by Mike Krieger
On Sunday night, the current high priest of money printing, asset bubbles and inequality, Jerome Powell, appeared on 60 Minutes. Such discussions are rare. Why he and the institution he heads feel a need to do this now?
There’s no doubt something has the Fed spooked. They need to push a particular narrative ahead of time so central bankers can once again do as they please when “the time to act” arrives.
Rule number 1 of the Federal Reserve: It’s never the Fed’s fault.
Rule number 2 of the Federal Reserve: It’s never the Fed’s fault.
Rule number 3 of the Federal Reserve…
The recent global slowdown and concurrent central banker panic is proof we’re arriving at a very important inflection point. The central bankers hope they can prolong this already historic and obscene financial asset bubble a little longer via manipulation and propaganda, but they also understand we’re nearing the end of the road for this cycle.
As such, every person in the world needs to understand what the Fed and other central banks did during the last crisis, and what they plan on doing the next time around (more of the same and worse). If you judge an economy based on stock market performance and aggregate GDP, you might think the Fed did a great job over the past decade, but if you judge it based how we’ve turned an entire generation of young people into debt slaves, arrived at levels of inequality unseen since just before the Great Depression, and catalyzed an explosion of populist politics throughout the western world, you might be ready to grab a pitchfork.
What central banks have achieved over the past decade is a surreptitious transfer of risk and cost away from elites and onto the general public. But only the corporate and financial class really benefits from such distortions.
Powell: “Not everyone is experiencing this widespread prosperity we have.”
The public is slowly but surely catching on to its scam. People are starting to wonder why the central bank can print money and buy assets to save the portfolios of baby boomers, yet the public can’t simply print money for stuff like healthcare, education and roads.
The Fed doesn’t want people thinking about such things.
The monetary system is slowly being exposed for the scam that it is. It’s merely an opaque and unaccountable mechanism to bail-out and entrench the wealthiest and most powerful segments of society at the expense of the general public.
The Fed will try to do what it did ten years ago (and then some) the next time the economy craters. They already transferred trillions from future generations and society at large to financial industry elites once in the past decade. Will we let them do it again?
Trump saw the intended forced collapse engineered by the Fed by raising interest rates too quickly, and publicly called them out, shaming them into a neutral stance. He is wanting a breather to allow the common man to stabilize and build a cushion of equity, hopefully allowing for his reelection.
But he knows that he can’t forestall the eventual collapse, because it is the debt money system itself that is corrupt. It is the means to plunder the labor and savings of the common man, and its concentrating it in the hands of elites, both political and corporate.
How DO all those politicians become mega-millionaires during their time in office?
Corruption and debt money!
This all portends a global financial reset away from the current debt money regime to a sound money system. This will be a wrenching, possibly violent change in the short run. Always before the central banks created a war to distract the rubes from their machinations. This allows them a renewed stream of profit extraction. We can see those attempts being made right now with all the usual suspects, plus China this time.
But the reset will be far better for the world and common folks who inhabit it. True creativity will still succeed to a greater measure than mere labor, but the common man will be able to build a true store of savings earning real returns, like the farmers and yeomen of the past. They will not be forced into highly risky speculation to try and achieve a return.
The American middle class has had two busts devastate its savings just since the turn of the century. Another such crash would end the individual freedom of our Republic entirely, and slavery to the elites would be instituted, regardless of form, Fascism or Socialism.
“In his latest comments to criticize the central banking authority as a puppet of the industry it purports to regulate, the independent Vermont senator and Democratic presidential candidate took aim at the Fed’s long-anticipated decision to raise interest rates on Dec. 16 for the first time in nearly a decade.”
“The recent decision by the Fed to raise interest rates is the latest example of the rigged economic system. Big bankers and their supporters in Congress have been telling us for years that runaway inflation is just around the corner. They have been dead wrong each time,” Sanders wrote. “Raising interest rates now is a disaster for small business owners who need loans to hire more workers and Americans who need more jobs and higher wages.” ~Bernie Sanders, 2016
Maybe I’m a little slow but I’m a bit confused by this post. The article you linked to includes a video of an interview in which both the interviewer and his subject seem to disdain Donald Trump. Interestingly, though, they are even more critical of Obama and Bill Clinton, because they clearly see those “moderate” liberals as being in cahoots with the big banks. Who do they like? Bernie Sanders, apparently.
I find it a bit hard to wrap my brain around fed policy and the intricate ways in which the bankers get rich (outside of merely lending money), but I know enough to be alarmed when we start sounding like Bernie Sanders. If big banks are bad, big banks + big liberalism is just ruination waiting to happen.
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CW, the Fed is a privately owned bank “running” our national economy. They supposedly refund the interest paid to them to the Treasury each year.
But the real power is in deliberately creating the business boom and bust cycles themselves. Lending to folks, then jerking the chain, collapsing the economy, and foreclosing on the assets that collateralized the loans.
Both the Right and Left oppose the over-concentration of power and wealth, because it is unhealthy.
Big corporations, especially multinationals are almost as bad as big government, and both support globalism, which is a negative towards the common folks.
>>”…the real power is in deliberately creating the business boom and bust cycles themselves. Lending to folks, then jerking the chain, collapsing the economy, and foreclosing on the assets that collateralized the loans.”
I have to confess that I am woefully ignorant when it comes to understanding precisely how the Fed works, but let me tell you why – as a former banker – I have a problem with that theory. Let us say that you decide to buy a house for $250K. You put down $50K, and you go to ABC Bank for a loan of $200K. The $250K you paid for the house (your $50K and the $200K cash from your bank loan) was given to the seller of the home – it’s gone. Now let’s say the economy crashes, and the home you bought is only worth $125K and you lose your job and stop paying so the bank forecloses. Let’s also say that you still owed the bank $190K on your loan. Now the bank is stuck with a house that is only worth $125K on which it put out $190K. But wait! Do you know what happens to the value of a house when it becomes “bank owned?” It’s like selling your brand new couch in a garage sale. Take off another 20%, so now the bank only gets $100K for a house on which they have a loan outstanding in the amount of $190K. That’s a loss of $90K to the bank LESS all of the money they spend on upkeeping and marketing the house. Sure, they can come after you for the $90K+ loss, but you’ll probably declare bankruptcy and the bank will never recoup a dime. That is what the typical scenario is like on a foreclosed home in an economic meltdown – multiplied by thousands for banks that routinely do mortgage loans. The people who have a ton of equity in their homes are far more likely to stay and find a way to avoid foreclosure. The people with little equity are the ones who walk away. Knowing this, it makes zero sense to me that banks would intentionally orchestrate a housing crises, unless they could count on the federal gov’t to come to their rescue, in which case it is the taxpayers who take the hit.
In the lead up to the crash of 2008 I know the banks had gotten very sloppy about their lending standards, because they’re just as greedy as anyone else. The solution to this – as it is with anything else – is the law of natural consequences. You make a loan that goes bad, you take the loss. In normal times the risk of loss is what keeps banks from making risky loans, but thanks to liberal meddling, these aren’t normal times.
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CW, I wasn’t speaking solely of housing, though it is one area for certain. But use a less emotionally charged asset, like commercial real estate. The scenario I mentioned would work the same way. The bank forecloses after the crash, and has pocketed whatever principal and interest was garnered during the interim phase.
That accrued income offsets the paper loss, as it is ONLY paper to the bank, because they can borrow at the Fed Discount Window at near zero per cent to hold the asset. In a normal business cycle, the recovery begins as quickly as 6 months, and usually reacquires the prior level in 18 months. From there, the increased liquidity pushes prices to new highs.
Now what is the bank’s position? They pocketed principal and interest before the foreclosure. They hold a real asset, underwater on their books, at no income, but next to no actual cost thanks to the Fed.
Within 18 months of the crash, the asset has recovered it’s market value, and is headed to new highs. Oh, Poor Babies! They might have even leased it short term at a discount to cover the carrying costs as well, sweetening the deal further.
But banks don’t want to hold real assets, as turn on money at interest is their game using the compounding of fractional reserve and compound interest.
Realistically, the local banker is not willingly in on this game in a knowing fashion, but the central bankers are, which is what this post was about. They determine how the local banker will react by how they manipulate the local bankers options.
Look at the concentration of assets in banking that occurred following the S & L crisis of the 80s, 9-11, and the 2008 crisis. In each one the big banks swallowed up the smaller. The S & Ls hardly exist as a comparative percentage of such assets since. We lost most local banks in Texas, and the mega-sized Too Big To Fail banks control everything. They also have seats at the Fed! Funny how that works!
Not funny at all really!
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>>” The bank forecloses after the crash, and has pocketed whatever principal and interest was garnered during the interim phase.”
Suppose you loan a friend $100 at 7% interest for one year. At the end of the year when they give you $107, does that mean you made $107? Of course not! You made $7 and you got back your original $100. It works no differently for a bank, so I’m confused when you say the bank “pocketed principal.” You charged 7% interest because (1) you took a risk that you might not get back your $100; and (2) you’ve given up the opportunity to use that $100 to make a profit in some other way. You could have invested that $100 in stocks or in your business or you could have paid down your own debts. Again, the same logic applies to banks. They are paid for taking a risk and for the lost opportunity to invest the money in some other way. Banks and the loans they provide fulfill a need in the community just the same as teachers or plumbers fulfill a need and are paid for their services.
>>” That accrued income offsets the paper loss, as it is ONLY paper to the bank, because they can borrow at the Fed Discount Window at near zero per cent to hold the asset.”
This notion that a bank’s losses are only on paper is completely FALSE. First, consider the word “borrow” in your sentence above. “Borrow” implies money that must be returned. Yes, they make money on interest and fees, that’s the whole idea of the business venture, but those earnings can easily be wiped out if money lent out by banks is not repaid. That’s how banks become insolvent and go out of business.
The lending activities of banks is VERY strictly regulated. The amount they are allowed to loan out is a percentage of deposits on hand and is also limited by formulas that measure the quality of their loan portfolios. Every single loan that a bank makes is assigned a grade according to its risk. That was part of my job when worked for Bank One. The more risky the overall portfolio of a bank, the bigger the discount is applied to what they are allowed to lend (and therefore make money on). So typically banks want to (1) attract depositors; and (2) make strong, low-risk loans.
>>”Now what is the bank’s position? They pocketed principal and interest before the foreclosure. They hold a real asset, underwater on their books, at no income, but next to no actual cost thanks to the Fed. Within 18 months of the crash, the asset has recovered it’s market value, and is headed to new highs.
Once again, the bank does not “pocket principal.” Principal is THEIR OWN money being repaid to them. If I hand you $20 and you give it back to me, I did not just make $20!
Banks don’t typically want to be in the business of holding real estate, unless that’s part of their original business model. Holding real estate is expensive. It has to be maintained. Property taxes must be paid. The property must be marketed. Meanwhile, the bank by law must maintain a reserve for any loss that it projects on the property based on its CURRENT value (not what they hope to get in 6 or 18 months), and that reserve is subtracted from the amount that it is allowed to lend, thereby reducing the banks main source of income. Orchestrating a real estate crash and then hoping it recovers in 6 – 18 months would be incredibly risky and foolish. It probably took 5-6 years or more for real estate prices to recover after the bust of 2008. Having gone into the banking industry at the height of a recession in Colorado in the 80’s I can assure you that the banks were not having any fun. They took huge losses, some going belly up, and yes they recouped a portion of the losses in later years but what they recouped paled in comparison to what they lost. Banking laws make it very untenable for banks to hold onto foreclosed assets for long periods of time. The impetus is for them to unload those assets as quickly as possible, and in a recession that means selling for pennies on the dollar.
I don’t disagree with you that there’s a different dynamic at the central bank level, but that is partly a function of the larger banks having learned that diversification is the key to staying in business, hence they become larger. It’s no different than someone who owns a small shop selling only snow shovels and tire chains in a cold-climate area. What happens if there’s no snow for a couple of years? He goes out of business, but maybe Ace Hardware buys him out because Ace has a sufficient diversity of products that they can still survive when there’s little snow.
I’m not necessarily here to defend big banking, Curtis, but I think everyone needs a correct understanding of how banks work. They provide a service like any other business and so should not be uniformly demonized. That’s a whole different subject from the question of whether the Federal Reserve is a good thing or a bad thing, I know. That question aside, what we need is a restoration of accountability at every level. People who borrow money from banks for any reason should be held responsible for their loans. If they absolutely CANNOT pay (as opposed to will not pay), then the bank must assume the loss. It should never fall on tax payers to bear these losses. That’s where we’ve gone wrong.
Sorry to go on so long!
I appreciated the interest rate increases. The QE’s all through the Obama admin removed seniors’ interest rates and kept the stock markets up because: where else are you gonna put your money?
I’d like to see the demise of the Fed.
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Yes, tannngl, we need to return to a “normal” rate of interest for those living on fixed incomes.
But a rapid rise risked submerging the recovery. In recent decades the curtailment gets serious over 3%, and Powell was racing in that direction. Precipitating another market crash would be disastrous..
So? Do what’s right and stop the recovery. Why are these dolts trying to control our economy. Our economy and as follows, our markets can control themselves. Don’t ‘audit’ the Fed. Do away with it.
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tannngl, that is the end goal, but it requires a process.
You see the socialists ascendant even now, with a pretty good recovery finally occurring. What their political position be if we forced a crash prematurely? Certainly you aren’t wanting that!
Trump must engineer his reelection before he allows things to be reset. This is a GLOBAL problem, not just in the US.
The corrupt international money flows are being curtailed, Saudi Arabia as an instance. Even more is happening behind the scenes, like Brexit and the slow motion failing of the EU. A LOT of assets, Billion$ if not Trillion$ have been frozen, to the extent that the fricking Rothschilds are selling ancestral estates and art collections to free cash again. Soros had to move his fortune into a Foundation, which limits his liquidity.
This is a high stakes game against the cabal in question. The coup attempt by corrupt elements in the prior administration and DOJ is merely the tip of the iceberg. The cabal has their hooks in many prominent politicians, which explains their duplicity, when you look at it. Paper thin excuses in most cases.
We’ll see how it turns out, but progress is being made.
I’ll have to munge (thanks Mrs. Al) on this a bit more but when people make rare appearances on 60 Minutes, it’s usually right before or after something bad has or is about to happen.
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Right as rain, Kathy! Someone is in CYA mode.
We need a return to sound money!