Fed takes several desperate actions, signals economic doom

Never more attractive
Bankers working on a Sunday?  If that’s not a sign of the apocalypse, I don’t know what would be.  Ben Bernanke and his secretive Federal Reserve met in a marble palace Sunday to discuss the liquidity of America’s banks.  Here is what they allow the commoners to know.

The Federal Reserve announced Sunday that it would provide a $30 billion credit line to JPMorgan Chase, for assistance in taking over the operation of Bear Stearns.  The loan from the Federal Reserve to JPMorgan Chase will be secured by the Federal Reserve itself; if that does not make sense, I have stated it perfectly.  The Fed will control all decision-making in the Bear Stearns portfolio to minimize its own risk. 

The Fed also announced an emergency discount rate cut of a quarter percent, to 3.25 percent.  It is expected to cut the rate again on Tuesday, March 18.  Apparently the Fed still has faith in its own gerrymandered consumer price index, despite evidence to the contrary in food and gas prices, because these rate cuts will inevitably devalue the dollar.

The $200 billion per month TSLF instituted by the Federal Reserve last week will remain in place, but Bernanke announced Sunday that the program will no longer have a cap.  Investment banks may now trade their risky mortgage-backed securities for Treasury securities without limitation on the total.  The $200 billion monthly of TAF and repurchase agreements will continue, and unknown amount of TSLF deals in excess of $200 billion monthly will also be worked out.  As of last week, 40% of the U.S. economy depended on Federal Reserve action.  It is not unlikely that over half of this month’s U.S. economic activity will be the direct result of Federal Reserve bailouts, which will inevitably devalue the U.S. Dollar in the coming weeks.

Advertisements

Bunch of drunks run the economy

Another shot of the green stuff, please.

“Mishief springs from the power which the moneyed interest derives from a paper currency which they are able to control, from the multitude of corporations with exclusive privileges, which are employed all together for their benefit.” – Andrew Jackson 

“Banking establishments are more dangerous than standing armies,” warned Thomas Jefferson, in defense of Americans against the possible monopolization of money. Jefferson’s foresight is noteworthy, and will soon become even more so. The interests of banks are compounding against the interests of citizens, in this country and around the globe.

Today the Federal Reserve introduced the Term Securities Lending Facility to address “increased pressures in liquidity markets.” The TSLF will give $200 billion of Treasury securities to banks each month, and banks can exchange their residential-mortgage-backed securities for these Treasury securities. In simpler terms, the TSLF is a tool that gives banks an easy way to transfer their mortgage losses to the U.S. Treasury.

The TSLF comes on the heels of (and in addition to) two other unprecedented and controversial Fed actions, the Term Auction Facility (TAF) and Federal Reserve repurchase agreements. The Federal Reserve has hinted that these actions will continue for the next six months, and may even increase. Currently, the new facilities pump $400 billion of fiat currency into the market each month, which, in our $12 trillion economy, represents 40% of GDP.

The Fed is also expected to cut rates yet again, in an attempt to stimulate growth through inflation. Low rates, stagnant consumption, negative savings, and high investment, make an awkward combination that would leave even Keynes scratching his head. The U.S. economy is in dire need of a market correction, but the Fed has decided to avoid a market correction (job losses) in favor of a dollar correction (hyperinflation). The Fed may consider that stock prices are measured in dollars; it will probably not consider that wages are paid in dollars. While jobs may be saved, wages will not be able to pay for the inflated prices of the coming year, and then Barack Obama will come to the rescue, touting free healthcare, food, water, electricity, and whatever else a too fat and too happy American public might hope for. The Federal Reserve is unwittingly forcing the United States into complete democratic socialism, and cannot stop it but through honesty, which isn’t forthcoming.

Moving on to the gloomy part of the Fed’s announcements this morning, the Fed’s efforts will be coordinated with those of the European Central Bank, the Bank of Canada, the Bank of England, and the Swiss National Bank. When national sovereignty is properly respected, these banks operate as monetary competitors, helping their citizens by practicing competitive responsibility. This morning, they publicly declared that the nightmare of many neo-classical economists for decades had become reality-collusion against humankind among the planet’s monetary policymakers. Those investors who thought they outsmarted the Fed by switching to Euros or Swiss Francs have not escaped. There truly is no safe store of value in paper anymore.

Buy gold and beans.

Fed plan: sacrifice the dollar

safe store of value?
Fears of recession have turned to reality in the minds and wallets of every American not named George W. Bush.  Having long forsaken the free market economy to arbitrary powers, Americans naturally turn their economic concerns over to the federal government and the Federal Reserve.  The government has offered them $600 in tax rebates to help boost the economy.  This stimulus is miniscule in the grand scheme of the economy.  The Federal Reserve has taken much more drastic action.

 Fed chair Ben Bernanke recently announced that the central bank will increase its controversial Term Auction Facility loans to $100 billion per month, and said the TAF will remain in place for at least the next six months, and could be raised even further.  In addition, Bernanke said the Fed would be offering $100 billion per month of repurchase agreements.  All the borrowings could be collateralized by mortgage-backed securities, which are widely considered the most toxic investments in today’s market.  Essentially, banks are transferring their bad loans over to the government, to be paid by U.S. taxpayers, by printing money out of thin air. 

In our $12 trillion economy, $200 billion per month represents 20 percent of GDP.  Over the next year, trillions of dollars of worthless money will be tossed around in the U.S. market, and while this increases the number of dollars and helps stock prices, it is detrimental to the value of the dollar.  Stockholders should remember that their stock prices are measured in dollars, and while their stocks only go down some days, the dollar will go down every day with rare exceptions over the next year.

The rules of Keynesian economics are very simple, market corrections in this system are unavoidable, and the U.S. is overdue for a very large one.  Ben Bernanke and the Federal Reserve have decided to avoid the traditional route of depression by filtering it through the dollar first, but this will only delay the suffering felt by Americans.  By the end of 2008, the mighty dollar will have fallen below $0.45 on the Euro (it is now at $0.65), over three million jobs will have been lost in the U.S., the credit crisis will still haunt the market, and mutterings of the word “depression” will seriously enter the political discussion for the first time in many Americans’ lives.

Federal Reserve’s “Term Auction Facility” = inflation machine

On December 21, 2007, the Federal Reserve Board introduced a new source of liquidity available to banks called the “Term Auction Facility (TAF).”  The reason stated for the TAF is “pressures evident in short term borrowing markets.”  The TAF is a loan auction, which allows banks to take out a 28 day loan from the Federal Reserve.  The results of the TAF are starting to become evident, and problematic.
It is important to note that the discount window has always been considered a “lender of last resort,” and that banks are instructed to use it as an emergency source of liquidity, when other banks are unwilling to loan federal funds.  This rule is followed because any time the Federal Reserve loans money from the discount window, it involves injecting more cash into the banking system and causes inflation. 
Since TAF’s inception in late December, the Federal Reserve has been issuing $30 billion of TAF loans to banks to provide them with liquidity.  This is cash created to cover current liabilities (DDA and investment withdrawals from U.S. banks) and encourage lending.  The Federal Reserve has never done anything like this before.  Rate cuts, which also cause inflation, have always been the Federal Reserve’s only way to encourage lending.  The injection of cash into the banking system will compound the inflation.  It is a way of keeping the banks liquid and confident at the expense of the value of the dollar. 
I did not read this on a press release or a website; I just analyzed the Fed’s own data, which is available below.  The scariest thing about this data is on the first link, which shows the non-borrowed reserves of U.S. depository institutions to be negative.  This is unprecedented.  Granted, the borrowed funds are from the Federal Reserve, but this is still bad news for American savings.  This means, if banks do not turn a huge profit soon, and repayments are demanded by the Fed, they will not have any money left, and will be forced to start selling plant assets and cutting jobs. 
The Federal Reserve is giving out more unwise loans to banks as the problem worsens, despite losses in the financial sector.  These loans are likely to be forgiven, and the losses are going to be masked by creating more money out of thin air through the U.S. Treasury (printing more notes).  The banks will make money, but the depository account holders will lose due to currency devaluation.  Expect the dollar to drop big time, and soon.  When the bag of dollars is rendered worthless, do not be one of the unfortunate ones left holding it.  Get out of U.S. currency, U.S. banks, T-bills, bonds, etc. now.  The dollar is not a safe store of value when the Federal Reserve is acting this irresponsibly.