Tag Archives: Federal Reserve

Fine Financial Institutions for Political Discrimination, by Dr. Joseph Sansone

The major financial institutions are not private in any sense, they are creatures of government. As such, they must be subject to the same restrictions on political discrimination that the government is. From Dr. Joseph Sansone at josephsansone.substack.com:

First published in 1994, a perennial best seller, The Creature From Jekyll Island has changed the course of history. At first, only relevant among a small cadre on the political right in the 1990s and early 2000s, the ideas and information of this book have rippled out to the mainstream. This is largely due to Ron Paul’s 2008 and 2012 presidential campaigns. In these campaigns Dr. Paul broke a political taboo and spoke about monetary policy and the fraudulent system of The Federal Reserve. Most people never heard of the inflation tax before Paul’s presidential campaigns. (Note: Paul advocated for sound money since the early 70s)

This resulted in a gradual political censorship of Dr. Paul’s campaign and although he had a tremendous impact on thought in the Republican Party, his campaign was marginalized and cancelled to a great degree. This was done by an orchestrated media censorship, deliberate marginalization in allotted time in debates, and eventually exclusion from debates, and shadow banning on search engines. These tactics were used to cancel Patrick Buchanan’s 2000 presidential campaign to an even greater degree, because he left the GOP and ran as the Reform Party candidate. The cancellation was so bad that by the time the election came about most people didn’t know he was still in the campaign.

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Why the Fed Is Bankrupt and Why That Means More Inflation, by Ryan McMaken

How can an institution that manufacturers money go bankrupt? From Ryan McMaken at mises.org:

In 2011, the Federal Reserve invented new accounting methods for itself so that it could never legally go bankrupt. As explained by Robert Murphy, the Federal Reserve redefined its losses so as to ensure its balance sheet never shows insolvency. As Bank of America’s Priya Misra put it at the time:

As a result, any future losses the Fed may incur will now show up as a negative liability (negative interest due to Treasury) as opposed to a reduction in Fed capital, thereby making a negative capital situation technically impossible.

That was twelve years ago, and it was all academic at the time. But in 2023, the Fed really is insolvent, although its fake post-2011 account doesn’t show this. Nevertheless, the reality is that the Fed’s assets are losing value at the same time that the Fed is paying out more in interest than it is making in interest income.

This became clear last week, when the Fed released a new report showing that its interest payments on bank reserves skyrocketed in 2022. The press release states:

Total interest expense of $102.4 billion increased $96.6 billion from 2021 total interest expense of $5.7 billion; of the increase in interest expense, $55.1 billion pertained to interest expense on Reserve Balances held by depository institutions and $41.5 billion related to interest on securities sold under agreements to repurchase.

As this graphic from the Fed shows, the cost of operations also exceeded earnings in 2022 because remittances have fallen from 2021:

remittances

For the year overall, the Fed still managed to achieve a positive net income, thanks to positive inflows in the first half of the year. But since September, as Reuters notes, the Fed began recording what’s called a deferred asset, which tallies up the Fed’s loss; the deferred asset stood at $18.8 billion at the end of the year.

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The Fed Is a Purely Political Institution, and It’s Definitely Not a Bank. By Ryan McMaken

The Fed is political and is not a bank. It is also the banking cartel’s agent and protector in Washington. From Ryan McMaken at mises.org:

Those who know Wall Street lore sometimes recall that Fed chairman William Miller—Paul Volcker’s immediate predecessor—joked that most Americans believed the Federal Reserve was either an Indian reservation, a wildlife preserve, or a brand of whiskey. The Fed, of course, is none of those things, but there’s also one other thing the Federal Reserve is not: an actual bank. It is simply a government agency that does bank-like things.

It’s easy to see why many people might think it is a bank. “Bank” is right there in the name of the twelve regional banks that make up the system: for example, the Federal Reserve Bank of Kansas City. The Fed also enjoys many titles that make it sound like a bank. It’s sometimes called the “lender of last resort.” Or it is sometimes called “a banker’s bank.” Moreover, many people often call the Fed “the central bank.” That phrase is useful enough, but not quite true.

Moreover, even critics of the bank often repeat the myth that the Federal Reserve is “a private bank,” as if that were the main problem with the Federal Reserve. And then there are the economists who like to spread fairy tales about how the Fed is “independent” from the political system and makes decisions based primarily on economic theory as interpreted by wise economists.

The de facto reality of the Federal Reserve is that it is a government agency, run by government technocrats, that enjoys the benefits of being subject to very little oversight from Congress. It is no more “private” than the Environmental Protection Agency, and it is no more a “bank” than the US Department of the Treasury.

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U.S. Double-Speak Will Not Stop Gold’s Imminent Surge, by Egon von Greyerz

You can’t fool all the markets all of the time. From Egon von Greyerz at goldswitzerland.com:

Propaganda, lies and censorship are all part of desperate governments actions as the economy disintegrates.

We are today seeing both news and history being rewritten to suit the woke trends that permeate society at every level, be it covid, the number of genders, the Ukraine war or government finances.

I have in many articles covered the explosion of money printing and debt which is an obvious sign that the global financial system is approaching collapse and default . The consequences will be  far reaching to every corner of the globe and all parts of society.

See my recent article “In The End The Dollar Goes To  Zero And The US Defaults” which outlines the probable course of events in 2023 and afterwards.

Later on in this article, I will look at the consequences in relation to markets and what ordinary people (investors?) can do to prepare themselves.

ORWELL PREDICTED THE FALSIFICATION OF HISTORY 73 YEARS AGO

Every record has been destroyed or falsified, every book rewritten, every picture has been repainted, every statue and street building has been renamed, every date has been altered. And the process is continuing day by day and minute by minute. History has stopped. Nothing exists except an endless present in which the Party is always right.George Orwell, 1984

Let’s just look at government finances. As we are entering the end of an era with deficits and debts running out of control, the truth becomes an inconvenience to governments and must therefore be suppressed or rewritten.

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Digital Currency: The Fed Moves toward Monetary Totalitarianism, by André Marques

Like the Covid response, digital currencies have nothing to do with their ostensibly cited justifications and everything to do with power and totalitarian control. From André Marques at mises.org:

The Federal Reserve is sowing the seeds for its central bank digital currency (CBDC). It may seem that the purpose of a CBDC is to facilitate transactions and enhance economic activity, but CBDCs are mainly about more government control over individuals. If a CBDC were implemented, the central bank would have access to all transactions in addition to being capable of freezing accounts.

It may seem dystopian—something that only totalitarian governments would do—but there have been recent cases of asset freezing in Canada and Brazil. Moreover, a CBDC would give the government the power to determine how much a person can spend, establish expiration dates for deposits, and even penalize people who saved money.

The war on cash is also a reason why governments want to implement CBDCs. The end of cash would mean less privacy for individuals and would allow central banks to maintain a monetary policy of negative interest rates with greater ease (since individuals would be unable to withdraw money commercial banks to avoid losses).

Once the CBDC arrives, instead of a deposit being a commercial bank’s liability, a deposit would be the central bank’s liability.

In 2020, China launched a digital yuan pilot program. As mentioned by Seeking Alpha, China wants to implement a CBDC because “this would give [the government] a remarkable amount of information about what consumers are spending their money on.”

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Major Economic Contraction Coming In 2023 – Followed By Even More Inflation, by Brandon Smith

We are looking at a very hard landing in 2023. From Brandon Smith at alt-market.us:

 

This article was written by Brandon Smith and originally published at Birch Gold Group

The signs are already present and obvious, but the overall economic picture probably won’t be acknowledged in the mainstream until the situation becomes much worse (as if it’s not bad enough). It’s a problem that arises at the onset of every historic financial crisis – Mainstream economists and commentators lie to the public about the chances of recovery, constantly giving false reassurances and lulling people back to sleep. Even now with price inflation pummeling the average consumer they tell us that there is nothing to worry about. The Federal Reserve’s “soft landing” is on the way.

I remember in 2007 right before the epic derivatives collapse when media pundits were applauding the US housing market and predicting even greater highs in sales and in valuations. I had only been writing economic analysis for about a year, but I remember thinking that the overt display of optimism felt like compensation for something. It seemed as if they were trying to pull the wool over the eyes of the public in the hopes that if people just believed hard enough that all was well then the fantasy could be manifested into reality. Unfortunately, that’s not how economics works.

Supply and demand, debt and deficit, money velocity and inflation; these things cannot be ignored. If the system is out of balance, collapse will set its ugly foot down somewhere and there’s nothing anyone including central banks can do about it. In fact, there are times when they deliberately ENGINEER collapse.

This is the situation we are currently in today as 2022 comes to a close. The Fed is in the midst of a rather aggressive rate hike program in a “fight” against the stagflationary crisis that they created through years of fiat stimulus measures. The problem is that the higher interest rates are not bringing prices down, nor are they really slowing stock market speculation. Easy money has been too entrenched for far too long, which means a hard landing is the most likely scenario.

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Operation Break Stuff, by MN Gordon

Is the Federal Reserve going to keep raising interest rates until something—the bond or stock market, bank runs, currency crises—breaks? From MN Gordon at economicprism.com:

Stagflation, sinking labor productivity, severe levels of public and private debt, a splintered real estate market…  You name it.  The economy’s crashing and burning like an old Cutlass Supreme.

There’s nothing the central planners can do to fix it.  No plans or schemes will get the tired jalopy to fire on all cylinders.  A blown head gasket is replaced and the very next day the spark plugs are fried.  Replace those and a piston ring blows.

At some point, it’s beyond salvage.  The only sensible choice left is to scrap the old buggy at the junk yard.

Similarly, scrapping the central planners that are responsible for this economic mess is the right thing to do.  They’ve created a very disagreeable situation.  One that will take several generations – or more – to reconcile.

In this vein, the time has come to purge the rot.  To reckon the mistakes of the past.  To burn off the many distortions that have piled up like dead forest wood.  We’ll have more on this in just a moment.  But first some context is in order.

The past 40 years have been an era of heavy handed central economic planning by way of interventionist monetary policies.  The past 14 years, ever since Ben Shalom Bernanke let the QE genie out of the bottle, has taken this intervention to the extreme.

From the death of Lehman, and through the Great Recession, repo madness, and the coronavirus panic, the Federal Reserve’s created upwards of $8 trillion in credit out of thin air.  The economy and financial markets have come to depend on it.

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Markets Are Expecting The Federal Reserve To Save Them – It’s Not Going To Happen, by Brandon Smith

It’s said that bull markets climb a wall of worry. Robert Prechter has observed that bear markets descend a slope of hope. Hopes for the Federal Reserve to save the current shaky market are liable to be misplaced. From Brandon Smith at alt-market.com:

This article was written by Brandon Smith and originally published at Birch Gold Group

I have said it many times in the past but I’ll say it here again: Stock markets are a trailing indicator of economic health, not a leading indicator. Rising stock prices are not a signal of future economic stability and when stocks fall it’s usually after years of declines in other sectors of the financial system. Collapsing stocks are not the “cause” of an economic crisis, they are just a delayed symptom of a crisis that was always there.

Anyone who started investing after the crash of 2008 probably has zero concept of how markets are supposed to behave and what they represent to the rest of the economy. They have never seen stocks move freely without central bank interference and they have only witnessed brief glimpses of true price discovery.

With each new leg down in markets one can now predict every couple of months or so with relative certainty that investor sentiment will turn to assumptions that the Federal Reserve is going to leap in with new stimulus measures. This is not supposed to be normal, but they can’t really help it, they were trained over the past 14 years to expect QE like clockwork whenever markets took a dip of 10% or more. The problem is that conditions have changed dramatically in terms of credit conditions and price environment and it was all those trillions of QE dollars that ultimately created this mess.

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The Disease Or Cure? Take Your Pick! by Dennis Miller

Most of the economic problems the U.S. faces can be traced back to the Federal Reserve. From Dennis Miller at theburningplatform.com:

Since I began my cancer treatment in 2019, my outside travel has been curtailed. Doctors, restaurants, and an occasional trip to visit family have been about it.

The good news is now I have more energy and feel like getting out and doing fun stuff. I recently made a trip to our local Factory Outlet Mall. I used to enjoy window shopping and eating in the food court. I was shocked, and unhappy with what I found.

The mall used to be full of cool stores, bustling with traffic. The photo is disheartening. I’d guess 40% of the stores are vacant. Stores closing, people losing jobs, landlords hurting, mortgage and bonds defaults are happening for the wrong reasons. It’s upsetting, but I realize there is not a damn thing we can do about it. We are on our own….

The Disease

Former congressman Ron Paul believes the cause of our economic problems is central banking:

“It is amazing that more individuals do not question the idea that inflation, recessions, unemployment, and booms and busts are necessary features of a sound monetary system. Even many otherwise staunch defenders of free markets maintain a child-like faith in central banking. …. These conservatives do not understand that the problem is the existence of a central bank with the power to manipulate the currency.”

Irresponsible politicians, coupled with central banking, is a cauldron for the economic problems we face today.

Academics believe in Keynesian economics. Keynes believed government spending should help thwart a bad economy and get it turned around. He also felt during good times, government revenue should exceed expenses and the surplus should be used to pay down debt.

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Debt… And Why The Fed Is Trapped, by Lance Roberts

The Fed is walking a tightrope between hyperinflation and a Greater Depression. From Lance Roberts at The Epoch Times via zerohedge.com:

The massive debt levels provide the single most significant risk and challenge to the Federal Reserve. It is also why the Fed is desperate to return inflation to low levels, even if it means weaker economic growth. Such was a point previously made by Jerome Powell:

“We need to act now, forthrightly, strongly as we have been doing. It is very important that inflation expectations remain anchored. What we hope to achieve is a period of growth below trend.”

That last sentence is the most important.

There are some important financial implications to below-trend economic growth. As we discussed in “The Coming Reversion to the Mean of Economic Growth“:

“After the financial crisis [of 2008–09], the media buzzword became the ‘new normal’ for what the post-crisis economy would be like. It was a period of slower economic growth, weaker wages, and a decade of monetary interventions to keep the economy from slipping back into a recession.

“Post the ‘COVID crisis,’ we will begin to discuss the ‘new new normal’ of continued stagnant wage growth, a weaker economy, and an ever-widening wealth gap. Social unrest is a direct byproduct of this ‘new new normal,’ as injustices between the rich and poor become increasingly evident.

“If we are correct in assuming that PCE [Personal Consumption Expenditures price index] will revert to the mean as stimulus fades from the economy, then the ‘new new normal’ of economic growth will be a new lower trend that fails to create widespread prosperity.”

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