Close X Cookies are necessary for the proper functioning of 24hGold.com. By continuing your navigation on our website, you are accepting the use of cookies.
To learn more about cookies ...
EnglishFrench

The Fed’s Phony Benefits

IMG Auteur
Published : January 22nd, 2013
416 words - Reading time : 1 - 1 minutes
( 3 votes, 5/5 )
Print article
  Article Comments Comment this article Rating All Articles  
0
Send
0
comment
Our Newsletter...
Category : Crisis Watch

 

 

 

 

There is very significant news that has barely made the headlines : Last week, the Fed has paid $89 Billion in benefits to the U.S. Treasury. It is 18% more than last year’s payment and it wipes out the $79 Billion 2010 record (Fed announcement).

By the way, in passing, the most profit-making entity in the USA is not Apple, Exxon or another company; no, it’s the central bank, living proof that the economy is upside down !

Once again, this payment is quite normal. The Fed gives back to the State all of its benefits, less its Washington headquarters operating costs and dividends paid to the twelve regional federal banks.

What is less normal is the source of those benefits : interest paid by the State on the Treasury bonds owned by the Fed. The system goes around in circles : the Treasury issues bonds, the Fed buys most of them (through the printing press), then it pays interest on its bonds, the Fed cashes it and then pays back the Treasury ! To be more precise, part of the Fed’s revenue also comes from bonds issued by Fannie Mae and Freddy Mac, also bailed out by the State... so it’s still a closed-circuit operation.

In other words, this debt acquired through the Fed costs strictly nothing to the State. It’s like borrowing at 0% interest. The total weight of the debt (interest paid to all debtors) was $251 Billion in 2011; so, that $89 Billion represents more than a third of the economy.

This is a very perverse mechanism because, as more of the public debt is acquired by the central bank, the less it weighs on the federal budget. It encourages taking on even more debt and have it financed by the central bank or, in other words, the printing press. And there’s also another perverse effect : this massive buying by the Fed causes interest rates for all bonds to fall, not only those owned by the Fed but those owned by american and foreign investors as well. Finally, the debt of the State is costing it much less than it should.

This is nothing but a gigantic bubble that, barring a return to balanced budgets, can only lead to hyperinflation.
All discussions on budget deficit reduction have to be understood in light of this reality. In fact, it doesn’t cost that much to finance the debt and the deficit if you include the Fed’s payment... so why bother cutting expenses ?


 

 

Thanks to Philippe Herlin from www.goldbroker.com
<< Previous article
Rate : Average note :5 (3 votes)
>> Next article
Philippe Herlin is a researcher in finance and a junior lecturer at the Conservatoire National des Arts et Métiers in Paris. A proponent of extreme-risk thinkers of the Austrian School of Economics, he brings his own views on the actual crisis, the Eurozone, the public debts and the banking system. He is also contributor at www.Goldbroker.com
Latest comment posted for this article
Be the first to comment
Add your comment
Top articles
Latest Comments
First Report since April, 2014
05 FebAndy_K1
Jason, One of your articles written way back is one of the reasons I started paying attention to silver and shortly thereafter started to ...
Something has Changed in Gold St...
06 Febneville
No nothing strange has happened in GOLD stocks....absolutely nothing.....The fact of the matter is that you byrne have been playing the man and...
The Revisionist Theory and Histo...
05 Febovertheedge
"The key is in the hand of the U.S. government. It is the same key that was used to lockthe U.S. Mint to silver in 1873, and to gold sixty years la...
First Report since April, 2014
05 FebS W.1
Here I was just 2 days ago thinking whatever happened to that evangelical silver guy. Low and behold up he springs, like some spirit from the g...
LBMA Silver “Price”: A Perfect S...
03 FebS W.
There is no doubt that the Comex can be used as a casino for those who want to trade Silver up/or down or maybe some just wish to take a small punt...
LBMA Silver “Price”: A Perfect S...
30 JanOzSILV1
Bron refuses to EVER admit this market is a Casino and the disconnect between Paper and Physical is a big clue to this
LBMA Silver “Price”: A Perfect S...
30 JanS W.
Usually I enjoy Bron's take on things,but to be perfectly honest, I can't understand 95% of what he his on about here. I get the feeling that h...
ANOTHER NAIL IN THE U.S. EMPIRE ...
30 JanDemosthenes0
Very naive and pretentious article! The author thinks he knows everything and yet knows next to nothing. Shale gas producers are neither stupid n...
Most commented articlesFavoritesMore...
World PM Newsflow
ALL
GOLD
SILVER
PGM & DIAMONDS
OIL & GAS
OTHER METALS
Mining Company News
Lara Expl.(Cu-Zn-Au)LRA.V
Revised Resource Estimate Report Filed for Maravaia Copper Gold Deposit
CA$ 0.32+0.00%Trend Power :
Corporate news
Black HillsBKH
Black Hills reports 4Q loss
US$ 53.10+4.32%Trend Power :
Corporate news
Kinder Morgan(Oil)KMP
Midstream Companies Were above the 20-Day Moving Averages
US$ 102.03+1.98%Trend Power :
Corporate news
Kinder Morgan(Oil)KMP
Midstream Companies Were above the 20-Day Moving Averages
US$ 102.03+1.98%Trend Power :
Corporate news
Devon Energy(Ngas-Oil)DVN
Gasoline Inventories Rose Last Week despite Fall in Production
US$ 21.63-4.55%Trend Power :
Corporate news
United States Steel(Fe-Sn)X
U.S. Steel (X) States Ratification of Labor Agreements
US$ 7.08-3.54%Trend Power :
Corporate news
Black HillsBKH
4:34 pm Black Hills Corp beats by $0.04, misses on revs; guides FY16 EPS below consensus
US$ 53.10+4.32%Trend Power :
Corporate news
Black HillsBKH
Black Hills Corp. Reports 2015 Fourth Quarter and Full Year Results
US$ 53.10+4.32%Trend Power :
Corporate news
Transcanada PipelinesTRP.TO
TransCanada to Sign Substantial Agreement to Benefit Québec Economy
CA$ 48.65+0.16%Trend Power :
Corporate news
Devon Energy(Ngas-Oil)DVN
4Q15 Crude Oil Prices: Fallout for the Energy Sector and SPY
US$ 21.63-4.55%Trend Power :
Corporate news
Comments closed