In a response to a comment I made in another diary discussing the Federal Reserve, the diarist responded with a video of Representative Grayson (D-FL) question Federal Reserve Chairman Ben Barnanke on the whereabouts of approximately $500 billion in US currency swaps with various other central banks. This questioning gets to the heart of the issue, which is that Representative Grayson simply has no clue what he is talking about and is doing nothing more than pandering to an odd collection of people that include both democrats ignorant of the Federal Reserve System and Ron Paul followers. I have posted the video below the jump.
Here is the first video that really illustrates Grayson's lack of understanding of central bank operations:
Listen very carefully to Ben Bernanke's response. We trade a central bank (say the EU) dollars for their euros. We are out no money. It is not a loan that we can lose money on. It is not money that the American public is out. It is simply a swap of currencies to provide liquidity to another market during the crisis (ie to stem a run on dollars). There is no conspiracy here and Grayson really shows his ignorance on the issue when he persists in questioning Bernanke about where "our dollars" went (ie to which specific banks). The answer from Bernanke is simply who cares. We have the euros from the central bank on the balance sheet and made the swap with the other central bank, not with other foreign banks directly. This is simply another one of Ron Paul's conspiracy theories that have been latched onto by some democrats for reasons unknown to me (other than a fear of what is not understood). Bernanke almost seems like he just wants to tell Representative Grayson to take an econ class and get back to him with the somewhat condescending nature of his answer.
For further evidence of Grayson's lack of understanding on issues related to the Federal Reserve, watch this video:
This line of questioning is pure conspiracy theory shit. This is right up there with the moon landing being filmed in a warehouse in Virginia or the Illuminati running the world. The only issue here is that the attorney (not being an economist) simply doesn't respond with enough force. The Fed does not manipulate the stock market other than through interest rate policy (ie lower rates tend to lead to growth, while higher rates constrain it). He also doesn't understand primary dealers (the banks that are forced to bid on auctions of treasuries to provide guaranteed liquidity) and clearly thinks that it is somehow linked to the stock market (hence the frontrunning comment attached to the question on primary dealers). This is so sophomoric that it should be insulting to Americans as a whole.
The question of whether the Federal Reserve possesses the gold it claims is in fact a conspiracy theory. This conspiracy theory is commonly touted by Ron Paul and his legion of worshippers and gold bugs and is so absurd I was loathe to even bring it up here, but since Representative Grayson seemed to have no problem bringing it up I felt like it needed to be rebutted.
Finally, I love Grayson's question of who got the increase in the balance sheet. The answer was not only simple, it was widely reported everywhere. Most of this increase was used to provide liquidity to the economy through the purchase of treasuries and various agency backed securities. What this means is that the Fed essentially bought bonds (broadly defined) in an effort to keep interest rates (especially mortgage rates) low in an effort to enable economic recovery. There simply is nothing nefarious going on here except for the conspiracy theories that Representative Grayson keeps postulating.