Friday Roundup, April 26th

Before Super PACs, McCain-Feingold, “soft money,” and the Keating 5; before Watergate, and even before Teapot Dome, there was the Michigan Senate race of 1918. . . . one of the nation’s most contested elections and earliest campaign finance “scandals. . . . Unlike the typical political saga, however, Baker presents the story not as a morality tale of honest government corrupted by big money, but rather as a cautionary story about big government regulation of honest money and the political choices of the electorate.

  • Intervention like its 1820: Featured on Liberty Fund’s Online Library of Liberty is John Taylor of Caroline’s thoughts on freedom, property, and early efforts by the feds to direct the economy.
  • So how is this representative government? They don’t read the legislation they pass, which can’t even really be called law. They don’t appropriate the money to pay for it and, apparently, exempt themselves from its consequences.

But where does the Treasury get its money? Well, to a very significant extent, it gets it from the Federal Reserve, which has so far amassed more than $1.8 trillion of Treasury debt, and keeps on buying — again at the top of the market. This all makes a most interesting triangle of government finance, as shown in Figure 1. Thinking about it, my brother, a Swiss private banker, observed, “Just about what John Law built in France in 1716-1720” — referring to the notorious paper money theorist and government banking practitioner, who inflated the infamous “Mississippi Bubble” of his day.

PollockFigure1_4-23-13.jpg

The Fed, by buying long-term MBS and long-term Treasury debt, especially by buying them at the top of the market — a top which its own purchasing pressure is intentionally creating — is concentrating massive interest rate risk on its own balance sheet. By “the Fed’s” balance sheet, we actually mean the aggregate balance sheet of the 12 Federal Reserve Banks. This consolidated balance sheet has $3.3 trillion in total assets and $55 billion in equity, for leverage of a heady 60 times and a capital ratio of a paltry 1.7 percent.

Pollock notes that the accounting rules are different for the Fed when it comes to stating its losses. So you won’t even be able to believe your lying eyes. Better stated: it made up the rules.

The Fed controls its own accounting standards and, in 2011, changed its accounting so that even with a net loss of $55 billion, its capital would still be reported as $55 billion. If it lost $100 billion, its capital would still be $55 billion. If it lost $200 or $300 billion, its capital would still be $55 billion. Get it?

Richard Reinsch is a fellow at Liberty Fund and the editor of the Library of Law and Liberty.

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Comments

  1. R Richard Schweitzer says

    With respect [?] to “representative government:”

    We no longer select (or delegate power to) “representatives.” We select those to “manage” the mechanisms of our governments – who in turn delegate their own assigned functions to other “managers” and thus diffuse responsibility and prevent accountability.

    We no longer have (and long have not had) a representative form of government. We have a ** managed ** administrative state.

    Think not?

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