Thefinancial media is filled with commentators who are now speculating that theFed may begin tightening soon.
This entiredebate is moronic. The Fed’s done nothing but loosen monetary policy since theFinancial Crisis began. Since 2007, the Fed didn’t even bother to think of stepping on the brakes when itcame to monetary policy.
I’ve shownthe below list before, but it’s worth reviewing as the moves listed are simplystaggering to take in. These are the Fed’s moves since the Financial Crisisbegan in 2007:
· The Federal Reserve cutting interest rates from5.25-0.25% (Sept ’07-today)
· The Bear Stearns deal/ Fed taking on $30 billionin junk mortgages (March ’08)
· The Fed opens up various lending windows toinvestment banks (March ’08)
· The SEC proposes banning short-selling onfinancial stocks (July ’08)
· Hank Paulson gets a blank check forFannie/Freddie but promises not to use it (July ’08)
· Hank Paulson uses the blank check with Fannie/Freddie spending $400 billion in the process (Sept ’08).
· The Fed takes over insurance company AIG (Sept’08) for $85 billion.
· The Fed doles out $25 billion for the automakers (Sept ’08)
· The Feds kick off the $700 billion TroubledAssets Relief Program (TARP) with the Government taking stakes in private banks(Oct ’08)
· The Fed offers to buy commercial paper (non-bankdebt) from non-financial firms (Oct ’08)
· The Fed offers $540 billion to backstop moneymarket funds (Oct ’08)
· The Feds agree to back up to $280 billion ofCitigroup’s liabilities (Oct ’08).
· $40 billion more to AIG (Nov ’08)
· Feds agree to back up $140 billion of Bank ofAmerica’s liabilities (Jan ’09)
· Obama’s $787 Billion Stimulus (Jan ’09)
· QE lite (August ’10)
· QE 2 (November ’10)
I’m sure Ileft something out here. But the above list makes it clear the Fed does onlyONE thing: throw money away. The Fed has met literally EVERY problem in thefinancial system (with the exception of mortgage fraud which is OK as far asthe Fed is concerned) by throwing money at it.
So… the ONLYway the Fed could tighten would be if we no longer had any economic problems.But we do. Here are just a few of them:
§ U-6unemployment at 15.5% (April 2011)
§ Newhome sales at a record low (Feb 2011)
§ Housingdouble dip confirmed (April 2011)
§ 44+million Americans on food stamps (April 2011)
And then ofcourse, there’s the $190+ TRILLION in derivatives sitting on US banks’ balancesheets, the Treasury market where the Fed is now the largest holder of US debtand buying over 50% of all new debt issued, and more.
To recap…the Fed has done NOTHING but loosen monetary policy since the Financial Crisisbegan… the problems that the Fed has been battling have not gone away… and theFed is somehow going to magically starting tightening?!?!
Discussionsof the Fed tightening should be up there with Elvis sightings: entertaining butworthless. The only thing the Fed knows how to do is throw money away.
The mereidea that Bernanke and Dudley and pals will suddenly become anything other thanWall Street puppets is laughable. Everything they’ve done has been devoted tohelping certain Wall Street firms become more powerful.
Consider that JP Morgan took over Bear Stears. Bank of Americatook over CountryWide Financial and Merrill Lynch. Citibank and Bank of Americawere the only two banks to have their liabilities directly backed by the Fed($280 billion for Citi and $180 billion for BofA).
Then there’s Goldman Sachs which was made whole from all AIGliabilities, received $13 billion in direct funding from the Fed, and wassupported while ALL of its investment bank competitors either went under orwere consumed by other entities, granting Goldman a virtual monopoly over theinvestment banking business (the firms that were merged with larger firms alllaid off large portions of their employees and closed down whole segments of theirbusinesses).
The Fed will continue this favoritism ad infinitum. And that willinclude more QE and money printing to help its favored firms stay in power. SoQE 3 is coming as is QE 4 etc.
And it’sultimately going to kill the US Dollar.
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GoodInvesting!
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