But don't feel too bad. It's not you, it's me. Or rather, it's the TSA.
I'm not going to lie. It's come between us. If I have to let someone else see me naked in order to be with you--well, I'm just not that kinky. And deep down, I don't think you are either. I think it's the TSA making you act like this. Frankly, you haven't been the same since you started running around together.
But I can't put all the blame on them. I think you went along because you thought I had to have you--that I couldn't live without you. That no matter what you did, I'd stay. And it's true, you had a pretty strong hold on me. Took away the food, and I still loved you--who wanted to eat a terrible, fattening meal anyway? Narrowed the distance between the seats, and still I stayed, using my airline miles to upgrade to first class. Charge me for baggage? I'm an economics writer--I love unbundled products. So I can see where you got the idea that I'd stick by you no matter what.
But the kinky stuff is just a bridge too far. I'm not saying I'll never see you again: we can still meet up for a drink, or even a quick weekend trip to California. But our days as a regular item are through....
It wouldn't be fair to just drop out of sight and not return your calls without letting you know why I was leaving. As it happens, I'm a frequent flier on American, and a pretty reliable customer of Delta and United. Or rather I was. Because like I said, I'm leaving you.
In fact, I've already left. My cousin's wedding in Buffalo in October? Drove eight hours each way. Going to visit Dad in Boston over Christmas? We're taking a slow train from DC rather than subject ourselves to the increasing indignity of flying. If it's under 500 miles, I'll do anything rather than hop on a plane. And if it's over 500 miles, it had better be way over . . . or I'd better be carrying a cooler with a still-beating heart in it.
NOVEMBER 18, 2010. In case you’re living inside a tree, I’ll mention that US airports are now doing full body scans of passengers, and apparently there is a radiation risk, or there might be a radiation risk, or there is no risk, or the risk is “minimal.”
I found a TSA employee a few blocks away from LAX selling tinfoil hats. Business was brisk. But that’s another story.
If you decline the scan, because you don’t like the health odds, or because you object to having your nude photo taken and distributed on the internet, you can opt for the pat-down.
This is a same-sex grope. Unless the TSA employee is a transsexual. In that case, you construct your own definition of what is happening.
Now, having read stories about disgruntled passengers who didn’t appreciate their “junk” being shaken by strangers in an airport, I have come to the following conclusion:
Soon, there will be an incident of sexual intercourse.
And the TSA employee who carried out this form of inspection will say, “It depends on what the definition of ‘is’ is.”
Someone with a cell phone will capture the act on video, and it will garner 500 million hits in the first six hours.
ABC will win the sweepstakes, and having paid the victim four million dollars, Diane Sawyer will do the sensitive interview.
Drudge will discover the victim is a divorced mom with three kids from Cleveland—and moonlights on the side as a hooker.
She will say (but not to Diane Sawyer), “That was the most expensive trick I ever turned—by a long shot.”
Diane, however, will offer, in a low breathy voice: “We know at least one terrorist who had a bomb in his anus, so we must ask, was it only vaginal sex in the airport?”
And the mom/hooker will reply: “If I had gone for the anal, you guys would be paying me ten million for the interview.”
Homeland Security will, upon consideration, issue a release: “Sex is probably the best way to determine whether a terrorist intends to board a plane.”
During this entire episode, President Obama will be visiting US troops in Guam. He will spend a week with a little-known tribe rehearsing a rain dance.
Hillary Clinton will be aboard a space shuttle orbiting Earth.
In Washington DC, several groups will issue statements demanding a gay and lesbian pat-down option.
Unobserved, Osama Bin Laden will fly commercial from JFK to LAX, making stops in Columbus, Houston, Phoenix, and San Diego.
An Al Jazeera story will escape notice: “Today, leaders of the Wahabi sect announced the launch of a new air service in the United States. Traversing a variety of local routes, the commercial planes will accept only Islamic passengers, and will be flown and serviced by Islamic crews. Explosion Airlines is set to debut in March of 2011.”
Thousands of French protesters have taken up the former Man United footballer's call for a mass cash withdrawal
Eric Cantona is calling on protesters against cutbacks and pension reforms in France to start a real revolution by mass bank withdrawals. Photograph: MCP / Rex Features
As students and public sector workers across Europe prepare for a winter of protests, they have been offered advice from the archetypal football rebel Eric Cantona.
Cantona was once a famous exponent of direct action against adversaries on and off the pitch. In 1995 he was given a nine-month ban after launching a karate kick at a Crystal Palace fan who shouted racist abuse at the former Manchester United star after he was sent off. But while sympathising with the predicament of the protesters in France, the now retired Cantona is urging a more sophisticated approach to dissent.
The 44-year-old former footballer recommended a run on the cash reserves of the world's banks during a newspaper interview that was also filmed. The interview has become a YouTube hit and has spawned a new political movement.
The regional newspaper Presse Océan in Nantes had asked Cantona about his work with the Abbé Pierre Foundation, which campaigns for housing for the destitute and for which he produced a book of photographs last year. But the discussion soon moved on to other issues, including the demonstrations in France and elsewhere against government cutbacks in the new era of austerity.
Cantona, wearing a bright red jumper, dismissed protesters who take to the streets with placards and banners as passé. Instead, he said, they should create a social and economic revolution by taking their money out of their bank.
He said: "I don't think we can be entirely happy seeing such misery around us. Unless you live in a pod. But then there is a chance... there is something to do. Nowadays what does it mean to be on the streets? To demonstrate? You swindle yourself. Anyway, that's not the way any more.
"We don't pick up weapons to kill people to start the revolution. The revolution is really easy to do these days. What's the system? The system is built on the power of the banks. So it must be destroyed through the banks.
"This means that the three million people with their placards on the streets, they go to the bank and they withdraw their money and the banks collapse. Three million, 10 million people, and the banks collapse and there is no real threat. A real revolution.
"We must go to the bank. In this case there would be a real revolution. It's not complicated; instead of going on the streets and driving kilometres by car you simply go to the bank in your country and withdraw your money, and if there are a lot of people withdrawing their money the system collapses. No weapons, no blood, or anything like that."
He concludes: "It's not complicated and in this case they will listen to us in a different way. Trade unions? Sometimes we should propose ideas to them."
Cantona's call appeared to touch a popular chord and generated an instant response. Nearly 40,000 people have clicked on the YouTube clip, and a French-based movement – StopBanque – has taken up the campaign for a massive coordinated withdrawal of money from banks on 7 December. It is claimed that more than 14,000 people are already committed to removing deposits. The movement is also gaining increasing attention in Britain.
The trio of French Facebook users now leading the campaign have appealed to people across Europe to provoke a bank crash. "It is we who control the banks, not vice versa," they write.
In a fuller statement on the website Bankrun2010.com, the organisers write: "Our call has been more successful than we dared think. Our action is a people's movement... we're not seeking to destroy anyone in particular, it's the corrupt, criminal and moribund system that we have decided to oppose using what means we can, with determination and within the law." The statement is signed by Géraldine Feuillien, 41, a Belgian filmmaker, and Yann Sarfati, 24, an actor and director from France.
Sarfati said he and his friends had simply wanted to pass on Cantona's video clip, but had found themselves caught up in a global "citizens' movement".
"We were surprised by the interest and the buzz it created on the internet. It has really spread; there are now Facebook events in Italy, Romania, Bulgaria and even Korea," Sarfati said.
"We're not anarchists, nor linked to any political party or trade union; we're not even an organisation. We just thought this was another way of protesting."
He added: "In between doing publicity campaigns for L'Oréal, Cantona has this revolutionary side. He earns a good living, but obviously he has a social conscience and I think he is sincere."
Valérie Ohannesian, of the French Banking Federation, said she thought that the appeal was "stupid in every sense" and a charter for thieves and money-launderers.
"My first reaction is to laugh. It is totally idiotic," she told the Observer. "One of the main roles of a bank is to keep money safe. This appeal will give great pleasure to thieves, I would have thought."
She also doubted the practicalities of the suggestion. "If Mr Cantona wants to take his money out of the bank, I imagine that he'll need quite a few suitcases," she said.
ERIC'S DIRECT ACTION
1987 Fined by Auxerre for punching his team's goalkeeper, Bruno Martini.
1989 Kicks ball into the crowd and hurls shirt at the referee on being substituted in a charity match, then throws his jersey at Marseille coach Gerard Gili. Playing for Montpellier, he hits team-mate Jean-Claude Lemoult with his boot.
1991 Now playing for Nîmes, he throws the ball at the referee and storms off. Later attacks an opponent.
1993 Spits at a Leeds fan in his first season for Manchester United.
1995 Kicks out at a Crystal Palace defender and is sent off. As Cantona leaves the pitch, Palace fan Matthew Simmons screams abuse at him and Cantona launches his now infamous kung-fu kick at Simmons.
In a startling accusation, nuclear whistleblower Mordechai Vanunu has alleged that Jerusalem was behind the assassination of US President John F. Kennedy, who was exerting pressure on the then Israeli head of state to shed light on the Dimona nuclear plant.
In defiance of a ban on talking to the media and meeting with foreigners, Vanunu is said to have made the accusation in an interview to London-based Al-Hayat newspaper.
As per the interview published in newspaper's Arabic supplement Al-Wassat yesterday, Vanunu said according to "near-certain indications", Kennedy was assassinated due to "pressure he exerted on then head of government, David Ben-Gurion, to shed light on Dimona's nuclear reactor".
"We do not know which irresponsible Israeli Prime Minister will take office and decide to use nuclear weapons in the struggle against neighboring Arab countries," he is quoted to have said, adding, "What has already been exposed about the weapons Israel is holding can destroy the region and kill millions."
The whistleblower, who was released in April after 18 years of imprisonment on charges of treason for divulging state secrets, also said that the reactor in Dimona, could become a second "Chernobyl", Israili media reported. He said an earthquake could cause fissures to the core and that would cause a massive radiation leak threatening millions.
Vanunu warned that Jordan should test the residents along the border with Israel for exposure to radiation and give them pills just like the Jewish state decided to do for its citizens.
Criticising the visit of head of the Atomic Energy Agency, Mohammed el-Baradei, to Israel early this month, he said, "He (Baradei) should have refused to visit Israel (because) he was not allowed to inspect the nuclear reactor."
It was not yet clear how al-Hayat did the interview, which the publication claimed is the first with Vanunu since his release. If it turns out that he in fact gave such an interview in violation of the conditions laid down for his release, severe sanctions might be imposed on him.
An Israeli Justice Ministry statement said "the statements that Vanunu made will be examined and if it is determined that he violated the law or his restrictions, then steps against him will be considered."
"The opinions on Vanunu are divided," said Ra'anan Gissin, a spokesman for Prime Minister Ariel Sharon. "Some say let him speak and it adds to the ambiguity policy, while others say the more he speaks the more he raises tensions, particularly in the current atmosphere."
Brushing aside the latest allegations, he said that serious people understood that Vanunu was speaking nonsense and his comments on JFK were not worthy of a reaction.
The Fed Is Saying One Thing But Doing Something Very Different
Ben Bernanke has said that the Fed is trying to promote inflation, increase lending, reduce unemployment, and stimulate the economy.
However, the Fed has arguably - to some extent - been working against all of these goals.
For example, as I reported in March, the Fed has been paying the big banks high enough interest on the funds which they deposit at the Fed to discourage banks from making loans. Indeed, the Fed has explicitly stated that - in order to prevent inflation - it wants to ensure that the banks don't loan out money into the economy, but instead deposit it at the Fed:
Why is M1 crashing? [the M1 money multiplier basically measures how much the money supply increases for each $1 increase in the monetary base, and it gives an indication of the "velocity" of money, i.e. how quickly money is circulating through the system]
Because the banks continue to build up their excess reserves, instead of lending out money:
The Federal Reserve Banks pay interest on required reserve balances--balances held at Reserve Banks to satisfy reserve requirements--and on excess balances--balances held in excess of required reserve balances and contractual clearing balances.
The New York Fed itself said in a July 2009 staff report that the excess reserves are almost entirely due to Fed policy:
Since September 2008, the quantity of reserves in the U.S. banking system has grown dramatically, as shown in Figure 1.1 Prior to the onset of the financial crisis, required reserves were about $40 billion and excess reserves were roughly $1.5 billion. Excess reserves spiked to around $9 billion in August 2007, but then quickly returned to pre-crisis levels and remained there until the middle of September 2008. Following the collapse of Lehman Brothers, however, total reserves began to grow rapidly, climbing above $900 billion by January 2009. As the figure shows, almost all of the increase was in excess reserves. While required reserves rose from $44 billion to $60 billion over this period, this change was dwarfed by the large and unprecedented rise in excess reserves.
Why are banks holding so many excess reserves? What do the data in Figure 1 tell us about current economic conditions and about bank lending behavior? Some observers claim that the large increase in excess reserves implies that many of the policies introduced by the Federal Reserve in response to the financial crisis have been ineffective. Rather than promoting the flow of credit to firms and households, it is argued, the data shown in Figure 1 indicate that the money lent to banks and other intermediaries by the Federal Reserve since September 2008 is simply sitting idle in banks’ reserve accounts. Edlin and Jaffee (2009), for example, identify the high level of excess reserves as either the “problem” behind the continuing credit crunch or “if not the problem, one heckuva symptom” (p.2). Commentators have asked why banks are choosing to hold so many reserves instead of lending them out, and some claim that inducing banks to lend their excess reserves is crucial for resolving the credit crisis.
This view has lead to proposals aimed at discouraging banks from holding excess reserves, such as placing a tax on excess reserves (Sumner, 2009) or setting a cap on the amount of excess reserves each bank is allowed to hold (Dasgupta, 2009). Mankiw (2009) discusses historical concerns about people hoarding money during times of financial stress and mentions proposals that were made to tax money holdings in order to encourage lending. He relates these historical episodes to the current situation by noting that “[w]ith banks now holding substantial excess reserves, [this historical] concern about cash hoarding suddenly seems very modern.”
[In fact, however,] the total level of reserves in the banking system is determined almost entirely by the actions of the central bank and is not affected by private banks’ lending decisions.
The liquidity facilities introduced by the Federal Reserve in response to the crisis have created a large quantity of reserves. While changes in bank lending behavior may lead to small changes in the level of required reserves, the vast majority of the newly-created reserves will end up being held as excess reserves almost no matter how banks react. In other words, the quantity of excess reserves depicted in Figure 1 reflects the size of the Federal Reserve’s policy initiatives, but says little or nothing about their effects on bank lending or on the economy more broadly.
This conclusion may seem strange, at first glance, to readers familiar with textbook presentations of the money multiplier.
Why Is The Fed Locking Up Excess Reserves?
Why is the Fed locking up excess reserves?
As Fed Vice Chairman Donald Kohn said in a speech on April 18, 2009:
We are paying interest on excess reserves, which we can use to help provide a floor for the federal funds rate, as it does for other central banks, even if declines in lending or open market operations are not sufficient to bring reserves down to the desired level.
Because we can now pay interest on excess reserves, we can raise short-term interest rates even with an extraordinarily large volume of reserves in the banking system. Increasing the rate we offer to banks on deposits at the Federal Reserve will put upward pressure on all short-term interest rates.
As the Minneapolis Fed's research consultant, V. V. Chari, wrote this month:
Currently, U.S. banks hold more than $1.1 trillion of reserves with the Federal Reserve System. To restrict excessive flow of reserves back into the economy, the Fed could increase the interest rate it pays on these reserves. Doing so would not only discourage banks from draining their reserve holdings, but would also exert upward pressure on broader market interest rates, since only rates higher than the overnight reserve rate would attract bank funds. In addition, paying interest on reserves is supported by economic theory as a means of reducing monetary inefficiencies, a concept referred to as “the Friedman rule.”
And the conclusion to the above-linked New York Fed article states:
We also discussed the importance of paying interest on reserves when the level of excess reserves is unusually high, as the Federal Reserve began to do in October 2008. Paying interest on reserves allows a central bank to maintain its influence over market interest rates independent of the quantity of reserves created by its liquidity facilities. The central bank can then let the size of these facilities be determined by conditions in the financial sector, while setting its target for the short-term interest rate based on macroeconomic conditions. This ability to separate monetary policy from the quantity of bank reserves is particularly important during the recovery from a financial crisis. If inflationary pressures begin to appear while the liquidity facilities are still in use, the central bank can use its interest-on-reserves policy to raise interest rates without necessarily removing all of the reserves created by the facilities.
As the NY Fed explains in more detail:
The central bank paid interest on reserves to prevent the increase in reserves from driving market interest rates below the level it deemed appropriate given macroeconomic conditions. In such a situation, the absence of a money-multiplier effect should be neither surprising nor troubling.
Is the large quantity of reserves inflationary?
Some observers have expressed concern that the large quantity of reserves will lead to an increase in the inflation rate unless the Federal Reserve acts to remove them quickly once the economy begins to recover. Meltzer (2009), for example, worries that “the enormous increase in bank reserves — caused by the Fed’s purchases of bonds and mortgages — will surely bring on severe inflation if allowed to remain.” Feldstein (2009) expresses similar concern that “when the economy begins to recover, these reserves can be converted into new loans and faster money growth” that will eventually prove inflationary. Under a traditional operational framework, where the central bank influences interest rates and the level of economic activity by changing the quantity of reserves, this concern would be well justified. Now that the Federal Reserve is paying interest on reserves, however, matters are different.
When the economy begins to recover, firms will have more profitable opportunities to invest, increasing their demands for bank loans. Consequently, banks will be presented with more lending opportunities that are profitable at the current level of interest rates. As banks lend more, new deposits will be created and the general level of economic activity will increase. Left unchecked, this growth in lending and economic activity may generate inflationary pressures. Under a traditional operating framework, where no interest is paid on reserves, the central bank must remove nearly all of the excess reserves from the banking system in order to arrest this process. Only by removing these excess reserves can the central bank limit banks’ willingness to lend to firms and households and cause short-term interest rates to rise.
Paying interest on reserves breaks this link between the quantity of reserves and banks’ willingness to lend. By raising the interest rate paid on reserves, the central bank can increase market interest rates and slow the growth of bank lending and economic activity without changing the quantity of reserves. In other words, paying interest on reserves allows the central bank to follow a path for short-term interest rates that is independent of the level of reserves. By choosing this path appropriately, the central bank can guard against inflationary pressures even if financial conditions lead it to maintain a high level of excess reserves.
This logic applies equally well when financial conditions are normal. A central bank may choose to maintain a high level of reserve balances in normal times because doing so offers some important advantages, particularly regarding the operation of the payments system. For example, when banks hold more reserves they tend to rely less on daylight credit from the central bank for payments purposes. They also tend to send payments earlier in the day, on average, which reduces the likelihood of a significant operational disruption or of gridlock in the payments system. To capture these benefits, a central bank may choose to create a high level of reserves as a part of its normal operations, again using the interest rate it pays on reserves to influence market interest rates.
Because financial conditions are not "normal", it appears that preventing inflation seems to be the Fed's overriding purpose in creating conditions ensuring high levels of excess reserves.
The multiplier's decline "corresponds so exactly to the expansion of the Fed's balance sheet," says Constance Hunter, economist at hedge-fund firm Galtere. "It hits at the core of the problem in a credit crisis. Until [the multiplier] expands, we can't get sustainable growth of credit, jobs, consumption, housing. When the multiplier starts to go back up toward 1.8, then we know the psychological logjam has begun to break."
***
It's not just the Fed. The NY Fed report notes:
Most central banks now pay interest on reserves.
Robert D. Auerbach - an economist with the U.S. House of Representatives Financial Services Committee for eleven years, assisting with oversight of the Federal Reserve, and subsequently Professor of Public Affairs at the Lyndon B. Johnson School of Public Affairs at the University of Texas at Austin - argues that the Fed should slowly reduce the interest paid on reserves so as to stimulate the economy.
The stimulative effects of QE2 may be small and the costs may be large. One of these costs will be the payment of billions of dollars by taxpayers to the banks which currently hold over 50 percent of the monetary base, over $1 trillion in reserves. The interest payments are an incentive for banks to hold reserves rather than make business loans. If market interest rates rise, the Federal Reserve may be required to increase these interest payments to prevent the huge amount of bank reserves from flooding the economy. They should follow a different policy that benefits taxpayers and increases the incentive of banks to make business loans as I have previously suggested.
Immediately after the recession took a dramatic dive in September 2008, the Bernanke Fed implemented a policy that continues to further damage the incentive for banks to lend to businesses. On October 6, 2008 the Fed's Board of Governors, chaired by Ben Bernanke, announced it would begin paying interest on the reserve balances of the nation's banks, major lenders to medium and small size businesses.
You don't need a Ph.D. economist to know that if you pay banks ¼ percent risk free interest to hold reserves that they can obtain at near zero interest, that would be an incentive to hold the reserves. The Fed pumped out huge amounts of money, with the base of the money supply more than doubling from August 2008 to August 2010, reaching $1.99 trillion. Guess who has over half of this money parked in cold storage? The banks have $1.085 trillion on reserves drawing interest, The Fed records show they were paid $2.18 billion interest on these reserves in 2009.
A number of people spoke about the disincentive for bank lending embedded in this policy including Chairman Bernanke.
*** Jim McTague, Washington Editor of Barrons, wrote in his February 2, 2009 column, "Where's the Stimulus:" "Increasing the supply of credit might help pump up spending, too. University of Texas Professor Robert Auerbach an economist who studied under the late Milton Friedman, thinks he has the makings of a malpractice suit against Federal Reserve Chairman Ben Bernanke, as the Fed is holding a record number of reserves: $901 billion in January as opposed to $44 billion in September, when the Fed began paying interest on money commercial banks parked at the central bank. The banks prefer the sure rate of return they get by sitting in cash, not making loans. Fed, stop paying, he says."
Shortly after this article appeared Fed Chairman Bernanke explained: "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." (National Press Club, February 18, 2009) That was an admission that the Fed's payment of interest on reserves did impair bank lending. Bernanke's rationale for interest payments on reserves included preventing banks from lending at lower interest rates. That is illogical at a time when the Fed's target interest rate for federal funds, the small market for interbank loans, was zero to a quarter of one percent. The banks would be unlikely to lend at negative rates of interest -- paying people to take their money -- even without the Fed paying the banks to hold reserves.
The next month William T. Gavin, an excellent economist at the St. Louis Federal Reserve, wrote in its March\April 2009 publication: "first, for the individual bank, the risk-free rate of ¼ percent must be the bank's perception of its best investment opportunity."
The Bernanke Fed's policy was a repetition of what the Fed did in 1936 and 1937 which helped drive the country into a second depression. Why does Chairman Bernanke, who has studied the Great Depression of the 1930's and has surely read the classic 1963 account of improper actions by the Fed on bank reserves described by Milton Friedman and Anna Schwartz, repeat the mistaken policy?
As the economy pulled out of the deep recession in 1936 the Fed Board thought the U.S. banks had too much excess reserves, so they began to raise the reserves banks were required to hold. In three steps from August 1936 to May 1937 they doubled the reserve requirements for the large banks (13 percent to 26 percent of checkable deposits) and the country banks (7 percent to 14 percent of checkable deposits).
Friedman and Schwartz ask: "why seek to immobilize reserves at that time?" The economy went back into a deep depression. The Bernanke Fed's 2008 to 2010 policy also immobilizes the banking system's reserves reducing the banks' incentive to make loans.
This is a bad policy even if the banks approve. The correct policy now should be to slowly reduce the interest paid on bank reserves to zero and simultaneously maintain a moderate increase in the money supply by slowly raising the short term market interest rate targeted by the Fed. Keeping the short term target interest rate at zero causes many problems, not the least of which is allowing banks to borrow at a zero interest rate and sit on their reserves so they can receive billions in interest from the taxpayers via the Fed. Business loans from banks are vital to the nations' recovery.
The fact that the Fed is suppressing lending and inflation at a time when it says it is trying to encourage both shows that the Fed is saying one thing and doing something else entirely.
I have previously pointed out numerous other ways in which the Fed is working against its stated goals, such as:
Reinforcing cyclical trends (when one of the Fed's main justifications is providing a counter-cyclical balance);
President Barack Obama is a bald faced liar and senior citizens will die thanks to this duplicitous Chicago politician. By Charles Benninghoff 11-20-10
Obama said while trying to pass his government takeover of your health care that you would be able to keep your doctor and health care plan. Like Jon Lovitz of Saturday Night Live, he lied and he knew it.
Last year we heard it over and over, I'm talking of course about President Obama's promise that if you like your plan you can keep it. Well forget it. Today it was discovered that another 700,000 Seniors will have to change plans, because health insurers are shutting down certain types of plans because of legislative changes and looming cuts to federal funding. That is on top of the announcement in August that three million seniors would have to get new providers.
Cigna Corp., Harvard Pilgrim Health Care, several Blue Cross Blue Shield plans and others aren't renewing hundreds of Medicare Advantage plans, which are Medicare policies administered by private insurers. The moves will displace some 700,000 beneficiaries who must find new policies, according to Humana Inc., a large seller of Advantage plans.
For 2011, the Kaiser Family Foundation said there will be a 13% decline in the number of Medicare Advantage plans. "
He lied about the Death Panels--there are two.
He lied about his takeover of your health care would bring down costs. "The pullback is largely due to a 2008 law that required the plans to have networks of preferred doctors, with the idea that managed care could be less costly and aggressive marketing could be curbed. Some providers of traditional fee-for-service policies decided to close the plans rather than invest in networks. But some insurers say the federal health-care overhaul, which includes $140 billion in cuts to reimbursements for Advantage plans over 10 years, is a factor as well.
Insurers are also saying as the market tightens up more plans will close and prices will go up."
Why would you expect to have costs go down if you cut half a trillion dollars from Medicare and add 32 million people to be served. Oh, all of this without adding a single doctor and lowering reimbursement fee for hospitals and doctors.
Thanks to the hack from Chicago, not only is our economy tanking, the value of our dollar going down 20%, but our very health is now in trouble. About 735 days to regime change--this is no longer about politics; it is about saving your life.
Ben Bernanke has said that the Fed is trying to promote inflation, increase lending, reduce unemployment, and stimulate the economy. However, the Fed has arguably - to some extent - been working against all of these goals. For example, as I reported in March, the Fed has been paying the big banks high enough interest on the funds which they deposit at the Fed to discourage banks from making loans. Indeed, the Fed has explicitly stated that - in order to prevent inflation - it wants to ensure that the banks don't loan out money into the economy, but instead deposit it at the Fed:
Why is M1 crashing? [the M1 money multiplier basically measures how much the money supply increases for each $1 increase in the monetary base, and it gives an indication of the "velocity" of money, i.e. how quickly money is circulating through the system] Because the banks continue to build up their excess reserves, instead of lending out money: (Click for full image) These excess reserves, of course, are deposited at the Fed: (Click for full image) Why are banks building up their excess reserves? As the Fed notes:
The Federal Reserve Banks pay interest on required reserve balances--balances held at Reserve Banks to satisfy reserve requirements--and on excess balances--balances held in excess of required reserve balances and contractual clearing balances.
The New York Fed itself said in a July 2009 staff report that the excess reserves are almost entirely due to Fed policy:
Since September 2008, the quantity of reserves in the U.S. banking system has grown dramatically, as shown in Figure 1.1 Prior to the onset of the financial crisis, required reserves were about $40 billion and excess reserves were roughly $1.5 billion. Excess reserves spiked to around $9 billion in August 2007, but then quickly returned to pre-crisis levels and remained there until the middle of September 2008. Following the collapse of Lehman Brothers, however, total reserves began to grow rapidly, climbing above $900 billion by January 2009. As the figure shows, almost all of the increase was in excess reserves. While required reserves rose from $44 billion to $60 billion over this period, this change was dwarfed by the large and unprecedented rise in excess reserves.
Why are banks holding so many excess reserves? What do the data in Figure 1 tell us about current economic conditions and about bank lending behavior? Some observers claim that the large increase in excess reserves implies that many of the policies introduced by the Federal Reserve in response to the financial crisis have been ineffective. Rather than promoting the flow of credit to firms and households, it is argued, the data shown in Figure 1 indicate that the money lent to banks and other intermediaries by the Federal Reserve since September 2008 is simply sitting idle in banks’ reserve accounts. Edlin and Jaffee (2009), for example, identify the high level of excess reserves as either the “problem” behind the continuing credit crunch or “if not the problem, one heckuva symptom” (p.2). Commentators have asked why banks are choosing to hold so many reserves instead of lending them out, and some claim that inducing banks to lend their excess reserves is crucial for resolving the credit crisis.
This view has lead to proposals aimed at discouraging banks from holding excess reserves, such as placing a tax on excess reserves (Sumner, 2009) or setting a cap on the amount of excess reserves each bank is allowed to hold (Dasgupta, 2009). Mankiw (2009) discusses historical concerns about people hoarding money during times of financial stress and mentions proposals that were made to tax money holdings in order to encourage lending. He relates these historical episodes to the current situation by noting that “[w]ith banks now holding substantial excess reserves, [this historical] concern about cash hoarding suddenly seems very modern.”
[In fact, however,] the total level of reserves in the banking system is determined almost entirely by the actions of the central bank and is not affected by private banks’ lending decisions.
The liquidity facilities introduced by the Federal Reserve in response to the crisis have created a large quantity of reserves. While changes in bank lending behavior may lead to small changes in the level of required reserves, the vast majority of the newly-created reserves will end up being held as excess reserves almost no matter how banks react. In other words, the quantity of excess reserves depicted in Figure 1 reflects the size of the Federal Reserve’s policy initiatives, but says little or nothing about their effects on bank lending or on the economy more broadly.
This conclusion may seem strange, at first glance, to readers familiar with textbook presentations of the money multiplier.
Why Is The Fed Locking Up Excess Reserves?
Why is the Fed locking up excess reserves? As Fed Vice Chairman Donald Kohn said in a speech on April 18, 2009:
We are paying interest on excess reserves, which we can use to help provide a floor for the federal funds rate, as it does for other central banks, even if declines in lending or open market operations are not sufficient to bring reserves down to the desired level.
Because we can now pay interest on excess reserves, we can raise short-term interest rates even with an extraordinarily large volume of reserves in the banking system. Increasing the rate we offer to banks on deposits at the Federal Reserve will put upward pressure on all short-term interest rates.
As the Minneapolis Fed's research consultant, V. V. Chari, wrote this month:
Currently, U.S. banks hold more than $1.1 trillion of reserves with the Federal Reserve System. To restrict excessive flow of reserves back into the economy, the Fed could increase the interest rate it pays on these reserves. Doing so would not only discourage banks from draining their reserve holdings, but would also exert upward pressure on broader market interest rates, since only rates higher than the overnight reserve rate would attract bank funds. In addition, paying interest on reserves is supported by economic theory as a means of reducing monetary inefficiencies, a concept referred to as “the Friedman rule.”
And the conclusion to the above-linked New York Fed article states:
We also discussed the importance of paying interest on reserves when the level of excess reserves is unusually high, as the Federal Reserve began to do in October 2008. Paying interest on reserves allows a central bank to maintain its influence over market interest rates independent of the quantity of reserves created by its liquidity facilities. The central bank can then let the size of these facilities be determined by conditions in the financial sector, while setting its target for the short-term interest rate based on macroeconomic conditions. This ability to separate monetary policy from the quantity of bank reserves is particularly important during the recovery from a financial crisis. If inflationary pressures begin to appear while the liquidity facilities are still in use, the central bank can use its interest-on-reserves policy to raise interest rates without necessarily removing all of the reserves created by the facilities.
As the NY Fed explains in more detail:
The central bank paid interest on reserves to prevent the increase in reserves from driving market interest rates below the level it deemed appropriate given macroeconomic conditions. In such a situation, the absence of a money-multiplier effect should be neither surprising nor troubling.
Is the large quantity of reserves inflationary?
Some observers have expressed concern that the large quantity of reserves will lead to an increase in the inflation rate unless the Federal Reserve acts to remove them quickly once the economy begins to recover. Meltzer (2009), for example, worries that “the enormous increase in bank reserves — caused by the Fed’s purchases of bonds and mortgages — will surely bring on severe inflation if allowed to remain.” Feldstein (2009) expresses similar concern that “when the economy begins to recover, these reserves can be converted into new loans and faster money growth” that will eventually prove inflationary. Under a traditional operational framework, where the central bank influences interest rates and the level of economic activity by changing the quantity of reserves, this concern would be well justified. Now that the Federal Reserve is paying interest on reserves, however, matters are different.
When the economy begins to recover, firms will have more profitable opportunities to invest, increasing their demands for bank loans. Consequently, banks will be presented with more lending opportunities that are profitable at the current level of interest rates. As banks lend more, new deposits will be created and the general level of economic activity will increase. Left unchecked, this growth in lending and economic activity may generate inflationary pressures. Under a traditional operating framework, where no interest is paid on reserves, the central bank must remove nearly all of the excess reserves from the banking system in order to arrest this process. Only by removing these excess reserves can the central bank limit banks’ willingness to lend to firms and households and cause short-term interest rates to rise.
Paying interest on reserves breaks this link between the quantity of reserves and banks’ willingness to lend. By raising the interest rate paid on reserves, the central bank can increase market interest rates and slow the growth of bank lending and economic activity without changing the quantity of reserves. In other words, paying interest on reserves allows the central bank to follow a path for short-term interest rates that is independent of the level of reserves. By choosing this path appropriately, the central bank can guard against inflationary pressures even if financial conditions lead it to maintain a high level of excess reserves.
This logic applies equally well when financial conditions are normal. A central bank may choose to maintain a high level of reserve balances in normal times because doing so offers some important advantages, particularly regarding the operation of the payments system. For example, when banks hold more reserves they tend to rely less on daylight credit from the central bank for payments purposes. They also tend to send payments earlier in the day, on average, which reduces the likelihood of a significant operational disruption or of gridlock in the payments system. To capture these benefits, a central bank may choose to create a high level of reserves as a part of its normal operations, again using the interest rate it pays on reserves to influence market interest rates.
Because financial conditions are not "normal", it appears that preventing inflation seems to be the Fed's overriding purpose in creating conditions ensuring high levels of excess reserves.
The multiplier's decline "corresponds so exactly to the expansion of the Fed's balance sheet," says Constance Hunter, economist at hedge-fund firm Galtere. "It hits at the core of the problem in a credit crisis. Until [the multiplier] expands, we can't get sustainable growth of credit, jobs, consumption, housing. When the multiplier starts to go back up toward 1.8, then we know the psychological logjam has begun to break."
*** It's not just the Fed. The NY Fed report notes:
Most central banks now pay interest on reserves.
Robert D. Auerbach - an economist with the U.S. House of Representatives Financial Services Committee for eleven years, assisting with oversight of the Federal Reserve, and subsequently Professor of Public Affairs at the Lyndon B. Johnson School of Public Affairs at the University of Texas at Austin - argues that the Fed should slowly reduce the interest paid on reserves so as to stimulate the economy.
The stimulative effects of QE2 may be small and the costs may be large. One of these costs will be the payment of billions of dollars by taxpayers to the banks which currently hold over 50 percent of the monetary base, over $1 trillion in reserves. The interest payments are an incentive for banks to hold reserves rather than make business loans. If market interest rates rise, the Federal Reserve may be required to increase these interest payments to prevent the huge amount of bank reserves from flooding the economy. They should follow a different policy that benefits taxpayers and increases the incentive of banks to make business loans as I have previously suggested.
Immediately after the recession took a dramatic dive in September 2008, the Bernanke Fed implemented a policy that continues to further damage the incentive for banks to lend to businesses. On October 6, 2008 the Fed's Board of Governors, chaired by Ben Bernanke, announced it would begin paying interest on the reserve balances of the nation's banks, major lenders to medium and small size businesses. You don't need a Ph.D. economist to know that if you pay banks ¼ percent risk free interest to hold reserves that they can obtain at near zero interest, that would be an incentive to hold the reserves. The Fed pumped out huge amounts of money, with the base of the money supply more than doubling from August 2008 to August 2010, reaching $1.99 trillion. Guess who has over half of this money parked in cold storage? The banks have $1.085 trillion on reserves drawing interest, The Fed records show they were paid $2.18 billion interest on these reserves in 2009. A number of people spoke about the disincentive for bank lending embedded in this policy including Chairman Bernanke. *** Jim McTague, Washington Editor of Barrons, wrote in his February 2, 2009 column, "Where's the Stimulus:" "Increasing the supply of credit might help pump up spending, too. University of Texas Professor Robert Auerbach an economist who studied under the late Milton Friedman, thinks he has the makings of a malpractice suit against Federal Reserve Chairman Ben Bernanke, as the Fed is holding a record number of reserves: $901 billion in January as opposed to $44 billion in September, when the Fed began paying interest on money commercial banks parked at the central bank. The banks prefer the sure rate of return they get by sitting in cash, not making loans. Fed, stop paying, he says."
Shortly after this article appeared Fed Chairman Bernanke explained: "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." (National Press Club, February 18, 2009) That was an admission that the Fed's payment of interest on reserves did impair bank lending. Bernanke's rationale for interest payments on reserves included preventing banks from lending at lower interest rates. That is illogical at a time when the Fed's target interest rate for federal funds, the small market for interbank loans, was zero to a quarter of one percent. The banks would be unlikely to lend at negative rates of interest -- paying people to take their money -- even without the Fed paying the banks to hold reserves.
The next month William T. Gavin, an excellent economist at the St. Louis Federal Reserve, wrote in its March\April 2009 publication: "first, for the individual bank, the risk-free rate of ¼ percent must be the bank's perception of its best investment opportunity." The Bernanke Fed's policy was a repetition of what the Fed did in 1936 and 1937 which helped drive the country into a second depression. Why does Chairman Bernanke, who has studied the Great Depression of the 1930's and has surely read the classic 1963 account of improper actions by the Fed on bank reserves described by Milton Friedman and Anna Schwartz, repeat the mistaken policy? As the economy pulled out of the deep recession in 1936 the Fed Board thought the U.S. banks had too much excess reserves, so they began to raise the reserves banks were required to hold. In three steps from August 1936 to May 1937 they doubled the reserve requirements for the large banks (13 percent to 26 percent of checkable deposits) and the country banks (7 percent to 14 percent of checkable deposits). Friedman and Schwartz ask: "why seek to immobilize reserves at that time?" The economy went back into a deep depression. The Bernanke Fed's 2008 to 2010 policy also immobilizes the banking system's reserves reducing the banks' incentive to make loans. This is a bad policy even if the banks approve. The correct policy now should be to slowly reduce the interest paid on bank reserves to zero and simultaneously maintain a moderate increase in the money supply by slowly raising the short term market interest rate targeted by the Fed. Keeping the short term target interest rate at zero causes many problems, not the least of which is allowing banks to borrow at a zero interest rate and sit on their reserves so they can receive billions in interest from the taxpayers via the Fed. Business loans from banks are vital to the nations' recovery.
The fact that the Fed is suppressing lending and inflation at a time when it says it is trying to encourage both shows that the Fed is saying one thing and doing something else entirely.
I have previously pointed out numerous other ways in which the Fed is working against its stated goals, such as:
Reinforcing cyclical trends (when one of the Fed's main justifications is providing a counter-cyclical balance);
