You can have even Donald Duck as chairman, real control of Fed rests with private bankers - expert
Is this good news for the markets?
No, I don’t think it is good news for the markets. Even if you had Donald Duck as the new Chairman of the Federal Reserve, the options that any new chairman faces are just staggering because of the policy role that the Fed has played since the 2007 financial crisis – simply buying the Government’s debt that nobody else wants to buy because the levels of the debt are just exploding out of control. The appointment of Yellen, the appointment of Larry Summers or Bernanke to stay on for another term is really secondary at this point.
To my mind, the institution of the Federal Reserve, since it was created by an act of Congress in 1913, is the problem. It is a privately owned bank structure that controls the finances of the Government rather than a publicly owned Central Bank and many people are not aware of that. So, the real control of the Chairman of the Fed and the Fed policy rests with these private bankers – the Gods of money, as I call them in my book “The Key Wall Street Banks” – the handful of banks that dominate world derivatives trade, world currency trades, oil trade and everything else.
How is Janet Yellen different from Lawrence Summers who gave up running for the post in September?
Well, Larry Summers personally played a critical role in the banking deregulation that created the financial catastrophe in 2007 when the real estate bubble finally collapsed. As the Treasury’s assistant secretary he, together with Tim Geithner, the Commodities Modernization Act of 2000 and also the repeal of Glass-Steagall in 1999, which allowed the banks and insurance companies to merge. That in turn created huge financial conglomerations that their balance sheets were larger than the GDP of most nations in the world. So, that’s created a monster that nobody – no government or authority in Washington – would dare to control. And that’s the problem.
Yellen in that sense didn’t play such a critical role. She is known as a loose money person who is not likely to turn off this bigot any time soon. I think that’s the reason Bernanke in a sense is happy that his term wasn’t renewed, because it is going to end in tears very-very soon and he didn’t want to be around.
Do you think that Mrs. Yellen could live up to the expectations, could face thesechallenging tasks of the Federal Reserve?
No, because the whole system is bankrupt, that’s the problem.
What does she have to focus on? The whole system is bankrupt, what is up next?
I think what Congress has to do is renationalize the Federal Reserve and take those powers back to the Congress, where the Constitution originally placed them – the power to print and create money.
So, you think that one of the reasons why Mrs. Yellen is taking the post is because, actually, the one heading the Federal Reserve doesn’t decide much?
Yes! The Wall Street decides.
What do you think will be happening, say, in the next 1-2 months? What is your short-term forecast for the American economy and also for the global economy?
For the American economy it is a very grim forecast because it is on no form of recovery since 2007. But in terms of the dollar, I think it is becoming very-very dangerous for the dollar because 1) you have the refusal of the Republicans in Congress to vote for the new fiscal year budget as a kind of blackmail game and 2) in two weeks time the federal debt ceiling comes up for vote renewal in Congress and it is going to be the case that the Republicans will use as a continuation of the blackmail. So, it is getting to be very-very dangerous.
And a dollar panic globally, even the Chinese Government has warned the US Congress not to play Russian roulette with the budget and the debt ceiling. So, it is very-very precarious.
And what will happen if the Democrats and the Republicans fail to agree? Or you think that this time around it will be just like it had been before – they will wait until the very last day, the latest of the deadlines and then they will say: we again raise the ceiling?
Yes, I think that has to happen. If that doesn’t happen, then it is really end game for the dollar. But it is kind of a game of financial chicken. You know, two cars come on a one-lane highway at night against each other and the one who swerves at the last second is the loser.
And how high the chances are that this time around it won’t be as it was two years ago?
I think presently the chances are low. But there is mad faction around the Tea Party and the Republicans in Congress that I think is listening to different voices than the voices of what is good for the US, and that’s unfortunate.