The real action is coming soon in the Senate when it votes to confirm the new Fed chairman.

The budget deal is disappointing, but small beer. It’s just the same, oft-told tale: we’ll cut spending in the future if you’ll let us spend more now, along with some sneak provisions making it even harder to control spending in the future.

At least legislators have to vote on it. This has helped reveal which Congressional representatives and senators are part of today’s political corruption and which are trying to reform the system. This is useful information to have. 

Nevertheless, the real vote to watch is the one coming as early as this week in the Senate: the likely confirmation of Janet Yellen as chairman of the Federal Reserve.

Senators voting for her, especially Republicans, are telling us that they are part of the problem, not the solution. The Fed is the real enabler of all the government’s deficit spending. It could not happen if the Fed refused to underwrite it. And Janet Yellen is the biggest enabler of all, even bigger than the present chairman Ben Bernanke.

Here are all the ways that the Fed supports out-of-control federal spending:

– It keeps interest rates repressed, which allows the government to borrow at virtually no cost. For most of the time since the Crash of 2008, the government has been able to borrow at a rate below the reported rate of inflation, which is itself repressed. This means the government has virtually free money at its disposal.

– You would think that free money would be enough. But the Fed has done more. It has itself bought government debt with newly created money. It has not even been deterred by a law forbidding this.

Here is how it works. The government sells a bond to Wall Street. The Fed then buys the bond back using its newly created money. With this behind the scenes maneuver, the government is not directly buying bonds from itself and is thus not directly breaking the law.

As a result of this neat trick, the Fed now owns more US government debt than either China or Japan. Indeed, the amount of US debt owned by the Fed today is greater than the entire debt of the US government at the close of the Clinton administration.

This is such a neat trick, it raises a question. Since the government can just create enough new money to pay for any amount of spending, why bother to borrow at all? Why bother even to tax?

Click here to read the rest of the article at AgainstCronyCapitalism.org.

Hunter Lewis is co-founder of Againstcronycapitalism.org, co-founder and former CEO of Cambridge Associates, a global investment firm, and author of two recent books, Free Prices Now!, about the Fed, and Crony Capitalism in America 2008-12.