Excess Reserves at the Federal Reserve. One of The Biggest Financial Scams In History: A Whopping US$1.794 Trillion

Banks’ excess reserves at FED is one of the biggest scam by the FED and there is a conspiracy of silence as to its actual implications. Economists and financial analysts spewing nonsense to mislead and divert attention to non-issues so that the public is kept in the dark.

The issue of banks’ reserves at the FED and other central banks in the world is a complex subject with much technical jargons that confuses a lot of people. Besides, don’t be surprised that your bank branch manager on Main Street as well as lecturers in finance and economics are also ignorant on this issue. In the case of the latter, this subject is hardly taught in universities. And this is the reason why the scam has not been exposed till today.

But, for those who have a basic idea of bank reserves and how this huge amount of “excess reserves” have been created by the FED, have you asked yourself, “Why have I not spotted this scam earlier?”

Many have been taken in by the propaganda that “excess reserves” is the means to encourage banks to extend credit (give out loans) to desperate borrowers who needed urgent funds to survive and to jump-start their businesses. This propaganda is grounded on the assumption that there is insufficient liquidity in the market.

This assumption is misleading.

What are Excess Reserves

The latest figures obtained from the H.3 release from the Board of Governors of the Federal Reserve System (the FED) shows excess reserves of about $1.794 trillion (data as of April 17, 2013), This level of excess reserves is unprecedented and is the highest since reserves were legislated as a requirement.

Please read the below paragraph carefully, ponder deeply before proceeding further. Don’t rush. It is important that you understand this simple fact as otherwise you would not appreciate the audacity of this financial scam!

Excess reserves are the surplus of reserves against deposits and certain other liabilities that depository institutions (collectively referred to as “banks”) hold above the statutory amounts that the FED requires in accordance with the law. The general requirement is that banks maintain reserves at least equal to ten percent of liabilities payable on demand. There is now data to show that as much as 50% of these “excess reserves” are held for United States banking offices of foreign banks.

Let me elaborate. Banks receives deposits from their customers which are inter-alia placed in current accounts (checking accounts) or time deposits (fixed deposit accounts) and which the customer can at any time withdraw from the bank. But, banking practice shows that at any one time, only a small fraction of customers would withdraw their deposits in full. So, there was no need for banks to keep all the deposits in their vaults to meet such a demand for payment. Laws were enacted to allow banks to keep in reserve a small amount of monies to meet such demands.

That being the case – if only 10% reserves is all that is required according to banking regulations to meet repayment demands, why should there be such a huge amount of reserves, beyond the legal requirement of 10%?

Keep this question at the back of your mind to understand the huge scam by the FED.

A Slight Digression

In a previous article, I had exposed the fact that when a customer deposits monies in a bank, he is in law a “creditor” (he has loaned the monies to the bank) and the bank is a “debtor” (and he can use the money in any way at his absolute discretion, even to speculate).

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This is because the ownership of the money has been transferred to the bank. The money is no longer the money of the customer. It now belongs to the bank. And as long as the bank is solvent, and there is a demand for repayment of the deposit, the law of contract stipulates that the bank must repay together with the agreed interest that has accrued.

However, if at the time when demand for repayment is made, the bank is bankrupt (i.e. in a liquidation) then the depositor/customer in law is deemed an “unsecured creditor” and must join the queue of all unsecured creditors to share the proceeds of any remaining assets after all secured creditors have been paid. If there are no remaining assets, the depositors get zilch! Ouch!!!!!!

That is why and as illustrated in the bank confiscation of deposits in Cyprus banks acting in concert with central banks can expropriate all customers’ deposits to pay their secured creditors.
I will elaborate on this issue later.

Let’s return to the issue of excess reserves.

How Did The Excess Reserves Balloon To A Massive US$1.794 Trillion? A Simple Summary

The Fed’s overall balance sheet has expanded from about $909 billion before the crisis (i.e. before 2008) to about $3.3 trillion in 2013. Of the $2.4 trillion increase, approximately $1.8 trillion is excess reserves.

Banks were up to their eyeballs in toxic assets (financial sewage) and they are drowning in this cesspool but for the rescue efforts of the FED and other central banks they would have sunk to the bottom of the cesspool.

First Stage of Excess Reserves Scam

From the diagram below, you will see that the FED created trillions of money out of thin air by a digital entry in its books to purchase the toxic assets (financial sewage) in batches from the banks. The objective of QEs is to save the banks and to save the US Treasury from bankruptcy and not Joe Six-Packs. However, in this article we are focusing on the banks.

So, let’s say that the banks HAVE OVER US$10 trillion of financial sewage AND WANT TO DISPOSE THEM WITHOUT AROUSING ANY ALARM.

From the diagram below, you will see the monies flowing from the FED to the banks to purchase the financial sewage. The financial sewage is sucked into the FED’s financial vacuum. However the monies are not channeled to the banks’ branches in Main Street to be loaned out to Joe Six-Packs. It is re-routed back to the FED as “reserves”. When the reserves exceed the minimum 10% requirement, the excess is classified as “excess reserves.”

This is merely a book entry! And adding insult and injury to Joe Six-Packs, interest of 0.25% is paid on the reserves (i.e. giving profits to the banks).

The banks are allowed to survive in spite of their massive frauds and other financial hanky-pankies. The banks are allowed to use digital technology (e.g. high-frequency trading) to corner the market and destroy Joe-Six-Packs. But, Joe-Six-Packs have to suffer the indignity of unemployment, foreclosures, reduced unemployment benefits, survive on food-stamps, and other austerity measures. Additionally, and to prevent any opposition to the financial and ruling elites, Joe-Six-Packs are now under intense surveillance by NSA’s Prism Program that tracks every move, phone calls, emails, etc.
Can you now see the audacity of this scam?

The money flows from the FED to the Too Big To Fail (TBTF) Banksters to Buy Toxic Assets, which is sucked in by the FED’s Financial Vacuum, thereby cleansing the TBTF banks’ balance sheets. The money is then re-routed back to the FED as “excess reserves”.

The FED create monies out of thin air to bail-out the Too Big To Fail banks (TBTF banks) by purchasing their financial sewage (valued at book value as opposed to mark-to-market i.e. instead of paying only 10 cents on the dollar or less, the FED pays dollar for dollar) thereby removing the financial sewage from the balance sheet of the TBTF banks to reflect a “healthier” balance sheet as there are now less financial sewage in the banking system.

And, because the TBTF banks are suffering losses, the FED pays 0.25% interest on the “excess reserves” created so as to generate easy profits for the TBTF banks for doing nothing at all. They are earning profits merely from a book-entry in the FED’s books!

The propaganda which I referred to earlier that such monies were meant to enable the TBTF banks to extend credit is therefore bullshit and a load of financial nonsense. So why are the so-called reputable economists at leading universities such as Harvard, Princeton, Cambridge, Oxford etc. touting this propaganda?

There is so much financial sewage in the banking system, that in law the banks cannot extend further credits to Joe Six-Packs unless and until the balance sheets of the TBTF banks are cleaned up, and the banks properly re-capitalised to continue with their banking business. (See Basel III Accords).

The so-called record profits declared by the TBTF banks and the huge bonuses given out to the bankers and their hire-lings are all window dressing as long as the toxic assets are not marked-to-market and not declared as junk. If such assets are properly declared, the fiat money banking system would be staring at a bottomless black-hole of toxic assets and indebtness!

This is the reason why QE has to continue. The QE programs are to drain the financial sewage from the banking system.

I had earlier stated that banks are required at have at least 10% of the deposits as reserves.

This has compounded the problem. After the Global Financial Tsunami, all the TBTF banks don’t have enough reserves to meet the withdrawal of deposits placed by customers before the crash. The TBTF banks don’t even have the requisite 10% reserves to meet these demand deposits (Old Deposits). That is why this scam was perpetrated by the FED as illustrated in the above diagram.

However, banks are continuing to receive deposits from customers of which 10% of these deposits must be transferred to the FED as reserves.

Under the fractional reserve banking system, the banks are allowed and can loan out the remaining 90% of the deposits as loan by a multiplier of ten – i.e. if new deposits total US$100 million, US$10 million will be transferred to reserves to meet withdrawals as explained above. By fractional reserve banking principles, the bank can loan out (based on a multiplier of ten) US$90 million x 10 = US$900 million. Data shows that customers’ deposits are at an all time high (since 2007), but bank lending is not keeping pace.

Banks are not lending out what they are entitled to do so for two reasons:

1) The banks are using a portion of the “New Deposits” to meet the liability of having to repay the “Old Deposits” in the system. This is because even the excess reserves (created under the QE) are insufficient to meet the demand for repayment of the Old Deposits. So, part of the current New Deposits would be utilised for that purpose. This is the Deposit Ponzi Scheme.

2) Banks are earning no risk profits from interests on “Excess Reserves” at the FED and are only willing to lend to credible borrowers. In the present economic climate, there are just too few credible customers. This is another reason why banks are not lending.

Therefore, and as stated earlier, the problem is not liquidity but rather, it is and always has been the insolvency of the TBTF banks and the financial sewage clogging the entire fiat money banking system.

Food For Thought

“Reserves don’t even factor into my model, that’s not what causes inflation and not how the Fed stimulates the economy. It’s a side effect.” – Former Fed Governor Laurence Meyer, co-founder of Macroeconomic Advisers

Second Stage of Excess Reserves Scam

If and when the economy recovers (maybe 2019??), the FED will repackage the toxic assets into new financial products to be sold to a new generation of stupid investors. Banks are not even required to pay, as the monies are still kept with the FED (book entry). In this final transaction, there will be a reverse-entry in the banks’ books.

Laurence Meyer is saying what many has deliberately ignored and or missed out completely. When QE stops, the FED would not be out on a limp because the monies used to purchase the financial sewage from the TBTF banks are still in the FED’s books.

The Fed need only to have a reverse entry in it’s books after re-packaging the financial sewage INTO SOME NEW FORM OF FINANCIAL PRODUCT OR WHATEVER (which the TBTF banks are adept at doing before the crash and are still continuing to do so) and dumping them back to the banks and another generation of stupid investors at such time when and if the banks have recovered – maybe 2019?

Further, with the bank’s unbridled right (sanctioned by law) to confiscate the customers’ deposits (now commonly referred as “Bail-In”) using the Cyprus template, banks have additional financial resources to continue with the plunder and financial rape of the public. Wake Up, I rest my case.

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Quantitative Quicksand

quicksandAuthored by Allan Meltzer, originally posted at Project Syndicate,

Almost all recoveries from recession have included rapid employment growth – until now. Though advanced-country central banks have pursued expansionary monetary policy in the wake of the global economic crisis in an effort to boost demand, job creation has lagged. As a result, workers, increasingly convinced that they will be unable to find employment for a sustained period, are leaving the labor force in droves.

Nowhere is this phenomenon more pronounced than in the United States, where the Federal Reserve has reduced interest rates to unprecedented levels and, through quantitative easing (QE), augmented bank reserves by purchasing financial assets. But inflation – which rapid money-supply expansion inevitably fuels – has so far remained subdued, at roughly 2%, because banks are not using their swelling reserves to expand credit and increase liquidity. While this is keeping price volatility in check, it is also hindering employment growth.

Rather than changing its approach, however, the Fed has responded to slow employment growth by launching additional rounds of QE. Apparently, its rationale is that if expanding reserves by more than $2 trillion has not produced the desired results, adding $85 billion more monthly – another $1 trillion this year – might do the trick.

America’s central bankers need not search far to find out why QE is not working; evidence is published regularly for anyone to see. During QE2 (from November 2010 to July 2011), the Fed added a total of $557.9 billion to reserves, and excess reserves grew by $546.5 billion. That means that banks circulated only 2% of QE2’s contribution, leaving the rest idle. Similarly, since QE3 was launched last September, total bank reserves have grown by $244.1 billion, and excess reserves by $239.4 billion – meaning that 99% of the funds remain idle.

Given that banks earn 0.25% in interest on their reserve accounts, but pay very low – indeed, near-zero – interest to their depositors, they might choose to leave the money idle, drawing risk-free interest, rather than circulate it through the economy. At current interest rates, banks lend to the government, large stable corporations, and commercial real-estate dealers; they do not extend credit to riskier borrowers, like start-up companies or first-time home buyers. While speculators and bankers profit from the decline in interest rates that accompanies the Fed’s asset purchases, the intended monetary and credit stimulus is absent.

At some point, the Fed must realize that its current policy is not working. But developing a more effective alternative requires an understanding of the US economy’s actual problems – something that the Fed also seems to lack. Indeed, Fed Chairman Ben Bernanke often says that his goal is to prevent another Great Depression, even though the Fed addressed that risk effectively in 2008.

The US economy has not responded to the Fed’s monetary expansion, because America’s biggest problems are not liquidity problems. As every economics student learns early on, monetary policy cannot fix problems in the real economy; only policy changes affecting the real economy can. The Fed should relearn that lesson.

One major problem, insufficient investment, is rooted in President Barack Obama’s effort to increase the tax paid by those whose annual incomes exceed $250,000 and, more recently, in his proposal to cap retirement entitlements. While such proposals have been met with opposition, Obama cannot be expected to sign a deficit-reduction bill that does not include more revenue. As long as that revenue’s sources, and the future effects of new regulations, remain uncertain, those whom the policies would most harm – the country’s largest savers – are unlikely to invest.

Likewise, Obama’s health-care reform, the Affordable Care Act, has hampered employment growth, as businesses reduce their hiring and cut workers’ hours to shelter themselves from increased labor costs (estimates of the rise vary). Meanwhile, the faltering European economy and slowing GDP growth in China and elsewhere are impeding export demand.

While subdued liquidity and credit growth are delaying the inflationary impact of the Fed’s determination to expand banks’ already-massive reserves, America cannot escape inflation forever. The reserves that the Fed – and almost all other major central banks – are building will eventually be used.

The Dying Dollar and the Rise of a New Currency Order

bush-burning-dollar

Original post is from realcurrencies.wordpress.com

For years now, the collapse of the dollar has been in the cards. Recent developments show mounting pressure on the dollar’s reserve currency status. With a major international deflation going on, the threat of inflation through money printing is unreal. However, should the dollar’s reserve currency status end, the repatriation of trillions of petro- and eurodollars could lead to a strongly inflationary scenario.

The roles of a reserve currency are to finance international trade and to function as a store of value for Governments. Until the second world war it used to be the British pound, but with the demise of the British Empire, the pound lost its international relevance and was overtaken by the dollar. This was formalized in the 1944 Bretton Woods system. All other currencies were fiat currencies, but pegged to the dollar, which in turn was pegged to Gold at 40 dollars an ounce and redeemable for international trading partners.

The Eurodollar
With the dollar as the reserve currency, the US had to export dollars. In the early years after the war especially for Europe, the famous Eurodollars. This sounds great: print money and buy whatever you like. But with the Gold window it was also risky: overprinting could mean excess dollars would be exchanged back to Gold, depleting US Gold reserves.

This was also a weakness that those annoyed with American Hegemony could exploit. In 1967 the leftist press mogul Jean-Jacques Servan-Schreiber penned a famous screed called ‘le défi Américain’ (the American challenge’), arguing Europe was being colonized economically by superior American competition.

France, at the time, was run by de Gaulle, who never was impressed with Anglo-American supremacy. He made a point of exchanging every dollar he could lay his hands on as a means to undermine it.

In the late sixties the situation got badly out of hand because of the Great Society and the Vietnam war, very costly projects that were deficit financed, leading to serious inflationary pressures. Inflation that the US tried to export, leading to an excess of dollars abroad. Especially the resurging Deutschmark’s appreciation became untenable. The Europeans started pressuring the US to fix its deficits, provoking the US Treasury Secretary John Connally famous cry ‘the dollar is our currency and your problem’.

But the situation had become unsustainable and Nixon was forced to close the Gold window to stop the depletion of US gold. This was the end of the Bretton Woods system and from then on the major currencies were floated freely in the international currency markets.

The Petrodollar
But it did not end the dollar reserve currency status, as the Empire had been found another basis for it: they reached an agreement with the House of Saud, to accept only dollars for its oil. The Sauds agreed to invest their dollar wealth on Wall Street, making the deal even more powerful for the Empire. Saudi Arabia controlled OPEC and the dollar was saved: international oil trading is financed with dollar only. Since then we have been on an informal Black Gold standard, known as the petrodollar.

This situation was better than before, because overprinting of the dollar for international trade or to finance all sorts Empire projects could no longer be punished by depleting Gold reserves and would result only in rising prices.

In the last decade the problem of over printing was solved by artificially raising oil prices through the Peak Oil hoax, and ending Iraqi oil production. It must be understood that the Empire is not looking for more oil production. There is so much oil in the world that should it be drilled for freely, it would end the Money Power’s energy monopoly. The Iraq invasion and the quest for control of the Middle-East is to keep a lid on oil production. Saddam’s suicidal decision to accept euro for his oil only hastened his demise.

Even today Iraqi oil production is not even half of what it was before 1991. With the Western Oil companies now in charge, it will most likely never fully recover.
By raising the price for oil, the oil market has mopped up  excess dollar supplies, which are now needed for the oil trade. As a result, the dollar has remained relatively stable in its value. Of course, it fits well with the agenda of decapitating the middle classes and under this agreement higher oil prices also means ever more oil profits invested in Wall Street.

Of course, the great boon of this for the Empire is that it can pay with worthless paper for real goods. It can eternally finance a major trade deficit.

Trade deficits are incorrectly understood as problematic.
From a nation’s point of view, the goal of trade is not to export, but to import. We export to give back for what we need from others. If you run the reserve currency, you don’t need to export as much as you import, because you can partially finance your imports with money printing. For all other nations this is impossible and trade deficits are lethal in the long run, as it leads to net capital outflow.

But the US Empire is in trouble. Its infrastructure is crumbling, its manufacturing base gone, it’s badly over extended. It needs ever more virulent threats to coerce the nations into dollar submission and just like Connally failed in 1971, the US is failing today. The Money Power is done with the Empire and the dollar and it is moving to the next phase. The dollar will have to step back and we are seeing a realignment.

The new currency order
China is moving towards a Gold backed yuan that will be very powerful in the international arena. Recently Australia, which is already completely dependent on China, with 30% of its exports going there, is preparing direct convertibility between the yuan and the Australian dollar, meaning they will no longer use US dollar to finance bilateral trade. This means less US dollars are needed in its reserve currency role.

In 2001 Goldman Sachs executive Jim O’Neill invented the BRIC’s. South Africa was later added, representing Africa and emphasizing its globalist agenda. Russia and China, as two powerful neighbors, obviously have long standing and important bilateral relations. But equally obviously, have little in common with Brazil, India and South Africa. India and China are actually sworn enemies. However, in 2009 they organized a first summit. Just a week ago we all of the sudden hear the BRICS are planning to open up a competitor to the IMF.  They’re still working out the details and it’s not a done deal yet, but the move looks very serious.

And there is of course the euro, which, make no mistake, is in great shape. True, Eurocrat legitimacy is suffering because of the euro crisis, even in Germany the currency is losing support. But the euro crisis is purely for internal consumption, to sucker the nations into surrendering budget responsibility to Brussels. This is the final frontier for a full blown EU federalist Super State. While the euro is deeply hated, this is not really a problem for the Money Power: it isn’t in this business to make friends and it does not mind a big fight. It only fears real alternatives and these are nowhere to be seen. There is nobody proposing anything real, people are just letting off steam. Once they get their fiscal union, the crisis will quickly end. People have a short memory.

The euro was designed to be eventually backed by Gold and the ECB has enough of the stuff to be ready for the coming transition.

Conclusion
We are seeing the advent of the new currency order. There will be a number of more or less equal blocks: a dollar zone, a Yuan/BRICS zone and the euro, with the Yen and the Pound as lesser entities. These will later be able to converge to even more ‘cooperation’, in the Money Power’s relentless march towards World Currency.

These units will be at least partially Gold backed, implying long term deflationary pressures. Central Banks are buying Gold in major quantities, creating the interesting question why Gold prices have not risen in the last 18 months.

The problem for the United States will be to manage the transition. Trillions of dollars that will no longer be needed will have to be repatriated and this will lead to very strong inflationary pressures at home. It is unclear how the Fed is going to deal with that. It probably can’t. Furthermore, the US is probably in the worst of positions to deal with a new Gold standard. They claim to have 8,000 tonnes of Gold in Fort Knox, but nobody really believes that.

The hyperinflation scare that the Austrians have been promoting because of ‘money printing’ is ridiculous: we are in a stagflationary depression and prices are rising because of speculation, not because of excess money. But when the dollar loses its current status, long term price rises will become the norm.

The Greatest Depression has only just started.

Afterthought
Here’s a highly recommended post by Roberts, the Assault on Gold. It makes a plausible case for massive Fed bullion busting. As discussed in ‘why is Gold not Rising?‘, the ascent of Gold was a carefully orchestrated operation, but it probably got out of hand in 2011. Since then the Fed has been very active on COMEX again. With CB’s and market players buying massive amounts, it’s the only logical explanation for stalling bullion. The fall of COMEX and the fall of the Dollar are basically an evil twin, they will happen simultaneously and because of each other.

Debt-Slavery For Dummies

Also posted at zerohedge.com
Submitted by G at Knowmadiclife blog,

Everything the Fed does ultimately leads to less economic activity, less savings and more debt resulting in poverty for Americans, not prosperity.  Debt is not prosperity. Debt is poverty and economic slavery.

Why are you working harder but getting poorer?

Let us analyze the effectiveness of the Fed’s only policy tool of printing money since the onset of the great financial crisis in 2008 by looking at:

  • Economic activity as measured by human action – the real source of all wealth
  • Earnings
  • Savings
  • Debt
  • Poverty
  • Government dependency

 

How can Americans ever be expected to reverse the slide into debt-slavery if real wages are stagnating? Even when using the official government inflation numbers which understate the real level of price inflation (CPI-W until 2009 and CPI-U from 2010) real wages in America have been flat at best since 2008.

Did you notice the mysterious vertical jump in the data series between December 2009 and January 2010? It was here when the government changed the inflation index it uses to calculate real wages from the CPI-W to the CPI-U. This change from one bogus number to a different bogus number resulted in an instant jump in real wages – further distancing the illusion from reality. Why are no mainstream economists telling us about this?

This arbitrary change in the inflation formula used to compute real wages is a great example of how government numbers do not reflect real economic activity. In reality, these numbers are completely meaningless in the real world. These numbers only have value in the illusionary matrix created by the Intellectual Idiots and the central planners for us to live in. It is smoke and mirrors to hide the ongoing failures of the central planners and the Intellectual Idiots advising them.

 

Artificially low interest rates discourages savings and increases spending by causing the cost of daily living to increase. We end up spending more than before for the same goods. Combine this with the government purposely understating the real level of price inflation and voila! – we magically have economic growth – at least the illusion of economic growth. In reality, we are getting poorer just to maintain the same standard of living. Consumption leads to poverty. Poverty leads to dependency on the state – economic slavery – debt slavery.

 

Stagnant wages combined with rising price inflation has forced many Americans to rely on debt just to make ends meet. This is not a sign of economic growth as the MSM and statist economists would have you believe. Most of the time reality is the opposite of what they are telling you. You have to think for yourself to know the truth. When you think for yourself the truth becomes apparent – Americans are going deeper into debt because they are broke not because they are prospering.

 

 

Is this what an economic recovery looks like? Of course not. Do not let the teleprompter reading propagandists on TV fool you. They are simply highly educated in that which is false. You know better than them.

The Fed’s policy of money printing has resulted in less economic activity, no wage growth, less savings, more debt, increased poverty and increased dependency on the government for Americans than when the GFC started! Americans are now economically worse off than they were in 2008.

The recession never ended. The central planners have simply hidden the deteriorating economic reality from us by money printing resulting in nominal price increases – in combination with misleading official unemployment and inflation figures. As long as the money printing continues things will continue to get worse, not better.  This leads us to one curious question: if the Fed knows reality is deteriorating and it’s monetary policies are causing this deterioration to accelerate, what is the endgame the government and the Fed have in store for Americans?

What is the road back to prosperity?

There is an easy solution that takes us away from this road to debt-slavery and puts us back on the road to prosperity. That road to prosperity for Americans is ending the Fed’s interest rate manipulation and letting the free market determine interest rates, or the “price” of money (Dr. Robert Murphy does an excellent explanation of this in this video). In a free market the interest rate is the price of money – it reflects the point where the supply of savings and the demand for debt in the economy balance. As interest rates rise Americans will be incentivized to spend less and to save more. Saving leads to prosperity. Prosperity leads to independence from the state – economic freedom.

The debt will liquidate and the money supply will contract, or deflate. This money supply deflation will allow the value of money to increase rather than decrease. Prices of things we buy will begin to fall rather than increase – making us wealthier. Real wages for Americans will begin to rise again. The American middle class will begin to grow again as it’s earnings is worth more, saves more and earns more on that savings.

As prices fall capital investment that previously was not seen as profitable will become profitable. Capital investment based on real consumer demand will pick up. Because this will be real economic activity based on the real market price of money (interest rate) and real consumer demand the destructive extremes of the Fed created boom-bust business cycle will ease considerably.

To find that road to prosperity we must first begin with reforming the Fed’s toxic policies designed SOLEY to profit the banks, it’s owners and shareholders (here and here and here)

That reformation starts with ending the Fed’s monopoly on the US money industry. Free up the money industry to competing currencies with legislation such as the Free Competition in Currency Act (explained by Professor of Economics at George Mason University Dr. George White here and by Congressman Dr. Ron Paul in this video). Give Americans freedom of choice in currency – examples would be gold and silver back currencies. If the Fed’s debt, our US dollar, is so great for Americans it should have nothing to worry about regarding competition from barbaric relics such as gold and silver, right?

Why are all the Fed’s policies leading towards economic slavery of the American people? Ignoring these policies will not change the inevitable economic outcome resulting from these policies. You can ignore reality but you cannot ignore the consequences of ignoring reality.

Why are YOU allowing this to be done to you?

Do you want to learn more about the Fed and sound money? More resources than you can shake a stick at are available at this Federal Reserve Knowledge Bomb or the Knowmadic Life website – check out the Recommended Reading, Documentaries and Site Links sections. Or you can go for the mother load of information at The Mises Institute at www.mises.org.

From knowledge comes awareness. From awareness comes freedom.

Central Bank Gold Likely Gone

This interview as produced by Greg Hunter of USAWatchdog.com

Money manager Eric Sprott says, “The central banks’ gold is likely gone with no realistic chance of getting it back.” Don’t expect this revelation to get any coverage by the mainstream media.  In an interview last week, Sprott’s analysis was met with words such as “gold bug” and “conspiracy theory.” Sprott answers that sort of disrespect by saying, “We’ve had so many conspiracies, I don’t know why anyone would think this was unusual.” To back up his point, he named “LIBOR, electricity markets in California and the Madoff” scandals.  Sprott’s analysis shows a “flat supply” and at least a “2,500 ton net increase in gold demand” since 2000.  “Where’s all the gold coming from?” asks Sprott.  He says Western central banks “. . . keep supplying this market with product in order to keep the price down so nobody knows how vulnerable the situation is.” Sprott, who manages nearly $10 billion in assets, boldly proclaims, “We have a shortage of gold.” Join Greg Hunter as he goes One-on-One with Eric Sprott of Sprott Asset Management.

National End The Fed Rally

National End The Fed Rally – at all Federal Reserve Branches Across the USA

WHERE: At Any Federal Reserve Branch
WHEN: September 22, 2012 @ 11:00 am – 7:00 pm

See the Upcoming Events calendar on the right side bar for more info ——>

Fed to launch QE3 by buying mortgage securities

fed-accountability2

$40 bln of MBS per-month, will do more unless job market strengthens

Teaser: Read entire article at original site at marketwatch.com

The Fed announced on Thursday [Sept.13, 2012] a third round of asset purchases to drive down interest rates and help lower the unemployment rate

By Greg Robb

WASHINGTON (MarketWatch) — The Federal Reserve, worried that improvement in the unemployment rate has stalled, announced a third, large purchase of bonds on Thursday in an effort to bring down long-term interest rates and spur growth.

The Fed said it would buy mortgage-backed securities at a pace of $40 billion per month.

The Federal Open Market Committee, which ended a two-day meeting on Thursday, said it was concerned that, without the action, “economic growth might not be strong enough to generate sustained improvement in labor market conditions.”Read text of statement.

In addition to bond purchases, the Fed said it intends to keep the benchmark short-term interest rate – the federal funds rate, at nearly zero until mid-2015. The prior guidance on the first rate hike had been late-2014.

The guidance now extends well beyond the term of Fed Chief Ben Bernanke, which ends early in 2014.

The Fed has left the federal funds rate at nearly zero since December 2008.

The committee’s vote was 11 to 1. Jeffrey Lacker, the president of the Federal Reserve Bank of Richmond, dissented, as he has at every meeting this year.

The Fed took the aggressive action out of a growing concern for the economic outlook, especially the anemic labor market.

The Fed said it would continue to monitor incoming information.

“If the outlook for the labor market does not improve substantially, the committee will continue its purchases of agency mortgage-backed securities, undertake additional asset purchases, and employ its other policy tools as appropriate until such improvement is achieved in a context of price stability,” the FOMC said.

Despite holding interest rates at zero for more than three-and-a-half years, and the central bank buying $2.3 trillion in assets, the unemployment rate has been stuck above 8% since early 2009. There are 12.5 million unemployed workers.

Economists and even Fed officials disagree on whether further asset purchases will have any lasting effect on the economy.

(End teaser from original article, read entire article at original site at marketwatch.com)

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Also, a nice addition for everyone’s general understanding – see it at the original article’s page:

A short explanation of QE3.

It’s not a big British cruise ship.

You’ve probably seen countless discussion of will or won’t the Federal Reserve launch QE3 Thursday. But what does that acronym mean?

Quantitative easing is a monetary policy under which a central bank tries to stimulate growth by lowering borrowing costs by buying up debt, thus pushing yields lower. It also puts a lot of money in the hands of people who otherwise had those securities it just bought, so they can go out and buy something else, which has included U.S. stocks.

In the U.S. this has been done through the Fed’s purchases of Treasury and mortgage-related debt (the latter specifically targeting housing finance, with the idea that lower borrowing costs would revive the battered and important housing sector.)

The first two rounds of quantitative easing — QE1 and QE2 — are a big part of what pushed mortgage rates and Treasury yields to record lows recently. So, in theory at least, QE3 would be good for bonds because you have a new, deep-pocketed buyer. (How it plays out in real life is more complicated because of lots of other influences, such as the European debt crisis.)

But it’s a fairly controversial policy, because having a central bank buy up a lot of securities is essentially the same as if it printed money.

That’s seen as potentially creating inflation, and devaluing a country’s currency because they’re making more of it available. Some central banks, such as Germany’s Bundesbank, are strongly against adding extra money to their financial system through special measures like bond buying; critics cite examples like the hyperinflation Germany faced between World War I and World War II as a reason QE is a bad idea.

In general, QE tends to be negative for the dollar, and positive for gold and other hard assets seen as an alternative and hedge against devaluation and inflation.  That’s been the case for gold since 2008. Advocates of QE says it’s a necessary risk to help the U.S. avoid a depression, which would be even worse for the dollar.

The Fed has completed two similar programs already since the Great Recession, so this is seen as the third round – hence called QE3. And Fed Chairman Ben Bernanke has made pretty clear he thinks the policy has been helpful to the economy.

Get Ready For An Epic Fiat Currency Avalanche

This article was written by Brandon Smith and originally published at Alt-Market.com

What is it that makes Keynesians so insanely self destructive?  Is it their mindless blind faith in the power of government?  Their unfortunate ignorance of the mechanics of monetary stimulus?  Their pompous self-righteousness derived from years of intellectual idiocy?  Actually, I suspect all of these factors play a role.  Needless to say, many of them truly believe that the strategy of fiat injection is viable, even though years of application have proven absolutely fruitless.  Anyone with any sense would begin to question what kind of madness it takes to pursue or champion the mindset of the private Federal Reserve bank…

Quantitative easing has shown itself to be impotent in the improvement of America’s economic situation.  Despite four years of free reign in central banking, employment remains dismal in the U.S., the housing market continues its freefall, and, our national debt swirls like a vortex at the heart of the Bermuda Triangle.  Despite this abject failure of Keynesian theory, the Federal Reserve is attempting once again to convince you, the happy-go-lucky American citizen, that somehow, this time around, everything will be “different”.

Sadly, as I discussed in August of this year, not only has the Fed announced a new and UNLIMITED round of stimulus measures, but the European Central Bank has also devised its own bond buying free for all:

http://www.alt-market.com/articles/954-has-the-perfect-moment-to-kill-the-dollar-arrived

I predicted simultaneous QE programs by the two central banks because it made perfect sense, at least, for those with diabolical intentions.  With engineered currency devaluation in full swing in the EU and the U.S., the implosion of both currencies, especially the dollar, will be masked.  That is to say, the dollar index is measured in large part by comparison to the relative strength of the Euro.  If the Euro falls through overt printing, the dollar will appear stronger than it really is, duping the general public and giving bankers more time to inflate.

Germany’s top constitutional court, only a day before QE3, announced its decision to support a Euro-area rescue fund, which the German people and a large part of its government are vehemently opposed to.  This action was preceded by “warnings” from various banking insiders, including Nosferatu himself (George Soros), that the EU would be sent into perdition and total economic chaos if the nation did not bow down to the ECB and hand over its GDP engine for the “good of the union” and the world:

http://www.nytimes.com/2012/09/14/world/europe/14iht-letter14.html?_r=0

http://www.bloomberg.com/news/2012-09-11/germany-s-currency-nostalgia-is-badly-off-the-mark.html

Sound familiar?  This is exactly what Americans were told in the face of their 80% disapproval rating against the bailout bonanza.  The response from the elites, whether in Germany or the U.S. is essentially that the people “don’t know what’s best, and should sit down while the so called “experts” take it from here.”  Again, mainstream talking heads will suggest that new stimulus is not a problem, and that the unlimited quantitative easing of central banks around the globe should become standard.  In fact, they have already begun the propaganda campaign.  Apparently, QE3 will save us all, rich and poor:

http://www.bloomberg.com/news/2012-09-13/with-qe3-we-all-win-poor-and-rich-alike.html

These are the typical musing of centralized banking proponents.  But where is the historical precedence for their theories?  Where are the benefits from the last two QE’s?  All we have received so far for the future debt enslavement of ourselves and our children is:

Perpetually High Unemployment Rates: 
There has been NO advancement in employment due to quantitative easing.  Official jobless percentages have fallen, but even the mainstream media now admits this is due to unemployed Americans being removed from benefits rolls because they have been without work for too long:

http://www.businessweek.com/articles/2012-09-07/weak-jobs-report-shows-obamas-long-road-ahead

True unemployment including U-6 measurements continues to hover around 20%.  So much for the job creation that both the Bush and Obama administrations promised in the wake of the bailouts.

A Housing Market Black Hole: Does anything else really need to be said about the housing market?  Is it not blatantly clear to almost every homeowner in this country that QE has changed nothing in terms of protecting their home values or their ability to sell?  Has attaining a loan become any easier since 2008?  Alternative analysts including myself ALL pointed out four years ago that property markets would continue to crash despite any efforts (real or fraudulent) on the part of the Fed.  We were right.  The mainstream media shills were wrong.  Moving on…

Disintegrating Global Demand: Manufacturing in almost every economically prominent country has gone bust, from Europe, to the U.S., to China.  The Baltic Dry Index, a pure indicator of supply and demand using shipping rates for raw goods as a medium, hit incredible lows in 2008.  However, since the QE marathon, the BDI has gone even lower!  In January of 2012, it broke historic lows, and continues to skate along the bottom today, indicating that an even greater collapse in demand and the markets is near at hand.  Demand drives economics.  Period.  No demand, no economy.  Tangible demand cannot be fabricated.  QE has done nothing to drive savings into the pockets of consumers, and therefore, it has done nothing to entice them to spend.  The public is broke, we continue to be broke, and we will be even more broke tomorrow.

Unsustainable National Debt: Our “official” national debt in 2008 was around $10 trillion.  Four years later, we have broken $16 trillion.  This obviously does not include outstanding debts on long term entitlement programs, and new programs like Obamacare, which would by some estimates bring our national debt to around $120 trillion:

http://www.nypost.com/p/news/opinion/opedcolumnists/trillion_the_shocking_true_size_tOxcrobUBUup9IEW3vQAhJ

Whether you believe the Treasury’s statistics or not, the bottom line is that at the very least our national debt has increased by 60% in only four years time!  Now, the private Federal Reserve wants to introduce unlimited stimulus, on top of Operation Twist, and the incredible money burning habits of our current government?  Are Keynesians really foolish enough to think that the generation of such massive liabilities will somehow undo the crippling effects of already debilitating debt?  Answer:  Yes.

Inflation In Necessities: Food and energy prices remain painfully high, and are now in the process of inflating beyond the average person’s ability to pay.  Oil in particular has remained almost static above $100 a barrel (Brent).  This has been blamed on numerous scapegoats, from Middle East turmoil to “speculation”.  Yet, long term high prices show that neither of these explanations is fully sufficient.  In reality, only currency devaluation allows for such a steady and consistent inflationary reaction in commodities.  Unfortunately, we haven’t seen the worst yet.  QE3 will send prices skyrocketing, and with the open-ended nature of the stimulus, there is no ceiling.  We could very well witness Wiemar style hyperinflation in the near term.

As I have said in the past, I believe QE3 will be the final straw for many foreign holders of U.S. debt and dollars.  The world reserve status was already under severe threat after QE1 and QE2.  The MSM has virtually ignored China’s bilateral trade agreements building since 2010.  In the past two to three years, China has made deals with Russia, India, Japan, South Korea, Iran, and the ASEAN trading bloc (most South-Asian nations), that remove the dollar as the world reserve currency.  And, this year, China has arranged a similar bilateral deal with Germany:

http://www.reuters.com/article/2012/08/30/germany-china-yuan-idUSB4E7JG00D20120830

These countries combined offer at least 30% of global GDP, and could easily annihilate the dollar if they decide to dump the greenback completely as the world reserve.  With the advent of QE3, this is now a certainty.

Open ended inflation is exactly what destroyed Wiemar Germany, and more recently Zimbabwe.  The central banks and their lackeys will claim there is no comparison.  I beg to differ.  When a nation expands debt spending instead of cutting it, and then monetizes that debt through fiat printing in order to allow even more debt to accumulate, that nation is not going to survive.  That nation will eventually hyperinflate, then default, then collapse, either turning into something entirely alien, or fading from history altogether.  This is what we have to look forward to in light of QE3, the final and infinite stimulus adventure.  Something has to give, and it has to give soon.  My bet is on the dollar…

Gold Sees Surge as Fed Announces ‘Unlimited QE’

Swiss 20 Franc Helvetia “Vreneli” Gold Coin

Infowars.com
September 13, 2012

After holding steady at above $1,700 this past week, gold’s price per ounce has surged close to $40 in response to the announcement of QE3, which allows the Federal Reserve to buy up “$85 billion in new assets, including $40 billion mortgage-backed securities every month until the end of the year.”

As the Committee announced an “open-ended,” or “unlimited QE,” the fed will decide when enough is enough after the Federal Open Market Committee decides the economy is back on track: “To support continued progress toward maximum employment and price stability, the Committee expects that a highly accommodative stance of monetary policy will remain appropriate for a considerable time after the economic recovery strengthens.”

As Reuters notes, gold has already made a 2 per cent gain this month in addition to the 5 per cent leap it saw in August.

As predicted, the Fed’s decision to buy up large-scale bonds has led to further deflation of the already sinking US dollar, urging both silver and gold prices to rise, with the latter rallying near $1,800.

Ed Meir, formerly of MF Global and now of INTL FCStone, told Reuters the Fed’s decision should be seen as unsettling: “Although previous rounds of QE have helped kick-start some growth in the U.S., the fact that we are once again at the ‘money trough’ is not very reassuring.”

Congressman Ron Paul released a statement earlier today addressing the Fed’s decision:

“No one is surprised by the Fed’s action today to inject even more money into the economy through additional asset purchases. The Fed’s only solution for every problem is to print more money and provide more liquidity. Mr. Bernanke and Fed governors appear not to understand that our current economic malaise resulted directly because of the excessive credit the Fed already pumped into the system.

“For all of its vaunted policy tools, the Fed now finds itself repeating the same basic action over and over in an attempt to prime the economy with more debt and credit. But this latest decision to provide more quantitative easing will only prolong our economic stagnation, corrupt market signals, and encourage even more misallocation and malinvestment of resources. Rather than stimulating a real recovery by focusing on a strong dollar and market interest rates, the Fed’s announcement today shows a disastrous detachment from reality on the part of our central bank. Any further quantitative easing from the Fed, in whatever form, will only make our next economic crash that much more serious.”

How Long Will The Dollar Remain The World’s Reserve Currency?

Sinkingdollar

This article was written by Ron Paul and originally published at Paul.House.Gov

We frequently hear the financial press refer to the U.S. dollar as the “world’s reserve currency,” implying that our dollar will always retain its value in an ever shifting world economy.  But this is a dangerous and mistaken assumption.

Since August 15, 1971, when President Nixon closed the gold window and refused to pay out any of our remaining 280 million ounces of gold, the U.S. dollar has operated as a pure fiat currency.  This means the dollar became an article of faith in the continued stability and might of the U.S. government.

In essence, we declared our insolvency in 1971.   Everyone recognized some other monetary system had to be devised in order to bring stability to the markets.

Amazingly, a new system was devised which allowed the U.S. to operate the printing presses for the world reserve currency with no restraints placed on it– not even a pretense of gold convertibility! Realizing the world was embarking on something new and mind-boggling, elite money managers, with especially strong support from U.S. authorities, struck an agreement with OPEC in the 1970s to price oil in U.S. dollars exclusively for all worldwide transactions. This gave the dollar a special place among world currencies and in essence backed the dollar with oil.

In return, the U.S. promised to protect the various oil-rich kingdoms in the Persian Gulf against threat of invasion or domestic coup. This arrangement helped ignite radical Islamic movements among those who resented our influence in the region. The arrangement also gave the dollar artificial strength, with tremendous financial benefits for the United States. It allowed us to export our monetary inflation by buying oil and other goods at a great discount as the dollar flourished.

In 2003, however, Iran began pricing its oil exports in Euro for Asian and European buyers.  The Iranian government also opened an oil bourse in 2008 on the island of Kish in the Persian Gulf for the express purpose of trading oil in Euro and other currencies. In 2009 Iran completely ceased any oil transactions in U.S. dollars.  These actions by the second largest OPEC oil producer pose a direct threat to the continued status of our dollar as the world’s reserve currency, a threat which partially explains our ongoing hostility toward Tehran.

While the erosion of our petrodollar agreement with OPEC certainly threatens the dollar’s status in the Middle East, an even larger threat resides in the Far East.  Our greatest benefactors for the last twenty years– Asian central banks– have lost their appetite for holding U.S. dollars.  China, Japan, and Asia in general have been happy to hold U.S. debt instruments in recent decades, but they will not prop up our spending habits forever.  Foreign central banks understand that American leaders do not have the discipline to maintain a stable currency.

If we act now to replace the fiat system with a stable dollar backed by precious metals or commodities, the dollar can regain its status as the safest store of value among all government currencies.  If not, the rest of the world will abandon the dollar as the global reserve currency.

Both Congress and American consumers will then find borrowing a dramatically more expensive proposition. Remember, our entire consumption economy is based on the willingness of foreigners to hold U.S. debt.  We face a reordering of the entire world economy if the federal government cannot print, borrow, and spend money at a rate that satisfies its endless appetite for deficit spending.