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Monday, August 5, 2013

The Far Reaching Tentacles of the Fed

We talk a lot about the Fed at A&G..

Goodness knows we've written a ton about them, putting them in a justifiably negative light..

The one thing we really haven't been able to do is really summarize in a concise, all-encapsulating way what the Fed does and why they're so dangerous and destructive..

Its really yeomen's work to attempt but we're going to as easy to understand as possible without emotion or extra hyperbole so the reader finishes this post truly understanding the last 5 years...
Let's begin...

In Sept. 2008, Lehman Bros was allowed the collapse rather than the government propping it up, and it for the most part scared the bleep out of investors,etc who pulled out their money in a panic.

To try to stabilize the market, then Treasury Sec under Bush, Hank Paulsen asked Congress for $700 billion to go to the banks with no checks or balances as to who got what or whether they really needed it..

The goal was to hide the insolvent banks (bad) from the American public so everyone got money with no expectation to pay it back whether it was needed or not.
It took two attempts by Congress and a lot of behind the scenes arm twisting, fear mongering and an intentional 1700 pt drop in the Dow in 3 days for the evil bankers to win.

Congress realizing how hot potato this whole situation had become and not seeking a repeat, basically voted away their responsibility to handle this crisis to the Federal Reserve in a closed door vote on December 31, 2008.

They also voted themselves a 2.8% raise on that day...

So now the Fed was in charge..   And what did they do?
First was they expanded their loan program to not only include banks in the US but foreign banks and privately run corporations to the tune of billions upon billions of dollars.  

Around the end of 2008, the Fed lent out $855 billion... this was on top of the $700 billion TARP program that Congress approved.

The Top 5 borrowers being foreign banks-- Credit Suisse, Deutsche Bank, BNP Paribas, RBS and Barclays. Together these five accounted for $593 billion of total borrowings, or 70% of the total.

This is still occurring...
In 2011 alone, essentially 100% of New York Federal Reserve Bank loans went to foreign banks.  Canada’s TD Bank, Germany’s Deutsche Bank and Switzerland’s UBS each have more than $12bn at the Fed.

This is a good segue way point before we talk about Quantitative Easing..

Why is the Fed holding onto money it lent out?  And whose money is the Fed lending?

We'll answer the latter first--  our money.  Every dollar created by the Fed is new debt which ultimately is to be repaid by the government i.e. taxpayer via higher taxes, weakening of pensions and cutbacks in social services.
So if you care about how much the Pentagon spends on a wrench or hat the Federal Govt spends on so-called 'entitlements', you should care what the Fed spends-- they're worse..

Now, onto the original question...  

The Fed wants banks to have money to recapitalize but doesn't want this money lent out into the populace i.e. mortgages and personal loans, so the Fed acts like a bank for the banks and provides interest on these 'loans' for the banks not to lend out into the general public and weaken the dollar

And by paying banks around the same rate of interest to hold the money it was lending out, the banks essentially pay zero to borrow vast amounts then use those funds to lend to other banks or invest in the stock market.
And here the Fed is heavily involved as well..

Staring in March 2009 and continuing into the present the Fed has been involved in Quantitative Easing..  Its really a blanket term; a mumbo jumbo word.

In simple terms, the Fed is buying up everyone's bad, toxic debt and storing it while overpaying intentionally to hold onto the crap...

In the case of banks, its spending billions to buy up mortgage backed securities that are on banks and corporations' balance sheers.
In the case of the Federal Government, the Fed is the only game in town buying up US Treasuries (bonds) which is a glorified way of saying we can never ever default on our debts because the Fed owns more of it than China, Japan or any other boogeyman foreign power.

That's how this nation can continue running huge debts and annual deficits without a care in the world while wasting all the money it does on wars and other endeavors.

As long as an indebted nation can find buyers on its debt, it can keep running its nation's finances to the ground.
Usually to attract investors, nations have to raise its interest payment to such extremes that ultimately it can't pay its original debts without massive international bank loans which in turn take away their infrastructure and force them to go bankrupt  i.e. pretty much every African nation at one time or another

In America, the Fed gobbles up the Treasuries which are still kept artificially low which allows us to make repayment without having to raise rates to entice new investors..

We hope you're really understanding what's going on and getting a concise picture here...
This nation is allowed to exist via deeply fraudulent accounting and we get away with it because we are a super power and we basically bailed out the rest of the Western world so they don't have two legs to stand on in questioning us publicly..

Even China our supposed enemy needs the US economy to thrive for it to thrive since we buy more stuff from them than any other market..  Its in no one's interest to say the 'Emperor' is clothes-less...

And all those Trillions pissed away so the banks, corporations and Wall Street can survive and profit.. All Americans will have to repay that money and it will take literally decades upon decades of decreased standard of living to do so..

Except us.. We have no agenda and we're not profiting either way..

We're just patiently waiting for a Much needed 'regime change' called a national election and hope & pray one of the two parties can nominate someone who justifiably despises the Fed and actually Knows what they're doing to fix Main Street USA