Which one doesn’t belong? (Photo credit: VerismoVita)
This post from zerohedge.com titled, Spot The Odd One Out, needs little explanation. But you know I can’t let it go without putting my two cents in.
The charts in the post are easy to follow as they lead up to this last chart which shows the Feds balance sheet (in red), compared with the S&P 500 (in green) over the last year. Let’s talk about what the Feds balance sheet is and what it represents.
The Feds balance sheet shows the amount of assets, in dollars, purchased by the Fed. The bulk of these assets are government securities and mortgage-backed securities. Government securities are government bonds and t-bills. Purchasing government securities is the purchasing government debt or, put more clearly, financing the ability of the Government to grow beyond what it confiscates in taxes. This is how the Fed Finances the debt.
Purchasing mortgage-backed securities is the purchase of mortgages created and held by banks. This purchase exchanges the mortgage for counterfeit dollars. Because of our 10% fractional reserve banking system, banks can loan out 10 times what they hold in dollars, if they so choose. This means that the bank can loan 1 million counterfeit dollars for every $100 thousand held in reserve, This is how the Fed injects counterfeit money into the economy.
Here is a look into the Feds balance sheet, courtesy of The Wall Street Journal, wsj.com.
The balance sheet above shows that a little under $1 trillion dollars have been injected into the economy in the last year. This money is finding its way into the financial markets, and is pushing the stock market bubble higher. The other charts show the recent movement of many indicators in the opposite direction of the S&P 500. When the Fed hints of tapering their securities purchases, the stock market starts to sell of like a child throwing a tantrum when mom threatens to take away the oreo cookies. So in order to keep the stock market bubble pumped up, the Fed has to inject increasing amounts of counterfeit money. But just like the bursting of the Fed created tech and housing bubbles, in 00 and 08, this financial bubble will eventually burst although no one knows when the correction will happen.
Related Article – Let The Counterfeiting Continue! The Fed Is Stuck In Their Feedback Loop, at austrianaddict.com.
Related Article – A Tornado vs. The Fed, Which Id More Destructive? at austrianaddict.com.
AUSTRIAN ECONOMICS ADDICT 