Banks Get Big Bucks, Consumers Get Bupkis

Last week, the Federal Reserve announced a plan to buy an additional $600 billion worth of Treasury bonds in an attempt to stimulate the economy. On Democracy Now!, economist Michael Hudson argues that the $600 billion T-bill buy will help Wall Street at the expense of ordinary Americans.

The Fed justifies the purchase as an infusion of cash into the U.S. economy. The buy-up will certainly be an infusion of cash into U.S. banks. In effect, the Fed will help the government pay back the banks that lent money to finance deficit spending. The hope is that these banks, suddenly flush with cash, will help the U.S. economy by lending money to finance projects that will create wealth and jobs (i.e. opening factories and hiring more workers).

However, as Hudson points out, there’s no guarantee that the banks are going to use the windfall to build wealth in the U.S. On the contrary, he argues, there’s every reason to suspect that they’ll invest the money overseas in currency speculation deals. Why? Because the Fed has also put massive pressure on Congress to push China into raising its currency by 20%. The banks know this because the House voted overwhelmingly to approve such a threat in September.

If the banks convert their extra billions to Chinese currency, and China raises the value of its currency in response to the threat of an across-the-board U.S. tariff on its imports, then banks that bought Chinese RMB when it was still artificially cheap will reap huge profits overnight.

Later in the Democracy Now! broadcast, Nobel Laureate Joseph Stiglitz describes how the U.S. employed a similar strategy of currency devaluation to insulate itself against the ravages of the Great Depression, with devastating global consequences:

So, the irony is that money that was intended to rekindle the American economy is causing havoc all over the world. Those elsewhere in the world say, what the United States is trying to do is the twenty-first century version of “beggar thy neighbor” policies that were part of the Great Depression: you strengthen yourself by hurting the others. You can’t do protectionism in the old version of raising tariffs, but what you can do is lower your exchange rate, and that’s what low interest rates are trying to do, weaken the dollar.

Trade war between the U.S. and China

The U.S. and China have a longstanding trade rivalry, but suddenly the two powers seem to be even more at odds than usual.

William Greider of The Nation argues that plummeting global demand has ratcheted up tensions as the two exporting nations fight over a dwindling pool of customers. The U.S. accuses China of artificially deflating its currency to make its exports cheaper. In retaliation, the U.S. imposed tariffs on Chinese tires and tubular steel. China, in turn, imposed a tariff on U.S. poultry. As I mentioned above, the House voted 348-79 in September to impose additional tariffs on nearly all Chinese imports if China doesn’t revalue its currency, though the Senate has yet to vote on this legislation.

The U.S. acts indignant about China manipulating its currency, but Grieder argues that this stance is hypocritical in light of the Federal Reserve’s decision to buy an additional $600 billion worth of Treasury bonds from the federal government to help finance the budget deficit. One effect will be to weaken the U.S. dollar, which will make our exports more competitive relative to those of China.

Voters reject free-for-all trade

In last week’s midterm elections, voters rewarded candidates who oppose unfettered free trade, according to Kari Lydersen of Working In These Times. According to a new report by Public Citizen, 60 congressional races were fought wholly or largely on trade issues in 2010. Only 37 candidates favored NAFTA-style free trade pacts and half of them lost. Not all the candidates who won on a protectionist trade platform were advocating a progressive agenda of fairly compensating trading partners, protecting American jobs, and upholding environmental regulations. Senator-Elect Rand Paul (R-KY) argued that the World Trade Organization is a threat to U.S. sovereignty.

Anti-union ballot initiatives win big

Mikhail Zinshteyn of Campus Progress brings us an update on the anti-union initiatives that appeared on the ballots in many states last week. Voters in Arizona, South Carolina, South Dakota and Utah approved legislation to preemptively neutralize the already-stalled Employee Free Choice Act (EFCA), should it ever become federal law. EFCA, also known as card check or majority sign-up, would allow workers to organize by signing up for a union, instead of going through a grueling National Labor Relations Board (NLRB) election process, which makes workers sitting ducks for management threats and propaganda.

Bean there, done that

Move over, Elizabeth Warren. The White House may be poised to appoint one of Wall Street’s favorite Democrats to head the new Consumer Financial Protection Bureau. Andy Kroll and David Corn report in Mother Jones that Rep. Melissa Bean (D-IL) is a favored contender for the job if her still-undecided race for reelection doesn’t work out. That would be heartening news for Bean’s former chief of staff, John Michael Gonzalez, now a leading lobbyist for Big Finance.

Bean, who serves on the House finance and small business committees, has received over $2.5 million in campaign contributions from the financial sector over the course of her 5-year career. Bean was also a big beneficiary of the Chamber of Commerce, which vehemently opposed the Dodd-Frank financial reform bill that created the CFPB in the first place. Bean ultimately voted for the bill, but not before she unsuccessfully attempted to water down the consumer financial protections therein, the very provisions Bean would be tasked with enforcing.

“The White House needs to beat back the Bean idea, otherwise they’ll look like fools,” one Democratic strategist told Corn and Kroll. “This is the craziest thing I’ve ever seen. She’s a tool of the financial industries.”

This post features links to the best independent, progressive reporting about the economy by members of The Media Consortium. It is free to reprint. 

photo credit: thanks to ~jjjohn~ via flickr
by Lindsay Beyerstein, Media Consortium blogger


Sonny Honrado
Sonny Honrado6 years ago


Alberto Paredes
Alberto Paredes6 years ago

America saw first hand the way Ronald Reagan appointed the worst enemies of those programs that helped the needy, such as Legal Aid, with the goal of destrying them from the inside.
Among other consequences, hunderds of thousands of mentally ill people were kicked out of mental health programs and ended up on the streets.
This policy of poisoning progressive positions also showed up when Bolton was appointed ambassador to the U. N.
American consumerism has eaten the savings of two generations in a matter of 30 years since the trickle down economics approach of the Reagan administration, and the migration of the manufacturing factories overseas.
This article, clearly, points out to the fact that the world markets have been flooded by low quality products made in countries where the workers are being exploited, wipped, and made to sleep at the same factories where they work.
This is not the world we envision, nor the U. S. can continue financing the world economy at the expense of it's taxpayers.

Barbara Erdman
Barbara Erdman7 years ago

thanx for post.

Patricia S.
Pat S7 years ago

I didn't read anywhere that George Bush was to blame for this soon-to-be nightmare.

Susan Weihofen
Susan Weihofen7 years ago

The day after the election, how surprising

Tori W.
Past Member 7 years ago

once again, let's put the burden on the taxpayers to bail out the banks...again...just how much money do these greedy bank executives really need??? i guess as much as they can they put it in their own banks?? i'm guessing it all wings its' way to the Swiss...the bankers of the rich and richer...taxpayers...well we got screwed again...since politicians haven't listened, understood or believed this last election..shall we go for impeachment for the elected crooks and malfeasance of office for the appointed ones, like the bank lacky at the fed????...who is supposed to be protecting this country???...not the bankers....i'm for getting our money

Mark S.
Mark S7 years ago

It seems strange to me that we continue to put the future of our countries and our economies in the hands of those whose behaviour has proven time and again that greed and personal success, not the greater good, is their main motivation.

Mary B.
Mary B7 years ago

Well, I had to read the posts all the way back to the 1st ones, but I'm so glad to see that at least some people are seeing that the real solution is to get that money out to the people as soon as possible. And not just once, but on an ongoing basis of at least $2,500 per month per person over age 18 so that we can take care of ourselves. This is not money that will be paid back. It simply needs to be put into circulation because the banks aren't doing it, and without jobs, nobody can get a loan or buy stuff anyway.We must rattle their cages and pound on the doors and flood their inboxes with the demand that they release this money to us. We can then get some idea of how much it really takes to sustain this country, instead of wasting time argueing over whoes fault it is or trying to understand a financial policy that only benefits those who already have too much. Taxes on wages need to cease, and be replaced by a tax on consumption, which will also help to give us a more accurate picture of how much it really costs us to live with decent food, housing, and healthcare. I've got more ideas but am running out of space. Happy Thanksgiving everybody.

moggy w.
moggy w7 years ago

If I may quote from comment by Bruce C.- "The Fed is neither Federal nor a Reserve. It is a privately owned corporation" I admit my ignorance; I didn't know that. Thank you, Bruce. And what is the purpose of a corporation? To make money for itself. Maybe someone can put a catchy tune to it, so we won't forget it.

Bruce C.
Past Member 7 years ago

Of course the Fed is neither Federal nor a Reserve. It's a privately owned corporation. The problem is usury of any kind and continuously feeding the unmitigated fraud of the Fractional Reserve banking system. Behold the NWO at work.