Congressman Ron Paul - Should We Abolish the Federal Reserve?

Reading - Congressman Ron Paul - Should We Abolish the Federal Reserve? - http://j.mp/1AGVpX

Not since 1833 have there been calls to abolish a United States bank. At the time, it was President Andrew Jackson who succeeded in abolishing The Second Bank of the United States. Today it is Congressman Ron Paul of Texas who is calling for an end to the Federal Reserve.

Paul lays out his thesis in his new book, End the Fed, in which he calls for an audit, and then an end to the Federal Reserve. I recently interviewed Rep. Paul about ending the Fed, his thoughts on the dollar, and financial regulatory reform.

Paul thinks the Fed is the root cause of the financial crisis and what permitted exorbitant risk-taking by companies ranging from Bank of America (NYSE: BAC) to Citigroup (NYSE: C) and from Morgan Stanley (NYSE: MS) to AIG (NYSE: AIG). He believes abolishing the Fed would spur people to save more and become more prudent with their finances because free market forces, instead of a central bank, would set interest rates, limiting the amount of credit in the economy.

He is in favor of returning to the gold standard and believes an end to the Fed will put an end to the dollar's long-trending depreciation. Paul also calls for more regulation on the government and not the markets.

What follows is an edited transcript of the interview.

Jennifer Schonberger: In the wake of the financial crisis, some in Congress want to give even greater power to the Fed. You want to abolish the Fed. Why?

Congressman Ron Paul: Because they caused all the trouble. A monetary policy of easy credit and artificially low interest rates was the main source of the financial bubble, and the correction is always trying to fix what the Federal Reserve has done. The only way you can address the business cycle and prevent wild swings in the business cycle is by addressing the Federal Reserve and how they cause nothing but mischief.

Schonberger: Would you put something else in place of the Fed, or revert to a laissez-faire approach and let the free market forces play out?

Paul: Yes, I believe in free markets. We don't have free markets and haven't had them. So it's convenient for people to blame the free market for the problems, but that's a fallacy. In a free market, capital would come from savings. People put their money in a savings account or something of real value, and that determines the interest rates.

When people don't save, like we as a nation have not saved for many decades, there is this illusion that there is still so-called capital, or money made for investments. [In reality] that capital came from a computer at the Federal Reserve. Therefore it sent the wrong information to businesses and savers, claiming that there was a lot of savings out there. Based on that, people overinvested and built too many houses. It's the Federal Reserve that sends out the incorrect information.

Schonberger: So this would be a world with less credit, would it not?

Paul: Yes, there would be less credit, but it would still be steady growth. You would never have periods of economic tumult if you had economic growth of 4% or 5% -- so you would never have the temptation to turn it off. … There would be enough credit, but there wouldn't be an excess amount. … It would be determined by the marketplace rather than by the artificialness of the Federal Reserve.

Schonberger: In terms of getting people to save more, what are your thoughts on the consumption-based value-added tax that's been talked about recently?

Paul: It'd be a disaster. Most people from the Keynesian side are always arguing that the main driving force of the whole economy is consumption. In free market economics, it's savings, building capital, and buying things that have value. Consumerism can be artificial if it comes in the form of easy credit from the Federal Reserve. So, if you're going to try to stimulate consumerism, and on the other hand tax it, it doesn't make any sense at all.

Schonberger: What is the biggest downside risk to abolishing the Fed?

Paul: I don't know of any risk. The biggest challenge is that people might not understand it. If there are problems they might blame the problems on getting rid of the Fed. The problem would really be coming from the fact that we had it … The first year would be tough. The problems would be due to the fact that the Fed would cause so much harm in the correction phase, which is always necessary.

Schonberger: Our economy is increasingly tied to economies around the world. What would eliminating the Fed mean for the global economy?

Paul: It depends what you replace it with. If you allow the market to replace it with commodity money and make sure various countries believe in free trade, tariffs should go down, and free trade should reign. You should be able to have much freer travel, so it would be a real move towards globalism and global trade. If only one country does it, there's more of a challenge, and only the person who goes onto the gold standard would benefit.

Schonberger: You're of the belief that abolishing the Fed will thwart the dollar's long-trending depreciation. Explain to me how that works.

Paul: There's no dilution factor. In my book, I use the example of when I was a kid and my dad always had to check to make sure the milk wasn't diluted. Sure, it stretches the milk, but it doesn't stretch the quality. This would be the most important thing for eliminating the problems that the Fed has created.

Governments want to spend more than they have and go to war when they shouldn't, and the only way they can finance it is through the printing press. The period of time when the world accepted a notion of an international gold standard was a time of tremendous economic growth.

Schonberger: You've introduced HR 1207, the Federal Reserve Transparency Act, in which the Comptroller General audits the Fed and then gives a detailed report to Congress. What are the odds for passage? Do you think you'll be able to get legislation through the House this fall?

Paul: It's very, very popular. Every Republican in the House has signed on, and 111 Democrats have signed on. We have over 290, which in theory means that it could pass under suspension because we already have two-thirds in Congress as co-signers of the bill. … It depends on the opposition, but I think there's a very good chance it will get passed.

Schonberger: Are you at all concerned that auditing the Fed would open up the central bank to the political process and subject the bank to making monetary policy decisions based on lobbyists, politicians, and special interest groups, rather than the necessary economics?

Paul: That's the argument the opposition uses. But they want to use the political influence that they already have because it's been in secret. If you have a political influence of a company like Goldman Sachs (NYSE: GS) that can manipulate the benefits toward them and away from Lehman Brothers, that's political, too.

It's been known for decades that the chairman of the Federal Reserve Board always accommodates a president and tries to have the right part of a cycle come up for election time. But, the audit bill has nothing to do with managing monetary policy.

Schonberger: Briefly, Congressman, how should we reform the financial regulatory framework besides ending the Fed? In terms of regulatory structure, what about ending the SEC? Certainly the SEC dropped the ball, as did the CFTC. How do we rectify the system?

Paul: I admit the SEC was a total failure. Now people have this moral hazard of saying "It's OK, the SEC has looked at their books." That encourages people to make mistakes. People should be much more cautious.

What you want is more regulation of the government -- the Federal Reserve and on Treasury -- not to interfere in the markets. We should let bankruptcy laws work. The most important way to regulate markets is to never prop up the bad investments. Regulation should be defined as enforcing contracts, no fraud, and making sure the government doesn't interfere for the benefit of special interests.

Let state laws take care of fraud cases. Insurance and ratings would all be market-oriented.

Are U.S. Treasury Bond Sales a Ponzi Scheme? - it has to look like foreigners still crave our debt

Reading - Are U.S. Treasury Bond Sales a Ponzi Scheme? - it has to look like foreigners still crave our debt. -http://j.mp/SEreh

I have heard at least 5 different theories by very smart people about how U.S. treasury bond sales are being faked.

I do not have either the background or the inside knowledge to be able to comment on whether any of them are true.

(1) PhD professor of economics Michel Chossudovsky - who is a very savvy observer of international dynamics - claims in an interesting 8-minute video:

In a bitter irony, the recipients of the bailout under TARP and Obama's proposed $750 billion aid to financial institutions are the creditors of the federal government. The Wall Street banks are the brokers and underwriters of the US public debt, although they hold only a portion of the debt, they transact and trade in US dollar denominated public debt instruments Worldwide.

They act as creditors of the US State. They evaluate the creditworthiness of the US government, they rank the public debt through Moody's and Standard and Poor. They control the US Treasury, the Federal Reserve Board and the US Congress. They oversee and dictate fiscal and monetary policy, ensuring that the State acts in their interest...

While the Federal Reserve can create money "out of thin air", the multibillion outlays of the Treasury (including the Bush and Obama bank bailouts) will require the emission of public debt in the form of Treasury Bills and government bonds. Part of these T-Bills will of course also be held by the Fed.

US financial institutions oversee the US public debt. They are involved in the sale of treasury bills and government bonds on financial markets in the US and around the World. But they also hold part of the public debt. In this regard, they are the creditors of the US government. Part of this increased public debt required to rescue the banks will be financed or brokered by the same financial institutions which are the object of the bank rescue plan.

We are dealing with a pernicious circular relationship. When the banks pressured the Treasury to assist them in the form of a major bank rescue operation, it was understood from the outset that the banks would in turn assist the Treasury in financing the handouts of which they are the recipients.

To finance the bank bailout, the Treasury needs to run a massive budget deficit, which in turn requires a staggering increase of the US public debt.

Public opinion has been misled. The US government is in a sense financing its own indebtedness: the money granted to the banks is in part financed by borrowing from the banks.

The banks lend money to the government and with the money they lend to the government, the Treasury finances the bailout. In turn, the banks impose conditionalities on the management of the US public debt. They dictate how the money should be spent. They impose "fiscal responsibility"; they dictate massive cuts in social expenditures which result in the collapse and/or privatization of public services. They impose the privatization of urban infrastructure, roads, sewer and water systems, public recreational areas, everything is up for privatization.

(2) Addison Wiggin - one of the main people behind the I.O.U.S.A. movie and its interviews with Greenspan, Volcker, Buffet, Rubin, O'Neill and others - has a different theory on how the U.S. is faking it:

You can guess what happens when the "money" at a poker game stops showing up.

That's it, game over.

When lenders threaten to expose our "sham recovery" by not showing up with cash to lend... the bond auctions I told you about threaten to fail. At least once this year, that's already happened.

Even one more failed bond auction could signal to the rest of the world that the gig is up... that the U.S. is done for and that it's time to bring the lend-borrow cycle to an end.

With the bailouts and this fake "recovery" already looking like it will cost $23.7 trillion before it's all said and done, you can bet the Fed and the Treasury don't want to let any more failed bond auctions show up in the headlines.

Which is why they've taken their "swindle" to a whole new level... by deciding not to just to fake the "success" of the recovery... but to fake the success of the bond auctions that are supposed to pay for it!

How?

By transferring billions of dollars to our lenders... then paying them interest while we borrow back our own cash! See, for this scam to keep working, it has to look like foreigners still crave our debt.

So the Fed hits a few keystrokes... prints out billions of dollars... then uses a clever buyback strategy to stuff those billions into one of our foreign lenders accounts... so they can keep on pretending they want to buy more of our debt.

What's the strategy the Fed uses to make these huge cash transfers?

It works almost like a money laundering scam. We write the foreign government for big chunks of bad "agency debt" — like bonds sold by failed agencies Fannie Mae and Freddie Mac — then they write us a check, using the cash we just gave them, to buy more of the Treasury's bonds.

Just so long as our government can pretend the buyers still show up.

With the U.S. borrowing up to $100 billion through these bond auctions per week... and another bond auction happening, on average, every three days... that's a lot of opportunity for the Fed to "launder" money in the way I just described.

So far, the Fed has already used this backdoor cash swap strategy to snap up over $640 billion in toxic assets from our foreign lenders... with the implied promise they'll show up at the next bond auction and throw some of that cash back our way.

(3) Chris Martenson claims that the Fed is enabling foreign central banks to swap out their agency debt into treasuries (Yves Smith says this theory is false).

(4) Keith Fitz-Gerald (contributing editor to Money Morning, Investment Director of the Money Map Report and editor of the New China Trader) claims that the U.S. has changed the definitions of foreign bond sales so that it can simply pretend that U.S. purchasers are really foreign purchasers.

(5) Rob Kirby and Ellen Brown claim that the U.S. is sending freshly-printed dollars abroad to the Cayman Islands where U.S. banking operations purchase U.S. treasuries pretending that they are independent "Caribbean banks".

Dollar Falls to One-Year Low v euro after Federal Reserve Chairman Ben Bernanke says recession is likely over

Reading - Dollar Falls to One-Year Low v euro after Federal Reserve Chairman Ben Bernanke says recession is likely over - http://j.mp/3WogLq

The dollar dropped to the lowest level in a year versus the euro as Federal Reserve Chairman Ben S. Bernanke’s declaration that the recession is likely over led investors to sell the U.S. currency and buy riskier assets.

Sterling fell this week against all of its 16 most-traded counterparts tracked by Bloomberg on revived concern banking losses will stall the U.K.’s economic recovery. The Fed will likely keep its target lending rate at near zero next week and extend the end date of its $1.45 trillion program to buy securities, a strategy known as quantitative easing.

“The dollar will come under further pressure,” said Ian Stannard, a senior currency strategist at BNP Paribas SA in London, in an interview on Bloomberg Television. “This continuation of the quantitative-easing program will provide further asset-market support. That’s going to lead to dollar weakness as funds flow out of the U.S., seeking higher returns elsewhere.”

The dollar fell 1 percent to $1.4712 per euro, from $1.4571 on Sept. 11. It touched $1.4767 on Sept. 17, the weakest level since September 2008. The dollar rose 0.6 percent to 91.29 yen, from 90.71, after touching 90.13 three days ago, the lowest level since Feb. 12. The yen weakened 1.6 percent to 134.33 versus the euro, from 132.17 a week earlier.

The greenback declined this week to the lowest level in more than a year against the Australian and New Zealand dollars and the Swiss franc on speculation investors bought high- yielding assets with funds borrowed in the U.S.

Tumbling Libor

The cost of three-month loans in dollars between banks fell to a record low of 0.289 percent yesterday, according to the British Bankers’ Association. The London interbank offered rate, or Libor, is lower than that of the yen and Swiss franc, making the dollar the cheapest funding currency.

The Fed will keep its target rate for overnight loans in a range of zero to 0.25 percent at its two-day policy meeting starting Sept. 22, according to all 90 economists surveyed by Bloomberg News. The central bank decided in August to end purchases of up to $300 billion in Treasury debt next month.

Bernanke said in Washington on Sept. 15 that the worst U.S. recession since the 1930s has probably ended, while cautioning that growth may not be strong enough to reduce the unemployment rate quickly. Reports showed U.S.retail sales increased in August more than forecast and German investor confidence rose this month to the highest level in more than three years.

Weaker Sterling

Sterling slid 3.4 percent versus the euro this week, touching 90.57 pence yesterday, the weakest level since April 24. Lloyds Banking Group Plc, the U.K.’s biggest mortgage lender, said it may pull out of the government’s asset-insurance program as the Financial Times reported that the bank’s capital position was too weak for it to do so. The pound depreciated 2.3 percent to $1.6271 and slipped 1.7 percent to 148.55 yen.

New Zealand’s kiwi appreciated 0.1 percent in a 10th consecutive weekly gain that matched a rally in 1999. It reached 71.58 cents on Sept. 17, the highest level since August 2008. Australia’s dollar rose 0.4 percent after reaching 87.75 cents the same day, also the highest level since August of last year.

The franc advanced 0.8 percent after touching 1.0276 on Sept. 17, the strongest level since July 2008. A report this week showed Swiss investor confidence jumped to a record in September, indicating the economy may be pulling out of its worst recession in three decades.

Relative Strength

The U.S. currency rose yesterday for the first time this week against the euro as the 14-day relative strength index on the euro-dollar exchange rate climbed on Sept. 17 to 74, the highest level since March. A reading of 70 may indicate a rally is approaching an extreme and a reversal is imminent. The dollar lost almost 3 percent since the end of August.

“The euro could well be set for a period of consolidation or even some correction,” Derek Halpenny, European head of currency strategy in London at Bank of Tokyo-Mitsubishi UFJ Ltd., wrote in a client note yesterday. A “period of correction in equity markets would reinforce the probability of some stability for the dollar.”

Japan’s currency declined 2.7 percent to 13.32 against the Swedish krona and 2 percent to 50.54 versus the Brazilian real on speculation repatriation of funds by Japanese companies will run its course at the end of September, when the fiscal half- year closes in Japan.

The currency touched a seven-week high versus the dollar on Sept. 16 after Japan’s Finance Minister Hirohisa Fujii declined to embrace a “weak” currency, fueling speculation that the new government opposes intervening in the market to restrain the currency’s strength. The yen slid versus the dollar yesterday after Fujii told reporters that exchange rates should reflect economic fundamentals and that he doesn’t want to be labeled as a “supporter of a strong yen.”

Fed Secretly "Stuffed" $500 Billion into "Foreign Private Pockets" and Gave $230 Billion to Citi "As a Secret

Reading - Fed Secretly "Stuffed" $500 Billion into "Foreign Private Pockets" and Gave $230 Billion to Citi "As a Secret Bailout" http://j.mp/VCDAT

Congressman Alan Grayson gave an interview to Wall Street Cheat Sheet's Damien Hoffman, which includes the following bombshells:

H.R. 1207 is one of the simplest bills imaginable. Unlike the healthcare bill which is over 1000 pages, H.R. 1207 is a page and a half. The bill lists the existing exclusion of the Federal Reserve from oversight by the Government Accountability Office (GAO) and allows the GAO — an independent body — to audit the Federal Reserve Bank.

The Federal Reserve Bank has not had an independent audit since it was created almost 100 years ago, and it needs an audit. Many times we have exposed gross acts of irresponsibility on the part of the Federal Reserve. So, we need to dig in and get details.

Just a few weeks ago, while Chairman Bernanke was testifying to Congress, we examined the Fed balance sheet and P&L statement only to find what looked like the Fed handing over half a trillion dollars to foreigners. This was very surprising! When I asked Chairman Bernanke if this was true, he said, “Yes.” When I asked him who got the money, he said, “Fourteen foreign Central Banks.” And when I asked to who did they give the money, he said, “I don’t know.” “I don’t know” is not good enough when you’re talking about $500 billion. That’s $1700 for every man, woman, and child in this country...

They are performing a truly remarkable, surreptitious transfer of wealth from public to private hands. They are taking their ability to print money and shore up failed banks. They are simply stuffing money into the pockets of private interests.

In the case of the half a trillion dollars, they stuffed the money into foreign private pockets. In the case of another $230 billion, it has been tracked as a secret bailout to Citicorp in the US. The fact is the Federal Reserve continuously puts all of us on the hook for decisions they make to play favorites with private interests to the tune of trillions of dollars...

The Federal Reserve’s own website has some incredibly interesting information about the general state of the US economy and the distribution of wealth in our country. I was recently reading our national wealth capped out at $62 trillion two-years ago has crashed to $50 trillion since. Those are Federal Reserve statistics on their website.

Alan Greenspan: Market crisis 'will happen again'

Reading - Alan Greenspan: Market crisis 'will happen again' -http://j.mp/2rIsOG

The world will suffer another financial crisis, former Federal Reserve chief Alan Greenspan has told the BBC.

"The crisis will happen again but it will be different," he told BBC Two's The Love of Money series.

He added that he had predicted the crash would come as a reaction to a long period of prosperity.

But while it may take time and be a difficult process, the global economy would eventually "get through it", Mr Greenspan added.

"They [financial crises] are all different, but they have one fundamental source," he said.

"That is the unquenchable capability of human beings when confronted with long periods of prosperity to presume that it will continue."

Speaking a year after the collapse of US investment bank Lehman Brothers, which was followed by a worldwide financial crisis and global recession, Mr Greenspan described the behaviour as "human nature".

He said the current crisis was triggered by the trade in US sub-prime mortgages - home loans given to people with bad credit histories - but he added that any factor could have been the catalyst.

If it were not the problem of these toxic debts, "something sooner or later would have emerged", Mr Greenspan said.

Risks

Mr Greenspan, who when he ran the US central bank was hailed as a man who could move markets, also warned that the world's financial institutions should have seen the looming crisis.

"The bankers knew that they were involved in an under-pricing of risk and that at some point a correction would be made," he said.

If I am right, the next financial crisis, when it comes, stands to make the last two years look like a 'warm up' Stephen, a city insider, writing in the latest BBC City Diaries City Diaries: 9 September

"I fear too many of them thought they would be able to spot the actual trigger point of the crisis in time to get out."

He also warned that Britain, with its globally-focussed economy, would be harder hit than the US by the current recession and collapse in world trade.

"Obviously we've both suffered very considerably but ... Britain is more globally oriented as an economy and the dramatic decline in exports globally and trade generally following the collapse of Lehman Brothers had dramatic effects in the financial system of Britain," Mr Greenspan said.

"It's going to take a long while for you [Britain] to work your way through this."

Road to recovery

In order to prevent the situation arising again, financiers and governments should look to clamp down on fraud and increase capital requirements for banks, the former central banker said.

Greenspan view on global economy

Regulations targeting the latter would mean banks would be forced to hold enough money to cover their normal operations and honour withdrawals.

However despite his belief in a brighter future, the former Fed chief did warn that the path to recovery should steer clear of protectionism as applying strict regulations could hamper recent developments that have opened up global trade.

"The most recent endeavour to re-regulate is a reaction to the crisis. The extraordinary impact of these global markets is making a lot of financial people feeling they have lost control.

"The problem is you cannot have free global trade with highly restrictive, regulated domestic markets."

Historic event

During the interview for BBC Two's The Love of Money series, the former Fed chief said the current economic crisis was a "once in a century type of event", and one that he did not expect to witness.

Blamed by some for not doing more to prevent the crisis, Mr Greenspan denied any responsibility for the problems gripping the global economy.

"It's human nature, unless somebody can find a way to change human nature, we will have more crises and none of them will look like this because no two crises have anything in common, except human nature."

Alan Greenspan was interviewed as part of BBC Two's Love of Money series to be broadcast at 2100 BST on 10, 17 and 24 September.

Companies Rush to Sell Shares While They Can - company insiders have continued to sell shares at a torrid pace

Reading - Companies Rush to Sell Shares While They Can - company insiders have continued to sell shares at a torrid pace - http://j.mp/LO8Dr

North American companies are flocking to sell shares this week, signaling to some investors the U.S. stock market may be close to sputtering after a long rally.

* US Recession Ends: Survey
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On Tuesday and Wednesday, at least 15 public companies announced plans to issue a total of some $7 billion of shares, including a $3 billion issue by Canadian gold producer Barrick Gold.

September is on pace to be the busiest month for secondary issuance since May, which to some portfolio managers is a sign companies are taking advantage of the market while they still can.

"Companies are feeling there are dark clouds on the horizon, so why not issue now?" said Matt McCormick, a portfolio manager at Bahl & Gaynor Investment Counsel in Cincinnati.

The Dow Jones Industrial Average index has risen more than 40 percent since lows hit in early March, but a flood secondary stock offerings have squelched rallies in places such as Hong Kong.

Alibaba and Lenovo Group both placed shares in Hong Kong, pulling the broader market lower on Wednesday.

Experts expect 14 new share issues, that will raise a total of HK$70 billion ($9 billion) to enter that market in September.

Sharon Lorimer

U.S. capital raising reached a crescendo in May 2009, the all-time busiest month in the United States for follow-on share issues, with a total of $45.3 billion, led by banks.

As financial institutions stopped issuing shares, other sectors failed to step into the breach and secondary offerings dropped to $11.3 billion in August.

This week's large follow-on offerings include Cemex, the world's No. 3 cement maker, which plans to sell $1.8 billion of shares to pay down some of the $15 billion in debt it recently restructured to avoid defaulting.

Barrick Gold said it would issue $3 billion in stock and buy back all of its fixed-price gold hedges and a portfolio of its floating hedges. It said it will issue 81.2 million shares for $36.95 apiece.

Rising volumes of secondary issuance come as initial public offerings globally also rise, with multibillion dollar IPOs in Brazil and China.

"Any time the stock market rallies with the vociferous move that this one has had, you're going to get people hitting the window (of opportunity)," said Jeffrey Saut, chief investment strategist, Raymond James Financial, in St. Petersburg, Florida.

Six IPOs are set to price in the United States the week of Sept. 21 in what will likely be the busiest since Dec. 2007.

Getting Out While You Can

In another sign investors may be questioning how long the market's rally will last, company insiders have continued to sell shares at a torrid pace in recent weeks, in an effort to lock in profits before the markets fall.

"This is the most bearish period we've seen for insider sentiment since the second quarter of 2007," said Ben Silverman, director of research at InsiderScore.com.

Silverman said that, while the ratio of selling of shares to buying has fallen from August peaks, it remains high by historical standards.

Both insider sales and companies selling shares in the secondary market can be a bearish sign, said Walter Todd, a portfolio manager at Greenwood Capital Associates, but high levels of insider sales are particularly worrisome.

"Insiders have better information than you do and history would suggest that, when you get higher insider selling, it's not a great harbinger for the future," Todd added.

Senate must raise debt ceiling above $12Trillion - despite protests about the record levels of red ink.

Reading - Senate must raise debt ceiling above $12Trillion - despite protests about the record levels of red ink. - http://j.mp/HV1ds

The Senate must move legislation to raise the federal debt limit beyond $12.1 trillion by mid-October, a move viewed as necessary despite protests about the record levels of red ink.

The move will highlight the nation’s record debt, which has been central to Republican attacks against Democratic congressional leaders and President Barack Obama. The year’s deficit is expected to hit a record $1.6 trillion.
Democrats in control of Congress, including then-Sen. Obama (Ill.), blasted President George W. Bush for failing to contain spending when he oversaw increased deficits and raised the debt ceiling.

“Washington is shifting the burden of bad choices today onto the backs of our children and grandchildren,” Obama said in a 2006 floor speech that preceded a Senate vote to extend the debt limit. “America has a debt problem and a failure of leadership.”

Obama later joined his Democratic colleagues in voting en bloc against raising the debt increase.

Now Obama is asking Congress to raise the debt ceiling, something lawmakers are almost certain to do despite misgivings about the federal debt. The ceiling already has been hiked three times in the past two years, and the House took action earlier this year to raise the ceiling to $13 trillion.

Congress has little choice. Failing to raise the cap could lead the nation to default in mid-October, when the debt is expected to exceed its limit, Treasury Secretary Timothy Geithner has said. In August, Geithner asked Senate Majority Leader Harry Reid (D-Nev.) to increase the debt limit as soon as possible.

Changing the debt cap “does provide an opportunity to look at fiscal policy and what its failings are, and ideally it could give both sides an opportunity to think about what we need to do so we don't keep raising the debt limit,” said Robert Bixby, the executive director of the Concord Coalition, a fiscal watchdog group.

“But probably as a practical matter, it will get more attention as a partisan back-and-forth,” Bixby said.

When the House raised the debt limit to $13 trillion as part of a budget resolution approved in April, Democratic leaders used a maneuver known as the “Gephardt rule,” named after former House Democratic Leader Dick Gephardt (Mo.), to avoid taking a roll call vote on the debt limit increase.

The Senate isn’t so lucky. It lacks a similar mechanism, meaning each senator must cast a politically perilous vote on raising the debt ceiling.

The Senate Finance Committee will “carefully review Treasury's request on behalf of the American taxpayers,” according to an aide to the committee's chairman, Sen. Max Baucus (D-Mont.).

“Sen. Baucus understands the critical importance of signaling to the world that the U.S. maintains the confidence and security to continue to lead the global economy out of recession,” the Baucus aide said. “The request to raise the debt limit is serious and must be addressed thoroughly and in a nonpartisan manner.”

The aide noted that Baucus is pressing the Treasury Department to be more transparent about its efforts to pull the economy out of recession.

“He will continue to demand the necessary communication and cooperation going forward,” the aide said.

Both the White House and the independent Congressional Budget Office last month said that they expect the debt to increase by another $9 trillion over the next decade. Should the Senate follow the House's lead and set the new debt limit at $13 trillion, lawmakers would probably have to raise the limit again next year, when the Obama administration expects to run a $1.5 trillion deficit.

The business community has supported Geithner's push for a higher debt ceiling. Bruce Josten, the top lobbyist for the U.S. Chamber of Commerce, said it's essential to the U.S. economy.

“If we fail to address this in a timely fashion, then you run the risk of having to curtail government operations,” Josten said. “The last thing our economy and the world economy needs is greater uncertainty throughout global credit markets.”

Josten said that the high level of debt is a reality during the recession, but it's unsustainable and needs to be reduced by reforming Medicare and Social Security.

“While we can freely and openly acknowledge completely and lobby to raise the debt ceiling and incur some more debt, the longer trends ultimately need to be reversed,” he said.

Congress raised the debt limit just a few months ago when it passed the $787 billion stimulus package.

Web-monitoring Sentry and FamilySafe brands gathers data on kid chats - and sells the marketing data gathered

Reading - Web-monitoring Sentry and FamilySafe brands gathers data on kid chats - and sells the marketing data gathered - http://j.mp/7d6lX

Parents who install a leading brand of software to monitor their kids' online activities may be unwittingly allowing the company to read their children's chat messages — and sell the marketing data gathered.

Software sold under the Sentry and FamilySafe brands can read private chats conducted through Yahoo, MSN, AOL and other services, and send back data on what kids are saying about such things as movies, music or video games. The information is then offered to businesses seeking ways to tailor their marketing messages to kids.

"This scares me more than anything I have seen using monitoring technology," said Parry Aftab, a child-safety advocate. "You don't put children's personal information at risk."

The company that sells the software insists it is not putting kids' information at risk, since the program does not record children's names or addresses. But the software knows how old they are because parents customize its features to be more or less permissive, depending on age.

Five other makers of parental-control software contacted by The Associated Press, including McAfee Inc. and Symantec Corp., said they do not sell chat data to advertisers.

One competitor, CyberPatrol LLC, said it would never consider such an arrangement. "That's pretty much confidential information," said Barbara Rose, the company's vice president of marketing. "As a parent, I would have a problem with them targeting youngsters."

The software brands in question are developed by EchoMetrix Inc., a company based in Syosset, N.Y.

In June, EchoMetrix unveiled a separate data-mining service called Pulse that taps into the data gathered by Sentry software to give businesses a glimpse of youth chatter online. While other services read publicly available teen chatter, Pulse also can read private chats. It gathers information from instant messages, blogs, social networking sites, forums and chat rooms.

EchoMetrix CEO Jeff Greene said the company complies with U.S. privacy laws and does not collect any identifiable information.

"We never know the name of the kid — it's bobby37 on the house computer," Greene said.

What Pulse will reveal is how "bobby37" and other teens feel about upcoming movies, computer games or clothing trends. Such information can help advertisers craft their marketing messages as buzz builds about a product.

Days before "Harry Potter and the Half-Blood Prince" opened in theaters on July 15, teen chatter about the movie spiked across the Internet with largely positive reactions.

"Cool" popped up as one of the most heavily used words in teen chats, blogs, forums and on Twitter. The upbeat comments gathered by Pulse foreshadowed a strong opening for the Warner Bros. film.

Parents who don't want the company to share their child's information to businesses can check a box to opt out.

But that option can be found only by visiting the company's Web site, accessible through a control panel that appears after the program has been installed. It was not in the agreement contained in the Sentry Total Home Protection program The Associated Press downloaded and installed Friday.

According to the agreement, the software passes along data to "trusted partners." Confidentiality agreements prohibit those clients from sharing the information with others.

In recognition of federal privacy laws that restrict the collection of data on kids under 13, the agreement states that the company has "a parent's permission to share the information if the user is a child under age 13."

Tech site CNet ranks the EchoMetrix software as one of the three best for parental control. Sales figures were not available.

The Sentry and FamilySafe brands include parental-control software such as Sentry Total Family Protection, Sentry Basic, Sentry Lite and FamilySafe (SentryPC is made by a different company and has no ties with EchoMetrix).

The Lite version is free. Others range from $20 to download and $10 a year for monitoring, to about $48 a year, divided into monthly payments.

The same company also offers software under the brands of partner entities, such as AmberWatch Lookout.

AmberWatch Foundation, a child-protection nonprofit group that licenses its brand to EchoMetrix, said information gathered through the AmberWatch-branded software is not shared with advertisers.

Practically speaking, few people ever read the fine print before they click on a button to agree to the licensing agreement. "Unless it's upfront in neon letters, parents don't know," Aftab said.

EchoMetrix, formerly known as SearchHelp, said companies that have tested the chat data using Pulse include News Corp.'s Fox Broadcasting and Dreamworks SKG Inc. Viacom Inc.'s Paramount Pictures recently signed on.

None of those companies would comment when contacted by the AP.

EchoMetrix has been losing money. Its liabilities exceeded its assets by nearly $25 million as of June 30, according to a regulatory filing that said there is "substantial doubt about the company's ability to continue as a going concern."

To get the marketing data, companies put in keywords, such as the name of a new product, and specify a date range, into Pulse. They get a "word cloud" display of the most commonly used words, as well as snippets of actual chats. Pulse can slice data by age groups, region and even the instant-messaging program used.

Pulse also tracked buzz for Microsoft Corp.'s "Natal," a forthcoming Xbox motion-sensor device that replaces the traditional button-based controller. Microsoft is not a client of Pulse, but EchoMetrix used "Natal" to illustrate how its data can benefit marketers.

Greene said children's conversations about Natal were focused on its price and availability, which suggested that Microsoft should assure teens that there will be enough stock and that ordering ahead can lock in a price.

Competing data-mining companies such as J.D. Power Web Intelligence, a unit of quality ratings firm J.D. Power and Associates, also trolls the Internet for consumer chats. But Vice President Chase Parker said the company does not read any data that's password-protected, such as the instant message sessions that EchoMetrix collects for advertisers.

Suresh Vittal, principal analyst at Forrester Research, said EchoMetrix might have to make its disclosures more apparent to parents.

"Are we in the safeguarding-the-children business or are we in the business of selling data to other people?" he said. If it's the latter, "it should all be done transparently and with the knowledge of the customer."