federal reserve conspiracy
As usual, the markets were hanging on every word of the Bernanke testimony to Congress today (Wednesday).
By now, everyone should know better.
In the years that U.S. Federal Reserve Chairman Ben Bernanke has been a member of the Fed - both as a member of the Board of Governors from 2002 to 2005, and in his two terms as chairman beginning in 2006 - he has been stupendously wrong time and time again.
Bernanke gave the markets what they wanted by hinting that his monetary easing policies won't change any time soon, pushing both the Dow Jones Industrial Average and the Standard & Poor's 500 Index up more than 0.5% in midday trading.
What You Absolutely Need to Know About Money (Part 8)
It all starts with the Arab oil embargo of 1973-74.
The Arab members of OPEC proclaimed an oil embargo to punish the U.S. for aiding Israel. This action quadrupled the price of oil, roiling commodity markets, equities, bonds, and foreign exchange markets.
Energy prices soared. Speculation in oil exploration and production became feverish.
There was money everywhere.
Oil exporters in the Arab states were depositing their windfall "petrodollars" into big U.S. banks, who were in turn lending the money out as fast as they could.
By far, the largest recipients of the flood of money looking to be lent out were Latin American and South American countries. Thus, the new tens of billions of dollars banks had to lend were showered on sovereign states with glaring credit quality blemishes.
In the meantime, banks were lending hand over fist to the energy patch. Small banks were getting into the oil lending game, too - sometimes in spectacular ways.
By 1982, tiny Penn Square Bank, located in the Penn Square Mall in Oklahoma City, Okla., had made over $1 billion dollars of energy loans and resold them to money-center bank Continental Illinois National Bank and Trust Company of Chicago.
The loans went bad, quickly.
What You Absolutely Need to Know About Money (Part 7)
By the start of the 1960s, banking in America was in a state of flux.
Boundaries were being blurred - especially those separating "commercial banks" and "investment banks" under Depression-era Glass-Steagall parameters. The banking landscape was shifting. In fact, it was about to go volcanic.
The Truman Administration had championed the break-up of bank cartel arrangements, whereby a powerful coterie of commercial-bank bond underwriters controlled how corporations financed debt and who got to distribute bond offerings. Subsequent regulatory changes (requiring bidding for underwriting assignments) broke up the "Gentleman Bankers Code," which had been code for cartel.
A more competitive landscape drove banks to expand. Branch banking spread through shopping malls and onto prime locations on America's Main Streets.
The hunt for deposits was on.
And it got ugly fast...
The New Crisis Warning Just Issued to the Federal Reserve
Before the housing market crash, economists warned that record low-interest and mortgage rates were fueling a housing bubble.
Unfortunately, those fears were both overlooked and underestimated.
Now, an advisory council to the U.S. Federal Reserve is warning the Fed that its record $85 billon-a-month stimulus and ultra-low interest rates are fueling new bubbles in student loans and farmland.
"Recent growth in student-loan debt, to nearly $1 trillion, now exceeds credit-card outstandings and has parallels to the housing crisis," according to minutes of the council's Feb. 8 meeting.
In addition, "agricultural land prices are veering further from what makes sense," the council said. "Members believe the run-up in agriculture land prices is a bubble resulting from persistently low interest rates."
These warnings come from the Federal Advisory Council, a panel of 12 bankers chosen by the 12 Federal Reserve banks, which consults with and advises the Fed. Members of the council include the CEOs of Morgan Stanley (NYSE: MS), State Street Corp. (NYSE: SST), BB&T Corp. (NYSE: BBT), Bank of Montreal (NYSE: BMO), Capital One Financial Corp. (NYSE: COF) , U.S. Bancorp (NYSE: USB) and the former CEO of PNC Financial Services (NYSE: PNC).
What's more, the council warned the Fed in September that QE3 and its plan to buy bonds indefinitely would distort bond prices and have a limited impact on the economy and that "uncertain effects" will arise from the eventual unwinding of the balance sheet, including "risks to price and financial stability."
So while Uncle Ben likes to remind us that the Fed will step in and take appropriate fiscal measures when necessary, the central bank's own council believes the Fed's actions are doing more harm than good.
Why We Can't Avoid Ben Bernanke's "Monetary Cliff"
When it comes to the Federal Reserve, an accurate "reading of the tea leaves" means paying attention to all of the fine print.
And while the markets cheered last week's FOMC meeting with yet another rally, a deeper look at Ben Bernanke's press conference left me with a slightly different take.
Sifting through the Fedspeak, it became obvious that the Fed is now lining up a "monetary cliff" that's bigger than the fiscal one we spent the last half of 2012 worrying about.
Let me explain...
Here's Where the Fine Print Gets InterestingAccording to the release from last week's meeting, the Fed will continue to purchase $85 billion of Treasury and agency bonds every month. Doing so, Bernanke explained that at some point he does expect to reduce that amount. However, he also explained that the recent string of good unemployment data (five months above 200,000 new jobs) wasn't enough yet for him to make the change.
The Fed also stated that it expects a "considerable period" to elapse between the conclusion of the purchase program and raising rates.
Interestingly, that matched with the intentions of the 19 Federal Open Market Committee members. Only a few expect to raise rates before the end of 2014, compatible with the current Fed outlook.
But here's where the fine print gets really interesting: All but one of the members now expects to raise rates in 2015.
What's more, they said once they start, they won't be shy. In fact, the average opinion would put rates at 1.35% by the end of 2015. It may not seem like much at first glance but that's actually quite a big move from six-plus years at zero. And further on into the future, the consensus long-term goal was for rates to hit 4%.
Of course, with inflation around 2%, my goal for the Fed funds rate would be higher than 4% and a lot higher than 1.35% by the end of 2015. But alas, I'm not the Fed chief.
The point is that with the Fed expecting the economy to grow steadily between now and then, and no immediate sign of even a slackening in bond purchases, the turn by the Fed supertanker in late 2014 and 2015 is going to be pretty abrupt.
In fact, chances are it will cause a big wake, and drown quite a few people who have become used to current policies.
What You Absolutely Need to Know About Money (Part 5)
Chapter Four ended as a cartel of powerful bankers gathered on Jekyll Island to develop a plan for creating a central banking system which would work for their interests.
John Pierpont Morgan was no stranger to how central banks worked. He had witnessed their power firsthand.
Junius S. Morgan, Pierpont's father, became a partner at George Peabody and Company in 1854 and moved to London - where the American-born Peabody had been bankrolled by Baron Nathan Mayer Rothschild. At the time, the rich and powerful Rothschilds exerted extraordinary control over the Bank of England.
George Peabody and Company rode the mania for railroad shares, whose prices in 1857 were benefiting from the Crimean War's impact on rising grain prices, which Western railroads transported in huge quantities.
But the good times didn't last.
What You Absolutely Need to Know About Money (Part 4)
Chapter Three ended with the rise of J.P. Morgan and how he used chronic boom and bust cycles to his own great advantage. That brings us to the Panic of 1907.
The Panic of 1907 was a seminal event in the history of banking. It spawned the Federal Reserve System - but not immediately. There would be a long cloak-and-dagger affair before the Federal Reserve Act was signed into law - while Americans were distracted - two days before Christmas, on December 23, 1913.
How Congress was duped by many of its own, and how the public was blindsided into believing their government was creating a safer banking system is a testament to the power of private banks to run and, for their own profit, ruin America.
Here's how it all happened.
The Fed Delivers Unmistakable Message After Two-Day Meeting
The Fed delivered a clear message Wednesday after its two-day meeting: Don't expect the easy monetary policies to end anytime soon.
The Central Bank's official policy statement, the first of 2013, said interest rates would remain near zero, at ¼%, and the aggressive $85 billion-a-month bond-buying program would continue for a "considerable time."
Word of the Fed's decision came just hours after a Commerce Department report showed gross domestic product had declined for the first time since the Great Recession, slipping 0.1% in the fourth quarter.
The GDP's first decline in 3 1/2 years had led economists to predict the Fed would stick to its easy money policies for the time being.
"There is no hint that they are giving any thought of backing off current policy and their current stance," Wells Fargo's senior economist Mark Vitner told Bloomberg.
"Growth has slowed and inflation is running below expectations. To the extent the Fed's decisions are data dependent, all the relevant data suggest they should continue to ease."
FOMC Preview: Will the Fed Continue its $85B/Month Bond-Buying Program?
Investors will be looking to the Federal Reserve Wednesday for clues about how long it might continue its bond-buying program aimed at pushing interest rates down.
The Federal Open Market Committee is expected to release a policy statement at 2:15 p.m. Wednesday, the second day of its two-day meeting.
In keeping with a practice it began last January, the first meeting of the new year will highlight the FOMC's long-term goals and monetary policy.
The Central Bank likely will reiterate the goal it has maintained all of last year: boosting the stagnant U.S. economy.The Fed's first meeting of 2013 comes after an extraordinarily busy year, capped by two key moves in December.
That's when the Fed said it would continue spending $85 billion a month on bond purchases to keep interest rates low. At the same time, the Fed set unemployment and inflation "thresholds" instead of a date when the central bank expected to be able to raise interest rates.
QE3 is on Its Way – Here's How to Prepare
Federal Reserve Chairman Ben Bernanke spoke to the U.S. Senate Tuesday and yesterday (Wednesday) in his two-day biannual meeting with Congress - and failed to make any promise to institute more stimulus measures.
He did leave the door open for the Fed to do something - even if it won't commit to what that will be.
The markets rallied, although investors were disappointed that the Fed chief couldn't deliver a bigger commitment.
But make no mistake - quantitative easing, or QE3, is coming.
That is assured for one simple reason.
The U.S. government can find few buyers for its debt at current low interest rates. And as Bernanke has stated publicly, low interest rates will remain in place until at least 2014.
That means the Fed will have to continue its role of financing the budget deficit of the U.S. government through the inflation of its balance sheet.
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