The Fed Conjurs Up $600 Billion

In an effort to support sagging interest in US Treasuries, the Federal Reserve has resorted to what they call "quantitative easing" which is a fancy way of saying creating new money out of thin air.

What they are effectively doing is monetizing the losses by both the banking sector and the federal government, by which I mean stealing wealth from every person who holds US dollars to pay for boneheaded mistakes at the highest levels of power.

The Fed has couched this new money magic in a false effort to, well, I don't know what bullshit they're spinning this time. Increase demand, increase lending, reduce interest rates, support the stock market, stimulate the economy. Whatever, don't believe them. This is yet more trickery to hide the fact that America is in a deep, deep hole.

It's as if the Chilean miners were given massive doses of hallucinogenic drugs to help them forget that they were buried thousands of feet below ground. Unfortunately, the drugs eventually wear off, and you're still 2,300 feet underground.

On the news of fresh, new money, stocks jumped, as did gold and silver. The new money shocked the stock market up sharply, and the loss of faith in the dollar pushed more investors into already inflated gold and silver.

Those in the know can see right through the Fed's trickery and are making out like bandits. Everybody else is getting royally screwed, but probably don't even know it.

The Fed is playing roulette with the wealth of an entire nation. The fact that so few people are outraged is proof that Americans are woefully uninformed about their own monetary system.

Or, as Henry Ford once said, "It is well enough that people of the nation do not understand our banking and monetary system, for if they did, I believe there would be a revolution before tomorrow morning."

How It Will Go Down

Any questions?


[via Glasperlenspieler]

The Great Unraveling

Americans are losing faith that their government can provide a fair society. They see that government works for those with money and power, and no longer for the little people.

The bitter truth is that the nation's Financial Power Elites are not constrained by rule of law, and as a result of this revelation Americans' trust in their government and political class has been shattered.

Despite raising their voices 600 to 1 against the TARP and related bailouts of the nation's Financial Power Elites (who stripmined the nation's wealth from their investment banking and mortgage banking fortresses) in 2008, the government shoved trillions of dollars of bailouts and guarantees into private hands with pathetically little control in return.

In their rage at this abject, cowardly surrender of their government to the Financial Elites, the American people tossed the craven bankers-lapdogs Republicans out and replaced them with an untested young president who talked the talk and old-line Democrats.

All of whom proceeded to attach the same leash to their necks and become craven lapdogs of the Financial Elites.

Now that the housing crisis has nearly run its course, how are the Power Elites gaming the system today? It starts with the Fed, and ends with you having no more money:

Zero interest is nothing but a transfer of wealth from the citizens to the Financial Power Elites in the money-center and investment banks. Please note the bankers divided up $144 billion in bonuses last year, despite their insolvency. That buys a lot of politicos--basically all of them.

Secondly, the Fed is destroying the nation's currency, the dollar, to drive money into the stock market. This is designed to create a facade of "prosperity" which gives some sort of credence to the government's claim that a "recovery" is underway. Since the Grand Stimulus has failed utterly and completely, then juicing the stock market is the only way left to bolster the illusion of "recovery."

Unfortunately for the incompetent toadies of the Fed, much of the "hot money" speculation they have incentivized is flowing into commodities, driving up the prices of food and fuel. Once again the Fed has engineered a policy which siphons money away from the citizenry in order to reward and enrich the Financial Power Elites.

The Fed, which controls the money supply for the entire nation, is firmly in the pocket of the Financial Elite. It's policies of zero interest rates and money-printing bailouts are designed to help its Elite masters, on the backs of everyone else in the country.

This will go on as long as we let it.

Ben Bernanke is the Most Powerful Man in the World.

Bernanke's actions at the Federal Reserve ripple throughout the globe, especially into emerging markets.

A surge of capital is flowing into emerging markets as money flees the U.S., Europe, and Japan in the hope of higher returns.

The perception is that emerging markets offer stronger profit growth for their stocks, higher interest rates for their deposits, and the potential for currency appreciation.

Yet it's not all roses for the emerging economies involved.

That's because the surge of money seeking emerging markets is an example of how easy monetary policy in the developed world spills over into the developing one. Emerging markets nations try to tighten monetary policy... but are then beset by waves of foreign capital entering their countries. This negates the domestic tightening effort since foreign money is sloshing around their economies, and it's how Ben Bernanke is actually the entire world's central banker.

Inflating our dollar's value away so that we are forced to bubble-ize emerging markets doesn't seem like great policy to me, but I'm not a central banker, so what do I know.

Bernanke Talking, is Anyone Listening?

Fed Chairman Ben Bernanke has joined the chorus of people warning Americans of our government's unsustainable debt load.

[I]n the United States, governments at all levels are grappling not only with the near-term effects of economic weakness, but also with the longer-run pressures that will be generated by the need to provide health care and retirement security to an aging population. There is no way around it--meeting these challenges will require policymakers and the public to make some very difficult decisions and to accept some sacrifices. But history makes clear that countries that continually spend beyond their means suffer slower growth in incomes and living standards and are prone to greater economic and financial instability.

Everyone outside of Congress and the Obama administration is saying the same thing: We must balance the federal budget. Unfortunately, the only people with the power to do this are in Congress and the Obama administration.

America Is 'Bankrupt Mickey Mouse Economy'

I've been saying it for a while, but here is a hedge fund manager agreeing with me.

"America today looks like Russia in 1998. Consumers, companies and the government are all highly indebted. America as a result is a bankrupt Mickey Mouse economy," Wermuth told CNBC.

"The big evil for the IMF in Russia in 1998 was the prospect of the central bank funding government debt. The Fed is now even buying mortgage-backed securities," he noted.

"Even before the (Troubled Asset Relief Program) and the expansion of the Fed's balance sheet, total US public and private debt as a percentage of GDP in the US stood at 290 percent, that figure is now far higher," Wermuth added.

"US credit risk is huge and America has two options, either default or let the currency depreciate substantially against currencies such as the yuan and the rouble," he explained.

"Last night's news from the Fed simply creates the right conditions for dollar weakness and a reduction in US liabilities to foreign investors and governments," Wermuth said.

Despite the horrific implications, it's comforting to know I'm not the only one who sees this coming.

[CNBC]

Fiat Currency FAIL

The fate of every fiat currency is the same. The government in charge prints to much, usually to cover its own debts, and the money becomes worthless.

Fiat currency, like the US dollar, is not pegged to the value of any hard commodity like gold. Instead, the value comes from faith that the money is worth something. Eventually, governments abuse their ability to print money, and people lose faith, and no one will take your funny money anymore.

[via nick]

Bernanke Admits Fed Caused Great Depression

In case anyone still had any doubts that the Federal Reserve helped create the Great Depression:

Let me end my talk by abusing slightly my status as an official representative of the Federal Reserve. I would like to say to Milton and Anna: Regarding the Great Depression. You're right, we did it. We're very sorry. But thanks to you, we won't do it again.
-Ben Bernanke, November 8, 2002

It only took the Fed 70-odd years to admit to devastating the American economy. I wonder how long we'll have to wait to hear them admit it they did it again.

[via Glas]

Audit the Fed? Bernanke Says No

Ben Bernanke came out against pending legislation that would allow Congress greater oversight of the Federal Reserve.

"Such amendments, if enacted, would seriously threaten monetary policy independence, increase inflation fears and market interest rates, and damage economic stability and job creation," Mr. Bernanke wrote to Mr. Dodd.

By some reasoning that I do not understand, Mr. Bernanke believes the American people have no business knowing what goes on inside the institution that controls all of their money.

If I were Ben Bernanke, I wouldn't want people knowing what I was doing with their wealth either. Because once people found out that the Federal Reserve has been helping banks steal their wealth for the last century, they might get a little upset. Like, Greece upset.

Financial Reform is a Cruel Joke

Obama is gearing up for another congressional battle, this time over financial reform.

Instituting a system to ensure that “American taxpayers are protected in the event that a large firm begins to fail.”

Imposing the so-called Volcker Rule, named after Paul A. Volcker, the former Federal Reserve chairman who proposed limits on the freewheeling trading and risks taken by banks.

Setting new transparency rules for derivatives “and other complicated financial instruments.”

Assuring “strong consumer financial protections.”

Instituting “pay reforms” to give investors and pension holders “a stronger role in determining who manages the companies in which they’ve placed their savings.”

In many ways, he is trying to protect people from their own bad decisions, which in my opinion makes it more likely that they will make those bad decisions.

Obama is also trying to reign in the derivatives markets that allowed the mortgage backed securites to grow and spread so quickly and so far.

All of this seems logical and fair, however it is not real reform. Financial giants still hold all the cards, because they still have access to the Federal Reserve.

It may interest you to know that banks are currently borrowing from the Federal Reserve at 0.5% interest, then using that money to buy Treasury bills, which pay 3%. You read that correctly. Our government has set up a system whereby banks can make money without lifting a finger using the Fed's money machine.

Why would our government allow this practice? The answer is simple. The Fed prints the money, lends the money to banks, then the banks lend the money to the government via T-bills. The government is borrowing against the dollar, against the wealth of the American people, and they are laundering their dirty deed through banks, while paying a 2.5% premium for the laundering service.

Congress is not interested in real reform, and neither is Obama. The government needs the financial system to work the way it does, because without it, we wouldn't be able to run trillion dollar annual budget deficits. We have given tremendous amounts of power to the financial system, and we are surprised when they misuse that power.

This is not reform, this is shuffling paperwork. Real reform would require reforming or ending the Federal Reserve, but our leaders have no interest in killing the golden goose.

Bernanke Prods Reform in Medicare, Social Security

Fed chief Ben Bernanke finally says what I've been saying for years: Medicare and Social Security are going to bankrupt this country if we don't do something soon.

Mr. Bernanke noted that the economy was still fragile, and he made it clear that he did not expect the federal government to raise taxes or cut spending anytime soon. But he spoke about the budget pressures posed by Social Security and Medicare with greater urgency than he has in the past.

“The arithmetic is, unfortunately, quite clear,” Mr. Bernanke said. “To avoid large and unsustainable budget deficits, the nation will ultimately have to choose among higher taxes, modifications to entitlement programs such as Social Security and Medicare, less spending on everything else from education to defense, or some combination of the above. These choices are difficult, and it always seems easier to put them off — until the day they cannot be put off any more.”

Democrats don't want to cut benefits, and Republicans don't want to raise taxes, but something must be done before it is too late.

Bernanke also commented on the Fed's response to the financial crisis, and added his two cents on financial reform.

“To end ‘too big to fail,’ the new regime should permit regulators to close a failing firm and impose losses on shareholders and creditors,” he said. “Indeed, I would argue that no financial instrument counted as regulatory capital should be allowed to receive any protection from losses.”

He's talking a good talk, but thus far it's only talk. We'll see if he practices what he preaches.

Public Enemy Number One: The Federal Reserve

If we were in 1792, we would be calling for Ben Bernanke's head.

Ben S. Bernanke doesn't know how lucky he is. Tongue-lashings from Bernie Sanders, the populist senator from Vermont, are one thing. The hangman's noose is another. Section 19 of this country's founding monetary legislation, the Coinage Act of 1792, prescribed the death penalty for any official who fraudulently debased the people's money.

The article goes pretty deep into the history and machinations of our monetary system.

It's time to audit the Fed. Why is this even up for discussion? It is Congress's duty to coin money, but that job has been passed to the Fed, and our money supply is essentially controlled by a presidential appointment and his banker cronies.

Even Woodrow Wilson, who signed the 1913 Federal Reserve Act into law, later regretted his decision:

I am a most unhappy man. I have unwittingly ruined my country. A great industrial nation is controlled by its system of credit. Our system of credit is concentrated. The growth of the nation, therefore, and all our activities are in the hands of a few men. We have come to be one of the worst ruled, one of the most completely controlled and dominated Governments in the civilized world no longer a Government by free opinion, no longer a Government by conviction and the vote of the majority, but a Government by the opinion and duress of a small group of dominant men.

The real tragedy is that so many Cassandras have tried to warn us, but have been ignored. Now we're paying the price for the hubris of 1913.

Congress Rips Bernanke a New One

Ben Bernanke, Fed Chief, is up for confirmation again. Most believe he will be reconfirmed, but members of Congress are taking this opportunity to verbally tear him apart before they give him a pass.

Members of the Senate Banking Committee signaled at a hearing that Fed Chairman Ben Bernanke is likely to be confirmed for a second term as head of the central bank. But that may come at a steep cost -- lawmakers said the Fed had "failed" or done a "horrible job" as a regulator and suggested they would push ahead with a proposal that would strip much of its regulatory authority.

...

Mr. Dodd's Republican counterpart, Sen. Richard Shelby of Alabama, said he has traditionally held the Fed in "very high regard" but that the central bank's actions over the last year has eroded his view.

"I fear now, however, that our trust and confidence were misplaced," Mr. Shelby said.

...

"You are the definition of a moral hazard," said Sen. Jim Bunning (R, Ky.), a long-time Fed critic. "I will do everything I can to stop your nomination and drag out this process as long as I can."

Under Bernanke's watch we have not only seen the collapse of our entire banking and financial markets, taking us to the brink of full economic depression, but we have also seen the coffers of America pillaged to save greedy bankers from their own mistakes. And he is likely to keep his job.

I'm wondering exactly what it takes to get fired over at the Fed.

Why You've Never Heard of the Great Depression of 1920

How Warren G. Harding turned a recession around in 1 year.

Value of the Dollar

I posted something similar before, but this graph goes even further back in time, showing what happens to the value of a currency when it is no longer backed by a tangible asset. It isn't pretty.

It's Bubble Time

Here we go again:

In the last eight months, the Dow Jones Industrial Average has risen from its March 6 low of 6470 to over 10290 today, a gain of roughly 59%. The Nasdaq Composite Index and the S&P 500 Index have likewise increased about 71% and 65%, respectively, since early March. Are we looking at the restoration of legitimate values or the emergence of disastrous new asset price bubbles?

The answer would seem to lie in whether the Fed's money machine is fueling an illusory recovery that is only manifested in financial markets as opposed to the general economy. The FOMC's own report acknowledges that economic activity remains weak, household spending is constrained, and businesses are still cutting back on fixed investment and staffing.

The Fed's 0% interest loans to banks are contributing to yet another massive bubble, though instead of real estate, this time its the stock market.

The game is rigged to blow, get out while you can.

[via WSJ]

The Man Who Predicted The Depression

The Great Depression and our current Great Recession were both predictable and preventable, at least if you're Ludwig von Mises:

The 1920s were marked by the brave new era of the Federal Reserve system promoting inflationary credit expansion and with it permanent prosperity. The nerve of this Doubting-Thomas, perma-bear, crazy Kraut! Sadly, poor Ludwig was very nearly alone in warning of the collapse to come from this credit expansion. In mid-1929, he stubbornly turned down a lucrative job offer from the Viennese bank Kreditanstalt, much to the annoyance of his fiancée, proclaiming "A great crash is coming, and I don't want my name in any way connected with it."

We all know what happened next. Pretty much right out of Mises's script, overleveraged banks (including Kreditanstalt) collapsed, businesses collapsed, employment collapsed. The brittle tree snapped. Following Mises's logic, was this a failure of capitalism, or a failure of hubris?

Mises's solution follows logically from his warnings. You can't fix what's broken by breaking it yet again. Stop the credit gavage. Stop inflating. Don't encourage consumption, but rather encourage saving and the repayment of debt. Let all the lame businesses fail—no bailouts. (You see where I'm going with this.) The distortions must be removed or else the precipice from which the system will inevitably fall will simply grow higher and higher.

The system we have today is destined for failure. Our government thinks it can just do more of the same and achieve a different result.

With interest rates at zero, monetary engines humming as never before, and a self-proclaimed Keynesian government, we are back again embracing the brave new era of government-sponsored prosperity and debt. And, more than ever, the system is piling uncertainties on top of uncertainties, turning an otherwise resilient economy into a brittle one.

The take away from all this? Stay out of the stock market.

Misplaced Anger

In Chicago, protesters march on the banks:

"This is not a financial system," he said. "This is a financial disaster."

Protesters carried effigies of bank executives, including John Stumpf, chief executive of Wells Fargo, and former Bank of America Chief Executive Ken Lewis. Some clutched "Wanted" signs bearing the faces of bank executives deemed "Wall Street Robber Banker[s]." They carried signs with slogans such as "No Bonuses for Big Banks" and chanted sayings like "Bust up big banks!"

The morning protests started at the Chicago offices of Goldman Sachs. A woman on a megaphone shouted, "We're here to tell Goldman Sachs, shame on you! Shame on you for helping bring this country to the brink of a depression!" The crowd, in turn, chanted "Shame on you!" An organizer yelled a list of demands for Goldman Sachs, including that the bank support calls for a consumer-finance protection agency and that it donate the money set aside for bonuses to loan-modification programs.

What I find ludicrous about this situation is that these banks would largely have disintegrated had the government not bailed them out, so where is the anger towards the government and Federal Reserve?

The oft maligned "Tea Partiers" marched on D.C. for this reason, yet these liberal anti-corporate protesters don't see that their tax dollars are going to save the very banks they hate. But for some reason the government escapes their scorn. This is just another example of blind faith in government in the face of massive failure.

The Gold Standard 2.0

For the longest time, I have disagreed with Ron Paul's call to return to the gold standard. I thought, how can this possibly work? In order for our economy to grow we must have a growing money supply, right?

Maybe. But it's impossible to accurately measure and predict economic growth, so we can't grow the money supply at exactly the same pace. So to be on the safe side we print a little extra each year, which decreases the purchasing power of each dollar already out there, and we call it inflation.

In a gold system, as the economy grows, instead of regular inflation we would have regular deflation, as the purchasing power of our gold steadily increases.

A cursory Google News search turned up some interesting analysis:

Now, a small amount of gold can go a long ways - global trade in 1913 was huge, and not matched until the mid-1990s. (I know that may seem hard to believe, but things fell a long ways down due to WWI and then the Great Depression). It was based on a 90-day instrument called a Real Bill, backed by gold held in the Bank of England. This Bills could be used to borrow against, and traded multiple times. A merchant in England contracted for cotton in the US to be shipped to a plant in China to be manufactured and shipped back to a store in London. The same, single Bill would be used at each step and often got traded or ‘discounted’ over 20 times. It all got cleared within 90 days and everyone paid off their debt - the many swaps down the chain simply paid off each other. (If you play with the math you can see it works.) As long as the balance of trade of the Bank of England was even, no net gold went in or out; it simply got shuffled in the vault from one bin to another. A small pile of gold could support a huge and growing trade system.

...

[Real Bills] were an emergent property of capitalism, arising early-on in the Italian city states, and hence were a very resilient system. Yet they died during WWI and have been largely lost to economic history. Instead we have commercial paper and other short-term instruments to finance trade, and are beholden to the whims and fancies of the banking sector.

The gold standard has been used for thousands of years. This recent fiat business is a scam perpetrated by governments trying to avoid their debts, and we're all paying for it.

Consider This

Because of inflation the dollar is worth less than 4 cents compared to 1913, the year the Federal Reserve was created.

See the value of the dollar change over 200 years.