Posted tagged ‘Quantitative Easing’

Must Reads For The Week 6/28/14

June 28, 2014
The pen is mightier than the sword...

 The pen is mightier than the sword… (Photo credit: mbshane)

FEDERAL RESERVE,  MUST READS OF THE WEEK

 

Lets start with some humor, because the rest of the post isn’t very funny. I saw this video, Money Is Our God, by Tom Simmons, on Libertas Project / Facebook. Tom Simmons has the Federal Reserve figured out.

 

The State Of The Union: A Friendly Reminder Where We Stand Now, at zerohedge.com. These charts show how the Fed is attempting to keep the economy propped up with electronically printed counterfeit money. Their original money pumping caused the very problem their present money pumping is supposed to cure. It’s like an NFL player getting a concussion from a helmet to helmet hit, and trying to cure it by punching him in the face..

The Fed’s Hobson’s Choice: End QE And Zero Interest Rates or Destabilize The Dollar And The Treasury Market, by Charles Hugh Smith, at oftwominds.com. The Fed has been printing counterfeit money to purchase debt, and artificially keeping interest rates low in order to incentivize borrowing which is at record pace over the last 5 years. Policy makers at the Fed believe in the Keynesian theory that spending {consumption} stimulates production. But Say’s law of markets states, “One can only buy with what one has produced….The one product constitutes the means of purchasing another….”  In the market, production spending is always ahead of consumption spending. But when the Fed stimulates Keynesian consumption, without any corresponding production, it misallocates resources. Economic forces are trying to correct the misallocations brought about by the Feds counterfeiting. These forces will eventually prevail no matter how much the Fed tries to prop up it’s false reality with fake money.

The Civilian Employment -Population Ratio Chart, from the FRED {Federal Reserve Economic Data}. This chart represents the proportion of the civilian noninstitutional population that is employed. This next chart shows the total Civilian Noninstitutional Population, which includes two groups of people who are not working, 1) people under 25,  2) retired people. This chart, Civilian Noninstitutional Population – 25 to 54 years, shows people in their prime working years. Now look at the M2 Money Stock chart. If we look at all of the charts starting from March of 95 to the present, here is what we see. The Fed has increased M2 money stock from $3.49 trillion to $11.22 trillion which is almost $8 trillion. During the same time period the ratio of employed people has decreased from 63.1% of the civilian population working, to 58.9% of the civilian population working. The civilian population has increased  from 198 million to 247 million. These numbers show that the Feds policy of electronically printing counterfeit money is a miserable failure, if its goal is to increase employment and keeping inflation in check. But the Fed’s zero interest rate policy, along with its policy of Quantitative Easing {electronically printing counterfeit money},works perfectly if the goal is to enrich the people who have access to this money first. But it doesn’t matter if that’s the goal or not, the result is still the same. ( The two articles below help explain fake inflation numbers, and enriching those with first access to this counterfeit money.)

Former Fed Governor Warsh Slams Fed’s “Reverse Robin Hood” Policies, at zerohedge.com. Reverse Robin Hood is a great way to explain this. People who don’t have access to this counterfeit money have had the value of what they own stolen. Counterfeiting is theft, even if, in the case of the Fed, it is legal.

Wow: Fed Economist On Fudging Price Inflation Data, at economicpolicyjournal.com. You can make the aggregate inflation rate look great if you don’t count sectors of the economy where the prices are obviously skyrocketing. You can’t believe the numbers stated in the headlines. You have to dig into the numbers to find what is really going on.

 

UNFORTUNATELY THE JOKE’S  ON US.

 

 

“The Fed Has Failed”, Analysis by Charles Hugh Smith

March 18, 2014

Here is a great article by Charles Hugh Smith, at oftwominds, titled, The Fed Has Failed, (And Will Continue To Fail), Part I. His analysis of what is the result when the Federal Reserve electronically prints counterfeit money through their policies of quantitative easing (QE’s) and  artificially low-interest rates is spot on. He sums it up in this statement;

“The Fed….. is handing guaranteed returns to the banks and financiers while strip mining what’s left of the middle and working classes’ non-labor income, i.e. interest and savings.”

The charts he uses show that the Feds policies have worked to bolster the financial sector {wall street and banking}, while stealing from the bottom 80% of the people who hold financial assets, decreasing the total number of people actively working by 4%,  and shrinking real wages and purchasing power of the people who remain in the labor force.

Before you read the article lets first give a brief explanation of how the Fed first creates and then injects counterfeit money into the economy, and then look at the result of the Feds counterfeiting.

COUNTERFEITING: 1) THE FED SETS THE DISCOUNT RATE IT CHARGES BANKS

The Fed sets the discount rate which is the interest rate it charges banks for loans. The zero interest rate policy {ZIRP}, that has been in effect for some time now, allows a member bank to borrow electronically printed counterfeit money from the Fed at zero or near zero percent interest. They can take the money and invest it in a bond, stock or other financial instrument that yields a higher interest rate than the rate charged by the Fed. It’s not hard to find a security that yields a rate higher than zero. Banks can also loan this money to individuals, at a low-interest rate, for mortgages on home purchases. So banks either purchases interest baring securities {bonds, stocks, etc} or create their own interest baring securities {mortgages} with the counterfeit money from the Fed.

COUNTERFEITING: 2) FRACTIONAL RESERVE BANKING

The banks can loan out more money than they get from the Fed because we have a 10% fractional reserve banking system. What this means is the bank can loan out 10 dollars for every 1 dollar they hold in reserve. So if the bank holds 1 million dollars in reserve it can loan out 10 million dollars. It can actually counterfeit another 10 million dollars in loans on top of the 1 million the Fed counterfeited and loaned to the bank. The bank is receiving monthly payments of interest and principle on the 10 million it counterfeited and loaned out. These payments can now be held on reserve which allows the bank to create more counterfeit loanable funds.

COUNTERFEITING: 3) PURCHASING SECURITIES THROUGH QE

Quantitative Easing is a fancy name for the Fed creating more counterfeit money and purchasing government bonds and mortgage-backed securities from banks on the open market. The Fed will buy the government bonds the bank originally purchased, and it will also buy the mortgages the bank originally created. The bank can now use the new counterfeit money the Fed created to purchase these securities, hold it in reserve and create 10 times that amount in counterfeit dollars.

To sum it up, the Fed counterfeits money and loans it to banks at zero percent interest. The banks can counterfeit 10 times as much money as they hold in reserve because of our 10% fractional reserve banking rules. The Bank purchases Government bonds, and creates mortgages with these counterfeit funds. The Federal reserve purchases these Government bonds and mortgage backed securities from the banks with more counterfeit money, and this money can be increased by a factor of ten, and the whole process starts over again. Where can you sign me up for this sweet deal.

FED COUNTERFEITING MISALLOCATES SCARCE RESOURCES

The counterfeit money injected into the economy allows first receivers to purchase something without any corresponding production. It is an exchange of nothing for something. It sends false signals through the economy propping up economic activities that would never be supported in an unhampered free market. The tech bubble of 2000, the housing bubble of 08, and the current level of the stock market are all examples of bubble activities that would never have happened if the Fed had not printed counterfeit dollars. The Tech bubble of 00, and the housing bubble of 08 were created by the Feds printing and artificially low interest rates. The counterfeit money injected since 08 has stopped the fall in housing prices, and has also created the stock markets five year bull run. All economic activities that have been created and/or maintained by this counterfeit money will eventually have to be liquidated sooner, if they stop counterfeiting, or later if they continue. One way or another the economic forces trying to correct the Feds  interventions will win out.

Click on the article above and read Charles Hugh Smiths analysis of the Feds failure. The charts are very good. Here are a few excerpts.

“The Fed’s policies have been an unqualified success for financiers and an abject failure for the bottom 99.5% who have to work for a living.”

“Keeping interest rates near-zero for five years and pumping $4 trillion into the system are both completely off the scale of central bank policy in the U.S.”

“The most charitable assessment we can make of Fed policy is that the “prosperity” it created is at best, ahem, grossly concentrated in the most parasitic and politically powerful sector: finance. Why should we be surprised that the Fed, itself a servant of the banking sector, should devise policies that enrich the bankers and financiers”.

Also read, “How The Fed Has Failed America”, Part II, by Charles Hugh Smith. Here is an excerpt from this article,

“The only way to eliminate the financial parasites is to stop subsidizing their skimming and scamming, and the only way to stop subsidizing the financial parasites is to shut down the Fed.”

Related ArticleCounterfeiting by the Federal Reserve, Although Legal, Still Results In Theft, by austrianaddict.com.

Related ArticleLet The Counterfeiting Continue! The Fed Is Stuck In Its Feedback Loop, by austrianaddict.com.

Related ArticleA Tornado vs. The Fed, Which Is More Destructive? by austrianaddict.com.

Related ArticleCapital Consumption, aka, Eating Our Seed Corn, by austrianaddict.com.

Related ArticleThomas Woods Explains The Austrian Business Cycle Theory, at austrianaddict.com.

Financial Markets Move When The Puppet Master Speaks.

July 15, 2013
♫Puppet on a String♫

♫Puppet on a String♫ (Photo credit: trawets1)

FINANCIAL MARKET MINIPULATION

The stock and bond markets were sent soaring last week when Fed chairman Ben Bernanke said more Fed stimulus was needed (read here). Three weeks ago Mr. Bernanke hinted that the Fed might start to taper its money injections and the stock and bond markets had a sell off. In an article I wrote on July 1, titled Incremental Steps To The New Normal, I said, “The sell off in the stock and bond market, the week of June 20th, at a hint by Ben Bernanke that he might ease out of Quantitative Easing in the not too distant or distant future, is evidence that the financial markets are a bubble activity blown up by the Fed’s double edge sword of printing counterfeit money and artificially lowering interest rates. We witnessed more evidence the following week when first Quarter GDP numbers were revised down. This started a rally in the stock market because investors know that if there are bad aggregate numbers, the Fed will keep electronically printing money…” . It’s not difficult to predict how investors will react to economic data, because they understand what the Fed will do in response to this data. (more…)

Incremental Steps To The New Normal

July 1, 2013

A bubble.BERNANKE SPEAKS, THE STOCK MARKET REACTS

The sell off in the stock and bond market, the week of June 20th, at a hint by Ben Bernanke that he might ease out of Quantitative Easing in the not too distant or distant future, is evidence that the financial markets are a bubble activity blown up by the Fed’s double edge sword of printing counterfeit money and artificially lowering interest rates. We witnessed more evidence the following week when first Quarter GDP numbers were revised down. This started a rally in the stock market because investors know that if there are bad aggregate numbers, the Fed will keep electronically printing money. Money going into the market is what drives the overall market upward. Understanding how these two sides of the Fed’s interventionist coin creates the artificial prosperity that eventually has to be liquidated, is very difficult because of the abstract nature of what is involved. We have been trying to explain these abstract concepts, in a variety of ways in order (more…)

Keynes Was Correct In 1919!

March 30, 2013
John Maynard Keynes

John Maynard Keynes (Photo credit: Steve Hunnisett)

When Keynes wrote in “The Economic Consequences of the Peace”,  (1919) “There is no subtler, no surer means of overturning the existing basis of society than to debauch the currency. The process engages all the hidden forces of economic law on the side of destruction, and does it in a manner which not one man in a million is able to diagnose.” , little did he or we know how correct he was.

The Feds policy of counterfeiting money, and artificially lowering interest rates, created and grew the U.S.’s housing bubble from 2000 to 2007. Market forces tried to liquidate this misallocation of scarce resources (the bubble, which was the result of the Feds policies), starting in late 2007, but the Fed wouldn’t allow the correction to happen. It propped up a false bottom by (more…)

Detlev Schlichter Talks About The Results When Governments Counterfeit Paper Money.

November 12, 2012

Detlev Schlichter author of “Paper Money Collapse”, talks about the present state of our paper money system in this interview by Jeff Randall on Sky News.

For a more in-depth analysis on what happens when the State, through Central Banking policy, continually props up the results of previous counterfeiting with even more currency debasement, read this article titled “We Are On The Road to Serfdom” by Detlev Schlichter. Then read this article titled “But There is no Inflation- Misconceptions About the Debasement of Money” also by Detlev Schlichter. Warning: You have to be mentally “all in” if you are going to tackle these articles.

Ben Swann Fox 19 Reality Check. What is QE3?

October 2, 2012

You will not find any reporter speak the truth like Ben Swann does in his reality check segments on Cincinnati Fox 19 News. We’ve talked about quantitative easing in previous posts, and this video is an outstanding explanation which will add to our understanding about economics and what happens when Government intervenes.

Ben Swann has enough respect for his viewers to tell them the truth.