Posts tagged Federal Reserve
Farewell Bernanke – Thanks For Inflating The Biggest Bond Bubble The World Has Ever Seen
Federal Reserve Chairman Ben Bernanke is on the way out the door, but the consequences of the bond bubble that he has helped to create will stay with us for a very, very long time. During Bernanke’s tenure, interest rates on U.S. Treasuries have fallen to record lows. This has enabled the U.S. government to pile up an extraordinary amount of debt. During his tenure we have also seen mortgage rates fall to record lows. All of this has helped to spur economic activity in the short-term, but what happens when interest rates start going back to normal? If the average rate of interest on U.S. government debt rises to just 6 percent, the U.S. government will suddenly be paying out a trillion dollars a year just in interest on the national debt. And remember, there have been times in the past when the average rate of interest on U.S. government debt has been much higher than that.
In addition, when the U.S. government starts having to pay more to borrow money so will everyone else. What will that do to home sales and car sales? And of course we all remember what happened to adjustable rate mortgages when interest rates started to rise just prior to the last recession. We have gotten ourselves into a position where the U.S. economy simply cannot afford for interest rates to go up. We have become addicted to the cheap money made available by a grossly distorted financial system, and we have Ben Bernanke to thank for that. The Federal Reserve is at the very heart of the economic problems that we are facing in America, and this time is certainly no exception.
This week Barack Obama publicly praised Ben Bernanke and stated that Bernanke has “already stayed a lot longer than he wanted” as Chairman of the Federal Reserve. Bernanke’s term ends on January 31st, but many observers believe that he could leave even sooner than that. Bernanke appears to be tired of the job and eager to move on.
So who would replace him? Well, the mainstream media is making it sound like the appointment of Janet Yellen is already a forgone conclusion. She would be the first woman ever to chair the Federal Reserve, and her philosophy is that a little bit of inflation is good for an economy. It seems likely that she would continue to take us down the path that Bernanke has taken us.
But is it a fundamentally sound path? Keeping interest rates pressed to the floor and wildly printing money may be producing some positive results in the short-term, but the crazy bubble that this is creating will burst at some point. In fact, the director of financial stability for the Bank of England, Andy Haldane, recently admitted that the central bankers have “intentionally blown the biggest government bond bubble in history” and he warned about what might happen once it ends…
“If I were to single out what for me would be biggest risk to global financial stability right now it would be a disorderly reversion in the yields of government bonds globally.” he said. There had been “shades of that” in recent weeks as government bond yields have edged higher amid talk that central banks, particularly the US Federal Reserve, will start to reduce its stimulus.
“Let’s be clear. We’ve intentionally blown the biggest government bond bubble in history,” Haldane said. “We need to be vigilant to the consequences of that bubble deflating more quickly than [we] might otherwise have wanted.”
Posted below is a chart that demonstrates how interest rates on 10-year U.S. Treasury bonds have fallen over the last several decades. This has helped to fuel the false prosperity that we have been enjoying, but there is no way that the U.S. government should have been able to borrow money so cheaply. This bubble that we are living in now is setting the stage for a very, very painful adjustment…
So what will that “adjustment” look like?
The following analysis is from a recent article by Wolf Richter…
Ten-year Treasury notes have been kicked down from their historic pedestal last July when some poor souls, blinded by the Fed’s halo of omnipotence and benevolence, bought them at a minuscule yield of 1.3%. For them, it’s been an ice-cold shower ever since. As Treasuries dropped, yields meandered upward in fits and starts. After a five-week jump from 1.88% in early May, they hit 2.29% on Tuesday last week – they’ve retreated to 2.19% since then. Now investors are wondering out loud what would happen if ten-year Treasury yields were to return to more normal levels of 4% or even 5%, dragging other long-term interest rates with them. They know what would happen: carnage!
And according to Richter, there are already signs that the bond bubble is beginning to burst…
Wholesale dumping of Treasuries by exasperated foreigners has already commenced. Private foreigners dumped $30.8 billion in Treasuries in April, an all-time record. Official holders got rid of $23.7 billion in long-term Treasury debt, the highest since November 2008, and $30.1 billion in short-term debt. Sell, sell, sell!
Bond fund redemptions spoke of fear and loathing: in the week ended June 12, investors yanked $14.5 billion out of Treasury bond funds, the second highest ever, beating the prior second-highest-ever outflow of $12.5 billion of the week before. They were inferior only to the October 2008 massacre as chaos descended upon financial markets. $27 billion in two weeks!
In lockstep, average 30-year fixed-rate mortgage rates jumped from 3.59% in early May to 4.15% last week. The mortgage refinancing bubble, by which banks have creamed off billions in fees, is imploding – the index has plunged 36% since early May.
If interest rates start to climb significantly, that will have a dramatic affect on economic activity in the United States.
And we have seen this pattern before.
As Robert Wenzel noted in a recent article on the Economic Policy Journal, we saw interest rates rise suddenly just prior to the October 1987 stock market crash, and we also saw them rise substantially prior to the financial crisis of 2008…
As Federal Reserve chairman Paul Volcker left the Fed chairmanship in August 1987, the interest rate on the 10 year note climbed from 8.2% to 9.2% between June 1987 and September 1987. This was followed, of course by the October 1987 stock market crash.
As Federal Reserve chairman Alan Greenspan left the Fed chairmanship at the end of January 2006, the interest rate on the 10 year note climbed from 4.35% to 4.65%. It then climbed above 5%.
So keep a close eye on interest rates in the months ahead. If they start to rise significantly, that will be a red flag.
And it makes perfect sense why Bernanke is looking to hand over the reins of the Fed at this point. He can probably sense the carnage that is coming and he wants to get out of Dodge while he still can.
NSA Spying on Americans Now Explained and Justified (Well, almost)
As most Americans are taking in the deluge of stories regarding the NSA wiretapping, spying and data mining through all the major internet and phone providers plus the social media organizations, one must think that George Orwell was right, just 30 or so years off on his pick for the title for his novel 1984, as was predicted. Although it would appear many in government consider this book a very useful training manual, that is not the case. In fact, it should have been a warning to the citizens, but they seemed to have missed this point while religiously worshiping such mind opening sagas as Dancing With The Stars and a slew of reality shows.
This afternoon I read a post that shed light regarding the spying inside America on Americans, and I now see how this action may truly be used against the war on terror as we have been told time and again.
This post by Weasel Zippers of an interview on NBC News Chief Foreign Affairs Correspondent Andrea Mitchell and Director of National Intelligence James Clapper opened my eyes. I now have a better understanding of the true “War on Terror” that the internal spying is all about.
As posted by Weasel Zippers:
NBC: “Why Do You Need Every Telephone Number?” – DNI Chief Clapper: “Well, You Have To Start Someplace”…
Really? — That’s where you need to start?
JUNE 9, 2013 — NBC News Chief Foreign Affairs Correspondent Andrea Mitchell sat down with Director of National Intelligence James Clapper yesterday for an exclusive wide-ranging interview to discuss recent revelations about government surveillance programs and the impact of leaks on national security. [...]
ANDREA MITCHELL: Why do you need every telephone number? Why is it such a broad vacuum cleaner approach?
JAMES CLAPPER: Well, you have to start someplace. If– and over the years that this program has operated, we have refined it and tried to– to make it ever more precise and more disciplined as to which– which things we take out of the library. But you have to be in the– in the– in the chamber in order to be able to pick and choose those things that we need in the interest of protecting the country and gleaning information on terrorists who are plotting to kill Americans, to destroy our economy, and destroy our way of life.
HT: Justin Brookman
Now I understand, and hope you do also. We agree, I hope, that the government’s two main jobs should be to protect the freedom and liberty of it’s people and protect the people’s property and way of life from undue and unwanted influence. Still not sure? Let us look at this justification for government surveillance, as mentioned in the interview, one point at a time.
Actions of terrorist that the surveillance is in place for:
- Plotting to kill Americans, we should all agree, no matter where it comes from, such as drone strikes or even FBI plots foiled by the FBI .
- To destroy our economy, I think we all agree, so surveillance on the Federal Reserve banks are justified.
- Destroy our way of life, which I think we will also agree, so surveillance on the TSA is also justified.
Now, I do not agree on the spying, data mining, surveillance and intrusion taking place on all Americans old enough to walk and talk, but I can now understand that there is truly a need for NSA surveillance inside our shores, not even going to bring up the State Department or indiscretions in the past. Cheering on and fully supporting the NSA mission as it eliminates the drone warfare and any possibility of use on Americans, ends the FED with the BIS control and abolishes the TSA! What is next for the NSA? I might suggest expanding the targets that destroy our way of life, such as the IRS :) After that we can toast a cheer, say a legitimate “Mission Accomplished” and move on to the rest of the list, such as possibly the EPA, Department of Education, and stopping China from taking over our communities one at a time. Just a thought. Perhaps it all about the good will? Actually, the “good will” link explains it best in my opinion, along with the need for some parody during these Stasi times we find ourselves in.
Your thoughts? Feel free to enter them below.
By Alex Newman
A former insider at the World Bank, ex-Senior Counsel Karen Hudes, says the global financial system is dominated by a small group of corrupt, power-hungry figures centered around the privately owned U.S. Federal Reserve. The network has seized control of the media to cover up its crimes, too, she explained. In an interview withThe New American, Hudes said that when she tried to blow the whistle on multiple problems at the World Bank, she was fired for her efforts. Now, along with a network of fellow whistleblowers, Hudes is determined to expose and end the corruption. And she is confident of success.
Citing an explosive 2011 Swiss study published in the PLOS ONE journal on the “network of global corporate control,” Hudes pointed out that a small group of entities — mostly financial institutions and especially central banks — exert a massive amount of influence over the international economy from behind the scenes. “What is really going on is that the world’s resources are being dominated by this group,” she explained, adding that the “corrupt power grabbers” have managed to dominate the media as well. “They’re being allowed to do it.”
According to the peer-reviewed paper, which presented the first global investigation of ownership architecture in the international economy, transnational corporations form a “giant bow-tie structure.” A large portion of control, meanwhile, “flows to a small tightly-knit core of financial institutions.” The researchers described the core as an “economic ‘super-entity’” that raises important issues for policymakers and researchers. Of course, the implications are enormous for citizens as well.
Hudes, an attorney who spent some two decades working in the World Bank’s legal department, has observed the machinations of the network up close. “I realized we were now dealing with something known as state capture, which is where the institutions of government are co-opted by the group that’s corrupt,” she told The New American in a phone interview. “The pillars of the U.S. government — some of them — are dysfunctional because of state capture; this is a big story, this is a big cover up.”
At the heart of the network, Hudes said, are 147 financial institutions and central banks — especially the Federal Reserve, which was created by Congress but is owned by essentially a cartel of private banks. “This is a story about how the international financial system was secretly gamed, mostly by central banks — they’re the ones we are talking about,” she explained. “The central bankers have been gaming the system. I would say that this is a power grab.”
The Fed in particular is at the very center of the network and the coverup, Hudes continued, citing a policy and oversight body that includes top government and Fed officials. Central bankers have also been manipulating gold prices, she added, echoing widespread concerns that The New American has documented extensively. Indeed, even the inaccurate World Bank financial statements that Hudes has been trying to expose are linked to the U.S. central bank, she said.
“The group that we’re talking about from the Zurich study — that’s the Federal Reserve; it has some other pieces to it, but that’s the Federal Reserve,” Hudes explained. “So the Federal Reserve secretly dominated the world economy using secret, interlocking corporate directorates, and terrorizing anybody who managed to figure out that they were having any kind of role, and putting people in very important positions so that they could get a free pass.”
The shadowy but immensely powerful Bank for International Settlements serves as “the club of these private central bankers,” Hudes continued. “Now, are people going to want interest on their country’s debts to continue to be paid to that group when they find out the secret tricks that that group has been doing? Don’t forget how they’ve enriched themselves extraordinarily and how they’ve taken taxpayer money for the bailout.”
As far as intervening in the gold price, Hudes said it was an effort by the powerful network and its central banks to “hold onto its paper currency” — a suspicion shared by many analysts and even senior government officials. The World Bank whistleblower also said that contrary to official claims, she did not believe there was any gold being held in Fort Knox. Even congressmen and foreign governments have tried to find out if the precious metals were still there, but they met with little success. Hudes, however, believes the scam will eventually come undone.
“This is like crooks trying to figure out where they can go hide. It’s a mafia,” she said. “These culprits that have grabbed all this economic power have succeeded in infiltrating both sides of the issue, so you will find people who are supposedly trying to fight corruption who are just there to spread disinformation and as a placeholder to trip up anybody who manages to get their act together.… Those thugs think that if they can keep the world ignorant, they can bleed it longer.”
Of course, the major corruption at the highest levels of government and business is not a new phenomenon. Georgetown University historian and Professor Carroll Quigley, who served as President Bill Clinton’s mentor, for example, wrote about the scheme in his 1966 book Tragedy And Hope: A History Of The World In Our Time. The heavyweight academic, who was allowed to review documents belonging to the top echelons of the global establishment, even explained how the corrupt system would work — remarkably similar to what Hudes describes.
“The powers of financial capitalism had a far-reaching aim, nothing less than to create a world system of financial control in private hands able to dominate the political system of each country and the economy of the world as a whole,” wrote Prof. Quigley, who agreed with the goals but not the secrecy. “This system was to be controlled in a feudalist fashion by the central banks of the world acting in concert by secret agreements arrived at in frequent private meetings and conferences. The apex of the system was to be the Bank for International Settlements in Basel, Switzerland, a private bank owned and controlled by the world’s central banks which were themselves private corporations.”
But it is not going to happen, Hudes said — at least not if she has something do to with it. While the media are dominated by the “power grabber” network, Hudes has been working with foreign governments, reporters, U.S. officials, state governments, and a broad coalition of fellow whistleblowers to blow the entire scam wide open. There has been quite a bit of interest, too, particularly among foreign governments and state officials in the United States.
Citing the wisdom of America’s Founding Fathers in creating a federal system of government with multiple layers of checks and balances, Hudes said she was confident that the network would eventually be exposed and subjected to the rule of law, stopping the secret corruption. If and when that happens — even if it may be disorderly — Hudes says precious metals will once again play a role in imposing discipline on the monetary system. The rule of law would also be restored, she said, and the public will demand a proper press to stay informed.
“We’re going to have a cleaned-up financial system, that’s where it is going, but in the meantime, people who didn’t know how the system was gamed are going to find out,” she said. “We’re going to have a different kind of international financial system…. It’ll be a new kind of world where people know what’s going on — no more backroom deals; that’s not going to keep happening. We’re going to have a different kind of media if people don’t want to be dominated and controlled, which I don’t think they do.”
While Hudes sounded upbeat, she recognizes that the world is facing serious danger right now — there are even plans in place to impose martial law in the United States, she said. The next steps will be critical for humanity. As such, Hudes argues, it is crucial that the people of the world find out about the lawlessness, corruption, and thievery that are going on at the highest levels — and put a stop to it once and for all. The consequences of inaction would be disastrous.
How Crony Capitalism Corrupts the Free Market
Posted by Ryan W. McMaken
The Monarchs of Money
The world’s central banks have printed unimaginable amounts of money in recent years. Neil Macdonald explores what this means for the global economy and for your financial well-being.
Republished with permission.
On Monday, Ron Paul continued his examination of failed Fed policies in his latest “Texas Straight Talk”.
Dr. Paul said:
Although many were up in arms when the Fed said it would buy $600 billion in government debt outright for the previous round, QE2, all seems quiet about the magnitude of QE3 because it doesn’t come with huge up-front total price tag. But by year’s end the Fed’s balance sheet could hit $4 trillion.
With no recovery in sight, where’s all this money going? It is creating bubbles. Bubbles in the housing sector, the stock market, and government debt.
The stock market has been hitting record highs for the past two months as investors seek to capitalize on the Fed’s easy money. After all, as long as the Fed keeps the spigot open, nominal profits are there for the taking. But this is a house of cards. Eventually, just like in 2008-2009, the market will discipline the bad actions of the Fed and seek to find the real normal.
Here’s the full broadcast:
My interview of David Morgan Silver-Investor – Confirmed U.S. banks will go Cyprus. Paper prices separating from physical. Get metals while you can!
The blue print has been established.
Great last minute interview with David and he provides Very Important information. He points out Everyone needs to protect themselves, immediately. The Physical market is tight now and getting tighter even in the U.S., get gold and silver right now while you can.
He says the U.S. citizens need to Wake Up and get smart and informed NOW!
Ostensibly a lower gold price would solve the problem Bernanke has. Demoralized gold bugs would be forced out of their holdings through margin calls. Disillusioned investors would shun gold. This would make physical gold available to rescue the strapped gold futures market.
In fact, however, a lower gold price is making the problem more intractable, not less. The Fed is diving from the frying pan into the fire. This is the point missed by almost all observers and market analysts. They ignore the underlying flight into physical gold that continues unabated, in spite of (or, better still, because of) the panic in the paper gold market. The Fed’s intervention in bankrolling short interest is going to back-fire, for the following simple reason. The Fed’s strategy is inherently contradictory. A lower price for paper gold makes it easier, not harder, to demand delivery on maturing futures contracts.
- Professor Antal E. Fekete
Of all the articles I have read since the attack on the precious metals markets, this piece by Professor Fekete is the best one yet. I completely agree that this was an extremely desperate and brazen attempt by the Central Planners, one that is quite clearly backfiring big time. My favorite excerpts are below:
In waking up too late that there was a problem after gold futures markets have been flirting with backwardation for a year or so, officialdom was forced to act. Act it did in a typically haphazard fashion. A few days ago, on April 12 and 15 the paper gold market was demoralized by a ferocious attack on the lofty gold price. This in and of itself is proof that Bernanke is fully aware that permanent gold backwardation is imminent, and that it will create and unmanageable situation. It’s got to be stopped in its track at all hazards.
Well, well, well. Gold is not the same as frozen pork bellies after all. The Hydra is not taking it lying down. The kid gloves have finally come off.
Bernanke is trying to stop gold backwardation by selling unlimited amount of gold futures contracts through his stooges, the bullion banks. He is underwriting losses they are certain to suffer in due course. We can take it for granted that they haven’t got the gold to make delivery on their contracts. In fact, delivery of gold will be suspended under the force majeure clause. Short positions will have to be settled in cash, to be made available by the Fed’s printing presses. Gold futures trading will be a thing of the past.
Image added to original post.
I’ve posted before on the purchasing power of the silver quarter from 1964. Here’s an interesting item The Internet cooked up recently:
Here’s the breakdown:
The minimum wage in 1964 was raised to $1.15 in September; pretty close to the five quarters. The exact exchange would be four quarters and one and a half dimes, which today (March 4, 2013) equals $23.81, or more than three times the current federal minimum wage of $7.25.
Interestingly enough, those coins contain 0.83 oz. of silver (along with some copper), which is equal to $23.78; pretty close to the $23.81 above.
The same $1.15 of goods in 1964 would cost a consumer $8.54 today, an increase of more than 700 percent. So in order to provide the same purchasing power the minimum wage would have to be closer to fifty bucks an hour.
Something else to consider is that roughly 1/4 of the minimum wage at the time would buy a gallon of gas ($0.30/ gallon). Today it takes closer to 1/2 of the minimum wage to buy a gallon ($3.74/ gallon).
Of course the answer is not to raise the minimum wage, but instead to put an end to central bank money creation and allow competition in currency.
By Katie Glueck
Former presidential candidate Ron Paul, a longtime foe of the Federal Reserve and champion of a smaller foreign policy footprint, is turning to education in a new book slated for release this fall.
In “New School Manifesto,” scheduled for a Sept. 17 release from Grand Central Publishing, the former GOP congressman from Texas will promote home schooling and “free market principles applied to education,” according to an official book description.
“He makes the case for individual freedoms as they pertain to educating our children, and nimbly dissects the most pressing issues that need to be addressed from the libertarian point of view,” the description continues.
This will be Paul’s fourth book with Grand Central Publishing, following “Liberty Defined,” “End the Fed” and “The Revolution: A Manifesto,” his editor, Ben Greenberg, told POLITICO. Greenberg said the book has been in the works for close to a year, and that a deal for its publication was hammered out in January.
In this book, Greenberg said, Paul will compare the postal service to the education system, arguing that in both realms, competition promotes better services.
“He’s basically saying the postal service didn’t have many competitors until FedEx, UPS and email, obviously, and now it’s changing the way everything gets done,” Greenberg said. “He’s arguing for that in education as well.”
Paul will address a variety of education policy proposals, he said.
“He’s taking the position that a parent should have the ability to choose what is best,” Greenberg said, a philosophy that would include home schooling.
Greenberg, who has edited all of Paul’s books done through Grand Central Publishing, said the Texan is “really easy to work with” and doesn’t require heavy editing.
“We usually do two to three edits for the main script, but not much,” Greenberg said. “His ideas are pretty fully formed. It’s just a matter of honing in and making sure everything is in the right order and just figuring out how to best say the message without becoming too repetitive or anything like that.”
Also on deck for the libertarian former lawmaker: talk radio. Courtside Entertainment Group announced this month that in March, Paul will offer “twice daily one-minute radio commentaries” with his talks also available as a weekly podcast.
“Even if you don’t agree with what he says, he always makes you think about things a little bit differently,” Greenberg added.