According to the Wall Street Journal, Federal Reserve Chairman Ben Bernanke announced that "the Fed" had ruled out a central bank bailout of state and local governments. "We have no expectation or intention to get involved in state and local finance," he said in testimony before the Senate Budget Committee. The states "should not expect loans from the Fed." http://online.wsj.com/article/SB10001424052748704739504576067602380461160.html
This despite a financial crisis may commentators have called the next wave of the credit crisis in the USA. Many pension funds, workers and unions are under attack as a result of the collapse of finance for local government, sounds familiar doesn't it?
The Federal Reserve, similar to our Bank of England but in private hands, was set up by bankers for bankers, and it has served them well. Out of the blue, it came up with $12.3 trillion in nearly interest-free credit to bail the banks out of a credit crunch they created. That same credit crisis has plunged state and local governments into insolvency, but the Fed has now delivered its ultimatum: there will be no "quantitative easing" for state or local governments.
The financial woes of state and municipal governments are a direct result of Wall Street's collapse. The Fed's low-interest facilities could have been used to restore local government credit, just as it was used to restore the credit of the banks. But Chairman Bernanke has now vetoed that plan.
The argument may be that continuing the Fed's controversial "quantitative easing" program (easing credit conditions by creating money with accounting entries) will drive the economy intohyperinflation. But creating $12.3 trillion for the banks - nearly one hundred times the sum needed by state governments - did not have that dire effect. Rather, the money supply is shrinking - by some estimates, at the fastest rate since the Great Depression. Creating another $140 billion would hardly affect the money supply at all.
The Federal Reserve Act was drafted by bankers to create a banker's bank that would serve their interests. No others need apply. The Federal Reserve is the bankers' own private club, and its legal structure keeps
all non-members out even if it means high unemployment and the destruction of a decent pension for local government workers.
