The Fed is perpetrating a legal-but-soon-to-be-very-painful swindle.

Current Fed Policy. The Fed is perpetrating a legal-but-soon-to-be-very-painful swindle.

by Dick Eastman

Fed wants to unwind (sell off) securitized mortgages on its balance sheet from its present balance sheet of $2.5 trillion in treasuries and $1.8 trillion in mortgage-backed securities. The Fed will begin selling these on the bonds market, which is also the loanable funds market for the real economy in a system where the entire real economy’s money supply is money borrowed at compound interest on the loanable funds market. The Fed euphemism for the higher nominal interest rates that will result is “normalizing the federal funds interest rate” which means raising the rate at which banks lend to banks to keep each other from being caught with less then the legal requirement of reserves to cover their loans outstanding. This is what happens, the Fed dumps its portfolio of securitized-mortgages on the market — the market for interest income if you are on the supply side (supplying money and buying interest income) , the market for loanable funds if you are on the demand side (borrowing money and supplying your IOU promise to pay principal and interest over time.) This increase in supply of interest-paying bonds drains off the money of people seeking to buy an interest stream, drains it so that there is lest loanable-money offered to the business, household and government sectors — and so these sectors must bid higher to get any share of the loanable-funds left over after the Fed’s sale of its securitized-mortgages that it bought from banks when borrowers were crippled by deflation and were moving into default by the millions as deflation of money supply made incomes shrink to the point where household budgets and business budgets, so carefully planned before the deflation, no longer were sufficient to keep up payments. So the Fed’s sale to the people wanting to buy borrowers’ IOU’s will force borrowers in the economy to pay more interest. What is the effect of higher interest? It means that all enterprise undertaken on borrowed money — remember, the entire national money supply is borrowed money — will require a bigger interest tribute to be paid to lenders, which means more drain of money to the economy (more deflation!) from the economy as interest is paid. Notice, that the stream coming in — the loans — is always smaller than the total stream of interest and principal that goes back to the international lenders. This is a monstrous unnecessary burden on everyone earning their income from the real economy (including the income-taxing government). And why is this permitted and how is it justified? Because the goal of the Fed is to fight inflation. Outrageous. Especially when a populist government would be providing a paper money supply for free, as simple necessary infrastructure that government provides the economy as a public utility. And there is something else just as outrageous. The Fed has two goals. To keep up employment whey they interpret as meaning to keep up the Gross Domestic Product. BUT THE DEFLATIONARY POLICY OF THE FED “WINDING DOWN ITS BALANCE SHEET” (DUMPING THE SECURITIZED-MORTGAGES IT BOUGHT FROM BANKS FOLLOWING THE DEFAULT CRISIS WHICH THE FED CAUSED WHEN IT SHRUNK THE MONEY SUPPLY IN QUARTERS LEADING UP TO THE DEFAULT CRISIS OF 2008) — AS I WAS SAYING THE CONSEQUENCE OF THE DUMPING WILL BE TO CUT THE AMOUNT OF MONEY AVAILABLE FOR THE REAL ECONOMY — WHICH OF COURSE WOULD HAVE TO MEAN MORE FIRINGS AND FEWER HIREINGS BY FIRMS WITH FEWER SALES DUE TO LESS MONEY IN CIRCULATION. SO HOW DOES THE FED JUSTIFY IGNORING UNEMPLOYMENT? THEY JUSTIFY IT BY INSISTING THAT THE ONLY WAY TO REDUCE UNEMPLOYMENT AND INCREASE GDP IS NOT FOR THE FED TO STOP THE BOND DUMPING BUT RATHER TO “CUT ENTITLEMENTS” BY WHICH THEY MEAN FOR GOVERNMENT TO DIVERT MONEY FROM THE SICK, THE UNEMPLOYED, EDUCATION, FIRE DEPARTMENTS, VETERANS BENEFITS, FOOD INSPECTION — TO NOT INCREASE THEM WITH THE NEED AND TO SHRINK OR ELIMINATE THEM SO THAT WHAT? THEY WANT GOVERNMENT TO SHRINK ENTITLEMENTS SO THAT MONEY WILL SPEND LESS TIME IN THE REAL ECONOMY LOOP AND MORE TIME IN THE FINANCIAL LOOP, MEANING MORE MONEY FOR BIG FINANCE. DO YOU DOUBT THIS? AS THEY SEE IT, ENTITLEMENTS SUCK UP MONEY THAT COULD BE USED TO ENTICE INTERNATIONAL LENDERS TO LOOK TO AMERICA FOR DOING THEIR USURY. HERE IS WHAT ALAN GREENSPAN SAID JUNE 30TH ON WALL STREET TODAY:

Q: Will fiscal policy move the needle on economic growth, do you think?

Alan Greenspan: If we will get it, is the question. But, uh, you can’t get growth going so long as entitlement expansion is anywhere near where it’s been recently. It’s eating up the sources of investment and the sources of growth and you can’t have it both ways. You can’t cannot fund all of the entitlements everybody wants and expect that you’re going to get out of that a GDP of three percent or more at an annual rate. The arithmetic just doesn’t work.

Q: He he he. Yeah, you’re right and that’s why they are actually trying to slow down the growth of Medicaid involved in this bill right now.

If Greenspan and Yellen were to make all of their decisions on the single criterion, “Will it be good for Jews?,” they could not come up with a more satisfactory solution than dumping securitized-loans from the Fed portfolio and insisting upon further austerity (cuts to entitlements) — for benefiting their tribe and for deepening the debt and stagnation of all the rest of us.

This goes to my FB page and to about two dozen friends by email. What happens to it afterwards is up to you. I never write for payment, only as a citizen.


About oldickeastman

Born 1949 Oakland High School 1967 Lake Forest College B.A. Western Michigan M.A. Texas A & M University M.S. and two years completed in the doctoral program in economics, passing prelims in Macroeconomics I am living in Yakima, Washington and spend much of my retirement writing on public issues.
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