What Every Student in America Needs to Know About the Federal Reserve

oftwominds.com
People are confused about the Fed, and I think it would be better if everybody had a clear understanding of what the Federal Reserve is and what it is not.

First of all, the Federal government thinks of the Federal Reserve as a service bureau, whose function it is to print money that the government can spend. As long as the Federal Reserve performs that function--reliably printing, let's say, a trillion or more each year to top off the Federal budget--then Congress will be happy with the Federal Reserve (their rainmaker) and will follow its advice and try to keep it happy.

It should be emphasized here that the whole Keynesian smokescreen and sideshow has very little to do with the reality of the relationship here. The Federal Reserve's job is not just to lend Uncle Sam some money during a recession so as to provide temporary stimulus. The Fed is a milk cow for Uncle Sam. Its job is to give milk all the time.

So to summarize this first point, the Fed is a service bureau for the Federal government whose job it is to provide the government with freshly printed fiat every year. This job has very little to do with the Keynesian prescription of how to deal with a recession.

The Fed is also a service bureau to the big banks that own it. Its job is to give unfair advantage to those banks, either by granting them low-interest loans that can be rolled over into infinity, or by buying their bad debts and disposing of them properly, or by doing any number of other special favors for them that increase their profits and executive bonuses. The Fed is not independent in the sense that it is self-governing. It must provide service to the banks who own it and to the Federal government, which controls its legal environment. Big banks have owned and controlled the Fed since its inception in 1913.

Summary: The Fed is also a service bureau to the big banks. It is not as independent as it proclaims itself to be; it provides services for its owners. Its owners have a profit motive. Read more >>

Sales of American Eagle gold coins soar

Demand for gold coins in the US has soared since the presidential election, as small investors fret about the lack of action to address America’s ballooning debt. The US Mint’s sales of American Eagles, one of the most popular gold coins, leapt 131 per cent in November, hitting their highest level in more than two years. The Royal Canadian Mint also had its strongest month of sales this year.

Terry Hanlon, president of metals at Dillon Gage, one of the largest bullion dealers in the country, said sales had risen sharply “within a day or two” of the election.

“You’ve got a lot of people who are very worried about the economy. With the election they saw that nothing was going to change,” he said.

While coins are a small part of the overall gold market, the jump in sales highlights gold’s role as the favoured investment of disenchanted Americans. The political gridlock in Washington and the prospect of further quantitative easing when the Federal Reserve’s “operation twist” expires at the end of this year have fuelled demand for precious metals among small investors. “They don’t believe in Uncle Sam any more,” said the head of precious metals at a large bank. Read more >>

Of the 2% increase in GDP over one third was "Government Consumption"

Sure enough, the preliminary look at Q3 GDP just came out and "beat" expectations of a 1.8% print, with a 2.0% reading (or just in line with stall speed, a number which previously has been indicative of recessions).

So far so good, but as with every other pre-election economic data point out of the government, one has to look behind the headline to get the true picture. And the details are, as expected, ugly. Because of the 2.02% annualized increase in GDP, over one third, or 0.71% (compared to a deduction of -0.14% in Q2, and 0.64% of the 0.71% came from defense spending), was contributed by "Government Consumption."

This was the biggest rise in government spending in 3 years, and only the first contribution by Uncle Sam to its own GDP print since Q2 2010. Read more >>

1.3 Million People Fall Off Extended Benefits In Past Year

One month of positive economic surprises since the last FOMC may be all we get, now that a "majority" of FOMC members suddenly need a rapid deterioration in economic data to usher in the NEWER, MORE OPEN-ENDED QE.

Initial claims was happy to comply: after posting several weeks in a row of "beats", claims has finally resumed "missing", as well as rising, posting an increase from last week's upward revised 368K print to 372K this week, worse than the expected improvement to 365K, and to a one month high. And with continuing claims missing too, the real story continues to be the steep fall off in those on extended benefits and EUC, which declined by a total of 48K in the past week, and down by about half a million in the last few months, and lower by 1.3 million in the past year.

This is 1.3 million fewer consumers who can recycle Uncle Sam's dole back into the economy and iGadgets. The question is whether this minimal miss is enough to justify the FOMC doves' fears the much more QE is needed. Read more >>

Desperate Retailers Offer to Buy Used Goods in Cash for Clunkers Spin

Image by Getty Images via Daylife

MARK GLOVER
McClatchy News
It sounds surreal, but it's true: Private industry is rushing to adopt the marketing strategy of the federal government.

Companies of all stripes are now putting their own spin on the government's ``cash for clunkers'' program, offering trade-in deals on furniture, computers, appliances, hearing aids and just about every other item that can be sold.

Their motivation is simple -- the possibility of big sales in short order. ``Cash for clunkers'' generated about 700,000 new car sales during its run from July 27 to Aug. 24 and had thousands across the nation ready to exchange their old clunker for a shiny new car and a less overwhelming debt.

Page through any newspaper or surf the Web. It's hard to miss the replicated theme in ad after ad. It is all over the media. A simple Google search of ``cash for'' possibilities turned up scores of clunker promotions being offered by businesses from coast to coast.

The clunker mimics included: ``cash for laptops, cash for cells, cash for couches'' and even ``cash for appliances.''

Hollywood Eyes recently held a ``cash for clunker eyeglasses'' trade-in. People were able to get $25 off a new pair of glasses if they donated their old ones. The store is giving their specs to a local Lions Club, which refurbishes and distributes them to needy Central Americans.

``Even if people don't come in the store, they look at our clunker sign in the window and laugh,'' said manager Daniella Bonilla. ``People are happy to get any kind of discounts these days.''

The national Sephora beauty store chain also had a two-week ``cash for beauty clunkers'' event, giving customers $10 off a purchase of $50 or more if they brought in five old items.

"A lot of people took advantage of it,'' said Krystal Killion, one of the managers at Sephora in Fort Lauderdale's Galleria Mall. The clunker cosmetics ``went to the junkyard,'' she said, ``just like the clunker cars did.''

HANDBAG TRADE-IN

Dillard's also recently held a Handbag and Watch Trade-In Event. Through Nov. 1, lightly used, clean handbags, wallets and watches were being exchanged for store discounts, which ranged from $15 to $50 depending on the value of the donated item. The collected items were donated to local charities.

Babies R Us and Men's Wearhouse also recently offered similar promotions.

Jumping on the ``cash for clunkers'' bandwagon is a smart move, according to some analysts.

"It's a cool new marketing strategy, and ``cash for clunkers'' worked. This is a great strategy for getting people's attention,'' said Mike Gatti, executive director of the Washington-based Retail Advertising and Marketing Association, a division of the National Retail Federation.

Gatti said the enormous publicity generated by ``cash for clunkers'' works to the advantage of companies offering clunker-like programs.

CASH FOR GOLD

But in truth, there are already South Florida businesses willing to buy or even consign used items for store credit or cash on the spot.

Across from the Dillard's store at the Miami International Mall, signs at CR Jewelers announces it's willing to ``buy your gold and diamonds.'' The price offered depends on the purity of the gold or diamonds.

``If gold is broken, dirty or in poor condition, it does not matter because the jewelry will be melted,'' said Donald Weinburg, an employee. ``Broken jewelry is just as good as new.''

CR Jewelers uses its ``cash for gold'' program to draw in new shoppers and build relationships with customers, according to Weinburg.

``With the economic situation as it is, people find themselves short on money for necessities like rent and utility bills,'' Weinburg said, ``so trading outdated or unwanted jewelry for cash helps lessen the severity of the recession.''

Plato's Closet, in Pembroke Pines, offers ``cash for clothes'' every day. Representatives at Plato's Closet buy lightly used clothes, shoes, purses, belts, hats, jewelry and movies that appeal mostly to younger shoppers.

The computerized prices offered are based on style, condition and brand. All the merchandise in stock comes from items people have brought into the store.

Steven Munzer, the franchise owner, guarantees customers will find themselves ``spending a fraction of what they would spend in the mall' for used items that are clean, in good condition and are top-name brands.

CASH FOR MUSIC

In Miami Beach, Uncle Sam's Music buys used CD's, records and music supplies in their original cases or sleeves.

Lisa Teger-zhen, who is in charge of the buying operation, recommends calling beforehand because the store can only buy a specific number of items per day.

But during the tough economy, Teger-zhen said Uncle Sam's offers an inexpensive alternative for music fanatics. ``There are tons and tons of people who are broke right now and need to get in the right position,'' she said.

CASH FOR BOOKS

Is your house crowded with books you no longer read -- or collectibles and antiques? Julius Ser, who opened Fifteenth Street Books in Coral Gables in 2001, may have a solution.

The shop, which specializes in used books and rare collectibles, may be interested in your excess.

``Whatever we feel we like, we buy,'' said Ser. The shop's main interests, however, are books dealing with art, Latin America, first editions or fiction -- and antiques.

Prices are set depending on rarity of the book, genre and condition. You can also pick up extra reading material at Fifteenth Street Books for as low as $1 per book.

So look around your home. Clean out all the overflowing drawers and bookshelves and make cash on the spot. Or better yet, remember the adage: out with the old and in with the new or semi-new.