The mainstream media is abuzz this morning,
Wednesday September 21st, about the federal reserve, who is once again
plotting to save the USEconomy from certain
disaster. Really, haven’t we heard this many times before? If it was
that easy, shouldn’t it have been done a few years ago when all the
problems started? If that is the case, we’ve got little more than a
bunch of incompetent bankers on our hands. That is bad enough. However, I
think most people are starting to understand that it is much worse a problem
than just plain vanilla incompetence. It is about collusion and corruption
and I am being very generous in that assessment.
The Latest Ploy
The fed is expected to announce this week that it is
going to reach back 50 years into its bag of tricks and pull out some
manipulations that will save us. This latest cockamamie scheme is to shift
its $1.7 Trillion in short term USBond holdings
(monetized debt) to longer-term holdings in an effort to drive down the long end
of the yield curve even further. Apparently, the current monetization efforts
haven’t been good enough. They have been driving the long end down for
three years now, either directly through direct rate intervention or by
subsidies aimed at the end products resulting from those rates such as
mortgages.
The obvious rationale is that driving down rates on
debt will rescue the economy, since people will be able to take on even more
debt to spend more money on more imported trinkets from China and elsewhere.
Again, haven’t we heard this before? We still haven’t really felt
the full impact from the last raft of malfeasance when the fed went on an
overt $600 Billion bond-buying spree. For those who haven’t yet
connected the dots, that is called monetization of debt. A very inflationary
measure. The dollar has paid the price. Don’t be fooled by the
ridiculous assertions that the dollar is ‘stronger’ because the
dollar index has gone up. The only reason that has happened at all is because
Europe is on the brink of total collapse and disintegration. There is no way
anyone can conduct a sane examination of the dollar’s fundamentals and
conclude there is anything that represents ‘strength’ at this
point. At best it is status quo and the capitalization of another’s even
more dire circumstances.
On the surface, all this might look very appealing.
Lower interest rates across the board. Sure, there will be another wave of
refinancing of mortgages. If you can qualify. If you’re not underwater.
Maybe. The subsidies aimed at the housing market so far have been an absolute
and total failure. That dog won’t hunt anymore. Game over for real
estate for at least a decade. So as usual, we’re left to ask Cui bono?
Who benefits. Well the bankers of course. The fed dropped short-term rates
into the basement in 2008 and has held the hammer down. This punished savers
around the country. All those baby boomers who are
retired/retiring (maybe) are going to need income from their meager savings
to make up for the rising prices that have resulted from the fed’s
malfeasance and lack of stewardship of the dollar. They won’t get much
in the way of income from traditional low-risk investment
vehicles, that is for sure. The proverbial ‘riskless’
asset pays nothing after taxes. Nothing. And it isn’t riskless. Put it
another way – would you be willing to give the USGovt
a loan for 90 days? 180? 10 years? How about 30 years? At maybe 2.5% per
annum? That is a foolish proposition on even the best of days. The savers get
creamed again. Bernanke is so worried about the economy, but yet he’ll
purposefully and deliberately undertake policies that will gut the one
component of the economy that is capable of spurring growth – savers.
And this is not the first time either. And he is not the first guy to do it.
This has been a pattern for quite a long time now.
The All-Important Question - Cui Bono?
So who benefits again? The banks, obviously. The
lower the yield curve, the higher the spread, the higher the profit margin.
All actions done so far have been to protect and enrich the banks and their
precious financial system – all at the expense of the economy and all
done intentionally, in my opinion, with malice and aforethought. Just think
back to TARP, TALF, TSLF, and the other multi-trillion dollar rescue packages.
Think about the $500 billion (minimum) in swaps done between the fed and the
ECB in 2008-09 that Bernanke was grilled on and claimed not to know the
recipients thereof. Think about the latest harebrained stunt aimed at saving
European banks. More unlimited
dollar bailouts for foreign banks. More protection of the financial oligarchy. More
inflation. Less purchasing power for the dollar. More pain for consumers.
Less economic growth.
At the bottom of this issue is that the Keynesian
way is still in full force, which guarantees that things will not get any
better. Two of the biggest pillars of the Keynesian way are to punish savers
because saving is a bad activity - all monies should be spent on consumption
to maximize current ‘growth’. Never mind future growth; all
actions are to be geared towards the short run. The second big pillar is
deficit spending and debt accumulation at all levels of the economy. Again,
forget about the long-term consequences. All focus is dedicated to the short
run. That is the Keynesian
way in a nutshell.
The Consequences
We’re already seeing firsthand the
catastrophic failure of that policy pathway in Europe. It is an unmitigated
disaster. We’ll reap the full whirlwind here in America before too
long. Instead of focusing on debt reduction across the board, the central
planners, our new economic politburo, are undertaking policies that will
accelerate debt accumulation at all levels. Consumers are back on the credit
card big time as unemployment remains high and people are forced to continue
borrowing to make ends meet. They were in over their heads to begin with and
now for many, there is no way out. The house is underwater. The job is gone.
The unemployment check isn’t enough and it is going to run out soon
anyway. These people end up running full speed to the bankers who are more
than willing to accommodate with rates of usury that would make the mafia
blush.
The ‘cuts’ that are
forthcoming from our new unconstitutional ‘super congress’ will
almost certainly be from social programs, not the sacred cows such as the
Pentagon budget, bank bailout monies, or subsidies paid for keeping jobs out
of America. The lobbyists have already guaranteed that. I’ll say it
again – the American people are the only ones who don’t have
someone lobbying for them to the members of that ill-conceived and very
illegal group. It is terribly ironic that the one group who is going to bear
the full burden of all of this does not even have one representative in the
process. We know what Jefferson said about that. If we don’t, then
shame on us for not knowing our history.
The bottom line is that our debt is already unpayable. Our bonds are junk. Our country is several
orders of magnitude deeper into this mess than Greece. According to
Laurence Kotlikoff, the net present value of our obligations relative
to GDP is 14 times greater. Greece’s multiple is only 12. Yet we had
people surprised when our debt rating was cut by one single notch. It was an
affront to our perception of American superiority. That is gone, people.
We’ve allowed it to be squandered – all for the satisfaction of
short-run desires and an economic philosophy that was brought into the world
in the worst possible manner: half improvised, half compromised. The
policymakers of the day provided the compromise; Keynes was more than happy
to provide the rest. In a way, he got off easy; his demise came long before
that of a world that decided to throw away prudence in pursuit of his
unattainable utopia.
Until Next Time,
Andrew W. Sutton, MBA
Chief Market Strategist
Sutton &
Associates, LLC
Interested in what is going on in the markets and
the economy? Read Andy Sutton's weekly market and economic commentary 'My Two
Cents' - go to www.my2centsonline.com
