The reputation of the United States Federal Reserve continues to diminish as one of the world’s best-regarded investors called for the institution to be audited and closed. The comments were made by Jim Rogers, who co-founded George Soros’ legendary Quantum hedge fund (which made more than $US1 billion betting against the British pound in 1992).

Speaking to Yahoo’s Tech Ticker program, Rogers supported the moves of Republican Senator and Presidential candidate Ron Paul to audit the Federal Reserve, noting:

The Red Cross is audited, the church is audited, universities … the US  government … it’s incomprehensible to me these people are saying they have no reason to be audited — they must have done something wrong, must have something to hide.

Rogers then stepped up his criticism, calling for the institution to be abolished:

The world can get along without a central bank. America has had three central banks in their history, the first two disappeared (and) the world didn’t come to an end, American continued to become one of the great success stories of the last 100, 200 years.

… I would abolish the Fed … The Fed is making our lives miserable. The Fed is printing huge amounts of money, which we’ll have to pay for some time. The Fed is borrowing gigantic amounts of money on their balance sheet … You think they’re going to pay it off?

No.

You and I are going to pay it off … the numbers are so staggering that this is going to have ramifications before too much longer.

If you didn’t have the Fed, you wouldn’t have all these guys borrowing money in our name and printing money in our name. The Fed is going to abolish itself … between Bernanke and Greenspan they’ve made so many mistakes (that) within the next few years the Fed will disappear.

Rogers’ comments came soon after long-time Ben Bernanke critic, Kentucky’s controversial Senator Jim Bunning, gave a strident sermon on the Fed’s failures at Bernanke’s confirmation hearing on December 2. In a devastating attack, Bunning accused Bernanke of being “the definition of a moral hazard” and stated:

You have decided that just about every large bank, investment bank, insurance company and even some industrial companies are too big to fail. Rather than making management, shareholders and debt-holders feel the consequences of their risk-taking, you bailed them out.

Instead of taking that money and lending it to consumer and cleaning up their balance sheets, the banks started to pocket record profits, and pay out billions of dollars in bonuses to their management. Because you bowed to pressure from he banks … you have created zombie banks that are only enriching their traders and executives.

Bernanke was even criticised by Banking Committee Chair Senator Chris Dodd (who himself has received large campaign contributions from the finance industry), who questioned the decision of the Federal Reserve to pay the counterparties of failed insurer, AIG, 100 cents in the dollar “with literally no negotiation … I don’t understand that at all, and most Americans don’t … it’s hard to accept the notion that we couldn’t negotiate with the counterparties.”

Of course — that is assuming the Fed really wanted to negotiate. AIG’s counterparties were in the main, large banks that had used AIG’s credit default swaps to bet against collateralised debt obligations (many of swaps were packaged and sold by those same banks). Most notably, Goldman Sachs directly received $US13 billion from the Fed the AIG bailout. (Bernanke told the Confirmation hearing that “most of the firms were foreign, we had no authority or leverage over them”.)

The Fed’s actions in relation to AIG led to Bunning telling Bernanke: “The AIG bailout is reason enough to send you back to Princeton.”

In one sense, Rogers and Bunning are correct — the Fed’s actions have been disastrous for current and future US taxpayers.

However, it is worth considering that the Fed was inspired and is effectively controlled by the large US commercial banks. While the Fed chief (and its board of seven governors) is appointed by the President and the body is regulated by several laws, the institution was actually motivated by America’s richest men, John Pierpont Morgan and a group of wealthy financiers, after the 1907 financial crisis. The Federal Reserve itself is split into 12 regional reserves — those regional reserves are controlled by commercial banks which appoint six of the nine regional directors. As a result, the Fed has been described as a “cartel of banks … parading around looking as though it’s a government operation of some kind.”

In that sense the Fed has not failed at all in recent years. Its decisions have been for the benefit of its ultimate masters — US commercial banks; not the US taxpayers. They just pay the bills.

Peter Fray

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