing 6% year-over-year.  This level of contraction is indicative of imminent and severe economic weakness.

So, while the Obama Administration runs around trumpeting their "success" in turning the economy around, the foundation for economic strength is simply non-existent.

Marko's Take

Our new YouTube video on the Legality of The Personal Income Tax is now posted.  You can access it here (http://www.youtube.com/watch?v=1TInKnCIikg&feature=youtube_gdata).