Federal Reserve
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Will the Fed End QE This Summer?
Amid all of the hoopla over the Standard & Poor's 500 Index touching 1,500 on Friday, it seems few people noticed that the yield on 10-year U.S. Treasury bonds has risen to within a couple of basis points of 2%. That is nearly 30 basis points higher than it was one month ago and 10 basis points higher than one year ago.
It seems as if the bond market is beginning to price in higher inflation at the long end of the yield curve, and that is something that has got to be worrying the Fed.
Successive rounds of quantitative easing (QE) have added a lot of liquidity to the U.S. economy and this has been repeated globally with massive amounts of liquidity being pumped into the market by the Bank of Japan (BOJ), the European Central Bank (ECB) and the Bank of England (BOE).
The Bank of Japan has committed itself to further aggressive easing under pressure from the newly elected government headed by Prime Minister Shinzo Abe. Even if BOJ Governor Masaaki Shirakawa has any second thoughts about additional easing, he will keep them to himself.
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The Trillion Dollar Trick
The birth, and the apparent death, of the trillion dollar platinum coin idea may one day be recalled as a mere footnote in the current debt crisis drama. The ultimate rejection of the idea (which was to use a loophole in commemorative coinage law to mint a platinum coin of any denomination) by both the President and the Federal Reserve seems to offer some relief that our economic policy is not being run by out-of-touch academics and irresponsible congressmen. In reality, our government has been creating more than one trillion dollars out of thin air every year for the past five. The only difference is that the blatant dishonesty of a trillion-dollar platinum coin is so easy to understand that the public simply couldn't be expected to swallow it. The American people are more than willing to be fooled, but they won't tolerate so simple a ruse.
People have a long and intimate history with coins. Some of us collected them as kids, and we all touch and see them every day. Unlike currency bills, we know intuitively that a coin's value is supposed to come from its metal content. That's why quarters are bigger than dimes.As a result, most people have viscerally rejected the platinum coin idea. To assign an arbitrary, sky high, valuation to a small piece of metal strikes most people as a deceitful, desperate act. They are right.
However, the same people have no problem with images of thousands of crisp paper notes flying off the printing presses. The acceptance is not impacted by how many zeroes the bills contain. People simply believe that paper money derives value from the numbers, not the paper. This was not always so. Paper money originally entered the public awareness as promissory notes to pay different amounts of gold. Once people got used to the paper, few really cared when the gold backing was finally removed. As a result, the public would likely have been much more accepting of the Fed printing a trillion dollar bill than the government minting a trillion dollar coin. But there was no legal pathway for the Fed to simply give that money to the government.
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The government, not the Fed, mints coins, so they did not have to rely on the Fed to create value out of thin air. That is why the platinum coin idea was so seductive, if ultimately unsellable.
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Did the Fed Just Admit QE3 Has Been a Major Failure?
After four years of quantitative easing programs, including QE3 just last fall, U.S. Federal Reserve officials have started voicing doubts about its effectiveness and concerns that it is distorting the markets.
And it's not just the Fed's hawks, such as Dallas Fed President Richard Fisher and Philadelphia Fed President Charles Plosser, speaking out against the bond-buying extravaganza.
Doves like Atlanta's Dennis Lockhart and moderates like Kansas City's Esther George have expressed concerns about QE3 as well.
"I do think the growth of the Fed's balance sheet could have longer-term consequences that are worrisome. While I've supported these policy decisions to date, I acknowledge legitimate concerns," Lockhart said in a speech in Atlanta on Monday.
According to the minutes of the December Federal Open Market Committee (FOMC) meeting, several members "thought that it would probably be appropriate to slow or to stop purchases well before the end of 2013, citing concerns about financial stability or the size of the balance sheet."
If in fact sentiment within the FOMC is turning against QE3, then the easy money spigot that has helped fuel the stock market and other investments could be switched off sooner than most expected, which could have a sharp impact on the markets.
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What You Probably Don't Know About The Federal Reserve and Why It's So Dangerous
The Federal Reserve System is a government-sanctioned private enterprise that functions as a socialist tool.
It was conceived in 1910 and constructed for the benefit of the private bankers who control it. Congress blessed the scheme in 1913 with passage of the Federal Reserve Act.
These days the Fed doesn't just backstop America's too-big-to-fail banks. It has expanded its doctrine of socializing banking losses globally.
The Fed helped bail out private businesses, foreign big banks and central banks in Europe and Japan in the credit crisis of 2008 and is the model for the European Central Bank, as well as the ECB's primary backstop.
To understand how the Fed gets taxpayers around the world to pay the losses its member banks routinely incur, let's pull back the curtain on the Fed and explain how it operates.
Here's What the Fed Really Does
Banks lend money and sometimes they don't get paid back. That's not a problem if it doesn't happen too often and if profits from other loans and investments cover the loan losses.
But since banks have gotten really big and have to make big loans (due to economies of scale and return on capital expectations) they need big borrowers. There are no bigger borrowers on the planet than governments, and that's where a lot of banks are lending.
Of course, governments aren't immune to over-borrowing and insolvency.
All the big banks that lent to banks in countries now in financial straits continue to lend to them because if they don't they won't get paid back what they are owed. Banks would fail from a cascade of losses and would either have to be bailed out or shut down.
That's where the Federal Reserve comes in.
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The Federal Reserve's Magic Act is Destroying America
When it comes to the Federal Reserve, it's not a matter of what you see is what you get. It's more a matter of what you don't see is what you'll end up getting.
Getting, as in up the you-know-what!
I'm talking about getting socialism shoved up our capitalist backsides, for one thing.
It's simple: We are about to go over the so-called fiscal cliff. Why? Because Congress can't figure out how to stop spending money it doesn't have.
Forget the whole revenue side of the equation. It's only part of the mix of fixes, and the only fix that matters ain't fixed.
Stop spending money you don't have and you don't have to tax people more to pay for a bunch of crap they don't need, don't want, and don't even know they're getting.
Oh, that would be because on top of what we are getting there's even more that we're not getting.
Congress' paymasters are getting pork and beans for whatever they want because that's how our Congress gets elected, by greasing the wheels of insiders to get taxpayer money for their private purses, enough to plentifully pay for campaigns.
But that's only the "private" side of spending.
The spending scheme has mushroomed by expanding (and paying sickeningly outrageous wages and benefits) an ever-growing number of government workers.
And by expanding entitlements beyond what we are entitled to. And by expanding welfare and "social programs."
Yes, I am including 99 weeks of unemployment, and accompanying food stamps, and free money for unwed mothers to have more kids so they can collect more free money, and free day care, and all the other free stuff that ain't free if someone (that's you and me) is paying for it.
All that spending creates a class of people, a voting class. And, guess what they vote for?
Duh, that would be more free stuff.
So what's this got to do with the Fed?
I'm glad you asked...
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FOMC Meeting: What the Fed Policy Changes Mean For You
The Federal Open Market Committee (FOMC) meeting ended yesterday (Wednesday) with two important changes to Fed monetary policy.
First, the central bank said it would increase the amount of quantitative easing by replacing Operation Twist, which ends Dec. 31, with outright purchases of long-dated Treasury bonds.
Under Operation Twist, every month the Fed sold $45 billion in short-term Treasury bonds and notes and bought $45 billion of long-term Treasury bonds in an effort to keep long-term interest rates low.
Because the Fed funded its purchase of long-term bonds with the sale of short-term bonds and notes, no new money was created.
However, outright purchases of long-term bonds will create new money-$45 billion every month-and, by concentrating its buying at the long end of the yield curve, the Fed should be able to keep long-term interest rates low.
The Fed also said it will continue to purchase $40 billion of mortgage-backed securities each month, creating a total of $85 billion in new money from these operations monthly.
That means QE4 is here.
Starting in January, the Fed will be more than doubling the amount of money it is pumping into the economy. Happy New Year!
Second, the Fed set unemployment and inflation "thresholds," instead of setting a date for when the central bank expects to be able to raise interest rates. What this means is that the Fed will not raise interest rates unless unemployment is 6.5% or less or inflation is more than 2.5%.
By setting thresholds where monetary policy might change, the Fed is attempting to improve its communications with the public.
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Today's FOMC Meeting Ends with Major Change
After today's Federal Open Market Committee (FOMC) meeting, the Fed announced it would expand the third round of its bond buying with fresh stimulus, replacing the soon to expire Operation Twist, set to end Dec. 31.
And in an additional unprecedented move from the central bank, interest rate decisions will now be tied to the unemployment rate and inflation.
About a half hour into the release, the Dow Jones Industrial Average staged a near 65-point rally - but then lost that gain and ended down nearly 3 points at 13,245.45.
Here's a breakdown of the FOMC meeting outcome.
Today's FOMC Meeting: QE4
As expected, the FOMC meeting ended with a replacement for Operation Twist, the expiring program introduced in 2011 of swapping short-term Treasuries for longer dated ones. The goal of Operation Twist was to lower long-term interest rates to stimulate the U.S. economy.
The new asset purchase program is an extended arm of the Fed's familiar quantitative easing programs, and has thus been dubbed QE4.
Now with QE3 and QE4 together, the Fed will purchase a whopping $85 billion a month of Treasury securities, stacking the Fed's portfolio with government-backed investments for an extended period.
The buying spree will remain intact until the unemployment rate falls below 6.5% and inflation projections remain no more than half a percentage point above 2% for two years out.
The Fed also left interest rates at rock-bottom historic lows near zero, as was also expected.
While these moves were widely expected, what wasn't expected was the Fed's forward-looking guidance.
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QE4 is Coming; Will Inflation Follow?
Many observers expect the U.S. Federal Reserve to announce another round of quantitative easing, or QE4, this afternoon following the Federal Open Market Committee (FOMC) meeting.
The consensus is that the Fed will purchase an additional $45 billion of bonds from the secondary market each month.
That means the Fed would replace the monthly $45 billion used to swap short-term Treasuries for long-term Treasuries under Operation Twist, which expires at the end of this month, with outright bond purchases.
In addition to the $45 billion a month used in Operation Twist, the Federal Reserve Bank has been purchasing $40 billion of mortgage-debt securities monthly in its continued effort to boost growth.
In total, the market expects the Fed to continue to purchase $85 billion worth of bonds on the secondary market each month for the foreseeable future.
Now some investors fear the Fed with QE4 will seal the deal on skyrocketing inflation - but it takes more than increased money supply to raise prices.
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This Week's FOMC Meeting: Why to Expect More Stimulus
Investors should expect welcome news from the U.S. Federal Reserve Wednesday at the end of this week's two-day FOMC meeting.
As central bankers gathered Tuesday for the last policy meeting of the year, expectations were high that Fed Chief Ben Bernanke and his cohorts will announce a large scale asset purchase plan to replace the soon-to-end Operation Twist, introduced in September 2011.
The Fed hopes additional stimulus will finally boost growth and the employment level. With the current unemployment level at an elevated 7.7% -- a number that economists say will be revised higher in the coming weeks - the weak labor market remains a grave concern.
At recent meetings, the Fed indicated that it will continue QE3, the policy of buying $45 billion in mortgage-backed securities each month until it sees a significant and sustained improvement in the employment scene - which is unlikely to come anytime soon.
Together with Operation Twist, the two programs added some $85 billion in long-term bonds to the Fed's balance sheet each month.
The aim, the Fed said in a statement, "should put downward pressure on longer-term interest rates, support mortgage markets, and help to make broader financial conditions more accommodative."
The central bank has also stressed it would employ its other policy tools "if the labor market does not improve substantially."
While the Fed did not elaborate on what those tools are, it maintains it still has plenty of ammo left and stands ready to pull the trigger when and if necessary.
It looks like now is the time.
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The Bare, Naked Truth About The Federal Reserve's Socialist Agenda
The top line story, according to the FDIC's latest Quarterly Banking Review, is that the majority of U.S. banks are in better shape today than they have been in years.
The untold story is that when the Federal Reserve is done transitioning the United States from capitalism to socialism, the few dozen banks that remain in America will all be profitable until they need bailing out again, but will never die and live on in infamy.
Is that just hyperbole or some wild conspiracy theory? It's neither. Unfortunately, it's the bare, naked truth about the Fed.
It doesn't matter that you didn't know the Federal Reserve System was the brainchild of a handful of the world's most powerful bankers.
Or that all of them took a secret train from New Jersey to Jekyll Island, Georgia (owned by J.P. Morgan) in 1910 aboard Rhode Island Senator Nelson Aldrich's private car to devise and orchestrate the creation of the Federal Reserve.
Or that Aldrich was an investment associate of J.P. Morgan, that his son-in-law was John D. Rockefeller, Jr., or that he was the political spokesman for big business and banking interests in Congress.
It doesn't matter if you don't know who the powerful bankers are today that run the Fed's twelve district banks. Or that the Fed's New York Bank conducts all its open market operations with a bunch of favored big banks it protects (Case in point, MF Global).
Or that one former Chairman of the New York Bank's Board, who was also and still is a Goldman Sachs board member, resigned from the Fed when it was discovered he bought $3 million worth of Goldman's stock right before the Fed made sure Goldman wouldn't have to go out of business at the height of the financial crisis.
What matters, is that without the Federal Reserve the banking system in the United States would be more honest, more competitive and less of a risk to the economy than it is now.
And what really matters, is understanding the Federal Reserve could never exist and do what it does in an open democracy, and that its agenda of socializing risks (making taxpayers eat bankers' losses) and privatizing their profits (letting them keep their bonuses) for the benefit of its club members (the banks) means the Federal Reserve has to transform America to a socialist model in order to maintain its own growth and ultimate power.
Of course, it's not a stretch to see how the Fed's socialist agenda will eventually encompass most of the American economy over time.
But to keep it simple, let's look at how the Fed has already done that to the benefit of its primary constituents: banks and bankers.
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