Financial book review – “The Creature from Jekyll Island – A Second Look at the Federal Reserve” by G. Edward Griffin

[4plexowner]

I consider this book to be foundational reading for anyone interested in economics.

This is the author’s description of the book’s contents:

“First, there is a crash course on money, the basics of banking and currency. Without that, it would be impossible to understand the fraud that now passes for acceptable practice within the banking system.”

“Second, there is a book on how the world’s central banks – the Federal Reserve being one of them – are catalysts for war. That is what puts real fire into the subject, because it shows that we are dealing, not with mere money, but with blood, human suffering, and freedom itself.”

“Third, there is a history of central banking in America. That is essential to a realization that the concept behind the Federal Reserve was tried three times before in America. We need to know that and especially need to know why those institutions were eventually junked.”

“Finally, there is an analysis of the Federal Reserve itself and its dismal record since 1913.”

Don’t be intimidated by the size of this book. The author offers a quick reading guide that will let you digest the highlights of this book in a few hours of reading.

I am probably over-simplifying the world we live in, but I believe many of today’s problems are caused by a dishonest monetary system. I believe that understanding this system and educating others about it are the first steps towards changing it or getting rid of it altogether.

Add this book to your reading list and see what you think!

[powayseller]

Sounds good, I’ll look for it.

Even if our monetary system is not ideal, it could continue working for another 100 or 200 years.

Remember people shorting homebuilders in 2004? Warren Buffett shorting the dollar in 2005? Excesses can take long to correct, and we can lose money by being wrong in their timing.

Another thing we must remember is that even if we have another great depression, we will work our way through it. This country is full of talented and creative individuals. When called on to buckle down, work hard, save, and forget about get-rich-quick-schemes (real estate, stocks, lottery, being the next American Idol), we can pull through to the next economic boom.

California is another problem. About 20% of Californians don’t have a high school degree. Christopher Thornberg said education is the biggest problem facing our state, and the one getting the least attention.

[lostkitty]

Thanks – I’ll read it.

If anyone else can suggest top titles for good basic economics books – please post them! Unfortunately, my economics courses went in one ear and out the other…

[4plexowner]

Chapter Four

Home, Sweet Loan

[4plexowner: here are some snippets from chapter 4 to pique your interest]

~ The history of increasing government intervention in the housing industry; the stifling of free-market forces in residential real estate; the resulting crisis in the S&L industry; the bailout of that industry with money taken from the taxpayer. ~

As we have seen in previous chapters, the damage done by the banking cartel is made possible by the fact that money can be created out of nothing. It also destroys our purchasing power through the hidden tax called inflation. The mechanism by which it works is hidden and subtle. …

A House On Every Lot

At about the same time, loans on private homes became subsidized through the Federal Housing Authority (FHA) which allowed S&Ls to make loans at rates lower than would have been possible without the subsidy. … the FHA-induced easy credit began to push up the price of houses for the middle class, and that quickly offset any real advantage of the subsidy. The voters, however, were not perceptive enough to understand this canceling effect and continued to vote for politicians who promised to expand the system. …

Abandonment of the Free Market

These measures effectively removed real estate loans from the free market and placed them into the political arena, where they have remained ever since. …

A Cartel Within A Cartel

… And Congress could not do that without the banking cartel called the Federal Reserve System standing by as the “lender of last resort” to create money out of nothing for Congress to borrow. This comfortable arrangement between political scientists and monetary scientists permits Congress to vote for any scheme it wants, regardless of the cost. If politicians tried to raise that money through taxes, they would be thrown out of office. But being able to “borrow” it from the Federal Reserve System upon demand, allows them to collect it through the hidden mechanism of inflation, and not one voter in a hundred will complain. …

… As desirable as it may be for everyone to afford a home, we must understand that government programs pretending to make that possible actually wreak havoc with our system and bring about just the opposite of what they promise. After 60 years of subsidizing and regulating the housing industry, how many young people today can afford a home? Tinkering with the laws of supply and demand, plus the hidden tax called inflation to pay for the tinkering, has driven prices beyond the reach of many …

[powayseller]

The Dollar Crisis makes arguments about our falling dollar based on hundreds of data, charts, and tables from the Federal Reserve, Census Bureau, IMF, World Bank, HUD. Almost every sentence in that book has a footnote. Every single sentence he writes is backed up with data.

Ahead of the Curve is also filled with charts, so I could see for myself the correlation among the items the author claims. The author maintains a website, so his charts are updated as the government releases more data.

Is the book mentioned above data-driven? Does he show charts of home prices before and after the subsidy? Charts of the amount of M3 increase, inflation, housing increase, so we can see the correlation? How does he get his information? Did he work at the Federal Reserve, interviews? If all this is answered, then I would definitely like to read the book.

“After 60 years of subsidizing and regulating the housing industry, how many young people today can afford a home? Tinkering with the laws of supply and demand, plus the hidden tax called inflation to pay for the tinkering, has driven prices beyond the reach of many”

The Federal Reserve 1% interest rate experiment made homes unaffordable. Before this low interest rate, which stimulated demand and raised prices, young people were buying homes with 20% down.

[ucodegen]

The Federal Reserve 1% interest rate experiment made homes unaffordable. Before this low interest rate, which stimulated demand and raised prices, young people were buying homes with 20% down.

The problem with the assumption of the 1% rate being the cause, is that it ignores the greed aspect. The real jump in exotic financing occurred after the run-up in prices which occurred after the drop in financing costs. What actually drove the overshoot was the gotta-get-in-too group and ‘banks’ allowing questionable financing. This occured after the price of housing climbed because financing it became cheaper (at 20% down, but lower interest rate).

Before the interest rate drop, how many people could apply and obtain financing of > 100%? The availability of this type of financing is not because of the interest rate drop. It is because of mortgage brokers who still want to find a way to churn the market and get their origination fees. It used to be; you don’t qualify, tough.

I don’t think the Federal Reserve can control the financing overhang that banks are willing to finance to. FDIC is more along these lines. This is a different branch of gov. Just like how margin overhang % on stock accounts is not handled by the Federal Reserve. My understanding is that it is handled by the SEC.

One thing I have been curious in all of this; where is the money comming from for these other lenders? I don’t think some of them are typical ‘banks’ or ‘savings and loans’? Are they regulated as banks? I don’t think they draw on intrabank and federal reserve loans.

Here is an interesting link..
http://www.sec.gov/news/speech/spch100704psa.htm

reading through at least half way, you might begin to wonder if the same will happen to the real estate industry. Past half way, it gets a little esoteric.

[powayseller]

The money is coming from the global liquidity glut: central banks printing money, and needing a place to invest it. China prints yuan to buy the dollars we send for all their exports, so the manufacturers can trade in the dollars they get for yuan, and the renminbi doesn’t appreciate. Those dollars come back to the US to buy MBS (mortgage backed securities), treasury notes, stocks. Some money came from the Japanese yen carry trade, which is unwinding in the 3 months ending June 30, 2006.

I think the real problem is the low risk premium that these investors require. With so much money chasing so few opportunities, people were not requiring to be paid for taking risk. The bought MBS that were of low quality, for little return.

I made a mistake in writing that the 1% Fed Reserve rate was to blame. That certainly started it. But the global liquidity glut, and the American consumer buying more than they produce, caused it to continue.

[Author]

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