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 :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
World PM Newsflow
ALL
GOLD
SILVER
PGM & DIAMONDS
OIL & GAS
OTHER METALS
Mining Company News
IMX Resources NL(Cu-Ni-Pa)IXR.AX
Shortfall from Share Purchase Plan to be underwritten
AU$ 0.01+8.33%Trend Power :
Corporate news
IMX Resources NL(Cu-Ni-Pa)IXR.AX
Results of Meeting
AU$ 0.01+8.33%Trend Power :
Corporate news
SpitfireSPI.AX
Notice under Section 708A(5)(e)
AU$ 0.01+11.11%Trend Power :
Corporate news
Entek EnergyETE.AX
Operations Update
AU$ 0.02+22.22%Trend Power :
Corporate news
Agrium Inc.AGU.TO
Agrium Obtains Issuer Bid Exemption Order to Permit Purchases by Way of Private Agreement
CA$ 136.14+0.26%Trend Power :
Corporate news
ConocoPhillips(Oil)COP
Governor plans to call for company buy-out in gas project
US$ 46.82+2.07%Trend Power :
Corporate news
Transcanada PipelinesTRP.TO
Governor plans to call for company buy-out in gas project
CA$ 45.50+0.75%Trend Power :
Corporate news
Encore Acquisition(Oil)EAC
6:13 pm Erickson Air-Crane announces it has been selected by Pan Aviation to provide emergency fire suppression support for the Municipality of Istanbul and the surrounding areas of Turkey
US$ 3.37+1.81%Trend Power :
Corporate news
Rare Element Res.(Au)RES.TO
Rare Element Files Canadian Preliminary Shelf Prospectus to Replace Expiring Shelf Prospectus from 2013
CA$ 0.48+5.43%Trend Power :
Corporate news
Gold Bullion Dev.(Au-Cu-Mo)GBB.V
GOLD BULLION ANNOUNCES FILING OF 43-101 TECHNICAL REPORT ON THE CASTLE SILVER PROPERTY, GOWGANDA ONTARIO
CA$ 0.02+33.33%Trend Power :
Corporate news
Comments closed