Tag Archives: Federal Reserve

Choose One, But Only One: Defend the Billionaire’s Bubble or the U.S. Dollar and Empire, by Charles Hugh Smith

The dollar and empire come first. From Charles Hugh Smith at oftwominds.com:

The Empire is striking back, protecting what really counts, and the Billionaire Bubble sideshow is folding its tents.

One of the most enduring conceits of the modern era is that the Federal Reserve acts to goose growth and therefore employment while keeping inflation moderate (whatever that means–the definition is adjustable). This conceit is extremely handy as PR cover: the Fed really, really cares about little old us and expanding our ballooning wealth.

Nice, except it doesn’t. The Fed’s one real job is defending the U.S. dollar, which is the foundation of America’s global hegemony a.k.a. The Empire.

One thing and one thing alone enables global dominance: being able to create “money” out of thin air and use that “money” to buy real stuff in the real world. The nations that can create “money” out of thin air and trade it for magnesium, oil, semiconductors, etc. have an unbeatable advantage over nations that must actually mine gold or make something of equal value to trade for essentials.

The trick is to maintain global confidence in one’s currency. There is no one way to manage this, as confidence in a herd animal such as human beings is always contingent. Once the herd gets skittish, all bets are off.

The herd is exquisitely sensitive to movements on the edge of the herd, where threats arise. There are various tricks one can deploy to maintain confidence: pay a higher rate of interest on bonds denominated in one’s currency, so global capital flows into your currency; treat this capital well with a transparent set of tax laws and judiciary / regulatory oversight, maintain a deep pool of liquidity so capital can enter and exit without stampeding the herd, and having at least a semi-productive, diverse economy that generates goods, services and income streams to support the currency.

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The Federal Reserve Keeps Buying Mortgages, by Alex J. Polluck

Why is the Federal Reserve in the mortgage market at all? From Alex J. Polluck at mises.org:

Runaway house price inflation continues to characterize the U.S. market. House prices across the country rose 15.8% on average in October 2021 from the year before. U.S. house prices are far over their 2006 Bubble peak, and remain over the Bubble peak even after adjustment for consumer price inflation. They will keep on rising at the annual rate of 14–16% for the rest of 2021, according to the AEI Housing Center.

Unbelievably, in this situation the Federal Reserve keeps on buying mortgages. It buys a lot of them and continues to be the price-setting marginal buyer or Big Bid in the mortgage market, expanding its mortgage portfolio with one hand, and printing money with the other. It should have stopped before now, but the purchases, financed by newly created fiat money, or monetization, go on. They proceed at the rate of tens of billions of dollars a month, stoking the house price inflation, making it harder and harder for new families to afford a house. A recent Wall Street Journal opinion piece was entitled “How the Fed Rigs the Bond Market”—it rigs the mortgage market, too.

The balance sheet of the Federal Reserve has grown to a size that would have amazed previous generations of Federal Reserve governors and economists. Although we have become somewhat accustomed to it, so fast do perceptions adjust, it would also have surprised readers of Housing Finance International of five years ago, and readers of 15 years ago would probably have judged the current reality simply impossible. Over time, we keep discovering how feeble are our judgments of what is possible or impossible.

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The Terrifying Lessons of COVID-19, by Andrew P. Napolitano

The most terrifying lesson is that most Americans are sheep. From Andrew P. Napolitano at lewrockwell.com:

During the past 18 months, the relationship of the American people to the government has changed radically, as the Constitution’s failure to restrain the federal and state governments and to protect personal liberty has become manifest.

We know that for the past 100 years the growth of the federal government has been exponential. And we know that while formally the Constitution still exists, functionally it has failed miserably, as the deterioration of personal liberty since the spring of 2020 has been as grave as the losses of freedom in the past 100 years.

I am using 100 years as a benchmark because it marks the completion of the takeover of the federal government by the Theodore Roosevelt Republicans and the Woodrow Wilson Democrats who collectively comprised the Progressive movement. This movement brought us in a short 15 years the useless World War I, the destructive popular election of senators, the corrupt Federal Reserve, the theft of property called the income tax and the unconstitutional administrative state.

The war killed millions for naught. The popular election of senators undermined state sovereignty. The Federal Reserve destroyed economic freedom. The federal income tax legalized theft. And the administrative state created an unconstitutional fourth branch of government “experts” answerable to no one.

Yet the iron fist of totalitarian government visited upon the American people in the name of COVID-19 has struck at the heart of the Constitution and landed heavy blows on average Americans in far more acute and direct ways.

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Will Fed Crash Global Financial Markets for Their Great Reset? By F. William Engdahl

With or without the Fed global financial markets are headed for a crash. From F. William Engdahl at williamengdahl.com:

t’s looking increasingly likely that the US Federal Reserve and the globalist powers that be will use the dramatic rising of inflation as their excuse to bring down the US financial markets and with it, crash the greatest financial bubble in history. The enormous inflation rise since the malicious political lockdowns and the trillions of dollars in emergency spending by both Trump and Biden, coupled with the continuation of the Fed’s unprecedented near-zero interest rate policies and asset purchases of billions in bonds to keep the bubble inflated a bit longer– have set the stage for an imminent market collapse. Unlike what we are told, it is deliberate and managed .

Supply chain disruptions from Asia to normal truck transport across North America are feeding the worst inflation in four decades in the USA. The stage is set for the central banks to bring down the debt-bloated system and prepare their Great Reset of the world financial system. However this is not an issue of inflation as some mysterious or “temporary” process.

The context is key. The decision to crash the financial system is being prepared amid the far-reaching global pandemic measures that have devastated the world economy since early 2020. It is coming as the NATO powers, led by the Biden Administration, are tipping the world into a potential World War by miscalculation. They are pouring arms and advisers into Ukraine provoking a response by Russia. They are escalating pressures on China over Taiwan, and waging proxy wars against China in Ethiopia and Horn of Africa and countless other locations.

The looming collapse of the dollar system, which will bring down most of the world with it owing to debt ties, will come as the major industrial nations go fully into economic self-destruction via their so-called Green New Deal in the EU, and USA and beyond. The ludicrous Zero Carbon policies to phase out coal, oil, gas and even nuclear have already brought the EU electric grid to the brink of major power blackouts this winter as dependency on unreliable wind and solar make up a major part of the grid. On December 31, the “green” new German government oversees the forced closing of three nuclear power plants that generate the electricity equivalent of the entire country of Denmark. Wind and solar can in no way fill the gaps. In the USA Biden’s misnamed Build Back Better policies have driven fuel coats to record highs. To raise interest rates in this conjuncture will devastate the entire world, which seems to be precisely the plan.

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Powell & Brainard Suddenly Make Inflation #1 Priority in their Thank-You Statements, by Wolf Richter,

Rhetoric aside, the Fed will still be pumping fiat debt instruments into the system. From Wolf Richter at wolfrichter.com:

Looks like the start of a U-Turn on inflation. 2-year and 10-year yields jump.

The White House announced today that President Biden, eager to get something through the Senate without a long bruising fight, will re-nominate Republican Jerome Powell for a second term as chair of the Federal Reserve’s Board of Governors and will elevate Democrat Lael Brainard to vice chair. Powell is opposed by some prominent Senate Democrats, but supported by many Republicans. And Brainard doesn’t seem to face opposition from Democrats. Both will likely win Senate confirmation.

As you would expect, both Powell and Brainard released thank-you statements about their nomination.

But as you would not expect, fighting inflation was suddenly the number one priority in both their statements – after they’d driven inflation to a three-decade high through record gigantic money printing and interest rate repression, and then had stubbornly brushed off this inflation as something that would quickly go away on its own.

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Federal Reserve Failure, by Ron Paul

The Federal Reserve is but one instance of a more generalized failure: central banking, which is invariably failure prone. From Ron Paul at ronpaulinstitute.org:

What do the Federal Reserve and neoconservatives have in common? They both refuse to admit that their policies — the neocons’ promotion of perpetual war and the Fed’s manipulation of the money supply — are complete failures, having produced the opposite of the promised results.

The latest example of the Federal Reserve engaging in Bill Kristol-like levels of denial is the Fed’s continued insistence that the return of 70s-style inflation is a “transitory” phenomenon resulting from the end of the lockdowns. The Fed has acknowledged the “transitory” inflation will last until at least 2022, yet it is still determined to keep interest rates at or near zero until the “jobs situation” improves.

To be fair, the Fed has finally announced plans to cut back on its money-pumping activities by reducing by 15 billion dollars a month its monthly purchase of 80 billion dollars of Treasury bonds and 40 billion dollars of mortgage-backed assets.

It is unlikely that the Fed will stick to its plans to “taper” its purchase of Treasury bonds. The Fed’s Treasury bond purchases enable the federal government to run up the debt without increasing taxes or paying punishingly high interest on the debt.

The Congressional Budget Office projects that by 2030 the federal debt interest cost will more than double to 829 billion dollars. That is more than the government spent on the military in 2020!

Despite the looming fiscal crisis, Congress is unlikely to cut spending anytime soon. Instead, Congress members are debating a 1.75 trillion dollars “social spending” plan, having just passed a 1.2 trillion dollars infrastructure bill. Contrary to the claims of President Biden and his allies, this new spending will not reduce inflation. What it will do is hasten and deepen the inevitable economic crisis caused by government overspending.

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Joe Biden’s (Don’t) Caring Economy, by David Stockman

There will always be income disparities in a purely capitalistic economy. There will always be much greater disparities in a mixed, crony socialist, fake money economy. From David Stockman at David Stockman’s Contra Corner via lewrockwell.com:

Nothing speaks to Joe Biden’s don’t “caring economy” better than the recently released “Wage Statistics for 2020” report by the Social Security Administration.

As it happened, 21.3 million Americans employed last year (out of 167.6 million total) earned less than $5,000 during the entire year and, in fact, an average of only $2,127. And those numbers are damn accurate because they come from Uncle Sam’s tax collection division, which does not under-count.

As it also happened, Goldman Sachs announced that it awarded its top two executives, CEO David Solomon and president John Waldron, one-time stock bonuses of $30 million and $20 million, respectively, designed to keep the executives at the helm of Wall Street’s biggest bank for another five years. And alas, these are their bonus amounts at the current stock price. As the Wall Street Journal further explained,

If the bank were to hit the top targets, Mr. Solomon’s bonus would be worth more than $50 million and Mr. Waldron’s would be worth more than $35 million.

Let’s see. At the top-tick, those Goldman bonuses would equal the annual earnings of 40,000 of the above mentioned wage workers!

And, oh, exactly what is the scale of 40,000 workers lined up check-by jowl?

Well, back in the day, your editor represented about 450,000 people in the Fourth Congressional District of Michigan including men, woman, children, criminals, the infirm and Democrats. So these two cats from Goldman are getting a bonus equal to about what would have been one-tenth of a congressional district. That is to say, “bonus” is a word hardly adequate to the task.

To be clear, we don’t begrudge capitalism’s verdicts and its implicit choices of winners and losers. That’s why it works and is the only route to more prosperity, opportunity and choices for everyone. But we do begrudge state policy that drastically distorts and exacerbates the natural outcomes of the market because its just plain unjust; and, in any event, is unsustainable and prone to disastrous outcomes.

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Fed’s Lowest Lowball Inflation Measure Hits 30-Year High, by Wolf Richter

Don’t worry, though, because today’s inflation is “transitory.” From Wolf Richter at wolfstreet.com:

“Transitory” is the new Spandex.  

For its measurement of its inflation target – the “symmetrical” 2% – the Fed uses the “core PCE” inflation measure because it is the lowest lowball inflation measure the government publishes, and it understates actual inflation even more than other indices. “Core PCE” excludes food and energy, which can be volatile but make up a big part of what people on the lower half of the income scale spend their money on.

And today, this lowball core PCE measure of inflation rose by 3.62% compared to a year ago, the hottest inflation reading since May 1991:

The month-to-month increase of 0.331% was roughly the same red-hot as the month-to-month increase as in July (0.338%), according to the Bureau of Economic Analysis today. This works out to be an annualized pace of 3.9% (12 x 0.331%), which is higher than the current 12-month core PCE of 3.62%.

The PCE price index with food and energy included jumped by 0.4% for the month (4.8% annualized), and by 4.3% from a year ago. This is the hottest PCE inflation reading since January 1991:

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A Reckoning of Economic Excess, by Bill Bonner

An inflationary rescue by the world’s central banks will not prevent the financial asset and economic meltdown that’s coming. From Bill Bonner at rogueeconomics.com:

He who takes what isn’t his’n
Pays it back or goes to prison

– 19th century American businessman Daniel Drew

BALTIMORE, MARYLAND – What we were looking for in the Evergrande story was a hint… a clue… an advance warning of things to come.

What happens when you can’t pay your debts? How does it end?

With a bang of inflation? Or a whimper of deflation?

Our prediction: Both.

Every bubble blows up. Every excess has to be resolved. And every debt gets settled – one way or another.

Typically, a bubble brings on a case of “irrational exuberance.”

The irrationally exuberant investor pays too much for his assets. The irrationally exuberant businessman stretches too far… borrows too much… and over-extends himself. The irrationally exuberant empire invades Afghanistan.

But no one and nothing is ever evergrande, of course. It is only occasionally grand.

And when the occasion passes… so does the grandeur.

Too Much Excess

“And then what?” is our question today.

We have the answer, too: the end of the world as we have known it.

An excess of private investment usually produces an excess of capacity… and excess output. Too much, in other words.

Then, when the Bubble Epoch passes… the excess is usually reckoned with in a DEFLATION. Prices fall… until demand picks up enough to clear the market.

The investors and producers, who misjudged the situation, and their suppliers and employees, suffer the losses.

That’s what happened in America after the crash of 1929.

Private industry had expanded in the Roaring Twenties… By the 1930s, it produced far more autos and electrical appliances than the market could absorb.

Prices – for stocks, as well as consumer items – collapsed. The price of milk, for example, fell so low that dairy farmers dumped it on the ground rather than sell it.

Stock prices dropped for nearly three years, from 377 Dow points in October, 1929, to only 44 in July of 1932.

Then, it took 25 more years, a Great Depression, and World War II for prices to recover.

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The Fed Is Fatally Corrupt (And So Is The Rest Of America’s Status Quo), by Charles Hugh Smith

SLL has called it a Corruptocracy. From Charles Hugh Smith at oftwominds.com:

We know you’re all just poor corrupt officials, but bleating excuses won’t save you from the karmic payoff.

The Federal Reserve can be summed up in two famous lines from the classic film Casablanca in which the corrupt police official Renault is ordered to close Rick’s cafe.

Renault: I’m shocked! Shocked to find that gambling is going on in here.

[The croupier hands Renault a wad of cash]: Your winnings, sir.

The Fed is totally, completely, fatally corrupt. Only those being handed their ill-gotten gains defend the Fed. Everyone who is isn’t totally, completely, fatally corrupt wants America’s financial Politburo tossed on the bonfire of history.

The Fed’s response to its highest-level officials minting millions in insider trading is as transparent as Captain Renault’s shock: only when the putrid corruption filling every nook and cranny of the Fed seeps out under the door does the Fed suddenly announce it’s shocked that insider trading is going on in here.

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