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The
Fed’s current policies are based on lies.
The Fed
likes to claim that it is trying to grow the economy or boost employment, but
both claims are false.
Indeed,
research that was published by the
Fed has noted that the Fed’s policies have only
reduced unemployment by a measly 0.13%, while there is ample evidence from
both Japan and the UK that QE doesn’t generate significant GDP growth.
So what
is the Fed doing?
The Fed
is focusing on one thing only: stopping
the bond bubble from bursting.
The
reason the Fed is doing this is because it is truly beholden to only two
groups: Wall Street banks and the Federal Government (in that order). That’s
it.
If the
Fed were to allow interest rates to rise significantly, the Wall Street banks
would implode. Currently
Wall Street banks sitting on over
$191 TRILLION worth of derivatives trades based on interest rates (bonds).
These derivatives are concentrated on the balance sheets of the Too
Big to Fails (the very group of banks that the Fed has propped up at all
costs).
This is
why the primary Fed has kept rates low through both ZIRP and its QE programs.
If interest rates were to rise, the Big Banks (the Primary Dealers who
control the Fed) would implode.
If you’re a Fed President… and you were put ON THE FED’s BOARD
by a Primary Dealer… what are the odds you’d let said Primary Dealer blow up?
This is
why the Fed openly lies about its policies: being honest would cause a systemic
collapse (openly admitting that the Big Banks are all insolvent based on
their interest rate exposure alone) would cause bank runs.
As for
the Federal Government… for 30+ years, the US has been papering over the
decline in living standards by issuing debt. In its simplest rendering, the
Federal Government spent more than it could collect in taxes, so it issued
debt (borrowed money) to fund its various welfare schemes.
Real
incomes peaked in the early ‘70s. This is why a generation or two ago only
one parent worked and most families were fine. Today both parents often work
and most families are one paycheck away from broke.
Every
1% increase in interest rates means $100 billion more in interest payments on
the US debt. This is money that the US doesn’t have (we recently issued $1
trillion in new debt
simply to cover payments on old
debt that was coming due).
So the
Fed HAS to keep rates low. To let rates rise would jeopardize the whole bond
bubble and US welfare state (over 70% of US spending is on welfare or
entitlements).
The Fed
doesn’t care about incomes or employment, it cares about maintaining the
current financial system. This means propping up the Too Big to Fails and the
Us welfare system via the bond bubble. Because
if the bond bubble were to burst, it’s GAME OVER for the financial system in
its current arrangement.
This would also mean game over for the Fed.
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