Federal Reserve Archives ⋆ Unite or Die

The Fed’s Interest Rate and QE Policies Have Allowed Billionaires and Corporations to Buy America’s Assets Out from Under the People

… All on money, loaned for free by FED, that the American People have to pay the interest on.

Liquidating Civilization, Report 22 Apr 2018

In a normal world, borrowers cannot run a loss-making enterprise indefinitely. Though even in positive-rates America, they can get away with it for a long time if the Fed creates a permissive credit environment.

However, Fed or no Fed, losses are written on the financial statements. A business that destroys investor capital at -1% per year will run out of cash, sooner or later. This is in a normal world. What if the world is not normal?

Let’s consider that. Losing Corp. loses money at -1% but borrows at -2%. Earnings before interest is negative. But after interest, “earnings” is positive. Unlike the former case where the company reports loses while other companies are presumably reporting profits, and thus the money-losing company will eventually repel investors, in this case it is sustainable. At least so long as the interest rate is negative. Which it will be (and falling) for all the reasons we have been writing for years.

Liquidating Civilization

Of course, it’s not sustainable. It will end, but the central banking regime has made it much more difficult to liquidate losing businesses (while ensuring more and more businesses will lose). Large scale business liquidation can only occur when it is no longer possible to slowly liquidate civilization.

Let’s defend that statement. The interest rate is the single most important price in the economy, because every other price and every investment and every enterprise depends on it. And the central banks have created a system which has driven it down to zero and beyond.

The interest rate is the expression, in the market, of a universal in the human condition. Time itself (we will revisit this idea in a future essay).

When interest sinks below zero, it means that the return to be earned on capital is negative. It means all savers are doomed to slowly lose their capital. It means any other better opportunities have, for one reason or another, gone away. No one would lend at -2% if he could get +3% obviously. So the market being moribund at -2% means the marginal enterprise sees no better opportunity. They are willing to borrow only if the rate is that or lower.

As an aside, this is a good way to think of the dynamics of a falling interest rate. There is little demand for credit, other than on a downtick in interest rates.

By the time it gets to the terminal phase, where businesses are borrowing at -2%, the marginal business is not able to bid higher than that. It does not want credit, except when the price is -2%. A business will always seek to borrow at lower than its return on capital (or else there’s no point). A bid of -2% means the business wants credit to finance wealth-destroying activities.

There is no mechanism to deprive one particular wealth-destroying enterprise of capital, when large numbers of them are losing. There is not one bad company showing losses on its financial statements, slowly running out of cash. There is a whole economy full of them—showing profits! If something is profitable, businesses will scale it up until it no longer is.

In a free market, only wealth-creation is profitable. But in this terminal stage of the unfree market based on the forced feeding of credit, borrowing at -2% and destroying capital at -1% is profitable. This trade will be scaled up.

Perverse Incentive → Perverse Outcome

Inevitably, people will blame free markets, business, and the profit motive itself. They will not question the perverse outcome that comes from the perverse incentive of a falling interest rate and the heat death of the economic universe. So the for-profit business will take the blame that should go to the Fed and the legal tender laws and the rest of the whole edifice of our monetary regime.

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The Federal Reserve is ruining us

The Worst Threat We Face Is Right Here At Home

Modern-Day Soviet Crop Reports

In the former Soviet Union, the communist method of assuring economic progress was to set targets for production. Famous among them were the crop reports.

In these, year after year, the various regional oblast (province) authorities would declare having met or exceeded the crop targets, despite rarely ever truly doing so.

These crop reports were so famously unreliable that the Kremlin leadership eventually took to obtaining their information from US satellite reconnaissance data rather than their own internal reporting from local Communist Party bosses.

Basing next year’s crop planting decisions on these reports often led to famines, and sometimes even mass starvation of entire regions.

Poor data = Bad decisions.

The Soviet crop reports are now a famous example of an unreliable measure that led to disastrous consequences. Because of the false reporting, poor decisions were made. Eventually it became clear to even the Soviets that attempting to centrally micro-manage a major economy is an act of folly.

Too much of this and too little of that were produced. Cement, steel, and auto quotas harmed rather than helped for obvious reasons; poor information flows assured that production decisions were late or flawed or both. All this contributed dearly to the Soviet economy’s collapse.

The lessons here are instructive and simple:

centralized management of complex systems doesn’t work, and
bad data leads to bad outcomes

Today’s stock and bond markets are no different than the Soviet crop reports of old. They mainly represent what a small committee of central planners believe are the right numbers to achieve very broad macro-economic goals.

Enormous damage has already been done by the interventions and distortions resulting from the pursuit of the delusional aims of todays central planners (with the world’s central banking cartel being the most culpable).

But it’s poised to get a lot worse from here.

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When it comes to repaying the current global debt levels of ~310 % of GDP, we can confidently predict that such a debt load can never be repaid. They can only try to roll it over as long as they can — which can’t go on much longer without real consequence. Mounting losses are certain at this point.

When it comes to underfunded promises and entitlement programs, such as pensions and social security (clocking in at nearly 800% of GDP!), there’s really only one all-important question that matter at this point: Who’s going to eat the losses?

In Part 2: It’s Even Worse Than You Think, we reveal the much further extent of the racket being run against the public by the world central banking cartel, and how it’s efforts to continue this racket have sentenced us all to another massive financial/economic crisis — one that is both now inevitable, necessary, and overdue.

By preventing that which should happen, the central banks have set the stage for an enormously dangerous and disruptive market crash. The kind that forces markets to close for days and weeks on end. The kind that leads to major banking crises punctuated by ‘holidays’ where depositors can not access their money. The kind where disorder and social unrest becomes a real risk.

Our National Debt And Government Spending Are A Moral Abomination

Congress has returned to doing what it loves most: spending money we don’t have. Increased spending in the latest bipartisan budget deal, along with the recent Republican tax cuts, will vastly increase the deficit.

Principled conservatives objected, but were ignored in the scramble to give the American people what they want: more government spending without having to pay for it. Both parties are happy to deliver. With some worthy exceptions, Republicans who had bitterly criticized the “Obama deficits” are now eagerly embracing enormous Trump deficits.

This is sinful, but few people think of government deficits in such terms. This is not due to any reticence about political moralizing per se. Much of our political discourse now consists of dismissing our opponents as moral monsters and declaring “I’m better than you.” Why, in this atmosphere, is deficit spending one of the few issues about which more moralizing might be in order?

There seem to be two main factors behind our disinclination to describe persistent deficit spending—and the massive national debt it produces—as a moral wrong. The first is that the national debt doesn’t seem real to us; it is just numbers somewhere in the ether. Even people who consistently oppose reckless deficit spending tend to treat it abstractly. The second is that both parties are thoroughly guilty of contributing to the problem, so partisans have a strong incentive to be indulgent on the subject.

The National Debt Steals People’s Futures

Nonetheless, this is a moral problem. Our national debt steals from other people’s futures in a way that mere personal debt does not. For instance, if I borrow money, whether for a house, a car, an education, or a shiny new cell phone, I am the one who will have to pay it back or suffer the consequences (harassment by collection agencies, repossession, bankruptcy, and so on). The debt is mine, and so are the consequences if I borrow more than I can repay.

But while the money we’re borrowing as a nation will have to be paid back, those doing so will not be the people who get it. Federal deficit spending is not like going into personal debt. It is like grandma going on a binge with her grandchildren’s credit cards. It is parents signing away their children’s future for some government handouts now.

It is wrong to place our children and grandchildren under enormous debt. It is a sin against them. But we don’t think of deficit spending that way. Parents and grandparents who otherwise work hard to help their children and grandchildren succeed have no compunction about burdening them with endless budget deficits resulting in a crushing national debt.

This is not only because the deficit and debt seem remote in a way that personal credit card bills are not, but also because many people are unaware that the sources of the deficit are some of the federal government’s most popular programs: Social Security, Medicare and Medicaid, and military spending. Few people want to cut these, and the next largest expense is paying the interest on our nation’s existing debt, which can’t be cut without causing a global financial crisis.

There is no easy solution, though voters enjoy being lied to and told that one exists (if only the other party weren’t obstructing it). As ridiculous as some federally funded programs can be (e.g., Harry Reid’s cowboy poetry), they aren’t the real problem. The deficit cannot be fixed by cutting foreign aid or the National Endowment for the Arts, or by taxing the rich just a bit more. It cannot be fixed by addressing “waste, fraud and abuse.” The real money is spent on the military and middle-class welfare programs.

Yes, Your Favorite Government Programs Are Welfare

And they are welfare programs, even if that appellation makes many beneficiaries uncomfortable. Social Security is a not a retirement account the government maintains for you. It is a transfer program, in which today’s workers are taxed to pay today’s retirees and the disabled. The amount someone pays in is not what he or she will get out, and many people receive far more in benefits than they paid in.

Likewise, Medicare is not a health savings account administered by the government. It is an incredibly expensive welfare program in which those currently working pay for the health care of the elderly and disabled, with lifetime costs for beneficiaries usually far in excess of what they paid into the program.

That these are welfare programs does not mean they should be eliminated. Wealthy societies with strong economies can afford some welfare spending, or even a lot of it. However, honesty about what these programs are and what they are for is necessary if we are to keep from being bankrupted by them. We must face the reality that the typical welfare queen isn’t a black mother in the inner city, but a middle-class white retiree.

Refusing to Pay for This Welfare Is Immoral

If we want generous middle-class benefits, we will need to drastically cut defense spending and raise taxes, including on the middle class. If we are not willing to do that, then we need to reform our entitlement programs to be sustainable. Either way, the sooner we address these problems, the less painful the adjustment will be. The more indebted and dependent our nation is, the more it will hurt when we run out of easy credit.

But right now, politicians (who are well aware of the problems of endless deficits) are terrified of voters punishing them for any changes. Both parties have campaigned on protecting entitlements, and both have attacked the other for attempting reform. Young voters, who will lose the most on our current trajectory, are often disengaged and besotted with adolescent socialist fantasies.

Meanwhile, retirees and near-retirees vote. They aren’t keen on politicians who raise taxes or cut military spending, and they will annihilate any politician who threatens their government checks and health care. The youth are checked out or feeling the Bern, while their elders are selling them down the river.

The electoral math suggests that there will be no reform or restraint except what will eventually be forced on us by the pitiless math of accounting and economics. That will be a painful reckoning. The consequences will be severe, and those who oppose putting our national finances in order are sinning against their children and grandchildren.

Nathanael Blake has a PhD in political theory. He lives in Missouri.

How the Federal Reserve Destroyed the Functioning American Democracy and Bankrupt the Nation

Posted by Chris Hamilton
Monday, November 13, 2017

Against the adamant wishes of the Constitution’s framers, in 1913 the Federal Reserve System was Congressionally created. According to the Fed’s website, “it was created to provide the nation with a safer, more flexible, and more stable monetary and financial system.” Although parts of the Federal Reserve System share some characteristics with private-sector entities, the Federal Reserve was supposedly established to serve the public interest.

A quick overview; monetary policy is the Federal Reserve’s actions, as a central bank, to achieve three goals specified by Congress: maximum employment, stable prices, and moderate long-term interest rates in the United States. The Federal Reserve conducts the nation’s monetary policy by managing the level of short-term interest rates and influencing the availability and cost of credit in the economy. Monetary policy directly affects interest rates; it indirectly affects stock prices, wealth, and currency exchange rates. Through these channels, monetary policy influences spending, investment, production, employment, and inflation in the United States.

I suggest what truly happened in 1913 was that Congress willingly abdicated a portion of its responsibilities, and through the Federal Reserve, began a process that would undermine the functioning American democracy. “How”, you ask? The Fed, believing the free-market to be “imperfect” (aka; wrong) believed it (the Fed) should control and set interest rates, determine full employment, determine asset prices; not the “free market”. And here’s what happened:

From 1913 to 1971, an increase of $400 billion in federal debt cost $35 billion in additional annual interest payments.
From 1971 to 1981, an increase of $600 billion in federal debt cost $108 billion in additional annual interest payments.
From 1981 to 1997, an increase of $4.4 trillion cost $224 billionin additional annual interest payments.
From 1997 to 2017, an increase of $15.2 trillion cost “just” $132 billion in additional annual interest payments.

Stop and read through those bullet points again…and then one more time. In case that hasn’t sunk in, check the chart below…

What was the economic impact of the Federal Reserve encouraging all that debt? The yellow line in the chart below shows the annual net impact of economic growth (in growing part, spurred by the spending of that new debt)…gauged by GDP (blue columns) minus the annual rise in federal government debt (red columns). When viewing the chart, the problem should be fairly apparent. GDP, subtracting the annual federal debt fueled spending, shows the US economy is collapsing except for counting the massive debt spending as “economic growth”.

Same as above, but a close-up from 1981 to present. Not pretty.

Consider since 1981, the Federal Reserve set FFR % (Federal Funds rate %) is down 94% and the associated impacts on the 10yr Treasury (down 82%) and the 30yr Mortgage rate (down 77%). Four decades of cheapening the cost of servicing debt has incentivized and promoted ever greater use of debt.

Again, according to the Fed’s website, “it was created to provide the nation with a safer, more flexible, and more stable monetary and financial system.” However, the chart below shows the Federal Reserve policies’ impact on the 10yr Treasury, stocks (Wilshire 5000 representing all publicly traded US stocks), and housing to be anything but “safer” or “stable”.

Previously, I have made it clear the asset appreciation the Fed is providing is helping a select few, at the expense of the many, HERE.

But a functioning democratic republic is premised on a simple agreement that We (the people) will freely choose our leaders who will (among other things) compromise on how taxation is to be levied, how much tax is to be collected, and how that taxation is to be spent. The intervention of the Federal Reserve into that equation, controlling interest rates, outright purchasing assets, and plainly goosing asset prices has introduced a cancer into the nation which has now metastasized.

In time, Congress (& the electorate) would realize they no longer had to compromise between infinite wants and finite means. The Federal Reserve’s nearly four decades of interest rate reductions and a decade of asset purchases motivated the election of candidates promising ever greater government absent the higher taxation to pay for it. Surging asset prices created fast rising tax revenue. Those espousing “fiscal conservatism” or living within our means (among R’s and/or D’s) were simply unelectable.

This Congressionally created mess has culminated in the accumulation of national debt beyond our means to ever repay. As the chart below highlights, the Federal Reserve set interest rate (Fed. Funds Rate=blue line) peaked in 1981 and was continually reduced until it reached zero in 2009. The impact of lower interest rates to promote ever greater national debt creation was stupendous, rising from under $1 trillion in 1981 to nearing $21 trillion presently. However, thanks to the seemingly perpetually lower Federal Reserve provided rates, America’s interest rate continually declined inversely to America’s credit worthiness or ability to repay the debt.

The impact of the declining rates meant America would not be burdened with significantly rising interest payments or the much feared bond “Armageddon” (chart below). All the upside of spending now, with none of the downside of ever paying it back, or even simply paying more in interest. Politicians were able to tell their constituencies they could have it all…and anyone suggesting otherwise was plainly not in contention. Federal debt soared and soared but interest payable in dollars on that debt only gently nudged upward.

In 1971, the US paid $36 billion in interest on $400 billion in federal debt…a 9% APR.
In 1981, the US paid $142 billion on just under $1 trillion in debt…a 14% APR.
In 1997, the US paid $368 billion on $5.4 trillion in debt or 7% APR…and despite debt nearly doubling by 2007, annual interest payments in ’07 were $30 billion less than a decade earlier.
By 2017, the US will pay out about $500 billion on nearly $21 trillion in debt…just a 2% APR.

The Federal Reserve began cutting its benchmark interest rates in 1981 from peak rates. Few understood that the Fed would cut rates continually over the next three decades. But by 2008, lower rates were not enough. The Federal Reserve determined to conjure money into existence and purchase $4.5 trillion in mid and long duration assets. Previous to this, the Fed has essentially held zero assets beyond short duration assets in it’s role to effect monetary policy. The change to hold longer duration assets was a new and different self appointed mandate to maintain and increase asset prices.

But why the declining interest rates and asset purchases in the first place?

The Federal Reserve interest rates have very simply primarily followed the population cycle and only secondarily the business cycle. What the chart below highlights is annual 25-54yr/old population growth (blue columns) versus annual change in 25-54yr/old employees (black line), set against the Federal Funds Rate (yellow line). The FFR has followed the core 25-54yr/old population growth…and the rising, then decelerating, now declining demand that that represented means lower or negative rates are likely just on the horizon (despite the Fed’s current messaging to the contrary).

Below, a close-up of the above chart from 2000 to present.

Running out of employees??? Each time the 25-54yr/old population segment has exceeded 80% employment, economic dislocation has been dead ahead. We have just exceeded 78% but given the declining 25-54yr/old population versus rising employment…and the US is likely to again exceed 80% in 2018.

Given the FFR follows population growth, consider that the even broader 20-65yr/old population will essentially see population growth grind to a halt over the next two decades. This is no prediction or estimate, this population has already been born and the only variable is the level of immigration…which is falling fast due to declining illegal immigration meaning the lower Census estimate is more likely than the middle estimate.

So where will America’s population growth take place? The 65+yr/old population is set to surge.

But population growth will be shifting to the most elderly of the elderly…the 75+yr/old population. I outlined the problems with this previously HERE.

Back to the Federal Reserve, consider the impact on debt creation prior and post the creation of the Federal Reserve:

1790-1913: Debt to GDP Averaged 14%
1913-2017: Debt to GDP Averaged 53%
- 1913-1981: 46% Average
- 1981-2000: 52% Average
- 2000-2017: 79% Average

As the chart below highlights, since the creation of the Federal Reserve the growth of debt (relative to growth of economic activity) has gone to levels never dreamed of by the founding fathers. In particular, the systemic surges in debt since 1981 are unlike anything ever seen prior in American history. Although the peak of debt to GDP seen in WWII may have been higher (changes in GDP calculations mean current GDP levels are likely significantly overstating economic activity), the duration and reliance upon debt was entirely tied to the war. Upon the end of the war, the economy did not rely on debt for further growth and total debt fell.

Any suggestion that the current situation is like any America has seen previously is simply ludicrous. Consider that during WWII, debt was used to fight a war and initiate a global rebuild via the Marshall Plan…but by 1948, total federal debt had already been paid down by $19 billion or a seven percent reduction…and total debt would not exceed the 1946 high water mark again until 1957. During that ’46 to ’57 stretch, the economy would boom with zero federal debt growth.

1941…Fed debt = $58 b (Debt to GDP = 44%)
1946…Fed debt = $271 b (Debt to GDP = 119%)
- 1948…Fed debt = $252 b <$19b> (Debt to GDP = 92%)
- 1957…Fed debt = $272 b (Debt to GDP = 57%)

If the current crisis ended in 2011 (recession ended by 2010, by July of 2011 stock markets had recovered their losses), then the use of debt as a temporary stimulus should have ended?!? Instead, debt and debt to GDP are still rising.

2007…Federal debt = $8.9 T (Debt to GDP = 62%)
2011…Federal debt = $13.5 T (Debt to GDP = 95%)
2017…Federal Debt = $20.5 T (Debt to GDP = 105%)

July of 2011 was the great debt ceiling debate when America determined once and for all, that the federal debt was not actually debt. America had no intention to ever repay it. It was simply monetization and since the Federal Reserve was maintaining ZIRP, and all oil importers were forced to buy their oil using US dollars thanks to the Petrodollar agreement…what could go wrong?

But who would continue to buy US debt if the US was addicted to monetization in order to pay its bills? Apparently, not foreigners. If we look at foreign Treasury buying, some very notable changes are apparent beginning in July of 2011:

The BRICS (Brazil, Russia, India, China, S. Africa…represented in red in the chart below) ceased net accumulating US debt as of July 2011.
Simultaneous to the BRICS cessation, the BLICS (Belgium, Luxembourg, Ireland, Cayman Island, Switzerland…represented in black in the chart below) stepped in to maintain the bid.
Since QE ended in late 2014, foreigners have followed the Federal Reserve’s example and nearly forgone buying US Treasury debt.

China was first to opt out and began net selling US Treasuries as of August, 2011 (China in red, chart below). China has continued to run record trade driven dollar surplus but has net recycled none of that into US debt since July, 2011. China had averaged 50% of its trade surplus into Treasury debt from 2000 to July of 2011, but from August 2011 onward China stopped cold.

As China (and more generally the BRICS) ceased buying US Treasury debt, a strange collection of financier nations (the BLICS) suddenly became very interested in US Treasury debt. From the debt ceiling debate to the end of QE, these nations were suddenly very excited to add $700 billion in near record low yielding US debt while China net sold.

The chart below shows total debt issued during periods, from 1950 to present, and who accumulated the increase in outstanding Treasurys.

The Federal Reserve plus foreigners represented nearly 2/3rds of all demand from ’08 through ’14. However, since the end of QE, and that 2/3rds of demand gone…rates continue near generational lows??? Who is buying Treasury debt? According to the US Treasury, since QE ended, it is record domestic demand that is maintaining the Treasury bid. The same domestic public buying stocks at record highs and buying housing at record highs.

Looking at who owns America’s debt 2007 through 2016, the chart below highlights the four groups that hold nearly 90% of the debt:

The combined Federal Reserve/Government Accounting Series
Foreigners
Domestic Mutual Funds
And the massive rise in Treasury holdings by domestic “Other Investors” who are not domestic insurance companies, not local or state governments, not depository institutions, not pensions, not mutual funds, nor US Saving bonds.

Treasury buying by foreigners and the Federal Reserve has collapsed since QE ended (chart below). However, the odd surge of domestic “other investors”, Intra-Governmental GAS, and domestic mutual funds have nearly been the sole buyer preventing the US from suffering a very painful surge in interest payments on the record quantity of US Treasury debt.

No, this is nothing like WWII or any previous “crisis”. While America has appointed itself “global policeman” and militarily outspends the rest of the world combined, America is not at war. Simply put, what we are looking at appears little different than the Madoff style Ponzi…but this time it is a state sponsored financial fraud magnitudes larger.

The Federal Reserve and its systematic declining interest rates to perpetuate unrealistically high rates of growth in the face of rapidly decelerating population growth have fouled the American political system, its democracy, and promoted the system that has now bankrupted the nation. And it appears that the Federal Reserve is now directing a state level fraud and farce. If it isn’t time to reconsider the Fed’s role and continued existence now, then when?

Fed Stunner: Top 1% Of Americans Are 70% Wealthier Than The Bottom 90% | Zero Hedge

Today, the Federal Reserve released its triennial Survey of Consumer Finances (SCF) which collects information about family incomes, net worth, balance sheet components, credit use, and other financial outcomes. A superficial flip through the first few pages of the 2016 SCF as most will do, reveals “broad-based gains in income and net worth since the previous time the survey was conducted, in 2013” as the Fed puts it. Unfortunately, reading between the lines reveals that while net worth and income did increase in the past three years, it was exclusively for the “top 10%” of Americans. The “bottom 90%” got virtually nothing of this so-called recovery.

First, here is the report’s summary, taken verbatim and meant to demonstrate just what a great job at “wealth creation” the Fed is doing:

Between 2013 and 2016, median family income grew 10 percent, and mean family income grew 14 percent
Families throughout the income distribution experienced gains in average real incomes between 2013 and 2016, reversing the trend from 2010 to 2013, when real incomes fell or remained stagnant for all but the top of the income distribution.
Families without a high school diploma and nonwhite and Hispanic families experienced larger proportional gains in incomes than other families between 2013 and 2016, although more-educated families and white non-Hispanic families continue to have higher incomes than other families.

So far, so good. However, the next bullet is the first troubling admission that not all is well:

Families at the top of the income distribution saw larger gains in income between 2013 and 2016 than other families, consistent with widening income inequality.

Considering that one of the longest-running themes on this website has been the destruction of the middle class by the Fed, and the unprecedented transfer of wealth from the lower and middle-classes to wealthiest as a result of trillions in global, coordinated QE, we decided to focus on the bolded bullet. Luckily, the Fed did most of the work for us, and as the report’s authors write in a sidebar titled “Recent Trends in the Distribution of Income and Wealth”, the Fed authors admit that “The distribution of income and wealth has grown increasingly unequal in recent years. The Survey of Consumer Finances (SCF) has played a crucial role in our understanding of these trends because the survey collects data on net worth in addition to income, and it pays particular attention to sampling affluent families.”

First, a look at the distribution of income by various wealth buckets, “indicates that the shares of income and wealth held by affluent families have reached historically high levels since the modern SCF began in 1989.”

In case this is unclear, this is the Fed admitting that the rich have never made more money than they do now.

As the following chart shows, the share of income received by the top 1% of families was 20.3% in 2013 and rose to 23.8% in 2016. The top 1% of families now receives nearly as large a share of total income as the next highest 9 percent of families combined (percentiles 91 through 99), who received 26.5 percent of all income. This share has remained fairly stable over the past quarter of a century. Correspondingly, the rising income share of the top 1 percent mirrors the declining income share of the bottom 90 percent of the distribution, which fell to 49.7 percent in 2016, the lowest on record.

But while income may be bad, wealth is worse. Much worse.

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The End of the (Petro)Dollar: What the Federal Reserve Doesn’t Want You to Know

June 26, 2017 at 11:42 am

Written by Shaun Bradley

(ANTIMEDIA Op-Ed) — The United States’ ability to maintain its influence over the rest of the world has been slowly diminishing. Since the petrodollar was established in 1971, U.S. currency has monopolized international trade through oil deals with the Organization of the Petroleum Exporting Countries (OPEC) and continuous military interventions. There is, however, growing opposition to the American standard, and it gained more support recently when several Gulf states suddenly blockaded Qatar, which they accused of funding terrorism.

Despite the mainstream narrative, there are several other reasons why Qatar is in the crosshairs. Over the past two years, it conducted over $86 billion worth of transactions in Chinese yuan and has signed other agreements with China that encourage further economic cooperation. Qatar also shares the world’s largest natural gas field with Iran, giving the two countries significant regional influence to expand their own trade deals.

The Federal Reserve Is Destroying America | Peak Prosperity

Perhaps I should start with a disclaimer of sorts. Yes, I realize that the people working at the Federal Reserve, as well as the other central banks around the world, are just people. Like the rest of us, they have egos, fears, worries, hopes, and dreams. I’m sure pretty much all of them go home each night believing they are basically good and caring individuals, doing important work.

But they’re destroying America. They might have good intentions, but they are working with bad models. Ones that lead to truly horrible outcomes.

One of the chief failings of central banks is that they are slaves to an impossible idea; the notion that humans are free to pursue perpetual exponential economic growth on a finite planet. To be more specific: central banks are actually in the business of promoting perpetual exponential growth of debt.

But since growth in credit drives growth in consumption, the two are concepts are so intimately linked as to be indistinguishable from each other. They both rest upon an impossibility. Central banks are in the business of sustaining the unsustainable which is, of course, an impossible job.

I can only guess at the amount of emotional energy required to maintain the integrity of the edifice of self-delusion necessary to go home from a central banking job feeling OK about oneself and one’s role in the world. It must be immense.

I rather imagine it’s not unlike the key positions of leadership at Easter Island around the time the last trees were being felled and the last stone heads were being erected. “This is what we do,” they probably said to each other and their followers. “This is what we’ve always done. Pay no attention to those few crackpot haters who warn that in pursuing our way of life we’re instead destroying it.”

The most compassion I can drum up for central bankers right now is to observe that they really do have an impossible job; and their training has been simply too narrow and dogmatic for them to detect the gaping, obvious flaws in their world views. They never studied energy resource issues. Nor did they have to take any behavioral psychology classes that would have explained to them how deeply unfair economic practices are socially corrosive. Nor any history classes that would expose how such actions proved ruinous when they were applied in previous societies.

But here we are. The fact that the central bankers are either accidentally ignorant or purposely too lazy to explore the wider world of ideas is not one you can ignore any longer. Real consequences are coming and there’s no ducking them. We’re all in this big canoe of life together and the Fed and our political officials are exhorting us to paddle faster towards the roaring falls ahead.

You need to understand this. If you want to have any chance of navigating the future successfully, you have to understand what they are doing, how they are doing it, and why it will fail. If you don’t take the time to sort out the mechanisms and implications…well, good luck. You’re going to need it.

For those who prefer to rest their future prospects on Knowing instead of (misplaced) Hoping, read on.

The Federal Reserve Must Go

If you want to permanently fix America’s economy, there really is no other choice. Even before Ron Paul’s rallying cry of “End The Fed” shook America during the peak of the Tea Party movement, I was a huge advocate of shutting down the Federal Reserve. Because no matter how hard we try to patch it up otherwise, the truth is that our debt-based financial system has been fundamentally flawed from the very beginning, and the Federal Reserve is the very heart of that system. The following is a free preview of an upcoming book that I am working on about how to turn this country is a more positive direction…

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As the publisher of The Economic Collapse Blog, there have been times when I have been criticized for focusing too much on our economic problems and not enough on the solutions. But I believe that in order to be willing to accept the solutions that are necessary, people need to have a full understanding of the true severity of our problems. It isn’t by accident that we ended up 20 trillion dollars in debt. In 1913, a bill was rushed through Congress right before Christmas that was based on a plan that had been secretly developed by very powerful Wall Street bankers. G. Edward Griffin did an amazing job of documenting the development of this plan in his groundbreaking book “The Creature from Jekyll Island: A Second Look at the Federal Reserve”. At that time, most Americans had no idea what a central bank does or what one would mean for the U.S. economy. Sadly, even though more than a century has passed since that time, most Americans still do not understand the Federal Reserve.

The Federal Reserve was designed to create debt, and of course the Wall Street bankers were very excited about such a system because it would make them even wealthier. Since the Fed was created in 1913, the U.S. national debt has gotten more than 5000 times larger and the value of the U.S. dollar has declined by about 98 percent. So the Federal Reserve is doing what it was originally designed to do. In fact, it has probably worked better than the original designers ever dreamed possible.

There is often a lot of confusion about the Federal Reserve, because a lot of people think that it is simply an agency of the federal government. But of course that is not true at all. In fact, as Ron Paul likes to say, the Federal Reserve is about as “federal” as Federal Express is.

The Fed is an independent central bank that has even argued in court that it is not an agency of the federal government. Yes, the president appoints the leadership of the Fed, but the Fed and other central banks around the world have always fiercely guarded their “independence”. On the official Fed website, it is admitted that the 12 regional Federal Reserve banks are organized “much like private corporations”, and they very much operate like private entities. They even issue shares of stock to the private banks that own them.

In case you were wondering, the federal government has zero shares.

The American people are constantly being told that Fed decisions must be “above politics” because they are “too important” to be politicized. So even though everything else in our society is up for political debate, somehow we have become convinced that the Federal Reserve should be off limits.

Today, the Federal Reserve has more power over the performance of the U.S. economy than anyone else does, and that includes the president. The Fed has become known as “the fourth branch of government”, and a single statement from the chairman of the Fed can send global financial markets soaring or tumbling.

The Banking Secret that Neither Economists Nor Laypeople Know … Which Makes the Fatcats Richer, While Destroying the Real Economy

Private Banks – Not the Government or Central Banks – Create 97 Percent of All Money

Who creates money?

Most people assume that money is created by governments … or perhaps central banks.

In reality – as noted by the Bank of England, Britain’s central bank – 97% of all money in circulation is created by private banks.

Bank Loans = Creating Money Out of Thin Air

But how do private banks create money?

We’ve all been taught that banks first take in deposits, and then they loan out those deposits to folks who want to borrow.

But this is a myth …

The Bank of England the German central bank have explained that loans are extended before deposits exist … and that the loans create deposits:

The above is from an official video released by the Bank of England.

The Bank of England explains:

Whenever a bank makes a loan, it simultaneously creates a matching deposit in the borrower’s bank account, thereby creating new money.

The reality of how money is created today differs from the description found in some economics textbooks:

Rather than banks receiving deposits when households save and then lending them out, bank lending creates deposits.

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One common misconception is that banks act simply as intermediaries, lending out the deposits that savers place with them. In this view deposits are typically ‘created’ by the saving decisions of households, and banks then ‘lend out’ those existing deposits to borrowers, for example to companies looking to finance investment or individuals wanting to purchase houses.

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In reality in the modern economy, commercial banks are the creators of deposit money …. Rather than banks lending out deposits that are placed with them, the act of lending creates deposits — the reverse of the sequence typically described in textbooks.

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Commercial banks create money, in the form of bank deposits, by making new loans. When a bank makes a loan, for example to someone taking out a mortgage to buy a house, it does not typically do so by giving them thousands of pounds worth of banknotes. Instead, it credits their bank account with a bank deposit of the size of the mortgage. At that moment, new money is created. For this reason, some economists have referred to bank deposits as ‘fountain pen money’, created at the stroke of bankers’ pens when they approve loans.

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This description of money creation contrasts with the notion that banks can only lend out pre-existing money, outlined in the previous section. Bank deposits are simply a record of how much the bank itself owes its customers. So they are a liability of the bank, not an asset that could be lent out.

Similarly, the Federal Reserve Bank of Chicago published a booklet called “Modern Money Mechanics” in the 1960s stating:

[Banks] do not really pay out loans from the money they receive as deposits. If they did this, no additional money would be created. What they do when they make loans is to accept promissory notes in exchange for credits to the borrowers’ transaction accounts.

Monetary expert and economics professor Randall Wray explained to Washington’s Blog that:

Bank deposits are bank IOUs.

How The Federal Reserve Is Setting Up Trump For A Recession, A Housing Crisis And A Stock Market Crash

By Michael Snyder, on March 13th, 2017

Most Americans do not understand this, but the truth is that the Federal Reserve has far more power over the U.S. economy than anyone else does, and that includes Donald Trump. Politicians tend to get the credit or the blame for how the economy is performing, but in reality it is an unelected, unaccountable panel of central bankers that is running the show, and until something is done about the Fed our long-term economic problems will never be fixed. For an extended analysis of this point, please see this article. In this piece, I am going to explain why the Federal Reserve is currently setting the stage for a recession, a new housing crisis and a stock market crash, and if those things happen unfortunately it will be Donald Trump that will primarily get the blame.

On Wednesday, the Federal Reserve is expected to hike interest rates, and there is even the possibility that they will call for an acceleration of future rate hikes…

Economists generally believe the central bank’s median estimate will continue to call for three quarter-point rate increases both this year and in 2018. But there’s some risk that gets pushed to four as inflation nears the Fed’s annual 2% target and business confidence keeps juicing markets in anticipation of President Trump’s plan to cut taxes and regulations.

During the Obama years, the Federal Reserve pushed interest rates all the way to the floor, and this artificially boosted the economy. In a recent article, Gail Tverberg explained how this works…

With falling interest rates, monthly payments can be lower, even if prices of homes and cars rise. Thus, more people can afford homes and cars, and factories are less expensive to build. The whole economy is boosted by increased “demand” (really increased affordability) for high-priced goods, thanks to the lower monthly payments.

Asset prices, such as home prices and farm prices, can rise because the reduced interest rate for debt makes them more affordable to more buyers. Assets that people already own tend to inflate, making them feel richer. In fact, owners of assets such as homes can borrow part of the increased equity, giving them more spendable income for other things. This is part of what happened leading up to the financial crash of 2008.

But the opposite is also true.

When interest rates rise, borrowing money becomes more expensive and economic activity slows down.

For the Federal Reserve to raise interest rates right now is absolutely insane. According to the Federal Reserve Bank of Atlanta’s most recent projection, GDP growth for the first quarter of 2017 is supposed to be an anemic 1.2 percent. Personally, it wouldn’t surprise me at all if we actually ended up with a negative number for the first quarter.

As Donald Trump has explained in detail, the U.S. economy is a complete mess right now, and we are teetering on the brink of a new recession.

So why in the world would the Fed raise rates unless they wanted to hurt Donald Trump?