Having Failed, The Federal Reserve does Charity!

Having Failed, The Federal Reserve does Charity!

BOSTON — Economists do not tend to be social activists. And that is especially true if they work for the Federal Reserve, let alone run one of its 12 regional banks.  - NY Times 1-20-14 - The Boston Fed's Latest Role, Community Organizer


By J.M. Hamilton ( 1-25-14)

It’s an interesting dichotomy.  On one hand we have the financial elite in Davos Switzerland stating that 2014 will be yet another banner year for stocks and the Wall Street cartel; and on the other hand, Main Street knows that 2014 will be yet another sub-par year – this will make six consecutive sub-par years -  for business fundamentals, top line business growth, and a struggling economy, stuck in “nascent recovery mode.”

At the root of this riddle wrapped in a paradox stands the Federal Reserve, who’s unprecedented bond and MBS buying, and balance sheet expansion, has mainly helped the scoundrels who put the country into its current predicament.  Namely, the Wall Street cartel, shadow banking, private equity, and of course politicians too, of both political parties, have benefited immensely by the Fed’s Quantitative Easing (QE).  For politicians, QE allows them to dispense with the need to govern altogether, and allows for 24/7/365 fund raising and campaigning.  Heh, if the Fed is going to print money to pay the nation’s bills, and keep the bond vigilantes at bay, what’s a politician to do, but party!

One private equity executive called the manna/liquidity raining down from the Fed to be “biblical.” 

The Federal Reserve has “bazookaed” $85 billion dollars a month into the banks, and in a brazen act of propriety recently cut that amount to $75 billion.  In doing QE, the Fed pumped the stock market back to life, financed a Wall Street raid on any and all speculative commodities and currencies not nailed to the floor, as well as, allowed the international banking cartel to continue to grow and expand the uncollateralized derivatives and swaps market that brought the world to its current predicament (the derivatives market is little more than a ticking time bomb of despair, consisting of what Mr. Warren Buffett once referred to as financial weapons of mass destruction).   

All of the Fed’s actions have made the rich richer, and the poor poorer. 

Why? 

Quite simply, the Fed gives away free money to the Cartel with no strings, caveats or conditions attached (e.g. X% of Fed largess will be lent out to the public, or will go to refinance or forgive debt on underwater mortgages).  How simple this would be, and yet, the Fed has failed to back quid pro quo demands on the Cartel, since the crisis began.

The Fed likes to pay lip service to its mandate however, which is maximum employment and price stability; but the Fed’s true master is the Cartel, who owns the politicians, who in turn dutifully appoint and approve the Fed Chairperson of the Cartel's choosing, presently Ms. Yellen.  Ms. Yellen is one of the key authors of the Fed’s unprecedented actions, and is keenly aware that her policies have not helped the vast majority of Americans.  Indeed, her policies have harmed them.  Unconvincingly – like Messrs. Bernanke and Geithner before her-  Ms. Yellen tells those who will listen that the Fed’s ongoing bailout of Wall Street banks was really done to help Main Street.

This blog correctly called Ms. Yellen’s handy-work, “trickle down monetary policy.”  We know this to be true because Ms. Yellen basically calls it the same, as quoted in the New York Times, we get the following:

In her confirmation testimony, Ms. Yellen stressed that the Fed’s extraordinary measures were bolstering growth, even if the pace of the economy’s expansion had been frustratingly sluggish at times. She also said that the Fed’s policies had helped not only Wall Street, but Main Street.

The bank’s stimulus campaign has “made a meaningful contribution to economic growth,” Ms. Yellen said. “The ripple effects go through the economy and bring benefits to, I would say, all Americans.”

Ripple effects(?)... try getting a loan at the bank with "ripple effects" as collateral.

This blog also noted, in a piece entitled, The Leviathan is Vertically Integrated, that the Fed has created a perverse incentive for Davos' attendees, captains of industry, and assorted masters and mistresses of the universe, not to hire Americans.  That is, as long as employment remains high, the Fed will keep pumping money into the Wall Street cartel and hence, the stock market.  So Wall Street, Shadow Banking and Private Equity, vertically integrated throughout the economy, has an incentive not to hire, so as to keep Fed largess flowing.  There's a catch, however.  As the pool of Americans seeking employment shrinks, because many have given up looking, the rate of unemployment – despite a lack of hiring – naturally declines anyway, all other variables being equal.   So now the Fed must come up with a new reason to continue its ongoing gift to the plutocracy, this new reason falling under the guise of “price stability” is called “deflation.”  

Yes, the threat of deflation may be the new reason that the fire hose of liquidity remains cranked full throttle.  The reality is that anyone who buys gas, food at the grocery store, or pays for their children’s college tuition, knows that the only thing that is deflating is the dollar’s purchasing power.  The cost of everything else is going through the roof, or simply does not respond to the laws of supply and demand, with much of the world economy now dominated by monopolies and oligopolies.  It's just one more way the American public is being "scrod" by Fed policy, it's called inflation.

Another irony in all this is that the party in power, the Democratic Party, is also an unintended – or perhaps intended – beneficiary of Fed policy.  We know this to be so, since American workers who remain unemployed are often dependent upon the state for care and basic needs.   

And who is the unemployed's champion, and who are the unemployed likely to vote for?  Through no fault of the unemployed, that would be conveniently enough, the Democratic Party.

So now, not only do we have the elite, and the Wall Street cartel perversely cheering for higher unemployment – so that the Fed keeps the printing presses smoking - but the more folks who are unemployed and wards of the state directly benefits the political party who controls the White House and the U.S. Senate, the Democratic Party.   

Conspiracy theory, random event, unintended consequence, or just the facts Ma'am(?)… who’s to say.  With the GOP increasingly out of touch, and rapidly becoming a fringe political movement incapable of winning a national election, clearly more and more voters are turning to the Democratic Party, with their hopes, their dreams, and for their daily bread.  Democracy abhors a vacuum.  (Full disclosure, J.M.H. was a life long Republican, until the complete debacle occurred that was the Bush (W) administration; it was then, that I switched over to the Democratic Party, starting in 2008.  Unfortunately, when it comes to the executive branch, I believe, we clearly live in a one party state.  Witness President Obama's adoption, and enhancement, of many of the previous administration's unconstitutional policies.)

And the final twist in this story…. The final insult to injury…. The Fed now has turned to charity, in the hopes of atoning for Fed Policy.  One of the greatest champions of recent Fed Policy is now working with businesses to gather funds to help those in need.   

Sounds like the Fed has a guilty conscience.

If the Fed really wanted to help Americans, the American economy, and drive top line growth and business fundamentals, it would loan money directly into the hands of American homeowners (at the same record low interest rates afforded banks), and not just those who are underwater or upside down on their mortgages, but anyone allowing the Fed to take a perfected interest in their home equity (to assure Fed repayment).  That’s right, the Fed could help Americans pay down their mortgages, or right side underwater mortgages, which the Cartel, Freddie and Fannie have repeatedly refused to do.  If the Fed were to give homeowners a hand up, this would give American homeowners more discretionary income, drive greater spending throughout the economy and aggregate demand, and turn our perennial “nascent recovery” into a full blown economic miracle.  The Fed is already financing the American housing market by purchasing billions in MBS monthly, from the Cartel. 

Pre-crisis MBS became known as post-crisis "toxic assets."  It wasn't until the Fed began buying toxic assets that they became known simply as MBS (mortgage backed securities), once again.

This proposal would merely cut out the middleman, the Wall Street cartel.  This proposal would allow the Fed to take an interest in an appreciating asset, home recovery prices, instead of the Fed owning a depreciating asset in a rising interest rate environment, MBS (some of which are locked in at record low interest rates).

I'm sure brighter folks than J.M.H. have thought of this solution... but such a proposal runs counter to the interests of the plutocracy and the Cartel, and the few who profit from a majority encumbered by debt.

The U.S. economic engine of growth is the American consumer.   Americans are not looking for Fed charity, but rather, a hand up (and JOBS)... not dissimilar to the hand up afforded to the plutocracy for the last five to six years.

Copyright JM Hamilton Publishing 2014