How The Fed Has Failed America, Part 2

fedNo new business can borrow Fed money for zero interest. The only entities that can borrow the Fed’s free money are banks and other financial parasites.
The truth is the Fed incentivizes and rewards the most parasitic, least productive sector of the economy and forcibly transfers the interest that was once earned by the productive middle class to the parasites.   Though the multitudes of apologists, lackeys, toadies, minions and factotums of the Fed will frantically deny it, the inescapable truth is that the nation and the bottom 99.5% would be instantly and forever better off were the Fed closed down and its assets liquidated.
The only way to eliminate the financial parasites is to stop subsidizing their skimming and scamming, and the only way to stop subsidizing the financial parasites is to shut down the Fed.

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By Charles Hugh Smith, Of Two Minds:

The only way to eliminate the financial parasites is to stop subsidizing their skimming and scamming, and the only way to stop subsidizing the financial parasites is to shut down the Fed.
Before I explain how the Federal Reserve has failed America, let’s do a little thought experiment.   Let’s imagine that instead of creating $3.2 trillion and giving it to the banking sector to play with–funding carry trades and high-frequency trading, for example–the Fed had invested in carry trades itself and returned the profits directly to taxpayers.

Before we go through the math, let’s recall how a carry trade works: Financiers borrow billions at near-zero interest from the Fed and then use the free money to buy bonds in other countries where the return is (say) 5%. The financiers are skimming 4.75% or more for doing nothing other than having access to the Fed’s free money.

If the bonds rise in value (because interest rates decline in the nation issuing the bonds), the financiers skim additional profit. If the trade can be leveraged via derivatives, then the annual return can be bumped up from 5% to 10%.

OK, back to the experiment. The Fed created $3.2 trillion in its quantitative easing (QE) programs. let’s say the Fed’s money managers (or gunslingers hired by the Fed to handle the trading) earn around 5% annually with various low-risk carry trades.

 

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That works out to an annual profit of $160 billion (5% of $3.2 trillion). Now let’s say the Fed divvied the profit up among everyone who paid Social Security taxes the previous year. That’s around 140 million wage earners. Every person who paid Social Security taxes would receive $1,100 from the Fed’s carry trade profits.

The point of this experiment is to suggest that there were plenty of things the Fed could have done with its $3.2 trillion that would have directly benefited taxpaying Americans, but instead the Fed funneled all those profits to financiers and banks.

The Fed apologists claim that lowering interest rates to zero benefited American who saw their interest payments decline. Nice, but not necessarily true. Try asking a student paying 9% for his student loans how much his interest rate dropped due to Fed policy. Or ask someone paying 19.9% in credit card interest (gotta love that .1% that keeps it under 20%)–how much did your interest drop as a result of Fed policy?

Answer: zip, zero, nada. The Fed’s zero interest rate policy (ZIRP)funneled profits to the banks, not to borrowers.

And let’s not forget that many Americans chose not to borrow at all. What did the Fed do for them? It stole the interest they once earned on their savings.Estimates vary, but it is clear that the Fed’s ZIRP transferred hundreds of billions of dollars in interest to the banking sector, income forceably “donated” by savers to the banks.

Lowering interest rates to zero is effectively a forced subsidy of borrowers by savers. But that’s not the only subsidy: who makes money from originating and managing loans? Banks. The more loans that are originated, the higher the transaction fees and profits flowing to banks. So incentivizing borrowing generates more profits for banks.

Humans make decisions based on the incentives and disincentives in place at the time of their decision. Lowering the cost of money (interest) to zero creates an incentive to gamble the money on low-yield bets. After all, if you can earn 3% on the free money, then why not skim the free 3%?

If speculators had to pay 6% for money and 7.5% for mortgages (the going rate in the go-go 1990s), then the number of available carry trades plummets.The only carry trades that make sense when you’re paying 6% for money are those with yields of 10%–and any bond paying 10% carries a high risk of default (otherwise, the issuer wouldn’t have to offer such a high rate of interest to lure buyers).

All of these incentives to borrow money at zero interest rate are only available to banks and financiers. And that’s the point of the Fed’s policies: to stripmine the bottom 99.5% and transfer the wealth to banks and financiers. Lowering interest rates to zero incentivizes carry trades and speculative bets that do absolutely nothing for America or the bottom 99.5% of taxpayers.

A self-employed worker pays 50% more tax than a hedge funder skimming billions of dollars in carry trades. A self-employed worker pays 15.3% in Social Security and Medicare taxes and a minimum of 15% Federal income tax for a minimum of 30.3%. (The higher your income, the higher your tax rate, which quickly rises to 25% and up.) The hedge funder pays no Social Security tax at all because the carry trade profits are “long-term capital gains” which are taxed at 15% (20% if the Hedgie skims more than $400,000 a year).

Despite the Fed apologists’ claims that ZIRP and free money handed to banks and financiers create jobs and start businesses, there is absolutely no evidence to support this claim. The only beneficiaries of Fed policies are tax accountants for the banks and financiers and luxury auto dealerships. Since Porsches and Maseratis are not made in the U.S., the benefits of the top .5% buying costly gew-gaws and evading taxes is extremely limited.

Attention, all apologists, lackeys, toadies, minions and factotums of the Fed: is there any plausible explanation for the wealthiest .5% pulling away from everyone else since the Fed launched ZIRP and QE other than Fed policies? And while we’re at it, how about publishing a verifiable list of companies that were founded and now employ hundreds of people because the owners could borrow millions of dollars at zero interest?

Get real–no new business can borrow Fed money for zero interest. The only entities that can borrow the Fed’s free money are banks and other financial parasites.

The truth is the Fed incentivizes and rewards the most parasitic, least productive sector of the economy and forcibly transfers the interest that was once earned by the productive middle class to the parasites. Though the multitudes of apologists, lackeys, toadies, minions and factotums of the Fed will frantically deny it, the inescapable truth is that the nation and the bottom 99.5% would be instantly and forever better off were the Fed closed down and its assets liquidated.

The only way to eliminate the financial parasites is to stop subsidizing their skimming and scamming, and the only way to stop subsidizing the financial parasites is to shut down the Fed.


Source: Wealth, Income, and Power (G. William Domhoff)

 

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Comments

  1. Just in case you didn’t think this would happen…. http://theiraqidinar.com/doozies/reports-all-indicate-rv-is-happening-238997?utm_source=twitterfeed&utm_medium=twitter
     
    States the Chinese are in Reno with intention to meet up with the Federal Reserve + Christine Le Garde to make us Free!!!
    GOLD BACKED MONEY AFTER SETTING IRAQI DINAR ON THE BIG BOARD. http://theiraqidinar.com/doozies/reports-all-indicate-rv-is-happening-238997?utm_source=twitterfeed&utm_medium=twitter

    Zero Hedge ~ http://www.zerohedge.com/news/2014-03-14/chinas-credit-nightmare-explained-one-chart

  2. I rather have the fed print money an let the government have it then have the government raise my taxes so high that everytime you breathe or fart you have to pay more tax

  3. The top 1% better have deep holes to hide in is all I can say

  4. “Though the multitudes of apologists, lackeys, toadies, minions and factotums of the Fed will frantically deny it, the inescapable truth is that the nation and the bottom 99.5% would be instantly and forever better off were the Fed closed down and its assets liquidated.”
     
    Amen to that!  But a funny thing happens when one suggests this… people get that deer in the headlights look on their faces and mumble something about, “And what would replace it?”, as if ending a REALLY bad idea required replacement! It doesn’t.  The USA did quite well for 125 years without having ANY kind of a central bank and could easily do so again.  But… first, let’s transfer all of the national debt to the Fed’s balance sheet and THEN end the Fed!  HA!!
     
    “If the bonds rise in value (because interest rates decline in the nation issuing the bonds), the financiers skim additional profit. If the trade can be leveraged via derivatives, then the annual return can be bumped up from 5% to 10%.”
     
    Yes, but let us not forget that leverage is a sharp sword that cuts just as keenly when losses occur as when profits occur.  If rates rise during all this financial finagling, HUGE losses would be generated… and that just isn’t part of THE PLAN, so let’s fix those rates so this doesn’t happen, OK?  OK!
     
    “And let’s not forget that many Americans chose not to borrow at all. What did the Fed do for them? It stole the interest they once earned on their savings.Estimates vary, but it is clear that the Fed’s ZIRP transferred hundreds of billions of dollars in interest to the banking sector, income forceably “donated” by savers to the banks.”
     
    Indeed so.  This problem is especially critical to older Americans, many of whom have managed to save a bit in spite of all the crap the Gov and Fed have done to us, and need that interest money to help support themselves in their old age.  Thanks to the Fed, however, many of them will be eating Alpo instead of steak or even hamburger in their later years. 
     
    “Despite the Fed apologists’ claims that ZIRP and free money handed to banks and financiers create jobs and start businesses, there is absolutely no evidence to support this claim.”
     
    Indeed not.  In fact, there is a great deal of evidence to the contrary.  Here we are going on 6 years since the 2008 financial collapse and we still have unemployment in the mid-teens, if real numbers are used, and in the low 20s once we include those whom the Gov has stopped counting because they have quit looking for jobs that aren’t there.  So much for the great job creation engine based on the Fed’s ZIRP.  ZAP! would be a more appropriate term, IMO, and it is everyday Americans who are getting zapped on a daily basis.
     

    • Mornin’ Ed,
       
      Ready to teach the Sheople? it’s a team effort in this INFORMATION WAR my friend.

    • Hello, Red Pill.  I have tried to teach a few sheeple but it is an insanely difficult and thankless task.  I found myself wishing that I could simply bore a hole in their head and pour in the info that they need to become real live human beings instead of sheeple.  But, once they realize what I am up to, they kick, bleat, and jump out of my grasp.  They then head back to their usual pens, comfortable and secure in familiar surroundings.  :-(

  5. Sorry folks, but yet more evidence that this is ALL BY DESIGN:
     
    ” Very soon, every American will be required to register their biological property in a national system designed to keep track of the people and that will operate under the ancient system of pledging. By such methodology, we can compel people to submit to our agenda, which will effect our security as a charge-back for our fiat paper currency. Every American will be forced to register or suffer being unable to work and earn a living. They will be our chattel, and we will hold the security interest over them forever, by operation of the law merchant under the scheme of secured transactions.
    Americans, by unknowingly or unwittingly delivering the bills of lading to us (ie. birth certificates) will be rendered bankrupt and insolvent, forever to remain economic slaves through taxation, secured by their pledges. They remain stripped of their rights and given a commercial value designed to make us a profit and they will be none the wiser, for not one man in a million could ever figure our plans and, if by accident one or two should figure it out, we have in our arsenal plausible deniability. After all, this is the only logical way to fund government, by floating liens and debt to the registrants in the form of benefits and privileges. This will inevitably reap to us huge profits beyond our wildest expectations and leave every American a contributor to this fraud which we will call ‘Social Insurance’. Without realizing it, every American will insure us for any loss we may incur and in a manner, every American will unknowingly be our servant, however begrudgingly.
    The people will become helpless and without any hope for their redemption and, we will employ the high office of the President of our dummy corporation to foment this plot against America.”
     
    ~ Colonel Edward Mandell House (1913!)
     
    (Advisor (read OWNER) and “creator” of President Woodrow Wilson! This man was beside Wilson the entire time he was in office instructing him on his every move. Just like Kissinger controlled Nixon)  Yet more evidence that there is MORE POWER if one is BEHIND THE THRONE than sitting atop it! Think people…THINK!)

  6. Biometrics with a national DNA database would appear to have the best chance of finally enslaving us by that most unique element of our humanity–our DNA.
     That very interesting spiral of proteins is so complex that chance creation would pose the question–Did God make us.  I tend to think he did.  Direct evidence aside, even circumstantial evidence would lead one to believe in the higher power that created us.
    That said, and this is far as I will get into even the remotest of theological rumination, if some part of the human species decided that they would assume the categorization of each unique person on this earth to use for some nefarious and evil purpose, then I will go FULL RETARD against it.  
    Chip me motherf******?
     Seriously?  
    I dont think so
    There are other forms of metallic data insertion that makes for a really bad day.  Mine is 9mm, 40 or 45 cal
    Just sayin’
    I’m no use to anyone in that regime if the  Powers that be try something like this.

    • @AGXIIK
       
      Or, as those with strength and character say when confronted by the Borg, “WE WILL NOT COMPLY!“.  Then, it is GAME ON!
       
      As to doing this or we can’t work.  HA!  Threaten me.  I already do not work and have no plans to do so again in this life, so no loss there.  If they wanted to mount a SERIOUS threat, they would threaten me with a J-O-B.  lol
       

  7. Edb there you go again, dropping those nasty four letter words
    JOB   yeck  
    RUN  Double yeck.

  8. JOBB
    RUNN
    I graduated summa cum dumbass from Common Core.

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