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Fed policies disproportionately favor wealth.

Imagine that the Food and Drug Administration (FDA) was a corporation, with its shares owned by the nation’s major pharmaceutical companies. How would you feel about the regulation of medications? Whose interests would this corporation be serving? Or suppose that major oil companies appointed a small committee to periodically announce the price of a barrel of crude in the United States. How would that impact you at the gasoline pump?

Such hypotheticals would strike the majority of Americans as completely absurd, but it’s exactly how our banking system operates.

The Federal Reserve is literally owned by the nation’s commercial banks, with a rotation of the regional Reserve Bank presidents constituting 5 of the 12 voting members of the Federal Open Market Committee (FOMC), the body that sets targets for certain interest rates. The other 7 members of the FOMC are the D.C.-based Board of Governors—which includes the Fed chairperson, currently Janet Yellen—and are nominated by the President. The Fed serves its owners and patrons—the big banks and the federal government, while the rest of Americans get left behind.

The Federal Reserve has the ability to create legal tender through mere bookkeeping operations. By the simple act of buying, for example, $10 million worth of bonds, the Federal Reserve literally creates $10 million worth of money and adds it into the system. The seller’s account goes up by $10 million once the Fed’s monies are received. Nobody’s account gets debited for $10 million. This is a tremendous amount of power for an institution to possess, and yet the Fed shrouds itself in secrecy and is accountable to no one.

…click on the above link to read the rest of the article…

Trumping the Federal Debt Without Playing the Default Card

August 21, 2015

Trumping the Federal Debt Without Playing the Default Card

By Ellen Brown, Web of Debt.

“The United States can pay any debt it has because we can always print money to do that. So there is zero probability of default.”

— Former Fed Chairman Alan Greenspan on Meet the Press, August 2011

In a post on “Sovereign Man” dated August 14^th, Simon Black argued that Donald Trump may be the right man for the presidency:

[T]here’s one thing that really sets him apart, that, in my opinion, makes him the most qualified person for the job:

Donald Trump is an expert at declaring bankruptcy.

When the going gets tough, Trump stiffs his creditors. He’s done it four times!

Candidly, this is precisely what the Land of the Free needs right now: someone who can stop beating around the bush and just get on with it already.

Black says the country is officially bankrupt, with the government’s financial statements showing a negative net worth of $17.7 trillion:

Nations that pass the economic point of no return can’t rebuild until they hit rock bottom. And the US is way past that point. So let’s get on with it already and hit the reset button.

Black recommends doing this by defaulting, preferably on Social Security and Medicare. But that is unlikely to suit this leading Republican candidate. As Trump said on Meet the Press on August 16:

I want people to be taken care of from a healthcare standpoint.… I want to save Social Security without cuts. I want … a strong country with very little debt.

How can the country remain strong with very little debt, without defaulting on Social Security, Medicare, or the federal debt itself?

…click on the above link to read the rest of the article…

Trumping the Federal Debt Without Playing the Default Card

August 19, 2015

Trumping the Federal Debt Without Playing the Default Card

“The United States can pay any debt it has because we can always print money to do that. So there is zero probability of default.”

— Former Fed Chairman Alan Greenspan on Meet the Press, August 2011

In a post on “Sovereign Man” dated August 14^th, Simon Black arguedthat Donald Trump may be the right man for the presidency:

[T]here’s one thing that really sets him apart, that, in my opinion, makes him the most qualified person for the job:

Donald Trump is an expert at declaring bankruptcy.

When the going gets tough, Trump stiffs his creditors. He’s done it four times!

Candidly, this is precisely what the Land of the Free needs right now: someone who can stop beating around the bush and just get on with it already.

Black says the country is officially bankrupt, with the government’s financial statements showing a negative net worth of $17.7 trillion:

Nations that pass the economic point of no return can’t rebuild until they hit rock bottom. And the US is way past that point. So let’s get on with it already and hit the reset button.

Black recommends doing this by defaulting, preferably on Social Security and Medicare. But that is unlikely to sue to this leading Republican candidate. As Trump said on Meet the Press on August 16:

I want people to be taken care of from a healthcare standpoint.… I want to save Social Security without cuts. I want … a strong country with very little debt.

How can the country remain strong with very little debt, without defaulting on Social Security, Medicare, or the federal debt itself?

There is a way. The government can reduce the debt by buying it – and ripping it up. The debt can be bought either with debt-free US Notes of the sort issued during the Civil War, or with US dollars issued by the Federal Reserve in the form of “quantitative easing.”

…click on the above link to read the rest of the article…

Who Runs the Fed?

August 7, 2015

Who Runs the Fed?

Ben Bernanke, 2011. (Shirley Li/Medill DC via Flickr)

The 2008 financial crisis challenged many orthodox assumptions in finance and economics, including the proper role and accountability of central banks. The U.S. Federal Reserve, commonly known as the Fed, is the world’s most powerful central bank.

One major source of Federal Reserve power is its role as “lender of last resort,” lending directly to commercial banks through its so-called discount lending window. Traditionally, only commercial banks had access to the Fed’s discount lending since non-bank financial institutions were not subject to the same reserve and capital requirements as those imposed on banks. The other major source of the Fed’s power is its ability to purchase short-term Treasury securities. These restrictions on Fed lending and asset purchases helped support the central bank’s political independence from Congress and the White House by ensuring that Fed policy was socially neutral and did not favor particular sections of financial markets or particular private constituencies. But as the Federal Reserve’s lending and asset purchase powers expanded in unprecedented ways in 2008, these traditional restrictions were swept aside, exposing the flaws of central bank independence.

The Fed is also able to create money—U.S. dollars, also known as Federal Reserve notes—which means there is virtually no limit to the amount of money it can lend and no limit to the volume of assets it can purchase without adding to public-sector borrowing or deficits. During the 2008–2009 financial crisis, the Fed extended more than $16 trillion in low interest loans to all kinds of financial institutions in distress, including borrowers who traditionally lacked access to its discount window such as hedge funds and foreign commercial banks and central banks. Also, beginning in 2008, the Fed launched several asset purchase programs, known as “quantitative easing” (or QE), to purchase more than $3.5 trillion in U.S. Treasury securities and mortgage-backed securities (MBS).

…click on the above link to read the rest of the article…

Who Enables the Man?

July 4, 2015

Who Enables the Man?

“The Man” is Playing with Fire

businessman_cigar_money

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.

From Whence Cometh Our Wealth—–The People’s Labor Or The Fed’s Printing Press?

June 3, 2015

From Whence Cometh Our Wealth—–The People’s Labor Or The Fed’s Printing Press?

It is hard to believe that in these allegedly enlightened times this question even needs to be asked. Are there really educated adults who believe that by dropping helicopter money conjured from thin air, the central bank can actually make society wealthier?

Well, yes there are. They spread this lunacy from the most respectable MSM platforms. And, no, I’m not talking about professor Krugman and his New York Times column. At least, he pontificates from a Keynesian framework that has a respectable, if erroneous, intellectual heritage.

What I am talking about here is the mindless bunkum issued by so-called financial journalists who swish around Wall Street and Washington exchanging knowing tidbits with policy-makers, deal-makers and each other. Call it the bubble finance “narrative”, and recognize that its gets more uncoupled from economic facts, logic and plausibility with each passing day in the casino.

The estimable folks at The Automatic Earth put a bright spotlight on this crucial matter this morning, even if not by design. Their trademark daily vintage photo was a 1911 picture of a family including all the kids picking berries in the field; they were making GDP the old fashioned way.

In its usual manner, the site’s “debt rattle” list of links to timely reads followed, and the first was a Bloomberg View opinion piece called“QE For The People: Monetary Policy For The Next Recession” by one Clive Crook. It was actually a case for literally dropping central bank money from the skies to enable policy-makers to better “support demand and keep their economies running”.

In thoughtfully supplying a photo of a helicopter in full flight to accompany Crook’s discourse, the Bloomberg graphics department crystalized the essential economic issue of our times. Namely, whether wealth is made by the Berrie Pickers or the Money Printers.

…click on the above link to read the rest of the article…

Something Smells Fishy

May 30, 2015

SOMETHING SMELLS FISHY

It’s always interesting to see a long term chart that reflects your real life experiences. I bought my first home in 1990. It was a small townhouse and I paid $100k, put 10% down, and obtained a 9.875% mortgage. I was thrilled to get under 10%. Those were different times, when you bought a home as a place to live. We had our first kid in 1993 and started looking for a single family home. We stopped because our townhouse had declined in value to $85k, so I couldn’t afford to sell. In 1995 I convinced my employer to rent my townhouse, as they were already renting multiple townhouses for all the foreigners doing short term assignments in the U.S. We bought a single family home in 1995 with the sole purpose of having a decent place to raise a family that was within 20 minutes of my job.

Considering home prices on an inflation adjusted basis were lower than they were in 1980, I was certainly not looking at it as some sort of investment vehicle. But, as you can see from the chart, nationally prices soared by about 55% between 1995 and 2005. My home supposedly doubled in value over 10 years. I was ecstatic when I was eventually able to sell my townhouse in 2004 for $134k. I felt so smart, until I saw a notice in the paper one year later showing my old townhouse had been sold again for $176k. Who knew there were so many greater fools.

This was utterly ridiculous, as home prices over the last 100 years have gone up at the rate of inflation. Robert Shiller and a few other rational thinking people called it a bubble. They were scorned and ridiculed by the whores at the NAR and the bimbo cheerleaders on CNBC. Something smelled rotten in the state of housing.

…click on the above link to read the rest of the article…

We’re In Uncharted Economic Territory

May 30, 2015

We’re In Uncharted Economic Territory

We’re in uncharted territory …

For example, this is the first time in history that most central banks worldwide have printed money during the same time period.

And one of America’s leading economists (Nobel-prize winner Robert Shiller) just said that – unlike 1929 – this time, stocks, bonds and housing are ALL overvalued:

This time around, bonds and, increasingly, real estate also look overvalued. This is different from other over-valuation periods such as 1929, when the stock market was very overvalued, but the bond and housing markets for the most part weren’t. It’s an interesting phenomenon.

There’s a connection between the two unprecedented events …

Money printing sucks money out of the real economy, and throws it at the wealthy … who use it to speculate on stocks, bonds and housing.

Indeed, the central banks have consciously been focusing all of their efforts on blowing asset bubbles …

But the bigger they come, the harder they fall.

“It’s A Coup D’Etat,” David Stockman Warns “Central Banks Are Out Of Control”

May 24, 2015

“It’s A Coup D’Etat,” David Stockman Warns “Central Banks Are Out Of Control”

We’re all about to be taken to the woodshed, warns David Stockman in this excellent interview. The huge wealth disparity is “not because of some flaw in capitalism, or Reagan tax cuts, or even the greed of Wall Street; the problem is central banks that are out of control.” Simply put, they have “syphoned financial resources into pure gambling” and the people that own the stocks and bonds get the huge financial windfall. “The 10% at the top own 85% of the financial assets,” and thus, thanks to the unleashing of almost limitless money-printing, which has created a massive worldwide financial inflation, “the central banks have created and exaggerated the wealth gap.” Stockman concludes, rather ominously, “it’s a coup d’etat, the central banks have taken over – unconstitutional domination of the entire economy.”

“Everywhere, misleading distorted signals are being given to both public and private sector players about financial values… the prices have been falsified by The Fed.

We can’t print our way to prosperity… The Fed is now petrified that Wall Street will have a hissy-fit when they tighten.”

…click on the above link to view the video…

For Heaven’s Sake: Hedge!

May 1, 2015

For Heaven’s Sake: Hedge!

If you’re not positioned defensively by now, you’re nuts

Q: How do you make a small fortune on Wall Street?

A: Start with a large fortune.

~ old investing adage

Last fall, I wrote an article titled Defying Gravity that warned of the absurd price levels that stocks and bonds had risen to.

The piece first looked at the unbroken multi-year march upward in prices through the myriad money-printing cycles of the world’s central banks, as well as the near-extinction of bearish investors on Wall Street — which it then contrasted with the vast gap between valuations and the underlying weak economic data, deteriorating chart technicals, and evidence that the “smart money” was exiting the market. The takeaway? Prudence strongly recommended moving to cash and hedging one’s open market positions.

Less than a month later, the stock market abruptly dropped by 7%. Those who didn’t seek safety in advance were left licking their wounds, panicked not knowing if the painful down-draft was over.

Fortunately for them, the Federal Reserve jawboned it’s willingness to step in further if needed, the ECB announced a trillion-Euro stimulus program, the Bank of Japan waded into domestic and foreign markets as a buyer of last resort, and China’s central bank continued its staggering balance sheet expansion. Collectively, this put a floor on the markets, which soon climbed back to record highs.

Where We Are Now

So here we are roughly six months later, and the same warning bells are ringing — just louder this time.

Yes, stocks recovered from their brief October swoon, and yes, they are at — or very close to — their all-time highs. Indeed, everything is so awesome that investor sentiment has never been more positive. If you worry that having too many people on the same side of the boat is a sign of complacency and over-confidence, the following chart should frighten you:

…click on the above link to read the rest of the article…

Money Printing And The Bane Of Financial Engineering—–How The Biggest LBO In History Blew-Up

April 18, 2015

Money Printing And The Bane Of Financial Engineering—–How The Biggest LBO In History Blew-Up

Financial engineering is one of the worst ills perpetuated by the Fed’s regime of cheap debt and money market subsidies for speculation. And these deformations are turbo-charged by the tax code which creates a powerful bias toward loading capital structures with tax deductible debt, and to delivering returns as lightly taxed capital gains rather than ordinary income. In fact, stock buybacks and LBOs are the bastard offspring of the IRS and Federal Reserve.

Indeed, it would be safe to say that in an honest free market with a neutral tax regime, LBOs in particular would be as rare as a white buffalo. That’s because they inherently cause waste, inefficiency and malinvestment—–the opposite of market driven results. These deadweight losses to society are, in turn, the product of a symbiotic arrangement of convenience between an avaristic breed of money manger——private equity funds—–and institutional investors, such as pension funds and insurance companies, which have a desperate need for yield in a financial system where returns on conventional fixed income securities are systematically repressed by the central bank.

Private equity managers are tax-enabled speculators. Their winnings come in the form of a 20% carried interest on the thin slice of equity at the bottom of an LBO capital structure. This 20% share of the return earned by the limited partners (LPs), who actually put up the money and bear the extreme risk of being pinned under a mountain of debt, might arguably be considered generous. But there is no way that it should be considered a capital gain. It is nothing more than the service fee earned for managing other people’s money.

…click on the above link to read the rest of the article…

Modern-Day Monetary Cranks and the Fed’s “Inflation” Target

April 18, 2015

Modern-Day Monetary Cranks and the Fed’s “Inflation” Target

One Bad Idea After Another

Ben Bernanke is frequently in the news these days. The latest occasion concerns his opinion on the Fed’s “inflation” target, i.e., the target for the speed at which money should be debased relative to consumer goods in order to finally attain centrally planned economic nirvana.

Price inflation is currently deemed to be “too low” by our bien pensants, in spite of the fact that the broad US money supply TMS-2 has more than doubled since 2008 (as of March, it is very close to $11 trillion, up from $5.3 trn. in early 2008). If recent CPI data are to be believed (which requires a bit of a leap of faith), consumers may actually get slightly more goods and services for their money henceforth. What an unimaginable horror!

CPI dips ever so slightly into negative territory year-on-year – the nightmare of central planners around the world – click to enlarge.

Bloomberg reports that Ben Bernanke has an idea how to combat this terrifying development. Obviously, with the CPI’s rate of change dipping a few basis points into negative territory, the end of the world is practically at hand, so something needs to be done pronto.

Bernanke delivered his remarks at a conference sponsored by another economic central planning institution, the IMF. The people running this surplus to requirement bureaucratic vampire den are dreaming of the day when the IMF will become the global central bank, in line with Keynes’ “Bancor” idea. This would allow fiat money inflation on a nigh unprecedented scale, as currencies would no longer compete and be comparable. However, we digress.

…click on the above link to read the rest of the article…

The Bank-State Bargain

April 2, 2015

The Bank-State Bargain

“I react pragmatically. Where the market works, I’m for that. Where the government is necessary, I’m for that. I’m deeply suspicious of somebody who says, “I’m in favor of privatization,” or, “I’m deeply in favor of public ownership.” I’m in favor of whatever works in the particular case.” J K Galbraith

There’s no getting away from it. Banks create money out of nothing when they extend loans and then charge borrowers interest on this newly created capital. The result is an ongoing multi-billion pound/ dollar subsidy breaking the basic rules of capitalism. What is perhaps even more surprising is that there appears to be no explicit description of the ‘bargain’ underlying this important arrangement. What follows is an exploration of elements of a possible rationale for an unspoken agreement.

Until quite recently there was surprisingly fierce argument over the way in which money is created. Thanks largely to determined and repeated enquiry by monetary reformers [1] and propogation of the issue via social media, there is now consensus over the role that private banks play in originating money in the form of loans, essentially ex-nihilo – out of thin air.

Recently the Bank of England somewhat belatedly broke their silence and joined this consensus via an in-house publication on the subject [2]. So we have a little light shining in on the phenomenon of which J.K. Galbraith in 1975 wrote: “The process by which banks create money is so simple that the mind is repelled.[3]”

…click on the above link to read the rest of the article…

Iceland To Take Back The Power To Create Money

April 2, 2015

Iceland To Take Back The Power To Create Money

Who knew that the revolution would start with those radical Icelanders? It does, though. One Frosti Sigurjonsson, a lawmaker from the ruling Progress Party, issued a report today that suggests taking the power to create money away from commercial banks, and hand it to the central bank and, ultimately, Parliament.

Can’t see commercial banks in the western world be too happy with this. They must be contemplating wiping the island nation off the map. If accepted in the Iceland parliament , the plan would change the game in a very radical way. It would be successful too, because there is no bigger scourge on our economies than commercial banks creating money and then securitizing and selling off the loans they just created the money (credit) with.

Everyone, with the possible exception of Paul Krugman, understands why this is a very sound idea. Agence France Presse reports:

Iceland Looks At Ending Boom And Bust With Radical Money Plan

Iceland’s government is considering a revolutionary monetary proposal – removing the power of commercial banks to create money and handing it to the central bank. The proposal, which would be a turnaround in the history of modern finance, was part of a report written by a lawmaker from the ruling centrist Progress Party, Frosti Sigurjonsson, entitled “A better monetary system for Iceland”.

“The findings will be an important contribution to the upcoming discussion, here and elsewhere, on money creation and monetary policy,” Prime Minister Sigmundur David Gunnlaugsson said. The report, commissioned by the premier, is aimed at putting an end to a monetary system in place through a slew of financial crises, including the latest one in 2008.

…click on the above link to read the rest of the article…

The Way Out

March 30, 2015

The Way Out

It’s not what most people think: a return to some hypothetical “normality,” with the ghost of Ronnie Reagan beaming down like a sun-god under his lopsided pompadour, and all the happy self-driving GM cars toodling back and forth from WalMart-to-home loaded to the scuppers with new electric pop-tart warmers and 3-D underwear printers. (Or drone deliveries of same from Amazon.com.)

I mean, surely the thinking folk out there must be asking themselves: what is the way out of this Federal Reserve three-card-monte, one-percenter-stuffing, so-called “economy,” and what is the destination of this society when that mendacious model for living fails?

I digress for a moment: there was a chap named Richard Duncan on the pod-waves this weekend (FSN Network) putting out the charming idea that quantitative easing (QE — governments “printing” money to buy their own bonds) had the effect of “cancelling debt” and that it could continue for decades to come. I don’t doubt that there are Federal Reserve officers who believe this. The part they leave out — and Mr. Duncan also left it out until pressed — is that there are consequences. Consult the operating manual of the universe, and you will find that there really is no free lunch or get-out-of-jail card.

…click on the above link to read the rest of the article…

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