Tag Archives: Federal Reserve

Counterfeiting Money Is a Crime — Whether Done by the Fed or A Private Individual, by Patrick Barron

The Federal Reserve probably counterfeits more money than anyone else. From Patrick Barron at mises.org:

A few years ago, shortly after the 2008 subprime lending disaster, the Fed sent a public relations team around the country to conduct supposedly “educational sessions” about how the Fed works and the wonderful things it does. The public was invited, and there was a question and answer session at the end of the presentation. One such session was held in Des Moines, Iowa. At the time I was teaching a course in Austrian economics at the University of Iowa, so I lusted at the prospect of hearing complete nonsense and having a shot at asking a question. I was not disappointed.

The educational part of the session lasted about an hour, and it became clear to me that the panel of four knew almost nothing about monetary theory. They may even have been hired especially for this grand tour, because all were relatively young, well scrubbed, and very personable–let’s face it, not your typical Fed monetary policy wonks or bank examiners! The panelists discussed only one of the Fed’s two remits–its remit to promote the economic advancement of the nation. Its other remit is to safeguard the monetary system. However, the panelists did touched upon the Fed’s control of interest rates and ensuring that money continued to flow to housing and other high profile areas of the economy.

Finally, at the end of the presentation, those with questions were asked to form a queue and advance one at a time to a microphone. I was last in a line of about a dozen. Here’s my recollection of what followed:

Me: You say that you (the Fed) have the power to increase the money supply. Is that right?

Fed: Yes.

Me: And you have indeed increased the money supply. Is that right?

Fed: Yes.

Me: And the money that you create was generated out of thin air. It wasn’t there before, but it’s there now. Is that right?

Fed (Getting nervous): Yes.

Me: And you say that creating this money out of thin air is beneficial to the economy. Is that right?

Fed (Now nervous as a cat on a hot tin roof): Yes.

Me: Then why do you prosecute counterfeiters?

(The audience, after a few seconds’ delay,: Yeah, why DO you prosecute counterfeiters?)

Fed: This meeting is closed.

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The Federal Reserve’s Controlled Demolition Of The Economy Is Almost Complete, by Brandon Smith

According to Brandon Smith, financial mayhem is imminent. From Smith at alt-market.com:

The Federal Reserve is an often misunderstood entity, not only in the mainstream, but also in alternative economic circles. There is this ever pervasive fantasy on both sides of the divide that the central bank actually “cares” about forever protecting the US economy, or at least propping up the US economy in an endless game of “kick the can”. While this might be true at times, it is not true ALL the time. Things change, agendas change, and sometimes the Fed’s goal is not to maintain the economy, but to destroy it.

The delusion that the Fed is seeking to kick the can is highly present today after the latest Fed meeting in which the central bank indicated there would be a pause in interest rate hikes in 2019. As I have noted in numerous articles over the past year, the mainstream media and the Fed have made interest rates the focus of every economic discussion, and I believe this was quite deliberate. In the meantime, the Fed balance sheet and its strange relationship to the stock market bubble is mostly ignored.

The word “capitulation” is getting thrown around quite haphazardly in reference to the Fed’s tightening policy. And yet, even now after all the pundits have declared the Fed “in retreat” or “trapped in a Catch-22”, the Fed continues to tighten, and is set to cut balance sheet assets straight through until the end of September. Perhaps my definition of capitulation is different from some people’s.

One would think that if the Fed was in retreat in terms of tightening, that they would actually STOP tightening. This has not happened. Also, one might also expect that if the Fed is going full “dovish” that they would have cut interest rates in March instead of holding them steady at their neutral rate of inflation. This has not happened either. In fact, I’m not exactly sure how anyone can claim with a straight face that the Fed has given up on Quantitative Tightening (QT).  Despite the many assumptions out there that the Fed is going to reverse on interest rates, I believe this is wishful thinking and that the Fed will not reverse rates in 2019.

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The Federal Reserve: A Failure of the Rule of Law, by Alexander W. Salter

Most of the Federal Reserve’s powers did not come from its statutory authorization—the law. From Alexander W. Salter at aier.org:

“Money is power.” We’ve all heard this aphorism many times before. Too often it’s a lazy shorthand dismissal of the finding of mainstream economics, which show that the pursuit and possession of money often entails innocuous or even beneficial consequences for society. Dr. Johnson was right after all: “There are few ways in which a man can be more innocently employed than in getting money.”

But there are some contexts in which the saying is apt. An obvious case is the Federal Reserve. The Fed has a monopoly on the creation of base money, the fundamental asset underlying the banking and financial system. And over decades, with each instance of financial turbulence, the Fed has become less constrained in how, when, and why it creates base money. Since the Great Recession, the Fed has been able to bestow purchasing power, liquidity, and solvency on just about any financial organization it pleases. If that isn’t power, there’s no such thing.

The Federal Reserve System was created in 1913. It was intended to be a formalization of the interbank clearing system that then existed in the National Banking System. It was not intended to be a central bank. Even in the early 20th century, economists and politicians had some idea of what central banks did and how they behaved, and the existence of such an institution was widely regarded as inherently un-American, in the sense that it could not be reconciled with a self-governing society. That’s why so many proponents of the Federal Reserve System bent over backward to insist they were not advocating the creation of a central bank. And at the time, their repudiations were reasonable; there was no reason the Federal Reserve System had to acquire the powers it did.

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Fake Money’s Face Value Deceit, by MN Gordon

The Federal Reserve has destroy about 96 percent of the value of the dollars since it was entrusted with preserving the value of the dollar back in 1913. From MN Gordon at economicprism.com:

hane Anthony Mele stumbled off the straight and narrow path many years ago.  One bad decision here.  Another there.  And he was neck deep in the smelly stuff.

These missteps compounded over the years and also magnified his natural shortcomings.  Namely, that he’s a thief and – to be polite – a moron.  Recently the confluence of these two failings came together like a sewage spill to a river draining through the center of town.

Mele made a dishonest mistake.  He failed to recognize that he’s not the only dishonest soul operating in a dishonest world.  That is, he failed to comprehend the difference between face value and real value.

So it was, with dishonest intentions, that he burgled a rare coin collection with no clue what it was that he’d taken.  To his soft and greedy mind all he saw was a hoard of coins with a face value of One Dollar.  Thus, he redeemed them for cash.  Zero Hedge offers the details:

“After stealing a rare coin collection from an elderly and disabled retiree, Shane Anthony Mele, dumped what their owner said was at least $33,000 worth of collectible coins down a Coin Star machine at a Florida supermarket and collected their face value, receiving about $30 – enough for a couple of 12 packs.”

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Fed Policy vs. ECB Policy: A Comparison, by Gunther Schnabl and Thomas Stratmann

Noxious as the Federal Reserve’s cure to the last financial crisis was, it left the US in better shape than Europe, where its central bank has been particularly maladroit. From Gunther Schnabl and Thomas Stratmann at mises.org:

Ten years after the outbreak of the global financial crisis, banks in the euro area have not recovered. The Euro Stoxx Financials is only 40% above its March 2009 low, well below its pre-crisis level (Fig. 1). By contrast, the S&P Financials index in the US has risen by 320%. The different fates of European and US financial institutions could be due to the different monetary and regulatory crisis therapies of the European Central Bank (ECB) and the Fed.

Fig. 1: US and Euro Area Financial Stock Prices


Source: Thompson Reuters Datastream.

The Fed lowered its key interest rate faster than the ECB (Fig. 2) and expanded its balance sheet more quickly via quantitative easing (Fig. 3). The Fed dropped its benchmark rate down to an all-time low of 0.25% in December of 2008. The Fed’s asset purchases included risky securitized mortgage loans, which helped prevent a financial meltdown during the crisis. The US Treasury also purchased more than $400 billion worth of securitized mortgage loans and bank shares under the Troubled Asset Relief Program (2009-2012). Thus, the banks were forcibly recapitalized. As asset and real estate prices recovered thanks to the Fed’s monetary policy, banks’ balance sheets were further stabilized.

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The Fed’s “Wealth Effect” Has Enriched the Haves at the Expense of the Young, by Charles Hugh Smith

The young have been, when it comes to their elders, more sinned against than sinning. From Charles Hugh Smith at oftwominds.com:

The Fed is the mortal enemy of the young generations, and thus of the nation itself.
“The wealth effect” generated by rising stock and housing prices has long been a core goal of the Federal Reserve and other central banks. As Lance Roberts noted in his recent commentary So, The Fed Doesn’t Target The Market, Eh?(Zero Hedge), Ben Bernanke added a “third mandate” to the Fed – the creation of the “wealth effect”–in 2010, the reasoning being that higher asset prices “will boost consumer wealth and help increase confidence” which will then lead to higher spending and all the wonderfulness of endless economic expansion.
But as Chris Hamilton explains in his recent essay Economic Doom Loop Well Underway, “the wealth effect” has enriched the already rich at the expense of the young who didn’t get the opportunity to buy the assets the Fed has pushed to the moon at pre-bubble prices. That privilege was largely reserved for those who bought a decade or two ago, before the Fed made boosting asset prices the implicit goal of all its policies.
Take a look at the chart of household net worth below. Household worth has soared from around $40 trillion in 2000 to $100 trillion in 2018–a gain of $60 trillion while the economy grew at a much more modest pace. Household net worth has leaped from $55 trillion in 2010 to $100 trillion in 2018–$45 trillion in gains for those who already owned stocks and houses.
As Chris observed,“non-discretionary items like homes, rent, education, healthcare, insurance, childcare, etc. are skyrocketing versus wages.” This is visible in the second chart of wage growth, which has hobbled along at 2% or 3% while stocks and housing have doubled or tripled.
The wealth effect has benefited the haves at the expense of the have-nots, the young who can no longer afford to buy homes or start families unless Mom and Dad provide the capital.


An Honest and Easy Solution to Wealth Inequality, by MN Gordon

This one simple trick would indeed go a long way to solving the problem of inequity of wealth inequality. From MN Gordon at economicprism.com:

Here we are, less than one month into the New Year, and absurdity levels have broken above 120 decibels.  Society, it seems, has spun itself up to a fever pitch.  The common culture is working towards a common freak-out.

This week, for example, we discovered, courtesy of U.S. Representative Alexandria Ocasio-Cortez, that: “The world is gonna end in 12 years if we don’t address climate change.”  This gifted insight was mixed between meticulous news analysis of a peaceful exchange between a smirking teen wearing a MAGA hat and a drum beating Native American wearing a costume.  But this ain’t the half of it…

The annual hootenanny for the elite, the World Economic Forum in Davos, Switzerland, took place this week.  The gathering successfully delivered many high-volume absurdities.  An impartial program listing includes:

Globalization 4.0, how cities can fight back against climate change, radically reinventing social systems, plastic pollution, safeguarding our planet, the rise of techno nationalism, media freedom in crisis, averting peak Europe, escaping extinction, when global order fails, a new deal for nature, shaping the future of democracy, and much, much more.

No doubt, the best and the brightest at Davos see these constructed ails as opportunities to provide technocratic solutions – at your expense.

Amongst all this noise, however, we’re after something different.  Our aim today, first and foremost, is directed at the valuable commodity of silence.  We don’t get enough of it.  We need more of it.

One area more silence is needed is the federal government.  In contrast to the small and quiet government envisioned by the nation’s founders, today’s gigantic federal rule is full of much clatter and racket.  Yet some progress is being made.

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