Bernanke raises some relevant detail as it relates to the relationship between the Federal Reserve, Treasury and private banks that is worth highlighting. Principally, "Fed earns interest on its portfolio of securities" mostly government debt it must by law purchase indirectly from brokers which is mad but anyway,
"This income, less the Fed’s operating expenses and interest paid on Fed liabilities, is sent to the Treasury on a pretty much continuous basis. These remittances are large: Over the past half dozen years the Fed has sent nearly half a trillion dollars to the Treasury, funds which directly reduce the government’s budget deficit."
So basically the Fed already funds the government so back off!
He then flatters us with, "It's true that the ultimate source of the Fed’s income is interest payments from the Treasury; but if the Fed didn’t own the bonds, those interest payments would go to investors who would not return the proceeds to the government." So your welcome for creating money we lend the Treasury, skim some for our private bank clients and mostly give back to you.
Sorry for the sarcasm- we're not prone or keen on banker hyperbole, his honesty is refreshing if slightly condescending from his central banker we've got this thanks perspective. Our point here apart from highlighting the development is to speculate on the course ahead which may get very interesting.
It shouldn't be surprising, given the unwillingness to raise revenue for necessary spending, that politicians are sniffing around the Fed for a politically "cost" free solution. But a heavy weight former Fed Chairman deciding to weigh in early and decisively is telling from a positioning perspective. In July, the Senate attempted in its own highway bill to reduce the 6 percent dividend paid by the Federal Reserve to member banks to 1.5% for big banks. While this effort ultimately failed private banks presumably not happy that their benefit of money creating pie was put on the chopping block will be out for a campaign finance fueled fix.....There Will Be Blood or more correctly campaign financing to pay!
This issue may harbour an even more deep seated fixation than taxes. As the most recent Republican presidential debate highlights, the Fed is public enemy #1 for being responsible for the dreaded none inflation that's been right around the corner for the past 6 years let alone for taking action in the wake of the financial crisis to lessen its impact. O'Brien "Everything that's happened the last seven years has shown that inflation fears couldn't have been more wrong, but everything that's happening in the Republican Party is pushing them to continue to worry about inflation." That is its not about money or the economy at all but the notional sense that it just must be so because it fits their preconceived notion of sound finance.
Finally, the success of the Fed strikes at the core of the ideology that wherein public institutions by default are bad.
Going back to the last Presidential nominating procress when Texas Governor Rick Perry said in assessing the job Bernanke was doing at the Fed, "‘I dunno what y’all would do to him in Iowa but we would treat him pretty ugly down in Texas". But in a debate where a return to the gold standard is still on the agenda in the form of Rand Paul this ultimately should be expected.
Meanwhile we're left in shock that the Republicans opened up the flood gates of this debate to let the sovereign money power of the state be used for public purpose. What happens next? We didn't see this coming so who knows?
One thing is for sure Stay Tuned-this is a story we were meant to cover!