Tag Archives: Federal Reserve

Are Subprime Debt Slaves, a Leading Indicator, Worrying the Fed? by Wolf Richter

The skankier borrowers are running into trouble, and that may portend trouble for the overall economy. From Wolf Richter at wolfstreet.com:

Credit problems always appear first at the margins.

The new Fed remains a somewhat unknown quantity: There are still four vacancies on the Fed’s seven-member Board of Governors that forms the core of the policy-making FOMC. The new Chairman, Jerome Powell, has already shown in his testimony before Congress last week that he may use a little more straight talk than his predecessors, and the markets took notice.

No one knows for sure what this new Fed will look like once the four vacancies are filled. But this new Fed will likely try to push interest rates back to a somewhat more normal level and lighten their balance sheet so that they have some options when the business cycle trips over balled-up credit problems.

With consumers, the credit problems appear first among the most fragile, most at risk, and most strung-out – borrowers with subprime credit ratings, and with lenders that went after these consumers aggressively. And this is happening now.

Small banks pushed with all their might into credit cards, loosening credit standards, lowering credit score requirements, raising credit limits, and offering new cards to people who had already maxed out their existing cards and had limited or no ability to service them from their income, and no way of paying them off – and thus are stuck with usurious interest rates that make these credit card balances impossible to service.

For small banks it was the Holy Grail: to profit from the American debt slave.

There are about 4,888 commercial banks in the US. There are the top 100 banks, and there are the 4,788 smaller banks – those with less than $14 billion in assets. These smaller banks have seen this irresistibly sweet deal. Banks were paying next to nothing in interest to their depositors, but they could charge 25% or 30% interest on outstanding credit card balances. The interest-rate spread between these two products was just too juicy, in this otherwise low-interest rate environment.

To continue reading: Are Subprime Debt Slaves, a Leading Indicator, Worrying the Fed?

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The Last Fed Chairman? by Ron Paul

In response to the title question: we can only hope. From Ron Paul at ronpaulinstitute.org:

Last week the Senate confirmed Jerome Powell as Federal Reserve Chairman by a vote of 84-13. This is in contrast to the contentious debates and closer votes over Janet Yellen’s confirmation in 2014 and Ben Bernanke’s confirmation for a second term in 2010. Powell benefited from a perception that the economy’s recovery from the 2007-08 meltdown proves that the Fed is a capable manager of monetary policy. However, the perceptions of economic recovery and Federal Reserve competence are both far from the truth.

The economy may seem to have recovered, but the recovery is not built on a firm foundation. Instead it rests on Fed-created bubbles in areas such as automobile sales, credit cards debt, student loan debt, stocks, and even a new housing bubble.

The most dangerous bubble is the government debt bubble. The Fed facilitates deficit spending by monetizing the federal debt. The desire to enable Congress’ spending addiction is a major reason why the Fed cannot significantly raise interest rates, as increasing rates could increase federal debt payments to unsustainable levels. This may be one reason why President Trump has reversed course and endorsed low interest rates. Of course, all first-term presidents want low interest rates since they believe the low rates boost the economy and thus help them win reelection.

One of the issues Powell will face is increasing challenges to the dollar’s world reserve currency status. China is pressuring Saudi Arabia to price oil in Chinese yuan instead of in American dollars. China and other countries may take other steps, such as halting purchases of Treasury bonds, that could weaken the dollar. The threats to the dollar’s world reserve currency status will increase as concerns about US government and private sector debt, as well as resentment over US militarism and protectionism, grow.

The dollar still maintains its reserve currency status not because the dollar is strong, but because other countries’ currencies are weak. However, unless the US gets its economic house in order, that may not long be the case.

To continue reading: The Last Fed Chairman?

Party While You Can – Central Bank Ready To Pop The ‘Everything’ Bubble, by Brandon Smith

A new chairperson of the Federal Reserve sets the state for a thunderous financial market crash. From Brandon Smith at alt-market.com:

Many people do not realize that America is not only entering a new year, but within the next month we will also be entering a new economic era. In early February, Janet Yellen is set to leave the Federal Reserve and be replaced by the new Fed chair nominee, Jerome Powell. Now, to be clear, the Fed chair along with the bank governors do not set central bank policy. Policy for most central banks around the world is dictated in Switzerland by the Bank for International Settlements. Fed chairmen like Janet Yellen are mere mascots implementing policy initiatives as ordered.  This is why we are now seeing supposedly separate central banking institutions around the world acting in unison, first with stimulus, then with fiscal tightening.

However, it is important to note that each new Fed chair does tend to signal a new shift in action for the central bank. For example, Alan Greenspan oversaw the low interest rate easy money phase of the Fed, which created the conditions for the derivatives and credit bubble and subsequent crash in 2008. Ben Bernanke oversaw the stimulus and bailout phase, flooding the markets with massive amounts of fiat and engineering an even larger bubble in stocks, bonds and just about every other asset except perhaps some select commodities. Janet Yellen managed the tapering phase, in which stimulus has been carefully and systematically diminished while still maintaining delusional stock market euphoria.

Now comes the era of Jerome Powell, who will oversee the last stages of fiscal tightening, the reduction of the Fed balance sheet, faster rate increases and the final implosion of the ‘everything’ bubble.

As I warned before Trump won the election in 2016, a Trump presidency would inevitably be followed by economic crisis, and this would be facilitated by the Federal Reserve pulling the plug on fiat life support measures which kept the illusion of recovery going for the past several years. It is important to note that the mainstream media is consistently referring to Jerome Powell as “Trump’s candidate” for the Fed, or “Trump’s pick” (as if the president really has much of a choice in the roster of candidates for the Fed chair). The public is being subtly conditioned to view Powell as if he is an extension of the Trump administration.

 

To continue reading: Party While You Can – Central Bank Ready To Pop The ‘Everything’ Bubble

Fed Pays Banks $30 Billion on “Excess Reserves” for 2017, by Wolf Richter

This should disabuse any remaining innocents of the quaint notion that the Federal Reserve isn’t a tool of the banks. From Wolf Richter at wolfstreet.com:

At taxpayer expense: easiest, risk-free, sit-on-your-ass profit ever.

The Federal Reserve’s income from operations in 2017 dropped by $11.7 billion to $80.7 billion, the Fed announcedtoday. Its $4.45-trillion of assets – including $2.45 trillion of US Treasury securities and $1.76 trillion of mortgage-backed securities that it acquired during years of QE – produce a lot of interest income.

How much interest income? $113.6 billion.

It also made $1.9 billion in foreign currency gains, resulting “from the daily revaluation of foreign currency denominated investments at current exchange rates.”

For a total income of about $115.5 billion.

Those are just “estimates,” the Fed said. Final “audited” results of the Federal Reserve Banks are due in March. This “audit” is of course the annual financial audit executed by KPMG that the Fed hires to do this. It’s not the kind of audit that some members in Congress have been clamoring for – an audit that would try to find out what actually is going on at the Fed. No, this is just a financial audit.

As the Fed points out in its 2016 audited “Combined Financial Statements,” the audit attempts to make sure that the accounting is in conformity with the accounting principles in the Financial Accounting Manual for Federal Reserve Banks.Given that the Fed prints its own money to invest or manipulate markets with – which makes for some crazy accounting issues – the Generally Accepted Accounting Principles (GAAP) that apply to US businesses to do not apply to the Fed.

This annual audit by KPMG reveals nothing except that the Fed’s accounting is in conformity with the Fed’s own accounting manual.

Here is what the banks Get:

The Fed pays the banks interest on their “Required Reserves” and on their “Excess Reserves” at the Fed. Excess Reserves are the biggie: As a result of QE, they jumped from $1.7 billion in July 2008, to $2.7 trillion at the peak in September 2014. They’ve since dwindled, if that’s the right word, to $2.2 trillion:

To continue reading: Fed Pays Banks $30 Billion on “Excess Reserves” for 2017

Dangers of Government Control, by Walter E. Williams

Why does the Federal Reserve have so much control over the monetary system and the FCC over the internet? From Walter E. Williams at lewrockwell.com:

We are a nation of 325 million people. We have a bit of control over the behavior of our 535 elected representatives in Congress, the president and the vice president. But there are seven unelected people who have life-and-death control over our economy and hence our lives — the seven governors of the Federal Reserve Board. The Federal Reserve Board controls our money supply. Its governors are appointed by the president and confirmed by the Senate and serve 14-year staggered terms. They have the power to cripple an economy, as they did during the late 1920s and early 1930s. Their inept monetary policy threw the economy into the Great Depression, during which real output in the United States fell nearly 30 percent and the unemployment rate soared as high as nearly 25 percent.

The most often stated cause of the Great Depression is the October 1929 stock market crash. Little is further from the truth. The Great Depression was caused by a massive government failure led by the Federal Reserve’s rapid 25 percent contraction of the money supply. The next government failure was the Smoot-Hawley Tariff Act, which increased U.S. tariffs by more than 50 percent. Those failures were compounded by President Franklin D. Roosevelt’s New Deal legislation. Leftists love to praise New Deal interventionist legislation. But FDR’s very own treasury secretary, Henry Morgenthau, saw the folly of the New Deal, writing: “We have tried spending money. We are spending more than we have ever spent before and it does not work. … We have never made good on our promises. … I say after eight years of this Administration we have just as much unemployment as when we started … and an enormous debt to boot!” The bottom line is that the Federal Reserve Board, the Smoot-Hawley tariffs and Roosevelt’s New Deal policies turned what would have been a two, three- or four-year sharp downturn into a 16-year affair.

Here’s my question never asked about the Federal Reserve Act of 1913: How much sense does it make for us to give seven unelected people life-and-death control over our economy and hence our lives?

To continue reading: Dangers of Government Control

Stabbing With Their Steely Knives, They Just Can’t Kill the Beast, by Doug “Uncola” Lynn

Saving the best for last. From the always interesting Doug “Uncola” Lynn at theburningplatform.com:

 You were blameless in your ways from the day you were created till wickedness was found in you. Through your widespread trade you were filled with violence, and you sinned. So I drove you in disgrace from the mount of God, and I expelled you, guardian cherub, from among the fiery stones. Your heart became proud on account of your beauty, and you corrupted your wisdom because of your splendor…

– Ezekiel 28: 15-17

In horror stories originating from the times of the first songs there have always been common enemies.  Creatures of sinister intelligence, blind violence, disingenuity, clever crafters of schemes, or often containing the capacity for all of these; lurking in the dark, or hidden in plain sight, but always waiting and watching.  Little Red Riding Hood and the Three Little Pigs suffered through the antics of wily wolves. Rapunzel and Hansel and Gretel agonized before the wicked wills of warted witches; and with Jack of Beanstalk fame it was jeering giants who longed to grind his bones for bread, alive or dead.  Star Wars had Darth Vader and the Lords of the Sith, whereas it was the evil eye of Sauron that ruled over J.R.R Tolkien’s shadowy land of Mordor.  And for most of the world’s religions today it remains Lucifer, the morning star, who fell from heaven by the weight of a prideful heart and now reigns as the Prince and Power of the Air; tempting, taunting, and tantalizing, all of mankind.

In every story, there are heroes and villains introduced and funneled into the friction of rising action that results in a climax followed by the falling action which precedes any resolution.  Also known as the Five Elements of a Plot, these components are the sine qua non of universal story telling across any genre or medium.

To continue reading: Stabbing With Their Steely Knives, They Just Can’t Kill the Beast

Trump’s Fed Picks? More of the Same! by Ron Paul

It’s not clear if Ron Paul thinks the right personnel, policies, and an audit will cure an institution that rests on an illogical foundation, is inherently corrupt (if you or I counterfeit money, we get thrown in jail), and is the apex of a bankers’ cartel. Paul is not happy with Trump’s candidates for the next Fed head. From Paul at ronpaulinstitute.org:

This week President Trump revealed his final five candidates for Federal Reserve chair. Disappointingly, but not surprisingly, all five have strong ties to the financial and political establishment. The leading candidates are former Federal Reserve governor and Morgan Stanley banker Kevin Warsh and current Fed governor, former investment banker, Carlyle Group partner, and George H.W. Bush administration official Jerome Powell. Gary Cohn, current director of the president’s National Economic Council and former president of Goldman Sachs, is also on Trump’s list.

Trump is also considering reappointing Janet Yellen, even though when he was running for president he repeatedly criticized her for pursuing policies harmful to the middle class. Of course candidate Trump also promised to support Audit the Fed and even voiced support for returning to the gold standard. But, he has not even uttered the words “Audit the Fed,” or talked about any changes to monetary policy, since the election.

Instead, President Trump, in complete contradiction to candidate Trump, has praised Yellen for being a “low-interest-rate-person.” One reason Trump may have changed his position is that, like most first-term presidents, he thinks low interest rates will help him win reelection. Trump may also realize that his welfare and warfare spending plans require an accommodative Fed to monetize the federal debt. The truth is President Trump’s embrace of status quo monetary policy could prove fatal to both his presidency and the American economy.

The failure of the Fed’s post-2008 policies of unprecedented money creation and record-low interest rates shows our experiment with fiat money is nearing its inevitable end. All of Trump’s potential picks are likely to continue the Fed’s current policies. Even the ones who say they favor higher rates will likely bow to the wishes of their friends in the financial and political establishment and make sure any rate hikes are minuscule. Appointing a Fed chair who will continue, or only make marginal changes to, these failed policies will hasten the collapse while making the resulting depression more painful.

To continue reading: Trump’s Fed Picks? More of the Same!