$9 trillion lost? Check the couch for change we can believe in.
May 25, 2009 11:42 PM   Subscribe

The Federal Reserve apparently can't account for $9 trillion in off-balance sheet transactions. Some of you may remember Ronald Reagan "proving" deficits don't matter and the fateful 10th day of September in the year 2001 where Ex Ford Chief of Staff Rumsfeld told us According to some estimates, we cannot track $2.3 trillion in transactions. Now the 'not a federal agency(ies)' Federal Reserve seems to have no idea where $9 trillion of 'public money' has gone.

Another oddity of the whole mess - Congressman Ron Paul has a bill with a large number of co-sponsors 179. Yea, the same Ron Paul who votes No and has a poor record of getting bills to the Presidents desk for signing.
posted by rough ashlar (29 comments total)

This post was deleted for the following reason: This is pretty much a GYOB post: Heavy editorializing crafted around conspiracy theories. Not really appropriate for metafilter. -- vacapinta



 
You forgot to link to the trilateral commission and the council of the elders of zion to complete the nutjobbery.
posted by allen.spaulding at 11:46 PM on May 25, 2009 [1 favorite]


"inspector general unable to answer" is not precisely the same thing as "can't account for". Also, this isn't public money.
posted by dhartung at 11:51 PM on May 25, 2009


You forgot to link to the trilateral commission and the council of the elders of zion

Couldn't find links to their public statements in front of Congress or the press where they note their inability to track "public monies". Perhaps you can provide those links like a good metafilterite as you seem to be more up on those things.
posted by rough ashlar at 11:51 PM on May 25, 2009


Using the title to somehow blame Obama for this is classy as hell, ashlar.
posted by Pope Guilty at 12:00 AM on May 26, 2009




I'm curious, rough ashlar, if you believe that all money is public money. If not, when does the money that passes between the banks and the Fed become non-public? Is it when the money arrives in the bank's coffers, or is there some kind of ritual involving the blood of Christian babies that has to be said over it?
posted by Pope Guilty at 12:04 AM on May 26, 2009


The editorialisation and agenda is strong in this one.
posted by Effigy2000 at 12:13 AM on May 26, 2009 [1 favorite]


You know, I usually think this kind of shit is for 9/11, bohemian grove truthers (mostly because everybody who has ever talked to me about the "evil fed" has been a fucking lunatic), but in the back of my head I worry some of this has validity..... then I realize your main link is from a fucking NEWSMAX sub-site and I feel more at ease.
posted by lattiboy at 12:15 AM on May 26, 2009


blame Obama

Naw, I was going for the 'find loose change in the sofa' angle. $2 trillion here (Pentagon), $1 trillion there (HUD) and pretty soon you've got real money. Why not look in the couch?

President Obama can take blame if he doesn't sign the bill (if 1207 manages to get to his hands - and with Paul's record on bills why would this one make it). If one wants to blame him, as a Congessman he, like his fellows, didn't force the Fed to turn over the audit info that was asked for. (late 1990's looks to be the last audit per here) And exactly what force could have been used?

President Obama is reaping what others have sown - and whomever follows him will reap the seeds he and his band will have planted. Actual change would be openness and transparency - and perhaps that may happen.
posted by rough ashlar at 12:20 AM on May 26, 2009


Wow, this is the most GYOFB axe-grinding post I've seen BEFORE it gets deleted in a long time. Tough, ashlar.

Of course, if you're suggesting that someone (or a bunch of someones) have absconded with $9 trillion dollars, I can only ask... where are they gonna spend it? Especially if this little accounting problem makes our currency collapse...

More likely, after decades of sugarcoating economic data, a practice that accelerated like an Indy Car leaving the pits during the last 8 years, our money supply is a few trillion dollars overstated.

Or a green eyeshaded bean counter at the Fed, who has been grossly overworked ever since this became a crisis last year, may have just dropped a decimal point on a very very large number or two.

All in all, it really doesn't make what is already a totally fucked-up system much worse. It won't even force Obama & Co. to hit the Big Red Button and reboot the entire economy, which everything they've done since January 20th was intended to avoid and will continue to until we actually have food riots.
posted by wendell at 12:23 AM on May 26, 2009 [1 favorite]


Of course, if you're suggesting that someone (or a bunch of someones) have absconded with $9 trillion dollars, I can only ask... where are they gonna spend it? Especially if this little accounting problem makes our currency collapse.

And fear over sunshine and its disinfecting effects is why I don't see 1207 going anywhere.

food riots.

I could go for the snark about overweight Americans but instead ask 'will it be a physical lack of food' (Malthus) or the ever popular 'plenty of food not enough money' which would be one of the reasons for the leaving of the gold-silver standard/creation of the system we now have VS the older systems of hard currency.

Low soybean yield, the wheat failures, the ever dropping amount of stored grain and food riots in other locations after 5 days of truck transport stoppage could prove you right Wendell.
posted by rough ashlar at 12:38 AM on May 26, 2009


Waterboard the Fed?
posted by adamvasco at 12:43 AM on May 26, 2009


then I realize your main link is from a fucking NEWSMAX sub-site and I feel more at ease.

Right, because the messenger *IS* what's important.

Not the message

Bloomberg reports the Federal Reserve and Treasury have lent or spent “$3 trillion over the past two years and pledged up to $5.7 trillion more.”

(Another fine example of shoot the messenger is the fine Richard Grasso FARC Commander picture - which gets shot down because it comes from the LaRouche camp. The LaRouche site used to have it up as a direct link but now its in pdf's. For the people who want to look at it http://www.dunwalke.com/images/photos/dick_grasso.jpg )
posted by rough ashlar at 12:57 AM on May 26, 2009


"The messenger isn't really important! As evidence, a reference to Lyndon LaRouche!"
posted by Pope Guilty at 1:00 AM on May 26, 2009 [2 favorites]


Dear rough ashlar,
this is not your blog.
love,
The Esteemed Doctor Bunsen Honeydew.
posted by The Esteemed Doctor Bunsen Honeydew at 1:02 AM on May 26, 2009


In relatively short form, and skipping over a LOT of detail: what happened over the last dozen years or so was an enormous expansion in the supply of 'money' -- things that looked like dollars, smelled like dollars, traded like dollars -- but weren't tracked like dollars, because they were created through market intermediation, rather than via the the normal method of banks lending more than they have.

The normal way: Fed lends out $1 billion to banks; banks use that money as a base to lend something like $20 billion more directly, and then as the new fictitious dollars hit other banks, they use them to lend again, but in ever-smaller amounts. The total ends up being something like $50 billion for every $1 billion the Fed injects -- this can be tweaked up or down by adjusting the reserve requirements.

The 90's and 2000's way: Lots of loans get made, from all sorts of different entities. The loans are packaged up into securities; the securities are insured, often by the completely and criminally insolvent entity, AIG. The rest of the market buys these securities, including banks. Critically, they're allowed to use them as assets to lend against, because they're AAA-rated. Since the securities are denominated in dollars, they end up functioning very similarly to cash reserves, allowing a much, much higher money multiplier than what would be expected. As far as I can determine, the effective money multiplier is infinite, as long as you can keep everyone playing the game. With a 2.5% reserve rate, if Bank A makes loans, and Intermediary B buys insurance and securitizes them, and then Bank C buys 2.5%+intermediary overhead of the total issue, they can then turn around and lend as much as Bank A did. Then if Bank A buys at least 2.5%+overhead from Bank C, then it can lend at least as much as it did the first time. The more it buys, the more it can lend. (Naturally, this is spread across a whole lot of banks, not just two, but you get the idea.)

The rest of the market is obviously absorbing a lot of these securities, so it didn't instantly blow up, but the total global pool of money expanded at about a 10% annualized rate from 2000 to 2008 -- which is wildly higher than the economies underneath could even come close to supporting. (Source on the total money supply figure: "The Giant Pool of Money", an excellent, excellent episode of This American Life.)

So the real estate and debt bubbles get enormous. Every part of the economy gets sucked into the vortex, and suddenly there's just nobody else to lend to. Fannie Mae starts to see some defaults, tightens lending standards a bit, and the bubble starts popping. A slow motion crash starts, as all these super-size fake dollars evaporate. And there's a mad scramble for 'real' dollars, making US currency startlingly expensive in a very short period of time, as people desperately try to get their hands on dollars to pay debts with. (and wow, did that ever blindside me -- as aware as I was of the bubble and the crash coming, that particular symptom caught me completely flat-footed.)

So the Fed steps in yet again (I won't bore you with all the other interventions that got us here) -- completely failing at their oversight duties AGAIN -- and turns trillions of dollars of these completely bogus securities into M0 money, direct original loans from the Fed. They're trying to get the game restarted, getting the money-creation engine going.

Note that in this system, we're creating tons of dollars, but we're not creating very much WEALTH. Wealth is stuff: dollars are a claim on stuff. It just happens that all these supersize-fake dollars were chasing houses, which caused inflation in an area we really liked. So, we cheered and wanted more, but it was still inflation, and it's still very damaging, as we've all seen over the last 18 months.

These banks made very, very bad bets, and the Fed has stepped in and turned those completely bullshit loans into REAL dollars. In the worst part of the crunch, if the banks had produced a napkin saying "IOU 40 Bilinn Dolarz", the Fed would probably have given them thirty billion for it. And that's why they "don't know" where that $9 trillion went, because they printed it out of thin air to buy bogus securities. They have no idea what the securities are worth, but they don't really care, because they can't go broke. There is no way the Federal Reserve can ever go bankrupt, because they have the power to create and lend new money at will.

Ultimately, YOU are footing the bill. When money is created like that, it comes out of your pocketbook, making your wages and your savings worth that much less. Many many new claims have been issued on existing wealth. Once things stabilize enough to restart lending, when the multipliers kick in, it's gonna get very crazy, perhaps very quickly.

Within the next year or two, it's going to start impacting your quality of life, because YOUR wages aren't going to go up much, while Wall Street's salaries and the prices of basic goods go through the stratosphere. You're already starting to see it in oil.

We handed nine trillion dollars to strangers for IOUs on napkins. What the hell else would we expect?
posted by Malor at 1:04 AM on May 26, 2009 [6 favorites]


And it's not your blog either, Malor.
posted by ryanrs at 1:14 AM on May 26, 2009 [2 favorites]


Wealth is stuff: dollars are a claim on stuff.

That's a pretty good line, though.
posted by Pope Guilty at 1:22 AM on May 26, 2009


Ugh. For every person who understands what's going on, there are like 25 who think they do and are incorrect.
posted by delmoi at 1:30 AM on May 26, 2009 [2 favorites]


@demoi - Not sure if you're talking about ashlar or Malor or who. Very insightful though, thanks
posted by crayz at 1:40 AM on May 26, 2009


We don't use the @username convention around here, crayz.
posted by ryanrs at 1:44 AM on May 26, 2009


what about the #meficonventions hashtag @ryanrs?
posted by runcibleshaw at 1:47 AM on May 26, 2009 [1 favorite]


What is this, CSS?
posted by ryanrs at 1:51 AM on May 26, 2009


What is this, CSS?

No, it's the mefi inquisition, which is to be expected in a tin foil hat thread.
posted by iamabot at 2:10 AM on May 26, 2009


Also, what about The Protocol of the Elders of Tralfamadore? (I bet the ending of Battlestar Galactica made a lot more sense to them)
posted by runcibleshaw at 2:17 AM on May 26, 2009


Sigh. This entire conspiracy meme has been whizzing about the net (and country backwaters where I grew up - seriously!) and growing for a while now.

It seems to originate from questions that an increasingly insistent Grayson presented to Coleman during some obscure hearing.

I've listed to the interview, Coleman provides answers, but just not the answers Grayson wants. I don't know much about Grayson (living abroad as I do), but it seems an unreasonable stretch to me to conclude - apparently solely on the basis of her response - that "Nobody at the Fed knows where the money went. ".

In other words, the "conclusion" is based upon a single question & response. Why wouldn't Grayson go to Coleman's boss if he was dissatisfied? Well, that way he can't get to play political demagoguery.

If you google about on this topic you'll see lots of allegations about "The Jews" taking this money, linking back to this interview and many of the provided links.

So that's Grayson's motive. Playing politics. Not a genuine interest in either the problem or the solution.

Now on to a few of the other links.

The "Deficits don't matter" comment comes up on the context of solid economics; historically we've seen the reserve currency country as running a trade deficit. Makes sense if you think about it for a moment; folks need dollars to pay for oil and other commodities. Now I'm not in favour of the excessively large US deficits - from my professional and academic backgrounds, I'm against them in their current scale - but once again we've got a comment extracted from context and made to sound unreasonable.

Read pretty much any intro text on Economics (I'm partial to Mankiw & Taylor myself, but The Complete Idiot's Guide to Global Economics should get you there as well) and you'll see that the reserve currency nation typically carries a deficit, and the faster growing developing economies carry surpluses.

We've seen this across hundreds of years of history, so its no surprise we observe it now. Of course it is a surprise - and a problem - to those who haven't studied economics. But now, thanks to the internet, those who in the past might have stood on a street corner with a sign shouting out their message of doom to bypassers now have a global soapbox.

Now the favourite of conspiracy theorists everywhere (including more than a few very vocal ones here on MeFi), the "Federal Reserve is a Private Bank" meme.

So what if it is? Making such a fuss about this shows a profound ignorance of 1) How the banking system works in general, and 2) The role of a Central Bank in said system. So let's talk it through a little (and I said a little; I teach this topic at one of the Universities I'm associated with and we'd need far more time to talk this through in any reasonable detail).

Viewed from but one perspective, a Central Bank has two, very high level roles:

1) A Bankers bank - backstop and provide services to the private banking system

2) The Governments bank - yes, the government needs banking services and those are provided by The Central Bank

A privately owned bank (if The Fed were indeed privately owned) clearly can service these roles.

In fact, the Bank of England started out as a privately owned bank in 1630 (the Wiki is wrong, it claims 1694, so I've got to update that page), and was only nationalised in 1945 after WWII when the UK government decided it needed to tightly control the economy to rebuild (talk about an economic crisis - Britain was almost bankrupt after WWII!). So for well over three hundred years a privately owned bank in what at the time was the worlds dominant economic power provided Central Banking services.

Clearly the "The Fed is a private bank" is more uninformed hysteria and "evidence" in many uninformed eyes of yet another conspiracy. Google for this and guess what group of historically maligned people "own" The Fed. Hint: see who was blamed for the missing trillions.

Wish I could say interesting post, but I can't. Its just driving hysteria and has packaged up multiple, unfounded conspiracies into one place. Not even neatly, I'm afraid.
posted by Mutant at 2:23 AM on May 26, 2009 [5 favorites]


FYI, transaction amounts cannot be used interchangably with describing it as a balance no matter how much you want to make the financial illuminati looks bad.

This rule also applies to the nutjobs that like to add up Medicare liabilities for the next x number of years (50 for instance) to come up with a stupifying 100 trillion public debt.
posted by Talez at 2:29 AM on May 26, 2009


@ryanrs - What, you're from the Username Convention Subcommittee in the Ministry of Pedantry? Do you have a badge and a special hat and everything?
posted by crayz at 2:47 AM on May 26, 2009


to come up with a stupifying 100 trillion public debt.

The Oxford-educated Mr Fisher, an outspoken free-marketer and believer in the Schumpeterian process of "creative destruction", has been running a fervent campaign to alert Americans to the "very big hole" in unfunded pension and health-care liabilities built up by a careless political class over the years. "We at the Dallas Fed believe the total is over $99 trillion," he said in February.

Yea, them Fed people and their numbers - not to be trusted without an audit eh?
posted by rough ashlar at 2:47 AM on May 26, 2009


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