Tuesday, December 29, 2015

The Federal Reserve Feeds the Federal Government With Free Funds

Since the eruption of the financial crisis, the balance sheet of the Federal Reserve System (the Fed) has increased to a factor of 5.2, from $867 billion on August 8, 2007, to $4,497 billion on December 23, 2015. This resulted from several rounds of Quantitative Easing (QE) in which the Fed bought Treasuries and other securities.  Total assets have remained virtually unchanged in the past 12 months.  The Fed has not reduced its holdings of Treasuries or other securities.

The US Treasury has been a beneficiary of the Fed's accumulation of securities in that the Fed earns interest on them.  Each year the Fed transfers the balance of its earnings to the Treasury after deducting its own expenses.  This sum has grown from $31.7 billion in 2008 to an estimated $98.7 billion in 2014.

The nearly $100 billion is free money for Congress to spend without its having to vote for a tax increase of this magnitude or, under a spending limit, enables the Treasury to borrow $100 billion less.

Some economists fear that the Fed's large balance sheet could unleash inflation when and if it sells off some of its securities into the market. Others fear that the large balance sheet may complicate efforts to stimulate the economy if it falls into recession.  Who knows?  I'll let the monetary economists sort that out.

What is clear is that the Treasury and Congress are happy with the now $100 billion transfers that enable less borrowing or more spending without additional taxation.

Thursday, December 10, 2015

Update: America Has No Arab Allies

On December 9, 2015, Secretary of Defense Ashton Carter testified before the Senate Armed Services Committee. 

His comments state the reality of so-called Arab allies.

Carter acknowledged a missing element in the campaign: a more assertive role by Sunni Arab allies from the Gulf in the effort against Islamic State, a Sunni extremist group.
He said the United States had spoken to Gulf Cooperation Council leaders at a Camp David summit in the spring about creating a "Sunni Arab combined force" to help in the fight.
"That has not materialized among them," Carter said.
He suggested Sunni forces might not need to occupy territory but instead work at "enabling local forces."
That's a strategy that the United States moved decisively toward in October, when it announced it would send dozens of special operations forces to Syria to coordinate with rebels.
The United States last week announced plans to deploy elite American military teams to Iraq to conduct raids against Islamic State there and in neighboring Syria.
Carter told the Senate hearing that he was in touch with coalition partners to ask them to contribute special operations forces, including from the Gulf. The United States also sought other capabilities, like strike and spy aircraft, weapons and munitions.
"I too wish that particularly the Sunni Arab nations of the Gulf would do more," Carter said.

Tuesday, December 8, 2015

Swedish Banks Are Government Informants

Sweden is the leading example of a "cashless" economy.  Currency in circulation has been steadily declining in recent years, reaching a low of SEK 68.9 billion on October 15, 2015.  That amounts to SEK 7,153 (US$ 844) per person.  (Coins add another SEK 5.3 billion in circulation.)  New electronic payment systems are accelerating the move away from cash.  

Note the requirement imposed on banks that still deal with cash.  Any person conducting a cash transaction in such a bank will have to declare how he (she) acquired the notes and coins, and the bank in turn has to report the information to the police.

In comparison, the value of U.S. currency in circulation, $4,300 per person as of December 31, 2014, continues to rise each year (although more than half is estimated to be held abroad).  In accordance with the Patriot Act, U.S. banks are required to report to the Department of Homeland Security all transactions exceeding $10,000, although some will report transactions exceeding $5,000.

Still, Americans are relatively free to conduct cash transactions between themselves and between themselves and financial institutions. Swedes are not.  Welcome to the Scandinavian version of Brave New World.

Monday, December 7, 2015

Who are America's Arab Allies? Do we Have Any?

Those Democrat and Republican presidential candidates that propose to defeat ISIS by putting 10,000-20,000 troops on the ground to advise and assist our Arab allies repeat over and over again that our Arab allies will have to bear the brunt of the load in supplying troops.

None of these candidates has yet named our Arab allies.

Do they include Saudi Arabia?

The Emirates?  Kuwait?  Qatar?  Iraq?  Iran?  Egypt?  Yemen? Libya? Tunisia?  Morocco? Jordan?

Aren't these the same Arab allies that have been supposedly in the forefront of  helping the U.S. rid the region of Al-Quade and now ISIS with little success?

How about asking each candidate who wants the U.S. to build a coalition that relies on our Arab allies to tell us who they are?  Why would it succeed this time when it has failed since the emergence of ISIS?