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The purpose of this paper is
to demonstrate how the Federal Reserve – through its proxy money centre
banks – has taken complete control of the interest rate complex
enabling them to arbitrarily price capital at or near zero. This has
only been possible with accommodation of the ruling elite who mutually
benefit from these policies.
Author’s
Comment:
The
market caps of financial institutions post 2008 crash while substantially
diminished would have been overwhelmingly negative [i.e. bankrupt] had the
accounting rules for banks not been “suspended” by edict.
Question:
Would
any rational human being accept a $2,500.00 bet from somebody who only had 1
dollar in their pocket to lose?
Answer:
Under
the watchful eye of the U.S. Federal Reserve, this occurs more than
you’d think in the U.S. banking system with the likes of Morgan
Stanley, with a market cap. Of a mere 16 billion at Jan. 20, 2009 versus a
derivatives book in excess of 39 Trillion in notional. Why do you
suppose this is allowed to happen?
source:
Office of the Comptroller of the Currency [OCC] table 2, pg. 33
Some
general commentary regarding the OCC data above:
* 84 % of the gross
amounts are interest rate derivatives
- By
the OCC’s own admission, there are virtually NO END USERS
for any of these products:
 
source: Office of the Comptroller of the Currency, Graph1. pg, 9
Question:
So
what do you suspect was the motivation in the mid 1990s – absent any
customer [end user demand] - for 5 banks to begin “STRAPPING ON”
what would become hundreds of trillions of dollars worth of interest rate
derivatives anyway?
Hint:
These
5 money centre banks all have close ties to [or are perhaps extensions of]
the Federal Reserve.
Answer:
The
creation of this nuclear waste heap of derivatives was to give the Fed, via
proxy, TOTAL control of the interest rate complex. Historically, the
Fed only had ‘control’ of the
short-end-of-the-interest-rate-curve through maintenance of the Fed Funds
Rate [overnight rate]. The proliferation of interest rate swaps in the
mid 1990’s marked the beginning of the Fed’s
“capture” of the long end of the interest rate curve – thus
‘exterminating the bond vigilantes’ - using proxy
institutions’ derivatives books to execute U.S. [and global] monetary
policy.
Interest
rate swaps of duration between 3 and 10 years – because they trade on
‘spread’, have government bond trades ‘embedded in
them’. This means that GROWTH in the int. rate swap complex has
created MASSIVE ARTIFICIAL DEMAND for U.S. Government bonds. This
explains why – despite RECORD issuance of U.S. Government bonds in
recent years – ‘fails to settle’ [because there
aren’t enough bonds] in the bond complex have often run in the range of
600 - 800 billion/month.
The economist who has done
the key work on this issue is Dr. Susanne Trimbath,
who heads STP Advisory Services in Omaha, Nebraska. She previously worked for
the Depository Trust Co, a subsidiary of Depository Trust and Clearing Corp,
the U.S. clearing house for stocks and bonds.
Dr. Trimbath said, "In
fall of 2008, about two trillion dollars in Treasury bonds were sold but
undelivered for six weeks, more than 20 percent of the daily trading volume,
up from 8.6 percent in the first five months of 2008." It was a spike
from 1.2 percent in the first five months of 2007……..
…..The latest figures
on failures to deliver are 600-800 billion dollars. Dr. Trimbath said,
"The numbers look better now because the Fed threw two trillion at the
market, which was used to cover these fails."
Expanding
on this thought – this also means that the pricing of capital itself
has little to NOTHING to do with economics – IT IS NOW ARBITRARY.
With
the means to arbitrarily price capital, the parasitic Private Federal Reserve
then went about engineering interest rates to ZERO so they could continue
feeding off the otherwise bankrupt corpse of the host [i.e. the U.S.
Government].
This
contrived, un-natural outcome in interest rates has been facilitated by data
manipulation on the part of government agencies i.e. inflation, employment
and GDP data. The results of this contrivance are evidenced by the
scorching hot Dot Com boom / bust as well as the super-heated real estate
bubble and bust. The Fed’s zero interest rate policy and unbridled
money printing has created the FALSE appearance of abundance in a FINITE
world.
This
is the legacy of the Federal Reserve; usury itself – for everyone on
this planet - has been rendered a complete sham in the name of the citizens
of the United States of America.
Stand
up and take a bow Messrs. Greenspan and Bernanke – you’ve
accomplished something with a printing press that none other could have
– in the truest sense of the word, due to your connivance - America is
now viewed globally as a rogue state.
Rob Kirby
KirbyAnalytics.com
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