ECB v Fed

Posted Jun 26, 2020 by Martin Armstrong

QUESTION: Martin,

You mentioned in a recent blog post that the ECB, unlike the FED, can go bankrupt.

Can you explain further?

Not sure where you get the time, energy and resources to research and write all that you do buy it is truly amazing.

Regards,

M

ANSWER: The Federal Reserve does not need permission to create elastic money. It has the authority to expand or contract its balance sheet. However, it cannot simply print money out of thin air. The ECB is the only institution that can authorize the printing of euro banknotes. The Federal Reserve must back the banknotes by purchasing US government bonds. The Fed buys and sells US government bonds to influence the money supply whereas the ECB influences the supply of euros in the market by directly controlling the number of euros available to eligible member banks. This structure was created because of Germany’s obsession with its own hyperinflation of the 1920s.

Each member state retained its central bank and those central banks issue the banknotes — not the ECB. Therefore, the ECB works with the central banks in each EU state to formulate monetary policy to help maintain stable prices and strengthen the euro. The ECB was created by the national central banks of the EU member states transferring their monetary policy function to the ECB, which in effect operates on a supervisory role.

There are four decision-making bodies of the ECB that are mandated to undertake the objectives of the institution. These bodies include the Governing Council, Executive Board, the General Council, and the Supervisory Board.

The Governing Council comprises six members of the Executive Board and Governors of the national central banks of the euro area member states. The Council members meet twice a month at the institution’s offices in Germany. Its primary function is the formulation of monetary policy for the Eurozone area. That means it makes the decisions on monetary objectives, interest rates, and the supply of reserves in the Eurosystem.

The Executive Board comprises the President, Vice-President, and four other executive members appointed by the European Council. The executive members serve for an 8-year non-renewable term. The role of the Executive Board is to implement the monetary policy as defined by the Governing Council and manage the day-to-day operations of the ECB, alongside the Chief Services Officer. Also, the board prepares the Governing Council meetings and exercises power delegated to it by the Governing Council. It holds meetings every Tuesday.

The General Council is a transitional body that carries out responsibilities taken over from the European Monetary Institute (EMI). It comprises the President, Vice-President, and Governors of the national central banks of the EU member states. The body will continue to exist until all EU member states have adopted the euro. As of 2017, only 19 out of the 28 EU member states have taken up the euro as their single currency. This body is charged with fixing the exchange rates of currencies for countries preparing to join the Eurozone.

The Supervisory Board comprises the chair, vice-chair, four ECB representatives, and representatives of national supervisors. The board plans and executes the supervisory function of the ECB. It also proposes draft decisions for the Governing Council through the non-objection procedure.

The ECB was granted a monopoly status on the issuing of banknotes in the Eurozone area. The ECB makes weekly announcements on the amount of money it wishes to supply and the minimum acceptable interest rate. Eligible banks that have provided collateral then place their bids for the ECB funds through an auction mechanism. Once the banks have obtained funds, they use them to advance loans to individuals and businesses all in theory.

The European Central Bank is also responsible for banking supervision in all the EU member states. The ECB carries out this function through the Single Supervisory Mechanism (SSM) that comprises the ECB and competent national authorities in the member countries. Therefore, the ECB has the power to grant and withdraw banking licenses, conduct supervisory reviews, and set higher capital requirements to counter financial risks. The ECB directly supervises 124 significant banks that hold 82% of the banking assets in the Euro area.

The tensions within Europe have never abated between members. The first President of the Bank was Wim Duisenberg, who was the former president of the Dutch central bank. The French objected and demanded that the ECB should be headed by a Frenchman, Jean-Claude Trichet, because the ECB was to be located in Germany. A gentleman’s agreement was finally reached whereby Duisenberg would step down before the end of his mandate and Trichet would become the head of the ECB in November 2003. He was replaced by an Italian, Mario Draghi, who became the head of the ECB between 2011-2019. Now we have Christine Lagarde, who is French, taking over the ECB from Draghi.

AUTHORIZATION

The primary objective of the European Central Bank was laid out in Article 127(1) of the Treaty on the Functioning of the European Union. That stated its authority was to maintain price stability within the Eurozone which is rather vague. The Governing Council in October 1998 took it upon themselves to define “price stability” as meaning inflation of under 2% on “a year-on-year increase in the Harmonised Index of Consumer Prices (HICP) for the euro area of below 2%.” Therefore, the ECB was created differently from that of the Federal Reserve System which was intended to be simply an independent system where the banks were shareholders because that was a contribution to create the Fed outside of taxpayer money. Hence, the ECB has only one primary objective and it was envisioned as a division of the government. The “price stability” has never been defined in statutory law which leaves a very wide view of interpretation.

The Governing Council sought to confirm this definition of “price stability” in May 2003. They clarified that “in the pursuit of price stability, it aims to maintain inflation rates below, but close to, 2% over the medium term.” Hence, all such lending to credit institutions had to be collateralized as required by Article 18 of the Statute of the ESCB. This so-called “clarification” is by no means a defined law.  Therefore, this vague directive of maintaining “price stability” is further complicated because, under the Treaty, it also directs that “the ESCB shall support the general economic policies in the Union with a view to contributing to the achievement of the objectives of the Union.” This leaves the door wide open for the ECB under Legarde to suddenly declare that climate change must be a policy of the ECB. This clearly makes the ECB an arm of the EU Commission and not independent as is the case with the Federal Reserve.

Since November 4, 2014, the ECB has been responsible for specific tasks concerning policies relating to the prudential supervision of credit institutions within the framework of the Single Supervisory Mechanism. As a banking supervisor, the ECB also has an advisory role in assessing the resolution plans of credit institutions.

European Parliament & ECB

The ECB President reports to the European Parliament on monetary issues in a quarterly Monetary Dialogue. The ECB also prepares an annual report on monetary policy which is presented before Parliament. Parliament adopts a resolution on this annual report. The new supervisory responsibilities of the ECB are matched with additional accountability requirements as laid down in the SSM Regulation. The practical modalities are governed by an Interinstitutional Agreement (IIA) between Parliament and the ECB. The accountability arrangements include the appearance of the Chair of the Supervisory Board before the competent committee; answering questions asked by Parliament, and confidential oral discussions with the Chair and Vice-Chair of the competent committee upon request. In addition, the ECB prepares an annual supervisory report, which is presented to Parliament by the Chair of the Supervisory Board.

Interinstitutional Agreement (IIA) between Parliament and the ECB

CONCLUSION

The ECB is trapped. It cannot raise rates to raise money and it has destroyed its bond market. The only way out is to default on all debt and they will do that by declaring it to be now a perpetual debt that only pays interest like an annuity. This will allow them to escape the formal default which is inevitable.

Why There is No Rule of Law in the United States

Posted Jun 24, 2020 by Martin Armstrong

QUESTION: You wrote: “Unfortunately, our legal system FAILS to protect people. It allows the government to do whatever it desires and then puts the burden on the people to go to court which takes years to get to the Supreme Court who may just rubber-stamp the government anyway. Our legal system is wholly inadequate and it encourages tyranny as we are experiencing right now.”

Could you elaborate for a student studying law?

Thank you

WK

ANSWER: In HARRIS v. McRAE, 448 U.S. 297 (1980), when someone argued that the government should create a program to help the people, the Supreme Court suddenly ruled that the Bill of Rights is NEGATIVE and not POSITIVE. Therefore, there is nothing in the Constitution that compels the government to create any welfare program. Therefore, the Bill of Rights and the Constitution is a RESTRAINT upon government. It is entirely illogical that you can then waive ANY right for that is constructively amending the Constitution and allowing the government to kill you, torture you, or do whatever it desires.

Then Congress abused its authority when it passed the Judiciary Act of 1925. Nevertheless, courts try to pretend that it was constitutional. In Doyle v. Roberts, 463 F. App’x 50, 51–52 (2d Cir. 2012)  where the argument was that it provided unlimited discretion to the Supreme Court over whether to grant certiorari petitions. The Second Circuit rules that Section 1254(1) provides that “[c]ases in the courts of appeals may be reviewed by the Supreme Court by … writ of certiorari granted upon the petition of any party to any civil or criminal case, before or after rendition of judgment or decree.” Doyle argued that there were no rules for granting certiorari and that violated the non-delegation doctrine. They rejected that argument. The Second Circuit ruled that there are few things are more appropriate to the central mission of the judiciary than the high court’s ability under § 1254(1) to manage its caseload by selecting from among more than 10,000 petitions each year the cases in which Supreme Court review will most assist not only the parties but also the lower federal courts, the coordinate branches of government, and the public at large. Id. at *2 (quoting Mistretta v. United States, 488 U.S. 361, 388, 109 S.Ct. 647, 102 L.Ed.2d 714 (1989)) (internal citations omitted) (alteration in original).

Constitutionally, the people are denied Due Process of Law by the Judiciary Act of 1925 which diminishes the majesty, integrity, and the intended structural foundation of the Judiciary which has denied the ABSOLUTE right under the Constitution to petition the ONLY court created by the founding fathers which is this Supreme Court. All other inferior courts are purely statutory courts under Article III, and as such, they can be closed by Congress upon the signing of any act. Article II, Section 1 states clearly:

“The judicial Power of the United States, shall be vested in one supreme Court, and in such inferior Courts as the Congress may from time to time ordain and establish.”

Consequently, the Certiorari Act of 1925 cannot stand as constitutional, giving this Court the discretion to decide whether or not to afford a citizen his Due Process Right to be Heard. The discretion in the Constitution is confined to Congress’ discretion to create inferior courts. Under strict construction, it cannot limit the power of this court to be discretionary for that would defeat the entire structure of the Constitution. The Supreme Court is the only court ordained for the people in a tripartite government originally envisioned by Montesquieu and adopted by the framers of the Constitution necessitated the separation of power between the Executive, Legislative, and Judicial branches.

Under strict construction, there is no authority in the Constitution to downgrade the Supreme Court as a discretionary court when it is the one court created by the framers and cannot be diminished by Congress. “[I]t is a Constitution we are expounding.” M’Culloch v Maryland, 17 US 326 (1819). “The Constitution of the United States is the supreme law of the land and binds every forum whether it derives its authority from a state of from the United States.” Cook v Moffat 46 US 295 (1847). The Supreme Court held that 28 USC §455 statute government recusal of judges was intended “to provide public confidence in the integrity of the judicial process.” Liljeberg v Health Serv v Corp, 486 US 847, 859-860 (1988). That lofty goal cannot be upheld as long as judges in inferior courts know that the odds of ever being overturned by the Supreme Court are on par with winning the lottery.

Therefore, I do not believe that Congress had the power to reduce the Supreme Court to discretionary rather than fund it to add additional panels to hear every case and then appeal to the top nine justices

4 stages of revolution

Defunding Police – Is This the Right Choice or the Next Step in Revolution?

Posted Jun 15, 2020 by Martin Armstrong

All of the protests making this a racist issue have distorted the real problem which remains immunity created by the Supreme Court. We must look at these protests in their historical context for calling them simply racist rather than abuse of power hides them from the view of these events forming part of a revolutionary cycle. We must step back and look at these events not in the context of simply race or those who have exploited this to simply loot stores. The central position is one of police brutality and the lack of any accountability.

There are more whites killed by police than blacks which further illustrates that this is not a racist problem but one of no accountability because of this qualified immunity which is not supported by the constitution. This should not be Black Lives Matter, but ALL Lives Matter. The riots have spread worldwide as in Paris over police abuse further illustrating that the core issue is the fact that governments are not accountable to the people.

Why has this one incident cascaded into a global contagion? Because of this COVID-19 virus abuse of locking people down which has resulted in people losing their jobs which has exceeded 300 million on a worldwide basis, this provides the incentive to protest regardless of the incident. Following the Panic of 1837, massive unemployment took place and this was the period when the Irish immigrants where fleeing to the United States. This resulted in actual gun battles on the streets in Philadelphia because the Irish were willing to work for less during a period of significant unemployment. It is simply human nature to rise up during economic declines.

During the Great Depression, it was the Bonus Army where veterans were demanding their promised bonuses. The Hoover government sent in the troops even with tanks in 1932 to force them to leave. We saw the same with the Coxley’s Army which was the march on Washington following the Panic of 1893 and massive unemployment. What the governments have done with these lockdowns have set the stage for these protests. It is only human nature to take that frustration out after losing your job and this issue of the police has simply exposed the corruption within the entire system which extended from journalists to politicians. We cannot attribute this exclusively to racism. This has been the first global contagion of a mass uprising because governments have suppressed the rights of the people, destroyed their jobs, and have abused their power in destroying the livelihood of so many people.

Many police forces have militarized and this creates the image mentally of an opposing force against the people. Suddenly, we now see the technology companies who have been so actively assisting governments to go after the public from illegal red-light cameras to creating systems for the police to use facial recognition software to target individuals. Camera and facial recognition software  track who is even walking down the street.

These high tech companies are suddenly realizing perhaps they have been on the wrong side of history and it would not take much for the mob to turn against the companies that have helped create this police state. IBM disavowed the facial recognition technology entirely and CEO Arvind Krishna condemned its use “by other vendors, for mass surveillance, racial profiling, violations of basic human rights and freedoms.” Amazon responded by putting only a one-year moratorium on police use of its Rekognition software, closely followed by Microsoft’s promise not to sell the technology to US police. These companies have had no problem exploiting the public for profit.

These are the same technology companies who jumped at the chance of creating tracking apps for this orchestrated coronavirus all to further erode our basic human rights. Then there is Bill Gates who wants to track every person on the planet and pushing his ID 2020 and digital vaccine markers claiming he is not destroying people’s privacy. Microsoft constantly updates windows downloading everything you look for so they can sell your computer use to companies for advertising.

This entire issue of rioting against the police is historically part of the Revolutionary Cycle. We have already reached Stage TWO which is a serious warning of what lies ahead.

The FIRST STAGE in a revolution is always the the rise of intellectual whistleblower disagreement which government simply ignores as a passing phase. This stage is the realization of corruption and and injustice of governmental rule. Perhaps the symbolization of this was the revelation of Edward Snowden that the government was violating the constitution and abusing its power against the people constructing a 100% surveillance state tapping into every phone call and email account of every citizen. Then there was the British whistleblower Katharine Gun who they charged but could not put on trial without exposing themselves. They labelled both as a traitors as if the government possessed inherent power of sovereignty and the people were the great unwashed economic slaves.

As Thomas Pain described they confuse themselves as the political embodiment of the nation rather than the people. This is the intellectual stage which governments refuse to admit mistakes and simply ignores the cries of injustice.

The SECOND STAGE is where the intellectual debates prove pointless and this is where the initial conflict begins. This corruption has run its course and governments transform justice into their own self-interest. This stage is usually accelerated by governments raising taxes in the midst of an economic decline. The economic hardships may vary per individual but as a whole they will tend to focus upon the prosecutorial arm of government which includes the police who will far too often claim they are moral under the pretense of simply following orders.

This is when history will typically produce some leader who can be a moderate that sees the problem and will often try to reason in order to reach a resolution which is ignored by the government. This further intensifies the feelings of injustice especially in light of the economic decline. The leadership can also be seized by extremists who demand complete change such a Lenin. This initial stage results in the first demands change with protests rising. The mobs rarely are able to even articulate the reform because they then make demands that they want certain actions which go far beyond what they actually need. This is where mobs will often turn to revenge rather than justice. Governments will typically refuse to reform and become often very defensive.

In February 1761, James Otis, Jr. (1725–1783) argued brilliantly against the Writs of Assistance that was authorized in 1660 by the King but became an instrument of tyranny in 1758 in the American colonies as a means to raise taxes. Writs of Assistance allowed the government to arbitrarily search whatever they suspected for any reason. For nearly five hours, Otis made a brilliant oration in court against the Writs, but he lost the case, for what judge would ever rule against his master? John Adams later wrote that “the child independence was then and there born, [for] every man of an immense crowded audience appeared to me to go away as I did, ready to take arms against writs of assistance.”  As Thrasymachus warned about 2600 years ago, justice is only the interest of the state regardless of its form being democratical, aristocratical, or tyrannical.

Shakespeare’s famous line “The first thing we do, let’s kill all the lawyers” (Henry VI, Part 2, Act IV, Scene 2) reflects the injustice for the people could not hire a lawyer only the king making them prosecutors. This stage is typically sparked by an economic decline which further breaks the employment and suppresses even harder the poor. During the American Revolution the slogan was “No Taxation without Representation” and the French Revolution used the words of Marie Antoinette: “Let them eat cake.” The French Revolution began on Saturday June 7th, 1788, when merchants closed down their shops as groups of 300 to 400 formed, armed with stones, sticks, axes, bars.  They seized cathedral’s bells which became a call to all French peasants which the crowd grew swiftly. The Royal Navy soldiers injured a 75-year-old man with a bayonet drawing the first sight of blood. The people became enraged tearing up the streets and they climbed onto the roofs throwing down the roof-tiles on the soldiers. The soldiers took refuge in a building and began to shoot through the windows into the crowd. By six PM, a crowd estimated at ten thousand people began shouting “Long live the parliament.” They finally agreed to to refuse to pay all taxes not voted by the Estates-General and they demanded an end to arbitrary imprisonment – police abuse.

Maximilien Robespierre (1754-1794) pursued a planned socialist economy and he grew paranoid about any opposition and unleashed the Reign Of Terror of 1793–1794 to silence all enemies of the Revolution. He was overthrown by the moderates who had Robespierre executed on July 28, 1794. His famous quote: “The secret of freedom lies in educating people, whereas the secret of tyranny is in keeping them ignorant.” This remains the core of fake news today.

Even Lenin who declared “All Power to the Soviets” (Collected Works, Vol. 25: June-September 1917 (Moscow: Progress Publishers, 1964), 155-56) presented a lucid strategic indication, which projected the course of the revolution and the construction of socialism through the seizure of power by the soviets. Lenin elaborated: “The imperialist war was bound, with objective inevitability…to turn into a civil war between the hostile classes” (Collected Works, Vol. 23: August 1916-March 1917 (Moscow: Progress Publishers, 1964), 299.) 

In Russia, on Sunday, January 9th, 1905, the people began to march unarmed and locking arms to see the Tsar. Some carried religious icons and banners, as well as national flags and portraits of the Tsar. At 2 pm all of the converging processions were scheduled to arrive at the Winter Palace in Russia. There was no single confrontation with the troops. The infantry was backed by Cossacks and Hussars. As reported, the soldiers simply opened fire on the crowd and were not provoked. The official number of victims was 92 dead and several hundred wounded.  Some leaders vanished and others were seized. Expelled from the capital, they circulated through the empire telling everyone “The Tsar will not help us!” The government suppressed the uprising, but this would only fuel the discontent in the years ahead.

Niccolò Machiavelli (1469-1527) explained that because people are “quick to change their nature when they imagine they can improve their lot,” he wrote, a leader must also be shrewd. “The fact is that a man who wants to act virtuously in every way necessarily comes to grief among so many who are not virtuous. Therefore, if a prince wants to maintain his rule he must be prepared not to be virtuous, and to make use of this or not according to need.” Machiavelli rejected the philosopher’s view of politics being a good leader is one who is humble, moral and honest. Instead, Machiavelli said quite frankly, “It is better to be feared than loved, if you cannot have both.”

Modern politicians simply lie to our face while rejecting kindness or morality. They follow Machiavelli who argued that “Making an example of one or two offenders is kinder than being too compassionate, and allowing disorders to develop into murder and chaos which affects the whole community.” Indeed, people like Snowden are demonized by politicians as an example not to betray government for the sake of the people, morality, or justice. Machiavelli  also warned that keeping one’s word can also be dangerous since “experience shows that those who do not keep their word get the better of those who do.”

Therefore, the Second Stage is one of rising protests and discontent with initial confrontation against the government who relies upon the police state they have created. As long as the police continue to support the government against the people, this will inevitably lead to the next next Revolutionary stage.

The THIRD STAGE is where it often becomes outright war in the streets as governments seek to retain power and refuse to see the error of their ways. In some revolutions, such as the Nika Revolt of 532AD, the police side with the people or stand back. In the case of the Ukrainian Revolution against Yanakovich, once the police saw that the people coming to the aid of the president were Russians, the police switched sides and supported the people. In the case of the Nika Revolt, the government called in the army who then massacred the people and the police. In the case of the American Revolution, the central power was in England and not local. This allowed the local authorities to differentiate themselves from the British.

In the case of the Russian Revolution of 1991, Boris Yeltsin stood on the tank as asked the army not to fire upon their own people. Once the military power stood down, the government fell. It will always depend upon the loyalty of the police and army as to how a revolution will unfold.

The FOURTH STAGE is retribution when in a domestic revolution in direct confrontation with the government and head of state. In the case of the American Revolution, the head of state was not within reach. However, they confiscated property and hung those who supported the king. Of course, in the case of the Russian Revolution, they executed the entire Romanov family. This is the phase of evening the score for years of suppression and injustice.

The former head of state is often publicly killed and typically all their ministers. This was the case not just during the Russian Revolution, but the French Revolution with Louis XVI an his wife but the English Revolution where they seized King Charles I and beheaded him in public as well. There have also been incidents of assassination even after a loss as was the case with Abraham Lincoln in 1865.

The FIFTH STAGE is typically the recovery stage where a new form of government emerges from the ashes. The intelligent political Moderates take power as was the case in the United States typically on the ideas of some Utopian system. Once again, this differs insofar as the political power was in England rather than America so there was not a wholesale murder campaign of all former ministers. In the case of the French Revolution, after the retribution stage where even the moderates were killed by the radicals led by Robespierre who seized control. As the French Revolution fell into the hands of Robespierre (1758-1794) he began a Reign of Terror (September 5, 1793-July 27, 1794) that would come to an end with his own death. This was followed by more uprisings and eventually the French Constitution was drafted (August 22-September 23, 1795), and approved with the Directory taking power.

It is during this recovery stage where the radicals are usually overthrown and sometimes a new head of state emerges such as Napoleon or Oliver Cromwell. In the case of the United States where the former head of state was not local, the bureaucracy begins and we see the rise of political parties and divisions emerge once again between opposing political views. There is at this point the restoration of a sense of nationalism but the cycle of corruption slowly begins to take root.

Illinois First State to Get Free Money from Fed - Welcome to the wonderful world of corrupt credit ratings

Posted Jun 12, 2020 by Martin Armstrong

Illinois became the first entity to borrow from the Fed’s new facility known as the “Municipal Liquidity Facility” for state and local governments. The Fed’s legal authority lies in section 13(3) of the Federal Reserve Act. This authorizes the Fed to directly lend to “individuals, partnerships and corporations” in “unusual and exigent circumstances.” Section 13(3) is titled “Discounts for individuals, partnerships, and corporations,” raising questions whether the Municipal Liquidity Facility is actually authorized under Section 13(3). This has been capped at $500 billion.

To qualify they need a credit rating which is always up for sale to the highest bidder as we saw in 2007. Illinois is already insolvent and its debt is trading at junk bond status. However, as long as they pay the fee, one of the credit agencies can certify a rating which is arbitrary so they get the funds for a kick-back. Welcome to the wonderful world of corrupt credit ratings. This proves that Illinois cannot hope to raise money to borrow. Someone should just turn out the lights.