From Volume 8, Issue 17 of EIR Online, Published Apr. 28, 2009

U.S. Economic/Financial News

Volcker: 'Political System Won't Tolerate' Fed's Hyperinflation

April 19 (EIRNS)—Former Fed chairman Paul Volcker attacked Ben Bernanke's massive money printing at the Federal Reserve in a speech April 18. Volcker is current chairman of the Economic Recovery Advisory Board (ERAB), an "outside economists" group appointed by President Obama at the time of his inauguration.

In recent weeks it has become clear that Volcker's recommendations of strong, Glass-Steagall-type medicine for the banking system, have led to his being frozen out of decision-making by Obama and the Lawrence Summers clique of economic advisors. Volcker's warnings about Bernanke's policy—which has ballooned the Fed's balance sheet to $2.1 trillion, including dubious and toxic assets—were the strongest delivered at a weekend economic conference at Vanderbilt University in Nashville, Tenn.

Volcker said Congress would have to contravene this tremendous and inflationary Fed expansion of money supply that is being used to feed bailout loans to the big banks. Congress "will probably review the authority granted to the Fed, following the expansion in its assets. I don't think the political system will tolerate the degree of activity that the Federal Reserve, in conjunction with the Treasury, has taken," Volcker said. "I think, for better or for worse, we are at a point where the Federal Reserve Act, after all that has been happening in the last year or more, is going to be reviewed."

Also at the Vanderbilt conference, former St. Louis Fed governor William Poole said, "We are very vulnerable to an inflation explosion" because of current Fed policy.

Fed deputy chairman Donald Kohn and New York Fed chairman William Dudley made "we're doing everything just right, and it's working great" speeches, claiming that the Fed would have "no trouble" turning to fight inflation triggered by such money-pumping. Kohn said that the Fed, during its huge asset-book expansion, has been lending to banks and financial institutions only on the basis of sound collateral—except when it hasn't, as in the cases of AIG, Bear Stearns, etc.; and then, the bailout loans were necessary for "systemic" reasons.

Fed Admits To Taking $74 Billion in Bad Assets

April 25 (EIRNS)—The Federal Reserve admitted yesterday that it took $74 billion in subprime mortgages, depreciating commercial leases, and other bad assets from Bear Stearns and AIG after they collapsed. It said that it had $9.6 billion in unrealized losses from those assets. The information came after requests from Congress and a Freedom of Information Act (FOIA) lawsuit by Bloomberg News. The Fed has lent out $2 trillion to financial institutions but has refused to disclose the borrowers or the collateral they provided.

Chrysler, Ford, GM Continue To Disintegrate

April 25 (EIRNS)—The Obama Administration and auto executives are still laboring through the fantasy that some sort of monetary solution can be found for the auto industry's troubles. Chrysler is being pushed by the White House to come up with a deal with its unions and Fiat that would make the company "viable" again, but such a deal is being held up by Chrysler's creditors, who include not only the usual suspects such as JPMorgan Chase, Citigroup and Goldman Sachs, but also hedge funds who are apparently reluctant to make concessions. The White House's auto task force is rushing to complete a bankruptcy plan for Chrysler by April 27, if a deal can't be made with the creditors, reports the Washington Post.

GM got another $2 billion from the Treasury yesterday, and is working on a plan that could see the elimination of its Pontiac line as well as its Saturn, Hummer, and Saab divisions.

Ford is being weirdly optimistic, reporting, yesterday, that it only lost $1.4 billion in the first quarter, and finished the quarter with $21.3 billion in cash. Goldman Sachs has been so impressed with Ford's restructuring and cost-cutting efforts that it upgraded Ford's stock to a "buy" recommendation, causing an 11.4% jump in Ford's share price.

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