NATIONALIZE BANKS

DOCTOR DOCTORIAN FROM ANGEL OF GOD
then the angel said, Financial crisis will come to Asia. I will shake the world.

JAMES 5:1-3
1 Go to now, ye rich men, weep and howl for your miseries that shall come upon you.
2 Your riches are corrupted, and your garments are motheaten.
3 Your gold and silver is cankered; and the rust of them shall be a witness against you, and shall eat your flesh as it were fire. Ye have heaped treasure together for the last days.

REVELATION 18:10,17,19
10 Standing afar off for the fear of her torment, saying, Alas, alas that great city Babylon, that mighty city! for in one hour is thy judgment come.
17 For in one hour so great riches is come to nought. And every shipmaster, and all the company in ships, and sailors, and as many as trade by sea, stood afar off,
19 And they cast dust on their heads, and cried, weeping and wailing, saying, Alas, alas that great city, wherein were made rich all that had ships in the sea by reason of her costliness! for in one hour is she made desolate.

EZEKIEL 7:19
19 They shall cast their silver in the streets, and their gold shall be removed: their silver and their gold shall not be able to deliver them in the day of the wrath of the LORD: they shall not satisfy their souls, neither fill their bowels: because it is the stumblingblock of their iniquity.

REVELATION 13:16-18
16 And he(FALSE POPE) causeth all, both small and great, rich and poor, free and bond, to receive a mark in their right hand, or in their foreheads:(CHIP IMPLANT)
17 And that no man might buy or sell, save he that had the mark, or the name of the beast, or the number of his name.
18 Here is wisdom. Let him that hath understanding count the number of the beast: for it is the number of a man; and his number is Six hundred threescore and six.(6-6-6) A NUMBER SYSTEM

WORLD MARKET RESULTS
http://money.cnn.com/data/world_markets/

WHAT ARE THE IMF,WORLD BANK?
http://www.globalexchange.org/campaigns/wbimf/facts.html
http://www.essortment.com/all/worldbankinter_riaw.htm
http://www.imf.org/external/index.htm

ECONOMY VIDEOS CNBC
http://www.cnbc.com/id/15840232?video=1038666214
http://www.cnbc.com/id/15840232?video=1038548059
http://www.cnbc.com/id/15840232?video=1038579389
http://www.cnbc.com/id/15840232?video=1039487624
http://www.cnbc.com/id/15840232?video=871862447
IMF HEAD VIDEO-RESTRUCTURE BANKS
http://www.cnn.com/video/?/video/business/2009/02/18/qmb.econ.imf.strausskahn.cnn
NATIONALIZE BANKS


Fed says economy even worse than thought Gloomy assessment as governments consider bank nationalization February 18, 2009 5:42 pm Eastern 2009 WorldNetDaily

Ben Bernanke
The economic outlook for the next two years is worse than expected, say Federal Reserve policymakers, who warned today the economy is contracting at a disturbing pace.In a speech at the National Press Club, Federal Reserve Chairman Ben Bernanke pointed to dismal economic data while another top Fed official warned of the need for even more stimulus, even with interest rates set near zero. Evidence of further economic gloom, the officials say, can be seen in figures showing a curtailment of big industry production in January and record-low housing construction. Meanwhile, governments worldwide that already have poured billions of dollars into failing banks are considering seizing full control of financial institutions. Bernanke said in his speech today, according to USA Today, that the Fed is determined to do everything possible within the limits of its authority to repair the economy.

Bernanke defended the Fed's bailout of institutions such as insurance giant American International Group, but its interventions in select credit markets have boosted its liabilities in recent months from $800 billion to about $2 trillion. Fed officials, according to minutes released today from its meeting at the end of January, lowered estimates made in October for Gross Domestic Product and raised forecasts for the unemployment rate this year and next Given the strength of the forces currently weighing on the economy, participants generally expected that the recovery would be unusually gradual and prolonged,the minutes said. In a speech today at the Rockford Chamber of Commerce in Rockford, Ill., Chicago Fed President Charles Evans said the U.S. economy is still contracting at a disturbing pace. We likely are in for a protracted period of poor economic performance,Evans said, according to Reuters. He underlined the need for more stimulus even with interest rates already set near zero.For the Fed, this means that the (Federal Open Market) Committee will have to focus on other ways to impart monetary stimulus to the economy, said Evans, a voting member of the central bank's policy-setting Federal Open Market Committee in 2009.

Evans told the Rockford chamber that the pessimistic outlook has reduced everyone's confidence,dampening long-term investment and new spending, which further lowers the economic outlook. The Fed official, according to Reuters, said real GDP, the broadest measure of economic growth, will fall markedly in the first half of the year before potentially expanding later in the year and moving back to the neighborhood of its potential in 2010. However, I do not see growth as being strong enough to make much progress in closing resource gaps over this period. Indeed, the unemployment rate ... is likely to rise into 2010, he said. Evans said it's unclear at this point what impact the Obama administration's $787 billion economic stimulus would have on GDP. The new fiscal stimulus package will boost output ... Our forecast could need some recalibration as we gain knowledge of how the package is affecting the economy,he said. Economic data reported by the Fed today showed a drop in big industry production last month, partly due to auto shutdowns, the Associated Press reported. It was the third straight month in which production was cut back. Production at factories, mines and utilities fell 1.8 percent last month, while many economists expected a 1.5 percent drop. A dramatic rise in home foreclosures is adding to an already glutted market, forcing builders to reduce home construction, which fell to a record low last month. Construction of new homes and apartments sank 16.8 percent in January from the previous month. A gauge of future building activity, application for permits, dropped to a record low pace in January of 521,000units, 4.8 percent lower than December. Another horrible month; more pain ahead, predicted Patrick Newport, economist at IHS Global Insight, the AP reported. Meanwhile, in the wake of unsuccessful bank bailouts, governments increasingly are considering seizing control of the banks entirely, the Voice of America reports.

German Chancellor Angela Merkel's Cabinet is supporting a bill that would allow her government to forcibly nationalize banks that have received government aid. In the U.S., former Federal Reserve Chairman Alan Greenspan told the Financial Times bank nationalization may be the only way to restore confidence to a shaken financial system.During his Fed chairmanship, Greenspan's policy was to let financial institutions regulate themselves. But action may be necessary now, he says, as something you do once in a hundred years. Sen. Lindsey Graham, R-S.C., also told the Financial Times the U.S. should consider taking control of some banks, arguing we should be focusing on what works.

Nationalization: Code Word for Banker Takeover
Kurt Nimmo Infowars February 19, 2009

It is now a mantra in the corporate media — the only way to fix the banking system is to nationalize the banks. A touchy word has entered the public debate about the future of America’s economy. It’s a word that would shock the nation in normal times, but as even Republicans begin to whisper it, temporary nationalization of troubled banks is increasingly seen as our last best hope for fixing our financial system,declares Thomas Kelley, writing for Yahoo News. Republican Sen. Lindsey Graham of South Carolina.Republicans like Sen. Lindsey Graham of South Carolina defend and push bank nationalization because there is not a dime’s worth of difference between Republicans and Democrats — both are on the hook to the global elite and the bankers. Even supposed libertarians are lining up behind this scheme, including the Cato Institute. But then Cato’s directorship is rife with honchos from E-Trade Financial, FedEx, and other big corporations. Cato has hosted Greenspan and Bernanke at its functions.

Simply put: Nationalizing ailing banks means the government would tell bank execs to take a hike, and then oversee taxpayer dollars as they course through the banking sector’s veins,writes Kelley. When all is well, perhaps after selling assets and operations to new private investors, the government then steps back and lets a newly regulated bank sector float on its way.Does Mr. Kelley really think the government will step back after nationalizing the banks? He seems to think the government is of the people, by the people, for the people, as Lincoln put it, when it fact it is of the banks, by the banks, and for the banks. Bank nationalization is merely a code word for a banker scheme to socialize the insolvency of certain banks. In other words, the government — the bankers — are transferring this insolvency to the tax payers who are confused on the issue, thanks in part to the diligent work of Thomas Kelley, Michael Hirsh of Newsweek, Nicholas Kristof and Paul Krugman of the New York Times, and no shortage of economists from the IMF and the banker controlled Treasury. Even so, most Americans smell a scam in the works. The reason all these corporate scribes are chanting nationalization (banker takeover) in unison is quite simple — the American people are steadfastly against it. All sorts of big government solutions are being proposed to combat the country’s economic troubles, but Americans are clear on one thing: 75% say the federal government should not take over the U.S. banking system, notes Rasmussen Reports. Only nine percent (9%) think nationalization of America’s banks is a good idea, and 16% are undecided in a new Rasmussen Reports national telephone survey, published on February 10. Not that it matters. Congress is listening to former Fed mob boss Alan Greenspan, who may have given Republicans the political cover they need to consider nationalizing U.S. banks when the former Federal Reserve chairman joined a growing list of experts who suggest nationalization is inevitable, reports Reuters. Republicans typically stand for small government and deregulation, but ideology has a way of being put aside in a crisis. Greenspan has acknowledged he was wrong to oppose some forms of market regulation.

Republicans stand for small government? Is this why the size of government increased substantially under Republican president George Bush? He was the Mother of All Big Spenders, spending even more than Democrat Bill Clinton and rivaling Jimmy Carter. No president since FDR — who offered a New Deal to pull the nation out of the Great Depression and then fought World War II — has presided over as rapid a growth in government when measured as a percentage of the total economy,writes Jon Ward. In fact, both Republicans and Democrats stand for increasing the national debt to the point where the economy will implode — and soon. The debt-driven bubble economy was engineered by the bankers for a specific reason — to create a global economic blowout followed by consolidation. It is no mistake the Federal Reserve overleveraged the financial system, leading to a collapse in asset prices. It is not that the free market failed,writes Marc Faber for the Wall Street Journal. The mistake was constant interventions in the free market by the Fed and the U.S. Treasury that addressed symptoms and postponed problems instead of solving them. However, this was no mistake. The credit bubble is a deliberate and skillfully orchestrated scheme cooked up by the private bankers that own and run the Federal Reserve. Further interventions through ill-conceived bailouts and bulging fiscal deficits are bound to prolong the agony and lead to another slump — possibly an inflationary depression with dire social consequences,Mr. Faber continues. Indeed, and precisely as planned. So-called nationalization of the banks and financial institutions will not accomplish the miraculous feats advertised and supported by the likes of Lindsey Graham and the Democrats and Republicans. It will, however, allow offshore bankers to consolidate wealth and turn the world into a feudalist police state.

Once again, let us return to the CFR historian and author Carroll Quigley, who wrote: The powers of financial capitalism had another far reaching aim, nothing less than to create a world system of financial control in private hands able to dominate the political system of each country and the economy of the world as a whole. This system was to be controlled in a feudalist fashion by the central banks of the world acting in concert, by secret agreements, arrived at in frequent private meetings and conferences.Now they need to sell it to the American people, but the American people are not in the mood to buy. And that’s what Northcom and newly encamped combat brigades in America are all about — if Americans resist the bankster plan for global domination, they will deliver it to them at gunpoint.

Bank Nationalization: No Longer A Dirty Word
Posted By: Bob Pisani FEB 18,09

Last night, with Jim Cramer and Melissa Lee, I was speaking about how odd it was that bank nationalization was suddenly a hot topic among traders. Odd because a month ago you would have been stoned on Wall Street for bringing up the topic, because—everyone knows—the government would do a terrible job managing private assets. But now, as the situation has become more dire, and as bank stocks again swoon as regulators are descending upon the banks to begin collecting data for Treasury's stress test, the word nationalization is being heard on the Street as a legitimate alternative to the plans that have been floated. It’s a sign of how worried—desperate—the Street has become. Today, the growing minority supporting this was given support by none other than Allan Greenspan, who told the FT that he supported nationalization of some banks (on a temporary basis, whatever that means).

Not only that, but Republican Senators like Lindsey Graham are also floating trial balloons, saying that nationalization should at least be considered in lieu of sending billions more down a black hole. In lieu of the word nationalization, some are using the less offensive term Swedish model, but don't be fooled by that. It would:

1) Nationalize the weakest banks, and

2) Auction off assets after cleaning up balance sheets.

Mr. Geithner will soon be presenting details of his public/private partnership to help banks. Once that plan is presented, expect nationalization to emerge as a credible alternative to parts of that plan.

German govt agrees bank nationalisation bill-sourceBy: AFX | 17 Feb 2009 | 02:35 PM
http://www.cnbc.com/id/15840232?video=1039093653 (VIDEO)(NATIONALIZE)
http://www.cnbc.com/id/15840232?video=1038695184

BERLIN, Feb 17 (Reuters) - The German government has agreed on a draft bill to step up aid for its struggling lenders which would enable the country to nationalise banks as a last resort, a government source told Reuters on Tuesday. The bill, due to be approved by the cabinet on Wednesday, could lead to the expropriation of shareholders of stricken German lender Hypo Real Estate, which has received billions of euros worth of state guarantees. However, the draft bill said such a move should only be carried out as a last resort and foresees restricting expropriations to Oct. 31. A cabinet decree on any expropriation would have to be passed by the end of June, the source said. (Reporting by Andreas Moeser, writing by Dave Graham) (dave.graham@reuters.com; Reuters Messaging: dave.graham.reuters.com@reuters.net; Thomson Reuters 2009.

Q+A - Germany drafts legislation to nationalise banksBy: AFX | 18 Feb 2009 | 05:43 AM ET

BERLIN, Feb 18 (Reuters) - German Chancellor Angela Merkel's cabinet has approved a draft law which would allow Berlin to nationalise stricken banks and, as a last resort, expropriate their shareholders to shore up the financial system. Below are some questions and answers about the proposed legislation, which must still be approved by the German parliament. WHAT IS THE GOAL OF THE NEW LEGISLATION? The draft legislation, an extension of Germany's existing bank rescue law, was formulated to allow the government to take control of Munich-based lender Hypo Real Estate, a high-profile casualty of the financial crisis. Hypo has received a total of 102 billion euros ($129 billion) in guarantees from the state and fellow banks but its financial condition remains uncertain. Because of its key role in the 800 billion euro Pfandbrief covered bond market, the government has said it cannot be allowed to fail. WHY DOES BERLIN NEED A LAW TO NATIONALISE A BANK? Germany's Basic Law, or constitution, forbids the expropriation of shareholders without the establishment of a new law. In the case of Hypo Real Estate, the government wants the option of expropriation because without it, it might have trouble taking full control of the bank. This is because U.S. private equity investor JC Flowers owns nearly a quarter of Hypo's shares. WILL BERLIN EXPROPRIATE JC FLOWERS SHARES? Berlin is keen to avoid this step, in part because expropriation, or Enteignung in German, is a step associated in the minds of many Germans to the Nazis seizure of Jewish assets in the 1930s and the assault of private business owners by the former communist government of East Germany. The government will continue to try to negotiate a settlement with JC Flowers and if that fails, it could seek to gain control by pushing through a capital increase at a Hypo shareholders meeting. The new legislation makes this possible by reducing the shareholding majority needed to inject fresh capital to 50 percent plus one share from a previous threshold of 75 percent plus one share. COULD OTHER BANKS BE NATIONALISED? The German government has made clear that it wants to avoid taking control of its banks and would only do so if it deemed the broader financial system to be at risk. The draft law imposes strict limits on any expropriation of shareholders, making clear that this would have to occur by Oct. 31, 2009 and that any cabinet decree ordering this would have to be submitted by the end of June. This aims to limit application of the expropriation option to Hypo Real Estate alone. Germany has said no other banks are in the same difficult position as Hypo Real Estate, but if the financial crisis worsens, other German financial institutions could come under pressure and force the government to intervene. Last month the government took a 25 percent stake in Commerzbank, which on Wednesday reported an operating loss of 822 million euros for the fourth quarter. (Writing by Noah Barkin; Editing by Louise Ireland) ($1=.7908 Euro)(noah.barkin@reuters.com; +49 30 2888 5091; Reuters Messaging: noah.barkin.reuters.com@reuters.net)Thomson Reuters 2009.

World Bank chief tells EU to do more for Central & East Europe ReutersPublished: February 19, 2009

LONDON: The European Union should do more to support economies in central and eastern Europe, leading a coordinated global effort to help the region, World Bank President Robert Zoellick was quoted as saying.It's got to have support from the European governments, he said in an interview published in Thursday's edition of the Financial Times.It's 20 years after Europe was united in 1989 - what a tragedy if you allow Europe to split again.The euro fell to its lowest level in three months on Wednesday and shares in Europe's banks have been hurt further in recent days, undermined by fears that contagion from a sharp economic slowdown in emerging Europe could spread westwards.British Prime Minister Gordon Brown on Wednesday called for international action to prevent too much damage to trade and jobs as hard-pressed western banks pull out of eastern Europe to focus on their core home markets.

Zoellick said the World Bank was trying to work with the International Monetary Fund and other multilateral institutions to help the region but needed more backing from Brussels, the FT reported.

Ex-leader of opposition concedes failure in Italy

There is a disconnect between some of the rhetoric of leaders calling for global this and global that and their own policies, he was quoted as saying.He also said that one shoe that hasn't dropped yet in terms of fresh blows to the global economy was a sudden currency crisis in an important country.Meanwhile IMF managing director Dominique Strauss-Kahn repeated a warning that a second wave of countries may come knocking on his door for support in the near future.I'm afraid that there is a possibility that in the coming weeks and months another couple, maybe more than that, countries will need some support, he told the BBC in an interview.Strauss-Kahn said emerging economies in particular were likely to need IMF help because capital flows are reversing as western banks and private investors repatriate funds.He said the fund had enough money to deal with countries currently needing its help but that more would be needed should there be a second wave of applicants.We need stronger multilateral institutions ... so that the early warning system we are trying to rebuild, and will be making more effective, will be listened to by governments, he said, adding he was confident the G20 would hand the IMF the funds and mandate it needs at a summit in London in April.I really think that the G20 will give the IMF the resources and also ask the IMF questions to deal with which will really broaden our scope, Strauss-Kahn said.Strauss-Kahn said he did not believe Gordon Brown wanted to succeed him as head of the IMF: I don't think he has this kind of ambition,he told the BBC's Newsnight programme.(Reporting by Paul Hoskins; Editing by Phil Berlowitz)

G-7 meeting IMF Gains New Funding, Puts Focus on Bank Clean Up
IMF Survey online February 14, 2009

IMF welcomes Japan loan, seeks to double Fund resources Says emerging markets may face big financing problems in 2009 Clean up of banks critical for recovery from crisis IMF head Dominique Strauss-Kahn, warning that the global economic crisis was set to bite emerging markets and low-income countries harder this year, said he aimed to double the Fund's lendable resources to $500 billion and thanked Japan for leading the way by contributing $100 billion.Speaking to reporters following a meeting on February 13-14 in Rome of the Group of Seven (G-7) major industrialized countries, Strauss-Kahn said that advanced economies were in a serious recession and the rest of the world was close to one.Along with implementing planned economic stimulus measures, the next critical step in combating the global financial crisis is to restructure damaged banks and clean up the financial sector, he said.In a communiqué, G-7 ministers said they were committed to acting jointly to support world growth and employment and strengthen the financial sector, while avoiding protectionism. The ministers met as the U.S. Senate voted in favor of a $787 billion economic stimulus plan—clearing the way for it to be signed into law by President Barack Obama.

Boosting IMF resources

The ministers backed a proposal to increase the resources available to the IMF to help support countries hurt by the crisis. We agree that a reformed IMF, endowed with additional resources, is crucial to respond effectively and flexibly to the current crisis,their statement said.Strauss-Kahn (left) exchanges the signed loan agreement with Shoichi Nakagawa, Japan's Minister of Finance, at the Rome ceremony (photo: IMF)Japan signed an agreement in Rome to lend an extra $100 billion to the IMF and Strauss-Kahn said he aimed to double total IMF lendable resources to $500 billion [see related story on the Japan loan].The biggest concrete result of this summit is the loan by the Japanese ... I want to thank the Japanese for having led the way... Now I will continue with the objective of doubling the (IMF) resources, he told reporters. It is the largest loan ever made in the history of humanity.

Why the IMF needs more money

The IMF has so far committed around $50 billion in lending to a number of economies affected by the crisis, including Belarus, Hungary, Iceland, Latvia, Pakistan, Serbia, and Ukraine. It announced a precautionary loan for El Salvador last month and an IMF team has also been in negotiations with Turkey.But with the global economy grinding to a virtual halt this year and both trade and capital flows plummeting, Strauss-Kahn foresaw mounting problems for developing countries in the year ahead. There's going to be a true, massive problem of financing for developing countries in 2009, Strauss-Kahn said. The IMF needed to be ready because of the fall off in private capital flows, he added. The balance of payments surpluses emerging markets still had in 2008 will melt like snow in the sun, he warned.

Concessional funds

The IMF Managing Director said low-income countries would face difficulties because of fallout from the global crisis.I do not want to talk about financing and forget the poorest countries, he said. I also want to double concessional resources.The IMF and the World Bank provide lending to low-income countries at concessional rates to help finance their development.

Cleaning up the banks

Before the meeting Strauss-Kahn welcomed economic stimulus measures announced by several major and emerging market economies and said it was now critical to start applying them.In Rome, Strauss-Kahn told reporters that the next critical step was to take action to clean up the banking sector. Today the problem is not really stimulus any more. It's really the problem of the banking sector and the restructuring of the banking sector.He said that credit markets were still not functioning well,...so the restructuring of the financial sector is absolutely essential.What we must do is to test viability bank by bank. The banks that are viable you must help them with public money. The ones that aren't you must help them to be taken over by another.

Politically difficult

He recognized that spending additional public money was politically difficult when people legitimately felt that the banking sector had created the crisis. But it was important to do so, otherwise the economy would not recover. The IMF had studied 122 banking crises around the world and the lesson was that banks' balance sheets must be cleaned up for real recovery to begin. The banking sector can start distributing credit only once it has shrunk and it's been cleaned up,he said.Comments on this article should be sent to imfsurvey@imf.org

TRADE IN THE OBAMA ERA VIDEO (BY EXXON LEADER)
http://www.c-span.org/Watch/watch.aspx?MediaId=HP-A-15633

PRESIDENCIAL WAR POWERS VIDEO
http://www.c-span.org/Watch/watch.aspx?ProgramId=Terr-A-40757

DEFENCE PRESS BRIEFING
http://www.c-span.org/Watch/watch.aspx?ProgramId=Terr-A-40727

STATE PRESS BRIEFING
http://www.c-span.org/Watch/watch.aspx?ProgramId=HP-A-40760

WORLD AFFAIR COUNCIL VIDEO
http://www.c-span.org/Watch/watch.aspx?ProgramId=HP-A-40751

BERNANKE CSPAN VIDEO OF SPEECH
http://www.c-span.org/Watch/watch.aspx?ProgramId=HP-A-40711

Chairman Ben S. Bernanke At the National Press Club Luncheon, National Press Club, Washington, D.C.February 18, 2009 Federal Reserve Policies to Ease Credit and Their Implications for the Fed's Balance Sheet

We live in extraordinarily challenging times for the global economy and for economic policymakers, not least for central banks such as the Federal Reserve. As you know, the recent economic statistics have been dismal, with many economies, including ours, having fallen into recession. And behind those statistics, we must never forget, are millions of people struggling with lost jobs, lost homes, and lost confidence in their economic future. In examples that resonate with me personally, the unemployment rate in the small town in South Carolina where I grew up has risen to 14 percent, and I learned the other day that what had once been my family home was recently put through foreclosure. Traditionally the most conservative of institutions, central banks around the world have responded to this unprecedented crisis with force and innovation. In the United States, the Federal Reserve has done, and will continue to do, everything possible within the limits of its authority to assist in restoring our nation to financial stability and economic prosperity as quickly as possible. Policy innovation has been necessary because conventional monetary policies, which focus on influencing short-term interest rates, have proven insufficient to overcome the effects of the financial crisis on credit conditions and the broader economy. To further ease financial conditions, beyond what can be attained by reducing short-term interest rates, the Federal Reserve has taken additional steps to improve the functioning of credit markets and to increase the supply of credit to households and businesses--a policy strategy that I have called credit easing. In the first portion of my remarks, I will briefly outline the three principal approaches to easing credit that we have undertaken, over and above cutting the short-term interest rate, and assess their effectiveness to date.

Each of these policy approaches involves the provision of credit or the purchase of debt securities by the Federal Reserve, which collectively have resulted in a substantial expansion in the size of the Federal Reserve's balance sheet. The second portion of my remarks addresses some issues raised by the changes in the size of the Fed's balance sheet. In particular, I will discuss how the size of the balance sheet affects the ability of the Federal Open Market Committee (FOMC), the body that sets monetary policy, to foster maximum sustainable employment and price stability, as well as the steps that are being taken to manage the balance sheet appropriately.

Finally, the expansion of the Federal Reserve's balance sheet has raised some concerns--and led to some misconceptions--about the credit risk being taken by the Fed. I will address the issue of credit risk today. And I would also like to talk about steps that the Fed is taking to improve the transparency of its programs to the public, consistent with our obligations in a democracy.

Federal Reserve Policy during the Crisis
The Federal Reserve has responded forcefully to the crisis since its emergence in the summer of 2007. The FOMC began to ease monetary policy in September 2007, reducing the target for the federal funds rate, its policy instrument, by 50 basis points, or 1/2 percentage point. As indications of economic weakness proliferated, the Committee continued to respond, bringing down its target for the federal funds rate by a cumulative 325 basis points by the spring of 2008. In historical comparison, this policy response stands out as exceptionally rapid and proactive.

Monetary easing helped support employment and incomes during the first year of the crisis. Unfortunately, the intensification of financial turbulence last fall led to further significant deterioration in the economic outlook. The Committee responded by cutting the target for the federal funds rate an additional 100 basis points in October, with half of that reduction coming as part of an unprecedented coordinated interest rate cut by six major central banks on October 8. In December, the Committee reduced its target further, setting a range of 0 to 25 basis points for the target federal funds rate.The Fed's monetary easing has been reflected in significant declines in a number of lending rates, especially shorter-term rates, thus offsetting to some degree the effects of the financial turmoil on the cost of credit. However, that offset has been incomplete, as widening credit spreads, more-restrictive lending standards, and credit market dysfunction have worked against the monetary easing and led to tighter financial conditions overall. Thus, in addition to easing monetary policy, the Federal Reserve has made use of a range of additional tools to ease credit conditions and support the broader economy.These additional components of the Fed's toolkit can be divided into three sets. The first set is closely tied to the central bank's traditional role of provider of short-term liquidity to sound financial institutions. Over the course of the crisis, the Fed has taken a number of extraordinary actions to ensure that financial institutions have adequate access to short-term credit. In fulfilling its traditional lending function, the Federal Reserve enhances the stability of our financial system, increases the willingness of financial institutions to extend credit, and helps to ease conditions in interbank lending markets, thereby reducing the overall cost of capital to banks. In addition, some interest rates, including the rates on some adjustable-rate mortgages, are tied contractually to key interbank rates, such as the London interbank offered rate (Libor). To the extent that the provision of ample liquidity to banks reduces Libor, other borrowers will also see their payments decline.

Because interbank markets are global in scope, the Federal Reserve has also approved temporary bilateral liquidity agreements with 14 foreign central banks. These so-called currency swap facilities have allowed these central banks to acquire dollars from the Federal Reserve that they may lend to financial institutions in their own jurisdictions. The purpose of these swaps is to ease conditions in dollar funding markets globally. Improvements in global interbank markets, in turn, promote greater stability in other markets, such as money markets and foreign exchange markets.

Although the provision of ample liquidity by the central bank to financial institutions is a time-tested approach to reducing financial strains, it is no panacea. Today, concerns about capital, asset quality, and credit risk continue to limit the willingness of many intermediaries to extend credit, notwithstanding the access of these firms to central bank liquidity. Moreover, lending to financial institutions does not directly address instability or declining liquidity in critical nonbank markets, such as the commercial paper market or the market for asset-backed securities, which under normal circumstances are major sources of credit for U.S. households and firms.To address these issues, the Federal Reserve has developed a second set of policy tools, which involve the provision of liquidity directly to borrowers and investors in key credit markets. Notably, we have introduced facilities to purchase highly rated commercial paper at a term of three months and to provide backup liquidity for money market mutual funds. The purpose of these facilities is to serve, once again in classic central bank fashion, as backstop liquidity provider, in these cases to institutions and markets that were destabilized by the rapid withdrawal of funds by short-term creditors and investors. In addition, the Federal Reserve and the Treasury have jointly announced a facility--expected to be operational shortly--that will lend against AAA-rated asset-backed securities collateralized by recently originated student loans, auto loans, credit card loans, and loans guaranteed by the Small Business Administration. Last week, in conjunction with the Treasury, we announced that we were prepared to expand significantly this facility, known as the Term Asset-Backed Securities Loan Facility, or TALF, to encompass other types of newly issued AAA-rated asset-backed securities, such as commercial mortgage-backed securities and private-label mortgage-backed securities, as well. If this program works as planned, it should lead to lower rates and greater availability of consumer, business, and mortgage credit.The Federal Reserve's third set of tools for supporting the functioning of credit markets involves the purchase of longer-term securities for the Fed's portfolio. For example, we are purchasing up to $100 billion in the debt of government-sponsored enterprises (GSEs) and up to $500 billion in mortgage-backed securities guaranteed by federal agencies by midyear.

The Federal Reserve is engaged in continuous assessment of the effectiveness of its credit-related tools, and we have generally been encouraged by the market responses. Our lending to financial institutions has helped to relax the severe liquidity strains experienced by many firms and has been associated with improvements in interbank lending markets; for example, we believe that liquidity provision by the Fed and other central banks is a principal reason that liquidity pressures around the end of the year--often a period of heightened liquidity strains--were relatively modest. Libor has fallen sharply as well. Our commercial paper facility has helped to stabilize that market, lowering rates significantly and allowing high-quality firms access to financing at terms longer than a few days. Together with other government programs, our actions to stabilize the money market mutual fund industry have also shown some success, as the sharp withdrawals from funds seen in September have given way to modest inflows. And rates on 30-year conforming fixed-rate mortgages have fallen nearly 1 percentage point since we announced the program to purchase GSE-related securities. Thus, taken together, these policies appear to give the Federal Reserve some scope to affect credit conditions and economic performance, notwithstanding that the conventional tool of monetary policy, the federal funds rate, is nearly as low as it can go.

The Federal Reserve's Policies and its Balance Sheet
The various credit-related policies I have described have implications for the Federal Reserve's balance sheet. In the remainder of my remarks I will discuss those implications as well as some related issues.The three sets of policy tools I have focused on today--lending to financial institutions, providing liquidity directly to key credit markets, and buying longer-term securities--each represents a use of the asset side of the Fed's balance sheet. Specifically, loans that the Fed extends--either to financial institutions, through the discount window and related facilities, or to other borrowers in programs like our commercial paper facility--are recorded as assets on our balance sheet, as are securities acquired in the open market, such as the GSE securities we are purchasing. The Fed's assets also include about $500 billion of Treasury securities. About 5 percent of our balance sheet, or $100 billion, consists of assets we acquired in the government interventions to prevent the failures of Bear Stearns and American International Group (AIG). I won't say much about those interventions today, except to note that the failures of those companies would have posed enormous risks to the stability of our financial system and economy. Because the United States has no well-specified set of rules for dealing with the potential failure of systemically critical nondepository financial institutions, we believed that the best of the bad options available was to work with the Treasury to take the actions we did to avoid those collapses. The liability side of the Federal Reserve's balance sheet is relatively simple, consisting primarily of currency issuance (Federal Reserve notes) and reserves held by the banking system on deposit with the Federal Reserve.The various credit-related policies I have described today all act to increase the size of both the asset and liability sides of the Federal Reserve's balance sheet. For example, the purchase of $1 billion of GSE securities, paid for by crediting the deposit account of the seller's bank at the Federal Reserve, increases the Fed's balance sheet by $1 billion, with the acquired securities appearing as an asset, and the seller's bank's deposit at the Fed being the offsetting liability. The quantitative impact of our credit actions on the balance sheet has been large; its size has nearly doubled over the past year, to just under $2 trillion.Some observers have expressed the concern that, by expanding its balance sheet, the Federal Reserve will ultimately stoke inflation. The Fed's lending activities have indeed resulted in a large increase in the reserves held by banks and thus in the narrowest definition of the money supply, the monetary base.1 However, banks are choosing to leave the great bulk of their excess reserves idle, in most cases on deposit with the Fed. Consequently, the rates of growth of broader monetary aggregates, such as M1 and M2, have been much lower than that of the monetary base.2 At this point, with global economic activity weak and commodity prices at low levels, we see little risk of unacceptably high inflation in the near term; indeed, we expect inflation to be quite low for some time.

However, at some point, when credit markets and the economy have begun to recover, the Federal Reserve will have to moderate growth in the money supply and begin to raise the federal funds rate. To reduce policy accommodation, the Fed will have to unwind some of its credit-easing programs and allow its balance sheet to shrink. To some extent, this unwinding will happen automatically, as improvements in credit markets should reduce the need to use Fed facilities. Indeed, where possible, we have tried to set lending rates and other terms at levels that are likely to be increasingly unattractive to borrowers as financial conditions normalize. In addition, some programs--those authorized under the Federal Reserve's so-called 13(3) authority, which requires a finding that conditions in financial markets are unusual and exigent--will, by law, have to be phased out once credit market conditions substantially normalize. However, the principal factor determining the timing and pace of that process will be the Federal Reserve's assessment of the condition of credit markets and the prospects for the economy.A significant shrinking of the balance sheet can be accomplished relatively quickly, as a substantial portion of the assets that the Federal Reserve holds--including loans to financial institutions, temporary central bank liquidity swaps, and purchases of commercial paper--are short-term in nature and can simply be allowed to run off as the various programs and facilities are scaled back or shut down. As the size of the balance sheet and the quantity of excess reserves in the system decline, the Federal Reserve will be able to return to its traditional means of making monetary policy--namely, by setting a target for the federal funds rate.Importantly, the management of the Federal Reserve's balance sheet and the conduct of monetary policy in the future will be made easier by the recent congressional action to give the Fed the authority to pay interest on bank reserves. Because banks should be unwilling to lend reserves at a rate lower than they can receive from the Fed, the interest rate the Fed pays on bank reserves should help to set a floor on the overnight interest rate. Moreover, other tools are available or can be developed to improve control of the federal funds rate during the exit stage. For example, the Treasury could resume its recent practice of issuing supplementary financing bills and placing the funds with the Federal Reserve; the issuance of these bills effectively drains reserves from the banking system, thereby improving monetary control. As we consider new programs or the expansion of old ones, the Federal Reserve will carefully weigh the implications for the exit strategy. And we will take all necessary actions to ensure that the unwinding of our programs is accomplished smoothly and in a timely way, consistent with meeting our obligation to foster maximum employment and price stability.

Credit Risk and Transparency
Two other frequently asked questions about the Federal Reserve's balance sheet are: First, how much credit risk is the Fed taking in its lending activities? And, second, is the Fed informing the public adequately about these activities? To address the first question, for the great bulk of Fed lending, the credit risks are extremely low. The provision of short-term credit to financial institutions--our traditional function--exposes the Federal Reserve to minimal credit risk, as the loans we make to financial institutions are generally short-term, overcollateralized, and made with recourse to the borrowing firm. In the case of the liquidity swaps, the foreign central banks are responsible for repaying the Federal Reserve, not the financial institutions that ultimately receive the funds, and the Fed receives an equivalent amount of foreign currency in exchange for the dollars it provides foreign central banks. The Treasury stands behind the debt and other securities issued by the GSEs.Our special lending programs have also been set up to minimize our credit risk. The largest program, the commercial paper funding facility, accepts only the most highly rated paper. It also charges borrowers a premium, which is set aside against possible losses. And the TALF, the facility that will lend against securities backed by consumer and small business loans, is a joint Federal Reserve-Treasury program, as I mentioned, and capital provided by the Treasury will help insulate the Federal Reserve from credit losses.The transactions we undertook to prevent the systemically destabilizing failures of Bear Stearns and AIG, which, as I noted, make up about 5 percent of our balance sheet, carry more risk than our traditional activities. But we intend, over time, to sell the assets acquired in those transactions in a way that maximizes the return to taxpayers, and we expect to recover the credit we have extended. Moreover, in assessing the financial risks of those transactions, once again one must also consider the very grave risks our nation would have incurred had public policy makers not acted in those instances.

Finally, I should remind you that all the Federal Reserve's assets pay interest, and the expansion of our balance sheet thereby implies increased interest income, income that will accrue to the benefit of the federal budget. From the point of view of the federal government, the Federal Reserve's activities do not imply greater expenditure or indebtedness. To the contrary, the Federal Reserve's interest earnings have always been, and will continue to be, a significant source of income for the Treasury.On the second question, transparency, I firmly believe that central banks should provide as much information as possible, both for reasons of democratic accountability and because many of our policies are likely to be more effective if they are well understood by the markets and the public. During my time at the Federal Reserve, the FOMC has taken important steps to increase the transparency of monetary policy, such as moving up the publication of the minutes of policy meetings and adopting the practice of providing projections of the evolution of the economy at longer horizons and four times per year rather than twice.Later today, with the release of the minutes of the most recent FOMC meeting, we will be making an additional significant enhancement in Federal Reserve communications: To supplement the current economic projections by governors and Reserve Bank presidents for the next three years, we will also publish their projections of the longer-term values (at a horizon of, for example, five to six years) of output growth, unemployment, and inflation, under the assumptions of appropriate monetary policy and the absence of new shocks to the economy. These longer-term projections will inform the public of the Committee participants' estimates of the rate of growth of output and the unemployment rate that appear to be sustainable in the long run in the United States, taking into account important influences such as the trend growth rates of productivity and the labor force, improvements in worker education and skills, the efficiency of the labor market at matching workers and jobs, government policies affecting technological development or the labor market, and other factors. The longer-term projections of inflation may be interpreted, in turn, as the rate of inflation that FOMC participants see as most consistent with the dual mandate given to it by the Congress--that is, the rate of inflation that promotes maximum sustainable employment while also delivering reasonable price stability. This further extension of the quarterly projections should provide the public a clearer picture of FOMC participants' policy strategy for promoting maximum employment and price stability over time. Also, increased clarity about the FOMC's views regarding longer-term inflation should help to better stabilize the public's inflation expectations, thus contributing to keeping actual inflation from rising too high or falling too low.

Likewise, the Federal Reserve is committed to keeping the Congress and the public informed about its lending programs and balance sheet. For example, we continue to add to the information shown in the Fed's H.4.1 statistical release, which provides weekly detail on the balance sheet and the amounts outstanding for each of the Federal Reserve's lending facilities. Extensive additional information about each of the Federal Reserve's lending programs is available online.3 The Fed also provides bimonthly reports to the Congress on each of its programs that rely on the section 13(3) authorities. Generally, our disclosure policies are consistent with the current best practices of major central banks around the world. In addition, the Federal Reserve's internal controls and management practices are closely monitored by an independent inspector general, outside private-sector auditors, and internal management and operations divisions, and through periodic reviews by the Government Accountability Office. All that said, recent developments have understandably led to a substantial increase in the public's interest in the Fed's balance sheet and programs. For this reason, we at the Fed have begun a thorough review of our disclosure policies and the effectiveness of our communication. Today I would like to mention two initiatives.First, to improve public access to information concerning Fed policies and programs, in coming days we will unveil a new website that will bring together in a systematic and comprehensive way the full range of information that the Federal Reserve already makes available, supplemented by explanations, discussions, and analyses.Second, at my request, Board Vice Chairman Donald Kohn is leading a committee that will review our current publications and disclosure policies relating to the Fed's balance sheet and lending policies. The presumption of the committee will be that the public has a right to know, and that the nondisclosure of information must be affirmatively justified by clearly articulated criteria for confidentiality, based on factors such as reasonable claims to privacy, the confidentiality of supervisory information, and the need to ensure the effectiveness of policy.

Conclusion
Extraordinary times call for extraordinary measures. Responding to the very difficult economic and financial challenges we face, the Federal Reserve has gone beyond traditional monetary policy making to develop new policy tools to address the dysfunctions in the nation's credit markets. We have done so in a responsible way: The credit risk associated with our nontraditional policies is exceptionally low, and, by carefully monitoring our balance sheet and developing tools to drain bank reserves as needed, we will ensure that policy accommodation can be reversed at the appropriate time to avoid risks of future inflation.We provide a great deal of information about our lending programs and our balance sheet to the Congress and the public. But, as I have discussed today, we will do more on this front, both expanding the information we provide and improving how we communicate that information. Increased transparency is the best way to demonstrate that the Federal Reserve's nontraditional policies are well conceived, well managed, and produce substantial public benefit.

Footnotes

1. The monetary base is the sum of currency in circulation and bank reserves. Return to text

2. M1 consists of currency, traveler's checks, demand deposits, and other checkable deposits. M2 consists of M1 plus savings deposits, small-denomination time deposits, and balances in retail money market mutual funds. M2 has grown more rapidly than normal in recent months, at about a 15 percent annual rate on a quarterly average basis in the fourth quarter. We attribute this increase primarily to investors' demand for greater safety, which has led them to increase their holdings of government-guaranteed bank deposits. We expect growth in M2 to slow considerably in 2009, barring a similar shift in portfolio preferences. Return to text

3. For links and references, see Ben S. Bernanke (2009), Federal Reserve Programs to Strengthen Credit Markets and the Economy, testimony before the Committee on Financial Services, U.S. House of Representatives, February 10.