Who Enables the Man?
“The Man” is Playing with Fire
Photo credit: Keystone
What is “the man” doing?
1 Printing money… literally. Paused… for now. Still reinvesting principal/proceeds from maturing securities to maintain $4.5 trn. balance sheet size.
2 With that freshly printed money [of which there were never any quantitative limits] “The Man” is buying government debt [treasury notes and bonds] to purposely lower interest rates since 0% just is not low enough to adequately stimulate final demand.
3 As the largest purchaser of U.S. federal debt [30% of all new issues] “The Man” is purposely increasing the price of that debt [making it more expensive for you to acquire] in order to disincentivize you from purchasing “risk free” assets. The idea is to direct you toward investing in riskier assets [i.e., equities] because “The Man” knows what’s best for you and the general economy.
4 “The Man” receives interest payments from “The Man’s Father” [federal government]. “The Man” then automatically returns that interest income to his “Father”. So basically…”Father” pays zero interest on his IOU’s…which…as a reminder…were purchased with newly printed [un-earned and non-productive] dollars.
BTW… it is against the law [not that “The Man” really cares about the law] for “The Man” to directly purchase debt from “Father”… so he simply acquires it in the secondary market in order to maximize market price impact. “The Man” also allows Wall Street investment banks to “front run” its purchases to assure trading profits.
Assets held by the Federal Reserve, via Saint Louis Federal Reserve Research, click to enlarge.
5 “The Man” then prints more money to buy your mortgage [35% of the U.S. residential real estate market] in order to free up capital on the banks’ balance sheets. That “freed up” capital is then channeled back to “Father” in the form of aggressive fines, since 2009, currently totaling over $128B and counting.
The fines are a result of, according to “Father”, bank malfeasance leading up to the 2008-9 residential real estate/national economic crash. That malfeasance initially escaped the purview of “The Man” and many other regulators but, apparently, they finally “figured it out”. In the meantime, the taxpayers handsomely compensated the regulators for failing to properly execute their jobs in the many years predating the housing crisis.
