Tag Archives: Federal Reserve Bank

The Fantasy Of Central Bank “Growth” Is Finally Imploding

Having destroyed discipline, central banks have no way out of the corner they’ve painted us into.

It was such a wonderful fantasy: just give a handful of bankers, financiers and corporations trillions of dollars at near-zero rates of interest, and this flood of credit and cash into the apex of the wealth-power pyramid would magically generate a new round of investments in productivity-improving infrastructure and equipment, which would trickle down to the masses in the form of higher wages, enabling the masses to borrow and spend more on consumption, powering the Nirvana of modern economics: a self-sustaining, self-reinforcing expansion of growth.

But alas, there is no self-sustaining, self-reinforcing expansion of growth; there are only massive, increasingly fragile asset bubbles, stagnant wages and a New Gilded Age as the handful of bankers, financiers and corporations that were handed unlimited nearly free money enriched themselves at the expense of everyone else.

When credit is nearly free to borrow in unlimited quantities, there’s no need for discipline, and so a year of university costs $50,000 instead of $10,000, houses that should cost $200,000 now cost $1 million and a bridge that should have cost $100 million costs $500 million. Nobody can afford anything any more because the answer in the era of central bank “growth” is: just borrow more, it won’t cost you much because interest rates are so low.

And with capital (i.e. saved earnings) getting essentially zero yield thanks to central bank ZIRP and NIRP (zero or negative interest rate policies), then all the credit has poured into speculative assets, inflating unprecedented asset bubbles that will destroy much of the financial system when they finally pop, as all asset bubbles eventually do.

Nobody knows what the price of anything is in the funny-money era of central banks. And since capital earns next to nothing, the only way to earn a return is join the mad frenzy chasing risk assets ever higher, with the plan being to sell at the top to a greater fool, a strategy few manage as it requires selling into a rally that seems destined to climb to the stars.

Having destroyed discipline–why scrimp and save when you can always borrow to buy or invest?– central banks have no way out of the corner they’ve painted us into. If they “normalize” interest rates to historical averages (3% above real-world inflation), then all the zombie companies and households that are surviving only because rates are near-zero will go bankrupt, wiping out the “wealth” of all the loans that can no longer be paid.

“Normalized” rates would also bring down the global housing bubble, an implosion that would trigger trillions in losses, reversing the vaunted wealth effect into a realization that we’re all getting poorer, not richer, and collapsing the risky mountain of mortgage debt that’s been piled on absurdly overvalued properties globally.

In effect, central banks added a zero to “money” and anticipated that this trickery would generate ten times more of everything: ten times more productive investments, ten times more consumption, ten times more people borrowing ten times more money, and so on.

But the trickery failed, and all we have is $200,000 houses that cost $1 million, a year in college that costs $50,000 instead of $10,000, and so on.Having destroyed discipline and price discovery, central banks attempted to replace reality with fantasy, and now the absurd fantasy is imploding. The financial system and the real-world economy have both been destabilized by this fantasy, and now both are fragile in ways few understand.

The only “policies” central banks have is to issue more credit at negative interest rates, i.e. doing more of what’s failed spectacularly, until the entire rickety travesty of a mockery of a sham collapses.

That collapse is currently underway in slow motion, but given the increasing instability of asset bubbles, it could accelerate at any time.

Source: by Charles Hugh Smith | ZeroHedge

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Quote Of The Pre-War Era…

The Federal Reserve Resistance: A recent official urges the central bank to help defeat Donald Trump.

Perhaps you’ve seen former Chairs of the Federal Reserve defending the central bank’s independence and fore swearing all political intentions. Fair enough. But then what are we to make of former Fed monetary Vice Chair William Dudley ’s marker that the Fed should help defeat President Trump in 2020? That’s the extraordinary message from the former, and perhaps future, Fed grandee in Bloomberg.

“Officials could state explicitly that the central bank won’t bail out an administration that keeps making bad choices on trade policy, making it abundantly clear that Trump will own the consequences of his actions,” Mr. Dudley asserts. We also think monetary policy should focus on prices rather than trade. But Mr. Dudley seems to be saying the Fed should do nothing to assist the economy even if it heads into recession. Then he goes further and essentially says the Fed should join The Resistance.

“There’s even an argument that the election itself falls within the Fed’s purview,” Mr. Dudley writes. “After all, Trump’s reelection arguably presents a threat to the U.S. and global economy, to the Fed’s independence and its ability to achieve its employment and inflation objectives. If the goal of monetary policy is to achieve the best long-term economic outcome, then Fed officials should consider how their decisions will affect the political outcome in 2020.”

Wow. Talk about stripping the veil. These columns wondered if Mr. Dudley was politically motivated while he was at the Fed, favoring bond buying to finance Barack Obama ’s deficit spending, urging the Fed to intervene in markets to boost housing, and keeping interest rates low for as long as possible. And now here Mr. Dudley is confirming that he views the Fed as an agent of the Democratic Party.

A key lesson of the Trump era is that every single allegedly neutral, nonpartisan, super-professional institution has turned out to be, in fact, a bunch of partisan hacks shilling for the permanent political party. Voters can be forgiven for adopting a “burn it all down” attitude in response.

Source: Concerned American | Western Rifle Shooters Association

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The Fed’s “Magic Trick” Exposed

In 1791, the first Secretary of the Treasury of the US, Alexander Hamilton, convinced then-new president George Washington to create a central bank for the country.

Secretary of State Thomas Jefferson opposed the idea, as he felt that it would lead to speculation, financial manipulation, and corruption. He was correct, and in 1811, its charter was not renewed by Congress.

Then, the US got itself into economic trouble over the War of 1812 and needed money. In 1816, a Second Bank of the United States was created. Andrew Jackson took the same view as Mister Jefferson before him and, in 1836, succeeded in getting the bank dissolved.

Then, in 1913, the leading bankers of the US succeeded in pushing through a third central bank, the Federal Reserve. At that time, critics echoed the sentiments of Messrs. Jefferson and Jackson, but their warnings were not heeded. For over 100 years, the US has been saddled by a central bank, which has been manifestly guilty of speculation, financial manipulation, and corruption, just as predicted by Mister Jefferson.

From its inception, one of the goals of the bank was to create inflation. And, here, it’s important to emphasize the term “goals.” Inflation was not an accidental by-product of the Fed – it was a goal.

Over the last century, the Fed has often stated that inflation is both normal and necessary. And yet, historically, it has often been the case that an individual could go through his entire lifetime without inflation, without detriment to his economic life.

Yet, whenever the American people suffer as a result of inflation, the Fed is quick to advise them that, without it, the country could not function correctly.

In order to illustrate this, the Fed has even come up with its own illustration “explaining” inflation. Here it is, for your edification:

https://d24g2nq85gnwal.cloudfront.net/images/domestic-external-drivers-of-inflation.png

If the reader is of an age that he can remember the inventions of Rube Goldberg, who designed absurdly complicated machinery that accomplished little or nothing, he might see the resemblance of a Rube Goldberg design in the above illustration.

And yet, the Fed’s illustration can be regarded as effective. After spending several minutes taking in the above complex relationships, an individual would be unlikely to ask, “What did they leave out of the illustration?”

Well, what’s missing is the Fed itself.

As stated above, back in 1913, one of the goals in the creation of the Fed was to have an entity that had the power to create currency, which would mean the power to create inflation.

It’s a given that all governments tax their people. Governments are, by their very nature, parasitical entities that produce nothing but live off the production of others. And, so, it can be expected that any government will increase taxes as much and as often as it can get away with it. The problem is that, at some point, those being taxed rebel, and the government is either overthrown or the tax must be diminished. This dynamic has existed for thousands of years.

However, inflation is a bit of a magic trick. Now, remember, a magician does no magic. What he does is create an illusion, often through the employment of a distraction, which fools the audience into failing to understand what he’s really doing.

And, for a central bank, inflation is the ideal magic trick. The public do not see inflation as a tax; the magician has presented it as a normal and even necessary condition of a healthy economy.

However, what inflation (which has traditionally been defined as the increase in the amount of currency in circulation) really accomplishes is to devalue the currency through oversupply. And, of course, anyone who keeps his wealth (however large or small) in currency units loses a portion of their wealth with each devaluation.

In the 100-plus years since the creation of the Federal Reserve, the Fed has steadily inflated the US dollar. Over time, this has resulted in the dollar being devalued by over 97%.

The dollar is now virtually played out in value and is due for disposal. In order to continue to “tax” the American people through inflation, a reset is needed, with a new currency, which can then also be steadily devalued through inflation.

Once the above process is understood, it’s understandable if the individual feels that his government, along with the Fed, has been robbing him all his life. He’s right—it has.

And it’s done so without ever needing to point a gun to his head.

The magic trick has been an eminently successful one, and there’s no reason to assume that the average person will ever unmask and denounce the magician. However, the individual who understands the trick can choose to mitigate his losses. He or she can take measures to remove their wealth from any state that steadily imposes inflation upon their subjects and store it in physically possessed gold, silver and private cryptocurrency keys.

Source: ZeroHedge

 

Century of Enslavement: The History of The Federal Reserve (video)

What is the Federal Reserve system? How did it come into existence? Is it part of the federal government? How does it create money? Why is the public kept in the dark about these important matters? In this feature-length documentary film, The Corbett Report explores these important question and pulls back the curtain on America’s central bank.