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The Fed Raises Rates...By Paying the Banks


#1

The Fed Raises Rates...By Paying the Banks

Marty Wolfson

The business and financial press has been abuzz with speculation about when the Federal Reserve would begin raising interest rates. After the meeting of its Federal Open Market Committee (FOMC) on December 15-16, the Fed ended the suspense by announcing that it was raising its target federal funds rate by a quarter of a percentage point (to a range of 0.25 to 0.50%). Flying under the radar, though, was the Fed’s use of a dramatically different method of raising interest rates.


#2

There are numerous other issues with the global financial system which the Fed tries to manage by bullying other central banks, primarily those of England, Europe, and Japan. One big problem with global capital is that the distance between the investor and the investment can be vast--clear across the globe, literally. Along the way, all sorts of middlemen appear to take a piece of the action like oh so many trolls under bridges. These middlemen often develop derivative investments that are so opaque that investing really becomes gambling, were one to be honest. Brooksley Born heroically tried to draw attention to this issue back in the late nineties as globalization exponentiated. Her message was suppressed by the mealy-mouthed disinformation spouted by Alan Greenspan. Hopefully, if and when smarter heads prevail, they will reduce the number of times an investment may be diced and sliced so that some transparency may be restored. I'm, however, not holding my breath.


#3

The "smarter heads" did "prevail" drafting FDR's New Deal that included the firewalls and transparency you mentioned. Today's "smarter heads" are being silenced by the devious smart heads that own the government.


#4

The entire financial system is a sham. A Chinese economist who closely studed the economy of the USA concluded its real size was no more then 4 trillion dollars. The rest of it was just smoke and mirrors.

Just as example the total amount of gold in the world is around 165000 metric tons. For every ounce of gold exisitng 325 Gold 1 oz certicates have been printed up against that single ounze of gold and sold to some investor. These gold certificates are used as collateral and count as assets of the body holding them at the current world price of gold. Transactions based on these and on other derivatives that represent nothing count as "financial activity" when measuring the size of en economy.


#5

Ah, the Creature from Jekyll Island.
Yes, there are some things people love to hate. Sometimes, I wonder if it is because they simply don't understand the object of contempt or scorn

I thank the author of this article for bringing back so many lucid memories of the orchestrated financial implosion. In addition, I certainly appreciate the manner in which he organized his thoughts and presented such an accessible overview of some extremely complex dynamics. (That's no easy trick with certain subjects.)


#7

Yes, the premise of such a system is an underlying derivative scheme—at best.

But, remember the concepts such as full faith and credit, investor confidence and consumer confidence. If wisely considered when implementing monetary policies, they can work magic. Otherwise, it can be quite problematic (i.e. abusive or inept) strategy-wise. For, it unduly risks leading to illusory expectations and affects, which can cause all manner of cascading ripple or multiplier affects throughout the entire banking system and the economy as a whole.

Oh, and, the mystery man is?


#8

Okay, it's pop-quiz time!

How much gold do you estimate is in Fort Knox?

And, for extra credit,: How much gold do you think the Federal Reserve Banks hold collectively?


#9

I think the phrase should be that the issue of globalization grew exponentially.... exponentiated... not?


#10

This level of analysis is reminiscent of those who critique HOW the U.S. military conducts wars while leaving in place the rationale for the wars themselves. It's also reminiscent of those Left Gate Keepers willing to go so far as to say that Bush's neocon team knew about the 911 attacks but did nothing to prevent them. This is a rather antiseptic view that bypasses the far more compelling evidence of a very well-executed Inside Job.

In this analysis, left completely out of the realm of conjecture is Ellen Brown's example of the State Bank extending into that of a National Bank. Such a system, leaving out the FED which only exists to collect interest on the public's money... as loaned out (and let's not forget how these loans generate capital out of thin air via this convenient--for bankers--fiction known as fractional reserve banking) would mean that the U.S. treasury compiles interest that it pays to itself. Again, that's in lieu of a private banking consortium... since it's largely the power of this consortium's control over vast sums of capital that drives foreign policy... with WARS favored.

Too often a writer will make a decent case for his or her subject matter; but what's more interesting is what is left out in the way of discussion.

In other words, instead of dickering over .25% rather than .50% (which arguably does translate into billions of dollars on the already existing debt), why justify the Fed at all?

Is this not an argument that runs analogous to that of justifying Insurance companies as necessary players in the administering of health care... as a system?

Get rid of ALL the usurers! Throw the money-changers OUT of the temple, and then maybe Peace and Prosperity for ALL would have a fighting chance!


#11

No one can make an accurate assessment of the Gold in Ft Knox because there has not been a proper audit of it done in years.

Just as example much of the gold belonging to Germany is stored in the New York Fed bank building. There have been ongoing demands inside Germany to get that gold back and the Germans requested an official visit to view and Inventory the Gold. The US Fed refused and allowed only a few bars to be viewed. They claimed this for reasons of security.

is the gold really there? Who knows.


#12

" So when the Fed on December 16 established a range of 0.25-0.50% for the federal funds rate, it also announced a new procedure designed to keep the federal funds rate from falling below 0.25%. The new procedure is to conduct overnight reverse repurchase agreements (ON RRP) with the Home Loan Banks (as well as with banks, other GSEs, and money market mutual funds, which are important lenders in short-term markets).

This sounds strangely like setting the stage for intensified institutionalization of 'kiting' - which would seem to render the cartel model of the FED membership permanently dependent on all the current abuses like slave labor abroad, "austerity" through the WTO/IMF, tax shelters, - more of the same with greater distance from the benignly noble sounding concerns about employment. Financial stability? compared to what?

In the mean time the consequent socioenvironmental problems are historically always externalized, conceptually and financially fractured and fractionalized, wrapped in its cartel model of secret 'trade deals' in order to find new terra nullis to further implant variants of the thievery home and abroad to the greatest extent of plausible deniability possible a la 'giant vampire squid'.


#13

It's a common term in technical literature, but I just checked my (James and James) Mathematical Dictionary (fifth ed.) and it was not included. Sorry for slinging mathematical slang around so carelessly.


#14

Techy terms... interesting.


#15

You are too cool for school. I mean, you are just too much too touch. Why don't you cut the author some slack.This is not some symposium of experts in their respective fields.

I have read many of your posts. You are ever so prolific and too wise. I imagine you as being comparable to a committee which produces scholarly material. Though it is rare that I dare to write thusly, well...
I liken your instant comment to that of Steven Hawkins critiquing an entry in a high-school science fair.

Okay, yeah, sure....

I have a relatively high-caliber understanding of the world of money and banking, economics as well as investment and portfolio analysis. I full well realize that a particular writing cannot be all things to all people. But the one thing that I do appreciate is when one can write well, given certain constraints:


  • the level of sophistication of the target readership
  • the readership's relative degree of prior exposure to the particular subject matter
  • whether the subject matter is somewhat simplistic, technical or esoteric
  • the readership's probable level of interest in the subject matter
  • as well as time and space considerations

Considering the intended readership, I'll not be the one to peel layers off of an onion ad infinitum or to throw out the baby with the bath water.


That said, I said it before, and I'll say it again, "Kudos to you Mr. Wolfson, for having written an excellent article about such a relatively complex and oft misunderstood subject matter.

I would never shoot the messenger (or the piano player, for that matter).