What we are faced with today is not inflation but deflation
Lending has dried up not only from banks but from the "shadow banking system," i.e. all those pension funds, hedge funds, and foreign investors who used to snatch up mortgage-backed securities. And that means the velocity of money has slowed. Money is sitting in bank accounts rather than being lent into the economy for consumer and homeowner use. The government's stimulus plan is meant to pick up the slack, but who is going to fund it? The Chinese and other foreign investors are balking at buying more of our debt, and the taxpayers are tapped out. That just leaves the central bank itself. And that's why it must be nationalized.
This could be the watershed moment when the Federal Reserve
finally adjusts its focus and starts to act more like a government central bank, one that advances "the full faith and
credit of the United States" for the
benefit of the United States and its citizenry, rather than just for the
bankers who have held the government and its central bank hostage for so
long. President Obama suggested a move
in this direction when he said on the Tonight Show with Jay Leno on March 19:
"[W]e're taking a lot of steps to . . . open up separate credit lines outside of banks for small businesses so that they can get credit -- because there are a lot of small businesses out here who are just barely hanging on. Their credit lines are starting to be cut. We're trying to set up a securitized market for student loans and auto loans outside of the banking system. So there are other ways of getting credit flowing again."
The Fed now appears to be taking on the role of lender of last resort, not just for its member banks but for consumers, businesses, and the government itself. Provisos and cautions aside, its new "quantitative easing" policy at least has the potential to be harnessed to serve the government and the people it represents; and that is a promising development.
Harnessing the Federal Reserve for Federal Purposes
The Federal Reserve was originally set up in 1913 by a powerful Wall Street group to serve the private banking system, and it agreed to return its profits to the government only under duress. This actually happened after Congressman Wright Patman, head of the House Banking and Currency Committee in the 1960s, peered closely at its operations and pressed for its nationalization. The developments were chronicled by Congressman Jerry Voorhis, who wrote in 1973:
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