Fed Excess Reserves Illegal? Another Faber/Rogers Double Team, and Slovakia Government Collapses

Watching the GOP debate right now (actually streaming it while at a Starbucks) and my God Newt Gingrich almost stole my heart at the beginning by going directly at Bernanke for lending to foreign banks.  He is of course ripping off Ron Paul but that's besides the point.  It was glorious to see and we can only hope for a lot more.

And perhaps we will see it with this crazy and shocking news, via Uneasy Money:

In a comment  earlier today to this post, David Pearson shocked me by quoting the following passage from the Financial Services Regulatory Relief Act of 2006:

Balances maintained at a Federal Reserve bank by or on behalf of a depository institution may receive earnings to be paid by the Federal Reserve bank at least once each calendar quarter, at a rate or rates not to exceed the general level of short-term interest rates.

As I said to David Pearson in my reply to his comment, I am flabbergasted by this.  The Fed is now paying 0.25% interest on reserve balances while and the interest rate on 3-month T-bills is now 0.01%.  Yet the statute states in black letters that the rate that the Fed may pay on reserves is “not to exceed the general level of short-term interest rates.”  In fact, as can be easily seen on the Treasury’s Daily Yield Curve webpage,  only on rare occasions was the 3-month T-bill rate as high as 0.25% in 2009 and it has been consistently less than 0.20% for most of 2009 and all of 2010 and 2011.  Perhaps the definition of short-term interest rates is more than 3-months, but the yield even on a one-year Treasury has been in the neighborhood of 0.1% for months and has been below 0.25% since April.  So can anyone explain to me by what authority the Federal Reserve System continues to pay banks 0.25% interest on their reserve balances held at the Fed?

As Robert Wenzel points out, this could be incredibly disastrous if the Fed had to release the excess reserves into the system.  It would be incredibly inflationary which is why nothing will most likely come of this.  Bernanke will be subpoenaed, nervously speak a bunch of wonkish crap to justify his policy, and it will be let go or the law will be reworded.  The powers that be know what the leaking of the excess reserves will do, it would be self destructive to let it happen.  We will be flooded with inflation, not hyper inflation until the majority of people finally realize what is going on.  Like lending to foreign governments, Bernanke breaking the law will again be overlooked.  It makes for great entertainment though to watch as it becomes more and more obvious how much we are being screwed over and who is really above the "law."

When it comes to entertainment though, no one beats Jim Rogers and Marc Faber.  First up is Rogers on the on the continuing Quantitative Easing going on through Bernanke's low interest rate policies and the coming money printing from the ECB:

(Not sure why but the above video is the same as below no matter how times I reenter the original code, to watch the video with Jim Rogers, go here)
If Kudlow wasn't such a Reagan worshiper, he would get a lot more respect from me.  Still, he agrees with Rogers a lot but I imagine that is mostly for show.

Faber is up next with his normal straight forward, unapologetic, and wonderful commentary:

"I will tell you what the US needs.  The US needs a Lee Kwan Yew who stands in front of the US  and tells them, listen you lazy bugger, now you have to tighten your belts, you have to save more, work more for lower salaries and only through that will we get out of the current dilemma that essentially prevents the economy from growing."  

"The problem i have with the investment universe is that i find it difficult to envision how the US and western Europe can return to healthy sustainable growth without a complete purge of the financial system and some type of catalyst. Something that restores some measure of social cohesion among people;  it could be hyperinflation, a complete credit market collapse, widespread sovereign defaults, civil strife, major military confrontation.”

Both videos are highly recommended.  

There are some more improving economic signs and inflation in the U.S. today.  First is hedge fund assets hitting $1.4 trillion:

Next are peanut butter prices going up:

WSJ reports that wholesale prices for Jif are going up 30 percent beginning in November. Peter Pan will increase its prices by as much as 24 percent in a couple of weeks. Skippy prices are already 30 to 35 percent higher now than they were a year ago, and Kraft Foods Inc., which launched Planters peanut butter in June, is raising its prices by 40 percent on October 31.

And of course the boom in oil drilling in the Mid-West:

"Tax collections in Oklahoma grew at a double-digit rate in September for the second straight month compared with receipts for the same period a year ago. Total collections for the state's general revenue fund, the principal funding source for state government, were $526.2 million in September, which was $66.5 million, or 14.5 percent, above collections for the same month in 2010.

Things aren't looking so good for the Euro zone though as Slovakia grew a pair and said no to continually bailing out the banks:

From Reuters:

• RTRS-SLOVAK PARLIAMENT REJECTS PLAN TO EXPAND EFSF, GOVERNMENT LOSES CONFIDENCE VOTE
• SLOVAK OUTGOING GOVERNMENT EXPECTS EFSF TO BE APPROVED IN REPEATED VOTE, LIKELY THIS WEEK

Such glorious defiance won't last but it was a great symbol.  We also have this hilarious news coming out of Greece:

Greece's oil refineries will continue their strike for “as long as necessary,” the president of the union representing refinery workers said late on Monday, as cars began lining up to fill their tanks at gas stations across the country from the early hours of Tuesday.

Meanwhile, speaking on the same program, gas station owner Giorgos Asmatoglou said that while his sector has not expressed any intention to join the strike that began at midnight on Monday, gas stations will be able to continue serving customers only for another three or four days before they begin running dry.

And this:

ATHENS — New strikes hit Greece on Tuesday as the government finalised talks with its EU-IMF creditors on additional spending cuts to secure payment of a bankruptcy-saving loan.
Civil servants blocked the entrance to several ministries, teachers and municipal staff walked out on their jobs and a key refinery began a protest shutdown ahead of a general strike on October 19.
Hospital workers and prison guards will go on strike later this week while Greece's tax collectors and bank workers plan stoppages next week with lawyers also threatening to join the fray.
Public sector workers are up in arms over pay cuts and government plans to put at least 30,000 on temporary leave this year, on top of cuts imposed last year to rein in a budget deficit five times over the European Union ceiling.
Lawyers, pharmacists, taxi owners and other self-employed professionals are protesting against a parallel deregulation drive to improve the competitiveness of the gridlocked Greek economy, which is in a deep recession.
Another strike by garbage collectors that began last week has left the capital Athens strewn with trash heaps.

And the drama continues.  At least the GOP debates are entertaining.  Paul called out Herman Cain and got him to lie on national television which will make for some nice fireworks as the media scrutinizes the whole affair in the next few days.

Paul highlights from last night:

You gotta love him calling out Cain and defending his supporters.  From such a great performance, was this really a big surprise:

Like I warned months ago, it has finally come:

Oct. 12 (Bloomberg) -- The city of Harrisburg, Pennsylvania, facing a state takeover of its finances, filed for bankruptcy protection following a vote by City Council, according to a lawyer for the council.

No surprises here, as usual.