The Citigroup Bailout Unmasks the Fed

In 2007,
Citigroup was the largest bank in the world, worth over $300 billion. This was
the peak of the Federal Reserve’s latest inflationary bubble, and business for
Citigroup—a chief participant in the Fed’s legal counterfeiting—was good.

Fast
forward to November 21, 2008. Citigroup’s stock was more than 94 percent off
its high of less than two years before. Now, just like AIG—once the world’s
largest insurer—Citigroup was in need of a huge dose of corporate welfare in
order to stay afloat. “It’s for the good of the country,” apologists said.
“Citigroup is too big to fail.” Clearly this was untrue: Citigroup was too big not
to fail.

The
Covert Bailout

If you
don’t follow financial markets as part of your job (or a sick and twisted
hobby), then you might have missed the news about Citi—whose bailout was nearly
five times larger than AIG’s. There was no vote taken by Congress, and that’s
because, the last bailout was the bailout to end all bailouts—or at least end all
discussion of bailouts: it gave the Treasury department the authority to bail out
any firm, any time, any place, without congressional
approval. All the Treasury secretary has to do is “notify” Congress. Isn’t that
quaint?

But don’t
worry: the Treasury department is barely on the hook for Citi’s welfare
package. Instead, the Federal Reserve will shoulder most of the burden. The Fed
doesn’t collect taxes, so where will it get the money to bail out Citi? It create
it out of thin air!

Just take a
look at the details: The total bailout package is $306 billion. Citigroup
itself will assume the first $29 billion in losses—wow, how honorable. It will
also assume 10 percent of all losses beyond the first $29 billion. The Treasury
department will take on 90 percent of the next $5 billion, and the FDIC (the
bankrupt Federal Deposit Insurance Corporation) will take on 90 percent of the
next $10 billion. Then the Fed will create new money to cover 90 percent of the
next $262 billion.

The
Fed’s Magic Checkbook

Now the Fed
doesn’t technically “print” money—that’d be too cumbersome. Instead, it writes
fraudulent checks, “monetizing” debt against its promise to pay. How will it
pay later? By writing more checks! This is absolutely no different from you having
a magic checkbook that allowed you to write any check for any amount without
bouncing.

By
“monetizing” this debt, the Fed expands the money supply electronically. If
need be, Fed Chairman Ben Bernanke calls up his partner in crime Henry Paulson
at the Treasury department and asks him to print up some more paper. But more
often than not, the money just exists in cyberspace.

The
Deleterious Effects of Inflation

What are
the effects of all this new money being created? Well for one, expanding the money
supply is by definition inflationary. The Fed and its fellow central banks have
tricked the world into thinking “inflation” refers to rising prices, but
truthfully, rising prices are an effect of inflation. Inflation is the
creation of new money, which tends to cause prices to rise since there are more
dollars (or euros or yen) chasing the same number of goods and services.

Secondly,
there is a redistributionist effect. When the Fed creates billions of new
dollars and gives them to Citigroup, the value of the dollars in your pocket
goes down. The value of each individual dollar in Citigroup’s account goes
down, too, but the increased quantity of dollars in their possession via the
bailout increases the company’s total purchasing power. Thus, it’s not as if
the Fed creates money to give to Citigroup at no one’s expense—it’s at everyone’s
expense except Citigroup’s. Of course, thousands of corporations get billions
of dollars this way all the time, so they’ll never complain. Meanwhile, Joe
Sixpack is wondering why he can only afford a three-pack for the price he paid for
a case last year.

The
People Are Waking Up

Inflation
is theft, and for the first 137 years of our republic, most Americans
understood this. That’s why monetary policy was the driving issue behind three
consecutive presidential elections, 1892 through 1900. Sadly, central banking
has not been an issue on the voters’ minds since the passage of the Federal
Reserve Act in 1913, at least not until recently.

This past
weekend, on November 22, thousands of Americans gathered in cities with Federal
Reserve regional branches in order to protest central banking and fiat money.
November 22, of course, is the anniversary of John F. Kennedy’s assassination.
JFK is rumored to have been a behind-the-scenes opponent of the Fed, and it is
substantiated that he planned to issue U.S. Treasury notes backed by silver.
Conspiracy theorists allege that this is one of the reasons behind his
assassination, and while the evidence supporting this theory is thin, one thing
is for certain: monetary policy is a matter of life and death, and it’s time
that more Americans wake up to this fact.

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