The 1951 Banking Battle For Power


Understanding the present Matrix means looking at key years in the past.  A number of astute commentators have mentioned the 1951 struggle for power between the Treasury and the President versus the Federal Reserve.  The Reserve has won more and more power over the years and wants even more power and they have been a total, unmitigated disaster for the US.  And we look at 1951 secret memos where the Fed conspires with the Bank of England and also conspire to control world gold markets!  Lots of interesting data here!

Geithner seeks new powers over financial companies – The Globe and Mail

Treasury Secretary Timothy Geithner called on Congress Tuesday to grant him new powers to regulate huge financial companies like insurance giant AIG, whose failure would pose a grave danger to the U.S. financial system and the broader economy. Specifically, Geithner wants powers similar to those of the Federal Deposit Insurance Corporation, which has authority to seize control of banks, take over their bad assets and sell good ones to competitors. “AIG highlights broad failures of our financial system,” Geithner told the House Financial Services Committee. “We must ensure that our country never faces this situation again.” Federal Reserve Chairman Ben Bernanke, appearing with Geithner, agreed. He said the government’s bailout of troubled insurance giant American International Group Inc. underscores the urgent need to safely wind down financial giants on the verge of collapse and subject them to much stronger regulatory oversight.

Geithner, a Federal Reserve chief in charge of the Wall Street sector, now runs the Treasury.  And his buddy, Bernanke, and he wish to expand NON-PUBLIC control of the biggest financial houses.  So they can ‘fix’ messes with minimal public input or controls.  This internalization of banking systems comes after half a century of failures of both the Federal Reserve and the Treasury which is supposed to answer to Congress.

This week the Ron Paul bill, 1207 for auditing the Federal Reserve is being debated in Congress.  Attempts at watering down the bill so Congress can unconstitutionally evade its responsibility for running the currency and the Treasury, must be resisted.  Despite the obvious fact that the present system stinks, very few Congress people have the stomach to do their duty.  This bill, by the way, totally ignored by the Republicans before Obama walked into office, now has their support.  But the person who pushed this bill onto the floor for a debate was Kucinich, my very favorite Democrat.  He was the 222nd Congressman to support the bill and did this in the teeth of Pelosi snarling and snapping at him.

In 1951, a battle for power between the Federal Reserve and the US Treasury was raging during a Presidential election cycle.  It was resolved before Eisenhower entered the White House with the Federal Reserve the total winner and with it getting a mandate to do the currency manipulations we see so often today, the pretense, they are controlling prices via leverage games with the Treasury as the passive other partner.


Staff Memorandum Presenting Background on the Present Problem

It has often been pointed out that the huge growth of the public debt, to the point where it is approximately one-half of all debt in the country, had made it much more important to minimize nervousness on the part of holders of Treasury securities. It must be remembered that at the time the Federal Reserve System was established there was no public debt to speak of (about $1 billion) and so the Federal Reserve was faced with no difficulties like we have today.

WWI and WWII took care of that. The Federal Reserve also funded the ‘peace’ and bankrolled the reparation payments Germany had to make, the ones that Hitler disowned.

Perhaps the real issue between the Treasury point of view and the Federal Reserve point of view centers about this element of nervousness.

A number of people to this day, would like to pretend that ’emotions’ control markets. Reasonable fears of someone messing around with previously ‘stable’ systems invoke fear and counter-reactions.

Both sides recognise that there is a large body of assets in the hands of nervous holders. These holders are not always nervous, but they have a natural nervous feeling that become important when changes in interest rates are being discussed.

Changes done in secret would make anyone nervous.

For the most part, these nervous holders are not the little fellows, but on the contrary are the profes- sional portfolio men, the smaller bank presidents, the trust fund adminis- trators, etc. This is a very sophisticated group, by and large, and as such they are more than ever afraid that they will be caught short in some way. In other words, there Is a large element of pride involved.

This is a very odd statement for the Fed to make! The dealers aren’t ‘proud’, they are scared of potential losses!

The portfolio man is in a sense gambling against the market and wants to “look good” to his superiors and particularly his board of directors. Hence these people are apprehensive all the time that something will happen to make their decisions look bad. This is why a fractional rise in long-tera interest rates, with a corresponding small drop in the price of long-term Government bonds night bring on a great wave of selling. The selling would be engendered by the fear that prices would go lower and lower and the portfolio man who sold early would reason that he would be able to either (a) minimize his losses, or (b) make some profits by reinvesting later at lover prices.

Evidently, this writer who subscribes to the ’emotional’ market theory doesn’t understand short selling.  Way back then, before the entire system buckled and warped during the 1970’s, even tiny alterations in interest rates would cause considerable market moves.  This was all part of the ‘balancing act’ business where the bond markets adjust to FUTURE expectations due to incoming data being projected forwards in time.

The Federal Reserve position seems to be that it is possible to capitalize on the very fact that there is nervousness in the minds of a large body of holders of our vastly expanded public debt. It is said that this very sensitivity can be used to advantage, and that small manipulations of interest rates and bond prices siay produce highly de- sirable changes in the monetary situation. In other words, the argument is that the growth of the debt and the nervousness of some of the holders means that the Federal has more control than ever because of the leveraged effect of its manipulations.

And here he drops a bombshell!  This ‘nervousness’ can be EXPLOITED by the Federal Reserve which can, in turn, control events via ‘leverage’.  What I presume is being said is, due to the immense WWII debt overhead, the Federal Reserve had lots of ‘assets’ in the form of Treasuries which could be used as the basis of lending money for various purposes.

In any event, there is agreement on the existence of a substantial body of nervous holders. The difference in opinion lies primarily in the conclusions about how these nervous holders would react to uncer- tainties stemming from changes in interest rates and bond prices. The Federal Reserve position is one of confidence that small changes can produce comfortable results. The Treasury position is that small changes may produce chain reactions leading to completely unpredictable results. This is obviously a matter of Judgment.

Note that, back then, the Treasury is on the opposite side of the scales as the Federal Reserve.  Thanks to the 1914 coup, the Treasury has a much more passive role in our affairs.  The Fed Reserve is the entity that can ‘leverage’ something.  We know today that this debate has evolved into a complete disaster as an activist Federal Reserve has basically leveraged us right off the economic cliff.

The Federal Reserve is willing to experiment and feels that if it makes a mistake it can easily correct it. —YIKES!!!!—The Treasury is afraid to experiment because of the volatility of public opinion and contends that it may be virtually impossible to correct mistakes.

HAHAHA!  See?  We pry into the past and learn something new, every time.  The Treasury could face public fury if it screws around but the Fed doesn’t give a flying F about the public.  Just like today.  And guess who was right about it being nearly impossible to correct mistakes?

Moreover, the anti-inflationary results seem so slim relative to the size of the risks involved that the game does not seem to be worth the candle to the Treasury. In fact, the Treasury feels that there is a distinct chance that scaring the nervous holders by manipulation could result in an intensification of inflationary pressures. This is because if people are already worried about the declining purchasing power of the dollar, will not their fears increase if they feel that savings are not safe because the financial markets themselves show heavy selling and declining prices? The natural reaction might be to say that this caps the climax and it is best to save not dollars but acquire only things.

Back then, one of these ‘things’ could not be gold due to the Roosevelt laws.  Today, it is obviously gold and other things.  Note the astonishing discussion about MANIPULATING the markets.  This document is quite revealing.

The Federal Reserve argument for raising interest rates and lowering bond prices has shifted around from time to time. Three arguments come into peoples’ minds for taking this action to stem inflation.

  • One is that higher interest rates encourage savings.
  • The second is that higher interest rates discourage spending with borrowed money.
  • The third is that declining capital values on Government securities discourage lenders from selling them to raise funds to make loans.

This is still their thinking, obviously. This is why Geithner and other officials have to crawl and stoop in Asia, begging our creditors to keep holding US bonds. Both China and Japan need to stimulate their own economies. They will withhold doing this bond selling only if we give them significant concessions.

Apparently the Federal Reserve feels that the first two arguments do not have much validity now and it is the third argument which is motivating their thinking. To repeat this argument, it is that the introduction of capital losses on holdings of Government bonds will discourage banks and insurance companies from liquidating them in the market to raise funds to make loans.

This point requires critical examination. There is undoubtedly some truth in it. Yet it is hard to believe that there is a universal rule here. It depends on a great many things — the size of the capital less involved, the relative attractiveness of the loans to be made, the question of whether “good customers” are involved, the question of whether a future business relationship is involved, and other factors. In general, it seems hard to believe that this would be a very important factor if only fractional losses in bond values are assumed to be what is desired by the Federal Reserve.

A grave misunderstanding about the gnome community here.  They hate to have even tiny losses.  They will destroy the global financial system if this means they get some profit, even if it is a tiny percentage, if the amount being toyed with is huge, this translates into tremendous wealth.  Indeed, they prefer smaller percentages of larger bases rather than the reverse.  This way, no one notices the money pouring out of the system and to them.

For example, would a price of 99 on the Victory Loan 2-1/2’s reduce selling on the part of insurance companies because of the capital loss feature, or would selling be increased because of the fear of further declines to come? Might not the market be deluged with selling without Federal Reserve attempt to restore order there with a new peg at 99?

If this were allowed to really stick, would it have accomplished much from having it pegged at par or above. Are not the securities going to be “near-money” if there is a peg at any level? Would not alternative investments or loans appear equally attractive at any peg in view of the fact that there is always a spread between rates on Government securities and rates on private debts? The Treasury feeling, therefore, comes down to simply this — a decline in the bond price to 99 may have too much effect and make things worse, or it may have no effect at all if the market is convinced that stability will be maintained from there on out. The Federal Reserve position would be somewhere between these two, with a feeling of confidence that things would be able to be worked out just right.

This talk about markets wanting stability is strange. The ‘market’ wants to grow and this implies instability. The role of the central bankers and the Treasury is to prevent bubbles which always turn into hideous crashes. This doesn’t mean ‘stability’ but rather, preventing too much credit offerings in general.

There is, of course, agreement between the Federal Reserve and the Treasury that inflationary pressures should be controlled, and that the expansion of bank credit should be limited. The difference of opinion lies in the question of remedies. The Treasury is afraid of the in- terest rate remedy, and the Federal Reserve wants to try to use it again. In this discussion the Treasury position has not been made clear.

This is the problem with all war spending: it causes inflation.  And squeezing off inflation causes a post-war depression.  Balancing a war-based debt load is extremely difficult.  The temptation is to ignore it entirely.  Incidentally, this is what we chose to do, in the end.  Ignore it all and just suck down endless debts.

It has seemed to be arguing for low interest rates in order to keep down budgetary interest costs. If this were the only argument, it would be inadequate. Surely if an increase in interest rates would neatly stop the inflation, it would be a small price to pay even if it cost several billion dollars. The Treasury fear is that an increase in interest rates would have very little to do with stopping inflation or might upset the balance of the financial markets and cause more inflation and, therefore, it is not a suitable remedy. Besides which it would increase interest costs.

It should also be noted that banks could largely avoid having to take capital losses on securities liquidated to raise reserves in any event. They could do this by simply cashing in Treasury bills each week as they mature and by not exchanging certificates, notes, and bonds when they come due from time to time. Out of $55 billion of securities reported by commercial banks included in the Treasury Survey of Ownership, about $20 billion was due or callable within one year (October 31 figures). Another $20 billion was due or callable within from one to five years. No conceivable manipulation of interest rates and security prices could keep most banks from manufacturing new re- serves at will by cashing in short term issues as they come due. The Treasury would thus be providing them with all the reserves which they wanted. Of course, the Treasury in turn would have to raise funds and it does not seem likely that the Federal Reserve could stand by and permit the Treasury to have real financing difficulties, so in the end, the Federal Reserve would probably have to step into the picture anyway.

This business of banks ‘manufacturing NEW reserves’ via cashing in US bonds is most interesting.

ALFRED: ALFRED Graphalfredgraph-1

This graph shows an amazing degree of exactly this sort of ‘new reserve creation’ being done at the Federal Reserve in the last 8 months!  If we show the graph all the way to the beginning of the Federal Reserve, it is barely a blip above the $10 billion level. Then, it suddenly shoots to the trillion level and is staying there.  This is a significant historical event.


alfredgraph-2This second graph shows how ‘NON-borrowed’ reserves plummeted by over $300 billion and then just as suddenly shot upwards by over $300 billion.

This was a clear case of total market meltdown followed by a rescue.  Looking at both graphs together, we can see how the meltdown began in August, 2007 and reached critical collapse by October, 2008.  The rise in the lower graph matches the skyrocket rise in the upper graph.

The important point here is thet commercial banks hold the initiative.

The Federal Reserve ought to be given additional powers to control bank credit. —This is a KEY point to this memo!—A longer run approach to this problem would be to try to lock up the relatively free reserves in the banks represented by their holdings of Government securities. This method can be used only slowly, however, and while it might well have a place in a program at this time, it cannot, by itself, solve the present problems. There are several reasons for this which need not be gone into at this time.

From this year, 1951, until 1980, the Federal Reserve had a hammerlock on interest rate controls via controlling the reserves of the banks. As we see with the queer news about the smuggled bonds in Italy this week, the Fed got rid of large denomination bonds that were once used by banks as their reserves and this was replaced with an electronic system controlled by the Federal Reserve. Due to this, international banking moved to the pirate islands and began creating credit offshore and moving it into the US banking system via various international methods under the umbrella of ‘free trade.’


alfredgraph-3Note how, after 1980, the amount of US government securities shot upwards as the reserves for creating loans with commercial banks.

This is a hockey stick growth graph, by the way.

There are other methods available for providing Immediate assistance to the Federal Reserve in controlling bank credit. These were referred to in the President’s memorandum the other day.

Aside from voluntary efforts to listit credit expansion a variety of formulas could be de- veloped to limit bank loan expansion directly. The problem would be to develop one which would limit unnecessary and undesirable expansion but would still permit expansion to the extent needed in the interests of the defense program and the necessary expansion of our basic facili- ties, including measures to increase the supplies of raw materials in short supply.

The problem really is, eternal war spending due to the burden of WWII debts on top of rising Cold War debts.  The Cold War spending would quickly run totally out of control.  The ‘undesirable’ expansion here is obviously, civilian spending.

The conflict between the Treasury and the federal Reserve System has been over-simplified. Actually the place of the Federal Reserve System in the field of economic controls by Government has changed sharply over the years. When the Federal Reserve was established in 1914, it constituted something like 90 percent of all of the economic functions of Government at the time. The only other measures consisted of the tariff, the anti-trust policy, and a few other programs, such as the control of railroads. Today the Federal Reserve powers have been shrunk back very sharply relative to the rest of the economic controls of Government. Now we have Government policies regarding wages, we have agricultural support programs, we have housing loans, subsidies and guarantees, and we have veterans aids of many kinds, we have a conscious fiscal policy involving scrutiny of the economic aspects of expenditures, receipts and the deficit, we have a huge debt with many ramifications throughout the whole financial structure, and we have a whole host of physical controls exercised through Mr. Wilson and his associates, that this changed picture, it seems fair to say that the place of the Federal Reserve monetary controls has been very sharply reduced to perhaps something like 10 percent of the whole galaxy of Government economic programs.

Since this memo, the powers of the Federal Reserve has grown tremendously.  Did this mean we have a better system?  The answer is obvious: YIKES!!!  Anything but!  When the Fed lost 90% of its control of the economy, why was this?  HAHAHA.  The Great Depression, of course!  And since then, the Fed has clawed back all of its power and of course, used it again, to utterly destroy our finances in the Great Depression II.

Clearly the central bank is in a position where it needs new Methods to do its original job of controlling private credit. The use of selective controls is very xouch to the point. They should be stepped up since they can work in close harmony with the direct controls on materials exercised by Mr. Wilson.

It got what it wanted and it took a while to get rid of all Treasury/government controls but finally, succeeded under Greenspan. Then, it caused the total collapse of our entire fiances, utterly and totally. Now, it wants even more power! Amazing, isn’t it?

It seems perfectly consistent with the history of central banking to search for ever new ways of doing the job. A British economist has pointed out that the post-war experience in central banking in England and the United States has been consistent with the long evolutionary processes of central banking in developing new sensitive spots to press against as the old ones lost their significance. Competent observers assert that the most effective weapon the federal Reserve has ever used was the selective control involved in surveillance of lending policies of banks borrowing from the Federal Reserve during the 1920*s.

See how amazing people are?  I point out that the problem was, when the Fed ran things, it was in the Roaring Twenties and…we got the Great Depression!  So what did the Fed want back in 1951?  These same powers!  For what purpose?  We now know!  To repeat that business, again!

Quanti- tative controls do not appear to hove been very successful over the life of the Federal Reserve. They have their place, of course, but the evi- dence of the 1920*s seems to be that the selective controls were the thing that really worked. At that time something between one-half and two-thirds of member banks customarily found it necessary to borrow from the Federal Reserve banks. This put the Federal Reserve in the position of controlling credit policies of these banks since the Federal always had the right to refuse to make loans.

I am open mouthed!  Back in 1951, I was a baby.  There is no way I could have warned them about this business.  ‘Waaaah!  Me hurt’, could have been my warning back then. Well, I hope we learned from history!  And this history is important!  Why isn’t the House and Senate reading out loud this amazing memo, the one that changed the course of our government…for the worse?

How on earth could anyone imagine that the policies of the Fed in the 1920’s worked?  The Fed squeezed credit at a critical juncture and caused a global collapse!  The credit bubble wasn’t Wall Street.  It was WWI.  And the Fed fed that bubble.  All attempts at undoing this bubble led to more bubbles.  One of which was Wall Street.  Fixing this by squeezing domestic lending was a mistake. For the US was the world’s CREDITOR nation at that time and had a very healthy gold reserve.

What way be needed today is some device to restore this type of credit supervision to the federal Reserve. The facts seem to indicate that as reserves became more plenti- ful in the 30’s, and as Government securities became essentially free excess reserves in the 40’s, the Federal Reserve lost the power to super- vise the credit policies of member banks because so few of them found it necessary to borrow. There seems to be no real evidence that quantitative methods today could be used to restore the Federal Reserve’s position. At least there is a strong difference of opinion about the risks and benefits which might be involved.

The Treasury took over in WWII. And wrestling this back was #1 policy of the PRIVATE INTERNATIONAL BANKERS who own the Fed!

It also seems appropriate to ask whether the role of bank credit has not been exaggerated as a cause of the inflationary trend. As noted earlier in this memorandum, there are a great many Government programs with important economic aspects. Some of these were distinctly on the inflationary side in the whole post-war period, and steps are being taken to reduce their scope in the present emergency.

This debate continues today. Does making magic money out of thin air create inflation? I side with the ‘obviously, it does’ side. The real problem here is, this inflation doesn’t show up right away with domestic prices. It shows up in all sorts of ways. Generally, a price bubble forms here, there and soon, everywhere. This is due to excessive money creation ON LITTLE CAPITAL. Not just low interest rates, but lenders not keeping up reserves at all. And of course, running trade deficits, too.

Since the Korean war began, the sharpest price increases have occurred in sensitive raw materials which, by and large, are in very short supply relative to demand. The price rises in these raw materials seem to bear only the remotest connection with monetary matters. Indeed the case may be made that these price rises would have occurred even if bank credit had remained stationary during this period. It is distinctly questionable whether rigid control of bank credit could have reduced the avid demand’ for copper, lead, zinc, rubber, steel, cotton, wool, alcohol, chlorine, hides, and a host of other raw materials. Probably some inventories of businessmen would have grown less rapidly if bank credit had been cur- tailed, but it is another thing to say that the great demands for these items in short supply would have been abated. It should also be noted that inventories were low in the early part of 1950 following the re- cession fears of 1949 and businessmen would naturally need to increase their inventories as a new peacetime high in industrial production was being reached in June end as production rose still another 10 percent following the outbreak of the Korean war. It should also be noted that it would be sound public policy to run our plants at full capacity during the Interim period when the military program was small and was gradually to rise to the point where it was to take a substantial part of our total output.

Today, it is China that is now hoarding raw materials. China Corners Over 90% of Market for Rare-Earth Metals

  • China has cornered 97% of the world market for rare earth metals, according to Byron King (the Times Online puts the number at 95%, and the Financial Times puts the number at “over 90%”).

These points are made not to argue that the increase in credit was all desirable, but rather to point out that some of it was desirable and that the sharp increase in the price of raw materials was the greatest inflationary force and yet we’re not inspired by monetary policies.

So much for this important 1951 memo.  We see some of these forces at work today.  The Federal Reserve is performing a coup here.  They want to regulate the biggest banks who happen to be the OWNERS of the Fed itself!  Here is some news from today:

Fed to Keep Lid on Bond Buys –

Federal Reserve officials are unlikely to significantly boost purchases of U.S. Treasurys and mortgage-backed securities when they meet in late June, but could make other adjustments in the face of rising bond yields and fresh signs of an improving economy.

Fed officials have become more confident recently that they have stabilized the economy and set the stage for recovery. But divisions are brewing within the Fed over whether it should do more to speed the healing, pause, or start pulling back to avoid an outbreak of inflation.

Here is a 1951 super-secret memo shared by the head of the Bank of England and the Federal Reserve:

November 7, 1951 Secret and Personal Dictated by Mr. Knoke FROM: COBBOLD (London) TO: SPROUL We are proposing to Government a small increase in bank rate together with two other measures: (a) A special rate for advances against Treasury Bills slightly lower than new bank rate in order to cushion cost to Exchequer without prejudicing free working of short-term market. (b) Operation to reduce volume of floating debt by funding substantial part into short-term bonds suitable for banking holders. Objective is to get away from rigidity and restore flexibility to short-term market. We shall expect treasury Bill and other rates to rise somewhat and fluctuate according to supply and demand and to our own operations. We shall no longer stand ready to supply our market with money in unlimited quantities by buying Bills at find rates. We have preferred recommending these small but definite moves away from rigidity and toward flexibility and reality rather than more drastic increase in rate which would sound drastic but have incalculable effects financially and politically. These changes, if accepted, will be announced in their proper perspective as part of a comprehensive program. Routine advice will be sent to you as soon as decision announced. Please keep this cable absolutely “confidential” until then.

And just one week later came this other secret memo, which happens to be all about controlling the gold markets:

November 18, 1951

Alternative I Public announcement by the International Monetary Fund that it is terminating the understanding it has had with South Africa pursuant to which South Africa has been selling gold in the premium markets. It is believed that the U.S. would not wish to pursue this alternative unless it were able to obtain in advance a commitment from Canada that Canada would not propose to permit its gold production to be sold in the premium markets for an extended period of time. The U.S. also would probably not wish to pursue this alternative without learning in advance the views of the U.K.:

Once again, secret accords with the City in London before dealing with what were supposed to be open gold markets! Incredible, isn’t it? I love finding this sort of stuff. It pays to do old, musty research!

In May 1949 the Government of South Africa consulted with the International Monetary Fund concerning its proposal to authorize sales of semi-processed gold abroad for industrial uses at prices in excess of monetary parity. It under took to scrutinize all sales and, in addition, to exercise discretion having in mind the quantities and the direction of the sales.

Several members of the Fund expressed misgivings or reservations as to the volume and price involved in the proposal, as to whether there existed a large legitimate demand for semi-grocessed and fabricated gold not then satisfied at non-premium prices and as to the difficulties that might result for gold consuming countries. However, it was decided that if, after consideration of such misgivings and reservations, South Africa should insist on going forward with its proposals, the Fund could not object. The Government of South Africa was advised, however, that the Fund would watch the amounts of sales of non-monetary gold to South Africa and reserved the right to reopen the discussion of the arrangement if the amounts appeared to be excessive.

The Bank of England, the IMF and the Federal Reserve all conspired to control gold sales.  They didn’t want to allow anything beyond industrial and jewelry use!  They wanted to control the price AT THE SOURCE by constricting sales.  Look at why!

The Staff of the fluid has recently completed a study of the sales of gold by South Africa pursuant to the plan put into operation in May 1949. After consideration of the Report of the Fund Staff and discussion thereof, the Executive Board of the Fund has concluded that the sales of gold by South Africa have been substantially in excess of requirements for industrial use and that a substantial proportion of the gold sold has in fact been purchased for non-industrial use, i.e.: for hoarding and speculation.

Ever since the Great Depression, the US and UK bankers tried desperately to prevent ‘hoarding’ which is where people turn paper money into gold and then HIDE IT FROM THE BANKERS!  Ah!  We see something here, don’t we?

International sales of gold for the latter purposes are contrary to the policy of the Monetary Fund adopted in June 1947 and reaffirmed on__________

And so, the very same week of the super-secret memo and the secret gold IMF understanding, look at what is in the news in 1951:

The Old Lady Shuts Her Purse – TIME

For 19 years, the Bank of England, London’s famed “Old Lady of Thread-needle Street,” has been a forgotten woman. She has had no control over Britain’s easy-money financial policy, has been merely the government handmaiden forced to keep the policy in operation. But last week, as the Conservative government announced its new financial measures (see FOREIGN NEWS), the Old Lady came back to power with a youthful bounce. She announced, with a nod of approval from Chancellor of the Exchequer Richard Butler, that she would again exercise control over Britain’s money supply.

In recent years, the bank has, in effect, been a machine for inflation. It has been forced to buy at low-pegged discount rates all the government short-term bills that the commercial banks and the discount market (finance houses which deal only in short-term bills) wanted to sell. Thus, the banks have been able to get ready cash for lending whenever they wanted. From now on, the Bank of England intends to shut her purse by 1) refusing to cash the bills before maturity, or 2) cashing them at a higher discount rate. In short, the new Tory government, recognizing the failure of direct controls, is finally putting to work indirect credit controls to strike at the real source of the inflation—the oversupply of money.

Shift of Power.

The British measures are roughly similar to those which the U.S. Federal Reserve Board put into effect last March to squeeze the supply of U.S. bank credit. At that time, FRB abandoned its policy of buying all Government bonds at a pegged price (just as the Bank of England has now done with government notes), reasserted the power that had been chipped away by the U.S. Treasury.

And this concludes today’s history lesson!  We are still in the same matrix, the same vortex churns, the same gold policies lurk in the dark and the same economic stresses are operational here.  Far from new things happening, we see a historical arc here: the more the Fed and the Bank of England got power, the more both nations were set on the present course of building up vast seas of international debts and the upper classes resuming getting richer and richer while doing less and less useful things.  And wrestling power from the people and handing it to the international gnomes and pirates!

Let’s hope that Ron Paul and Kucinich’s attempt at reining in these powers passes Congress, intact!

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15 responses to “The 1951 Banking Battle For Power

  1. nah

    lets pretend the market is purely imperfect, and the federal reserve must represent the dollar in a floating currency regime to play a ‘devils game’ against foreign governments to protect the dollar in world trade…
    now lets pretend the Federal reserve is a Unconstitutional provider of market forces to US banks to create risk and liquidity to re-reinforce the worst of the market ‘speculation’ against all odds… and to create capitol structures that are sucking the life out of industry to finance mergers and acquisitions ‘hardware’ providing foreign creditors with perverse incentives to trust the ‘FEDERAL’ Government, creating conflicts of interest in programs such as GM FM FM AIG LB GS BA and the like
    the porno actors cot aids

  2. nah

    Deflation vs. Inflation
    the writer omits something obvious ‘as tho never before it has been more obvious’ structural breakdowns of debt levels vs. wealth never occur in the same pattern, or even the same nation, or world… we are witnessing 2000+ central banking ‘which is at least complicit in cronie capitalism’ realize probably the worst asset bubble in near history ‘if not the top 5’… no-one can see the books… but the fact that DEBT is required over and over again shows weakness… at best the US will diminish internationally ‘thanks for the advice GS’ at the worst there will be a forward assault on our foolishly chosen standard of paper indexed currency… the banks have proven they will win either way ‘thanks tarp’ so the outcome of equities is at the margin… and the outcome??? i say pay for advice the banks should not be this complicated with untold ‘real’ trade… we are in world that looks better through ‘transaction’ and i feel that the illusion is a fleeting base… there is wealth, and the first person to do it better than us ‘produce wealth’ will WRECK THE DOLLAR

    its not a game, pass it to me

  3. PFO

    Hello Elaine,

    Well thankfully our economic/currency problems will be solved shortly by the FED restarting the carry trade in USD:

    Now why didn’t I think of that?


  4. Pingback: The 1951 Banking Battle For Power « Culture of Life News « Offshore loans, banks, money

  5. RobG

    Is State Street Trading For Federal Accounts?

    It is no surprise that in order to incite a return to pre-Lehman economic levels (the administration’s #1 goal bar none), not only the stock market would have to much higher from its March lows , but also the shadow system would have to be back with a vengeance. And while new mechanisms to achieve this such as securitization replacement alphabet soups have yet to prove their efficacy, the real heart of the shadow banking system Frankenstein is and has always been the repo market.

    Which is why we were greatly troubled when we learned recently on good authority that Federal representatives may have opened multiple undisclosed-type accounts with none other than State Street Global Advisors over the past few months. All of these accounts are allegedly handled by one single trader, who is cocooned and isolated from interaction with other partners.

    Zero Hedge can, as of yet, not vouch for this being 100% factual and is asking readers who may have additional knowledge of the situation to please come forward and share their views ( If, indeed, the Federal Reserve or other derivatives of the administration, are now directly involved in trading, managing repo terms, stock lending, collateral distribution and other liquidity-crucial aspects of what was once an efficient market, then indeed this rally could be written off not merely as the biggest short covering rally of all time, but one that has been explicitly orchestrated by those who should be most impartial to an efficiently working market.

  6. emsnews

    It is identical to the similar rally in stocks from 1934-1936. That is, an echo effect of massive government spending coupled with central banks using the ZIRP system.

  7. nah
    This decision has to have been based on the “New Paradigm” i.e. houseprices only ever go up part of the bubble psychology curve. The woman mortgaging clearly fell for this “you can refi when the rate resets at a low rate based on your equity” reassurance bs. Brokers, heavily incentivised, and banks heavily incentivised by securitisation, ensured this stupidity has infected, literally, the whole world.

    We, on here, all know this, but it is still astonishing to read an actual real-life account like this.

    This story brings it home, hard. The responsibility for the health of the world’s financial system was tranferred onto some of the least intelligent, poorest, high risk taking people in a country in the grip of a bubble mania.

    Here is an example of their quality decisions. Would you mix or risk your savings with this cr2p in the form of RMBS, bonds etc.?

    Put your life savings in the same banks that holds this stuff as assets?
    There must be a CEO Bonus we can hand out for some of this… imean someone deserves a nice stock offering and end of year obligatory pay package to encourage this kind of hands off free market management

  8. nah

    i wanted to buy a house in 2006… so i shopped and was like ooooook these prices will come down, im gunna wait, the math is easy, noone makes enough money ‘or at least 80+% dont make enough to finance the mid-range -> prices come down
    But thats why i dont get a juicy bonus cuz im smart and have to earn my money

  9. nah

    hoping to close on a house at locked in 4.8xx

  10. emsnews

    Good luck, Nah.

  11. Duski

    I got into debate about how bad is USA debt compared to some other countries. Ok, so it’s 11 trillion in debt, but how much has USA outstanding credit / loans to other nations? Where to find that sort of information? Is it secret? 🙂

    11 trillion – x loans to others = amount of “real” red ink…

  12. Duski

    Not like I could find Finlands numbers on that either…

  13. emsnews

    It is not merely how big it is compared to GDP. It is it’s overall size. A tiny country 150% GDP levels of debt can’t destroy the global economy like the US government being 50% GDP in debt to trade rivals. Note the ‘trade RIVALS’ part.

  14. Duski

    True that. But I hate it why so simple information is sometimes hard to find at all. Or maybe it just is not available online.

    And the whole situation means a lot to those living in those small economies. While they cannot wreck the world trade, it still affects to their and their childrens lives. Our small economy (Finland that is) even took a loan to give Iceland a loan (a part of bigger bundle)… I want to know whole situation, not just bits of it.

    Same thing with other budget numbers. I would love to see them broken down a whole lot more than I do… oh well.

  15. emsnews

    Many central banks and governments are borrowing money so they can lend money. This is highly destabilizing.

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