Yellen About The Economy: Treasury Sec Digs Economic Hole Deeper With Each Appearance

P. Gardner Goldsmith | March 22, 2023
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Former “Chair” of the Federal Reserve and current Biden Treasury Secretary Janet Yellen spoke to a gathering of the American Banker’s Association Wednesday, and might have inspired listeners to marvel not only at her acrobatic ability to skirt the roots of economic reality but to stagger at her revisions of previous statements that aren’t even one week old.

Most of all, her continuing presence as the nominal head of the US “economic system” indicates how fundamentally dangerous and counterproductive it is for political forces to hold sway over what should be a privately-run, voluntary, money and banking system.

Confidently opening her remarks, she claimed that strong FDIC, Federal Reserve, and overall Biden Administration actions have steered the “banking system” away from a liquidity waterfall and systemic collapse.

“The situation demanded a swift response,” she told the audience. “In the days that followed, the federal government delivered just that: decisive and forceful action to strengthen public confidence in the US banking system, and protect the American economy.”

But her well-sculpted rhetoric doesn’t exactly jibe with claims she made last week. And the core of her claim – that the Biden Administration has moved to “protect the American economy” -- is not just laughable, it requires one to ask a fundamental question:

How does Yellen define “American economy”?

The recent collapses of SVB, Signature Bank, and Silvergate Bank (which was not shut down by federal “regulators” at the Federal Deposit Insurance Corporation (FDIC) and Federal Trade Commission (FTC), but saw its own decision-makers opt to close after experiencing intense federal pressure) not only drew great attention from citizens, they saw Yellen last week imply that SVB depositors would not receive a bailout, as traditionally understood.

The trick of it was that she simultaneously claimed that depositors who foolishly kept accounts larger than $250K would be covered.

Numerous observers read between the lines to predict that her claim of “no taxpayer money” being used to bail out SVB actually meant that the Federal Reserve and the Roosevelt-era, government-created FDIC would bail out depositors, far beyond the tune of $250,000 promised by the FDIC.

And this is precisely what she and those two government-created leviathans have announced, in the form of their jointly-created “depositor-bailout” scheme, the “Bank Term Funding Program”, about which, in its official March 12 press release, the Federal Reserve let the tax-backing cat out of the bag:

“The additional funding will be made available through the creation of a new Bank Term Funding Program (BTFP), offering loans of up to one year in length to banks, savings associations, credit unions, and other eligible depository institutions pledging U.S. Treasuries, agency debt and mortgage-backed securities, and other qualifying assets as collateral. These assets will be valued at par. The BTFP will be an additional source of liquidity against high-quality securities, eliminating an institution's need to quickly sell those securities in times of stress.

With approval of the Treasury Secretary, the Department of the Treasury will make available up to $25 billion from the Exchange Stabilization Fund as a backstop for the BTFP. The Federal Reserve does not anticipate that it will be necessary to draw on these backstop funds.”

So, yeah, systemically, taxpayers WILL be on the hook, contrary to what Yellen purported. But, more than that, the Yellen rhetoric also glibly overlooks the moral and economic transgressions represented by all forms of political – or political-corporate – intervention in what should be private transactions.

As I discussed last week for MRCTV, the FDIC is, and always has been, a moral hazard, offering banking institutions below-market rate insurance for their depositors, and, as a result, inspiring the bankers to be less vigilant about their loans and investments. But, simultaneous to that government-forced taxpayer adoption of risk, we also have the existence of the Federal Reserve, itself an immoral, government-created imposition that not only claims control over the money we can use, and not only creates said money virtually “out of thin air” with no real ties to commodity assets, the Fed also was granted by the “CARES Act” of 2020 the power to buy bonds from any corporation its board desired.

CARES actually allows the Fed to buy any corporate bond and NOT TELL ANYONE.

As a result, those of us who have been aware of the immoral nature of the Fed and immoral nature of that CARES nonsense recognized the dangerous prospect that this new “2023 bank trouble” would see the Federal Reserve team-up with the FDIC to either hand the FDIC money in the form of buying FDIC bonds, or hand banks money in the form of buying their bonds.

With BTFP, it looks like we’re going to be hit by both.

And “hit by both” actually is too limiting.

Related: Federal Reserve Ready To Buy Corporate Bonds, Thanks To New 'Super-Power' From CARES Act | MRCTV

We’re going to be hit three ways.

First, we’ll be hit by being forced to directly hand $25 billion of our tax cash to this new “program” as a “backstop.”

Second, we’re going to see the buying power of our earnings watered-down by the Fed creating money to buy FDIC “investment instruments” – i.e. bonds. These purchases will see an inflation of the money supply and not only will do nothing to choke-off reckless lending, they will inspire even more reckless lending.

Third, we’re going to see the buying power of our earnings watered-down by the Fed creating money to buy the “investment instruments” – i.e. bonds – of individual banks and banking chains, seeing the same lending phenomenon as noted above.

But, at least Yellen appears to have learned something, one tiny, fundamental, obvious thing, in the past week.

When Senator James Lankford (R-OK) last week asked Yellen if small and mid-sized banks would get the same “full-bailout of deposits” coverage that giant SVB is receiving, she appeared mystified by the question and its nature.

The nature of it, as Lankford explained, was that, by bailing out big-bank depositors and not doing so for smaller banks, she and her government-created corporate pals at the FDIC and Fed were inspiring depositors at small banks to move their liquid assets to those larger, fully government-insulated, banks.

Stunningly, Yellen simply didn’t seem to understand what he meant, and he had to press the point, still receiving from her little more than a parrot-like talking point about how she, the President, and various members of the Federal Reserve and FDIC consulted with each other to decide which banks represented a large enough “systemic risk to the economy” that they should receive even more of our tax cash beyond that which the FDIC already promised.

Evidently, Yellen must have gotten schooled by a few “advisors” after that, for today, she offered:

“Similar actions could be warranted if smaller institutions suffer deposit runs that pose the risk of contagion.”

And, by the term “risk of contagion” she implies a slippery, government-defined standard by which she, the Fed, and the FDIC can claim that virtually any bank is “out of balance” and should be shut down. Some banks might be fed the “depositor” bailout manna, and others might not, as the process sees greater and greater consolidation of the banking industry and more and more potential for political favoritism...

...As our tax cash and our earnings are put at risk and made less powerful by the inflation of the money supply.

Free market economists have warned for centuries that any political tie to the money supply is poison. This poison is what causes the “contagion” of inflation, reckless financial activity, and the opportunity for political players to define what entities have “tested positive” for their politically-defined “contagion.”

The moves Yellen and her cohorts take now are the latest in a long and dark tradition of favoritism: an economic system of centralized decision-making and fascist collectivism.

It is immoral, and its economic consequences always are disastrous.


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