As stocks continue to crash, you can blame the Federal Reserve, because the Fed is more responsible for creating the current financial bubble that we are living in than anyone else. When the Federal Reserve pushed interest rates all the way to the floor and injected lots of hot money into the financial markets during their quantitative easing programs, this pushed stock prices to wildly artificial levels. The only way that it would have been possible to keep stock prices at those wildly artificial levels would have been to keep interest rates ultra-low and to keep recklessly creating lots of new money. But now the Federal Reserve has ended quantitative easing and has embarked on a program of very slowly raising interest rates. This is going to have very severe consequences for the markets, but Janet Yellen doesn’t seem to care.
There is a reason why the financial world hangs on every single word that is issued by the Fed. That is because the massively inflated stock prices that we see today were a creation of the Fed and are completely dependent on the Fed for their continued existence.
Right now, stock prices are still 30 to 40 percent above what the economic fundamentals say that they should be based on historical averages. And if we are now plunging into a very deep recession as I contend, stock prices should probably fall by a total of more than 50 percent from where they are now.
The only way that stock prices could have ever gotten this disconnected from economic reality is with the help of the Federal Reserve. And since the U.S. dollar is the primary reserve currency of the entire planet, the actions of the Fed over the past few years have created stock market bubbles all over the globe.
But the only way to keep the party going is to keep the hot money flowing. Unfortunately for investors, Janet Yellen and her friends at the Fed have chosen to go the other direction. Not only has quantitative easing ended, but the Fed has also decided to slowly raise interest rates. The Fed left rates unchanged on Wednesday, but we were told that we are probably still on schedule for another rate hike in March.
So how did the markets respond to the Fed?
Well, after attempting to go green for much of the day, the Dow started plunging very rapidly and ended up down 222 points.
The markets understand the reality of what they are now facing. They know that stock prices are artificially high and that if the Fed keeps tightening that it is inevitable that they will fall back to earth.
In a true free market system, stock prices would be far, far lower than they are right now. Everyone knows this – including Jim Cramer. Just check out what he told CNBC viewers earlier today…
Jim Cramer was tempted to resurface his “they know nothing” rant after hearing the Fed speak on Wednesday. He was hoping that a few boxes on his market bottom checklist might be checked off, but it seems that the bear market has not yet run its course.
“The Fed’s wishy-washy statement on interest rates today left stocks sinking back into oblivion after a nice rally yesterday,” the “Mad Money” host said.
Without artificial help from the Fed, stocks will most definitely continue to sink into oblivion.
That is because these current stock prices are not based on anything real.
And so as this new financial crisis continues to unfold, the magnitude of the crash is going to be much worse than it otherwise would have been.
It has often been said that the higher you go the farther you have to fall. Because the Federal Reserve has pumped up stock prices to ridiculously high levels, that just means that the pain on the way down is going to be that much worse.
It is also important to remember that stocks tend to fall much more rapidly than they rise. And when we see a giant crash in the financial markets, that creates a tremendous amount of fear and panic. The last time there was great fear and panic for an extended period of time was during the crisis of 2008 and 2009, and this created a tremendous credit crunch.
During a credit crunch, financial institutions because very hesitant to lend to one another or to anyone else. And since our economy is extremely dependent on the flow of credit, economic activity slows down dramatically.
As this current financial crisis escalates, you are going to notice certain things begin to happen. If you own a business or you work at a business, you may start to notice that fewer people are coming in, and those people that do come in are going have less money to spend.
As economic activity slows, employers will be forced to lay off workers, and many businesses will shut down completely. And since 63 percent of all Americans are living paycheck to paycheck, many will suddenly find themselves unable to meet their monthly expenses. Foreclosures will skyrocket, and large numbers of people will go from living a comfortable middle class lifestyle to being essentially out on the street very, very rapidly.
At this point, many experts believe that the economic outlook for the coming months is quite grim. For example, just consider what Marc Faber is saying…
It won’t come as a surprise to market watchers that “Dr. Doom” Marc Faber isn’t getting any more cheerful.
But the noted bear at least found a sense of humor on Wednesday into which he could channel his bleakness.
The publisher of the “Gloom, Boom & Doom Report” told attendees at the annual “Inside ETFs” conference that the medium-term economic outlook has become “so depressing” that he may as well fill a newly installed pool with beer instead of water.
If the Federal Reserve had left interest rates at more reasonable levels and had never done any quantitative easing, we would have been forced to address our fundamental economic problems more honestly and stock prices would be far, far lower today.
But now that the Fed has created this giant artificial financial bubble, the coming crash is going to be much worse than it otherwise would have been. And the tremendous amount of panic that this crash will cause will paralyze much of the economy and will ultimately lead to a far deeper economic downturn than we witnessed last time around.
Once the Fed started wildly injecting money into the system, they had no other choice but to keep on doing it.
By removing the artificial support that they had been giving to the financial markets, they are making a huge mistake, and they are setting the stage for an economic tragedy that will affect the lives of every man, woman and child in America.
If the stock market crash of last Thursday and Friday had all happened on one day, it would have been the 7th largest single day decline in U.S. history. On Friday, the Dow Jones Industrial Average was down 367 points after finishing down 253 points on Thursday. The overall decline of 620 points between the two days would have been the 7th largest single day stock market crash ever experienced in the United States if it had happened within just one trading day. If you will remember, this is precisely what I warned would happen if the Federal Reserve raised interest rates. But when news of the rate hike first came out on Wednesday, stocks initially jumped. This didn’t make any sense at all, and personally I was absolutely stunned that the markets had behaved so irrationally. But then we saw that on Thursday and Friday the markets did exactly what we thought they would do. The chief economist at Gluskin Sheff, David Rosenberg, is calling the brief rally on Wednesday “a head-fake of enormous proportions“, and analysts all over Wall Street are bracing for what could be another very challenging week ahead.
When the Federal Reserve decided to lift interest rates, they made a colossal error. You don’t raise interest rates when a global financial crisis has already started. That is absolutely suicidal. It is the kind of thing that you would do if you were trying to bring down the global financial system on purpose.
Surely the “experts” at the Federal Reserve can see what is happening. Junk bonds have already crashed, just like they did in 2008. The price of oil has crashed, just like it did in 2008. Commodity prices have crashed, just like they did in 2008. And more than half of all major global stock market indexes are already down at least 10 percent for the year so far.
You don’t raise interest rates in that kind of an environment.
You would have to be utterly insane to do so.
The Federal Reserve has thrown fuel onto a global financial inferno that is already raging, and things could spiral out of control very rapidly.
As far as this upcoming week is concerned, we have now entered “liquidation season”. Investors are going to be pulling their money out of poorly performing hedge funds before the end of the calendar year, and as CNBC has pointed out, more hedge funds have already failed in 2015 than at any point since the last financial crisis…
Liquidation season occurs when clients of poorly performing hedge funds ask for their money back. It tends to occur at the end of a quarter or year. In response, hedge funds must sell stocks in the open market to raise the money that needs to be returned to investors.
That means if a hedge fund performed poorly this year; it is probably flooded with liquidation requests right now. In fact, there have been more failed hedge funds this year than any time since 2008.
The dominoes are starting to fall. We have already seen funds run by Third Avenue Management, Stone Lion Capital Partners and Lucidus Capital Partners collapse. Amazingly, there are some people out there that are still attempting to claim that “nothing is happening” even in the midst of all of this chaos.
As they say, “denial” is not just a river in Egypt.
And this crisis is going to get even worse as we head into 2016. Egon von Greyerz, the founder of Matterhorn Asset Management, is convinced that we will soon see “one disaster after another”…
Greyerz predicts, “I think we will have one disaster after another, first in the junk bond market, then in emerging markets and, after that, the subprime markets. Subprime car loans and student loans I see as another massive problem area. It is going to be one thing after another that will unravel. Since 2008, when the world almost went under, we have printed or increased credit by 50% or by $70 trillion, and the world economy is still struggling to survive. I think the real change in confidence will come down when markets come down. . . . I think things will come down very quickly.”
And I think that he is right on target. The global financial system is more interconnected today than ever before, and when one financial institution fails, it inevitably affects dozens of others. And the failures that we have already seen are already spreading a wave of fear and panic that may be difficult to stop. The following comes from Business Insider, and I think that it is a pretty good explanation of what we could see next…
- Funds such as Third Avenue and Lucidus close, liquidating their portfolios.
- Investors, spooked by the closures and the risk that they might not be able to get their money out of these funds, make a rush for the exits while they still can.
- That creates even more selling pressure.
- Funds sell the assets that are easiest to sell as they look to reduce risk, which pushes the selling pressure from the risky parts of the market to the higher-quality part of the market.
- Things evolve from there.
If you have been waiting for the next financial crisis to arrive, you can stop, because it is already unfolding right in front of our eyes.
The only question is how bad it is going to become.
In the final analysis, I find myself agreeing quite a bit with Charles Hugh Smith, the author of “A Radically Beneficial World: Automation, Technology and Creating Jobs for All“. He believes that the ridiculous monetary policies of the Federal Reserve have played a primary role in setting the stage for this new crisis, and that now this giant financial “Death Star” that they have created “is about to blow up”…
By slashing rates to zero, the Fed ruthlessly eliminating safe returns for savers, pension funds, insurers and the millions of people with 401K retirement nesteggs. In effect, the Fed-Farce has pushed everyone into risk assets–and then played another Dark Side mind-trick by masking the true dangers of these risky assets.
As oil-sector debt blows up, as junk bonds blow up, and emerging markets blow up, we are finally starting to see the real costs of going over to the Dark Side of endless credit expansion and throwing the gasoline of near-zero interest rates on the speculative fires of financialization.
The Fed’s hubris has led it to the Dark Side, and now its Death Star of impaired debt, phantom collateral, speculative frenzy and bogus mind-tricks is about to blow up.
Personally, instead of saying that it “is about to blow up”, I would have said that it is already blowing up.
We have already seen trillions upon trillions of dollars of wealth wiped out around the world.
Energy companies are failing, giant hedge funds are going under, and the 7th largest economy on the entire planet has already plunged into “an outright depression“.
Everyone that warned of financial disaster in the second half of 2015 has been proven right, but this is just the beginning. Now that the Federal Reserve has thrown gasoline onto the fire, our problems are only going to accelerate as we head into 2016.
So for the upcoming year, let us hope for the best, but let us also prepare for the worst.
Are we about to witness widespread panic in the global financial marketplace? This week is shaping up to be an absolutely critical week for global stocks. Coming into December, more than half of the 93 largest stock market indexes in the world were down more than 10 percent year to date, and last week stocks really started to slide all over the world. Here in the United States, the Dow Jones Industrial Average is down about 600 points over the past week or so, and at this point it is down more than 1000 points from the peak of the market. That brings us to this week, during which the Federal Reserve is expected to raise interest rates for the very first time since the last financial crisis. If that happens, that could potentially be enough to accelerate this “slide” into a full-blown crash.
And just look at what is already happening. Trading for stocks in the Middle East has opened for the week, and we are already witnessing tremendous carnage…
Following Friday’s further freefall in crude oil prices, The Middle East is opening down notably. Abu Dhabi, Saudi, and Kuwait are lower; Israel is weak and UAE and Qatar are tumbling, but Dubai is worst for now. Dubai is down for the 6th day in a row (dropping over 3% – the most in a month) extending the opening losses to 2-year lows. The 11% drop in the last 6 days is the largest since the post-China-devaluation global stock collapse. Leading the losses are financial and property firms.
Things in Asia look very troubling as well. As I write this, the Japanese market has just opened, and the Nikkei is already down 508 points.
In recent days I have been explaining to my readers how everything is lining up in textbook fashion for another major market crash. In particular, the implosion of junk bonds is a major red flag. Late last week, Third Avenue Management shocked Wall Street by freezing withdrawals from a 788 million dollar credit mutual fund. The following comes from Bloomberg…
A day after a prominent Wall Street firm shocked investors by freezing withdrawals from a credit mutual fund, things only got nastier in the junk-bond market. Prices on the high-risk securities sank to levels not seen in six years and, to add to the growing sense of alarm, billionaire investor Carl Icahn said the selloff is only starting.
“The meltdown in High Yield is just beginning,” Icahn, who’s been betting against the high-yield market, wrote on his verified Twitter account Friday.
Icahn’s comments come as junk-bond investors, already stung by the worst losses since 2008, are the most nervous they’ve been in three years after Third Avenue Management took the rare step of freezing withdrawals from a $788 million credit mutual fund.
What Third Avenue Management just did was absolutely huge. Now investors that have money in any similar funds are going to be racing to get it out. We could be on the verge of a run on bond funds that is absolutely unprecedented. This is so obvious that even CNBC’s Jim Cramer is sounding the alarm…
Friday was a day where Cramer’s ears were burning with concern because of the troubles discovered with a high yield bond fund run by Third Avenue Management. It decided to bar investors from getting their money out of its Focused Credit Fund, because it could not meet demands to get cash back to them in an orderly way.
This was significant because when it tries to sell the bonds needed to satisfy these orders for redemptions, it could destroy the high yield bond market because there are no buyers anywhere near the amount that they want to sell.
“I cannot emphasize enough just how disconcerting this move is,” Cramer said.
I know that for the ordinary person on the street, all of this sounds very complicated.
But it basically comes down to this – anyone that has a lot of money invested in these bond funds is in danger of getting totally wiped out.
In a situation like this, it is those that are “first out the door” that come out as the winners. I like how Wolf Richter explained what we are currently facing…
It works like this: When an “open-end” bond fund starts losing money, investors begin to sell it. Fund managers first use all available cash to pay investors. When the cash is gone, they sell the most liquid securities that haven’t lost much money yet, such as Treasuries. When they’re gone, they sell the most liquid corporate paper. As they go down the line, they sell bonds that have already lost a lot of value. By now the smart money is betting against the fund, having figured out what’s happening. They’re shorting the very bonds these folks are trying to sell.
The longer this goes on, the more money investors lose and the more spooked they get. It turns into a run. And people who still have that fund in their retirement account are getting cleaned out.
Bond funds can be treacherous – especially if they hold dubious paper, which is never dubious until it suddenly is. And when they get in trouble, you want to be among the first out the door.
I would anticipate that we will see more junk bond carnage this week – especially if the Fed raises rates.
And as I have discussed previously, a stock crash almost always follows a junk bond crash. If the Fed does raise rates this week and stocks do start falling significantly, one key day to watch will be Friday. JPM’s head quant Marko Kolanovic has warned that “the largest option expiry in many years” will happen on that day…
This important event falls at a peculiar time—less than 48 hours before the largest option expiry in many years. There are $1.1 trillion of S&P 500 options expiring on Friday morning. $670Bn of these are puts, of which $215Bn are struck relatively close below the market level, between 1900 and 2050. Clients are net long these puts and will likely hold onto them through the event and until expiry. At the time of the Fed announcement, these put options will essentially look like a massive stop loss order under the market.
A perfect storm for stocks is brewing, and this week could potentially be one of the most chaotic that we have seen in a very long time.
But of course the Federal Reserve could decide to surprise us all by not raising rates, and that would change things substantially.
So what do you think will happen this week?
Please feel free to share your thoughts by posting a comment below…
The 7th largest economy on the entire planet, Brazil, has been gripped by a horrifying recession, as has much of the rest of South America. But it isn’t just South America that is experiencing a very serious economic downturn. We have just learned that Japan (the third largest economy in the world) has lapsed into recession. So has Canada. So has Russia. The dominoes are starting to fall, and it looks like the global economic crisis that has already started is going to accelerate as we head into the end of the year. At this point, global trade is already down about 8.4 percent for the year, and last week the Baltic Dry Shipping Index plummeted to a brand new all-time record low. Unfortunately for all of us, the Federal Reserve is about to do something that will make this global economic slowdown even worse.
Throughout 2015, the U.S. dollar has been getting stronger. That sounds like good news, but the truth is that it is not. When the last financial crisis ended, emerging markets went on a debt binge unlike anything we have ever seen before. But much of that debt was denominated in U.S. dollars, and now this is creating a massive problem. As the U.S. dollar has risen, the prices that many of these emerging markets are getting for the commodities that they export have been declining. Meanwhile, it is taking much more of their own local currencies to pay back and service all of the debts that they have accumulated. Similar conditions contributed to the Latin American debt crisis of the 1980s, the Asian currency crisis of the 1990s and the global financial crisis of 2008 and 2009.
Many Americans may be wondering when “the next economic crisis” will arrive, but nobody in Brazil is asking that question. Thanks to the rising U.S. dollar, Brazil has already plunged into a very deep recession…
As Brazilian president Dilma Rousseff combats a slumping economy and corruption accusations, the country’s inflation surged above 10 percent while unemployment jumped to 7.9 percent, according to the latest official data. The dour state of affairs has Barclays forecasting a 4 percent economic contraction this year, followed by 3.3 percent shrinkage next year, the investment bank said in a research note last week.
The political and economic turmoil has recently driven the real, Brazil’s currency, to multiyear lows, a factor helping to stoke price pressures.
And as I mentioned above, Brazil is far from alone. This is something that is happening all over the planet, and the process appears to be accelerating. One of the places where this often first shows up is in the trade numbers. The following comes from an article that was just posted by Zero Hedge…
“This market is looking like a disaster and the rates are a reflection of that,” warns one of the world’s largest shipbrokers, but while The Baltic Dry Freight Index gets all the headlines – having collapsed to all-time record lows this week – it is the spefics below that headline that are truly terrifying. At a time of typical seasonal strength for freight and thus global trade around the world, Reuters reports that spot rates for transporting containers from Asia to Northern Europe have crashed a stunning 70% in the last 3 weeks alone. This almost unprecedented divergence from seasonality has only occurred at this scale once before… 2008! “It is looking scary for the market and it doesn’t look like there is going to be any life in the market in the near term.”
Many “experts” seem mystified by all of this, but the explanation is very simple.
For years, global economic growth was fueled by cheap U.S. dollars. But since the end of QE, the U.S. dollar has been surging, and according to Bloomberg it just hit a 12 year high…
The dollar traded near a seven-month high against the euro before the release of minutes of the Federal Reserve’s October meeting, when policy makers signaled the potential for an interest-rate increase this year.
A trade-weighted gauge of the greenback is at the highest in 12 years as Fed Chair Janet Yellen and other policy makers have made numerous pronouncements in the past month that it may be appropriate to boost rates from near zero at its Dec. 15-16 gathering. The probability the central bank will act next month has risen to 66 percent from 50 percent odds at the end of October.
But even though the wonks at the Federal Reserve supposedly know the damage that a strong dollar is already doing to the global economy, they seem poised to make things even worse by raising interest rates in December…
Most Federal Reserve policymakers agreed last month that the economy “could well” be strong enough in December to withstand the Fed’s first Interest rate hike in nearly a decade, according to minutes of its meeting Oct. 27-28.
The officials said global troubles had eased and a delay could increase market uncertainty and undermine confidence in the economy.
The meeting summary provides the clearest evidence yet that a majority of Fed policymakers are leaning toward raising the central bank’s benchmark rate next month, assuming the economy continues to progress.
Considering the tremendous amount of damage that has already been done to the global economy, this is one of the stupidest things that they could possibly do.
But it looks like they are going to do it anyway.
It has been said that those that refuse to learn from history are doomed to repeat it.
And right now so many of the exact same patterns that we saw just before the great financial crisis of 2008 are playing out once again right in front of our eyes.
A lot of people out there seem to assume that once we got past the September/October time frame that we were officially out of “the danger zone”.
But that is not true at all.
The truth is that we have already entered a new global economic downturn that is rapidly accelerating, and the financial shaking that we witnessed in August was just a foreshock of what is coming next.
Let us hope that common sense prevails and the Fed chooses not to raise interest rates at their next meeting.
Because if they do, it will just make the global crisis that is now emerging much, much worse.
Central banking has truly taken over the entire planet. At this point, the only major nation on the globe that does not have a central bank is North Korea. Yes, there are some small island countries such as the Federated States of Micronesia that do not have a central bank, but even if you count them, more than 99.9% of the population of the world still lives in a country that has a central bank. So how has this happened? How have we gotten the entire planet to agree that central banking is the best system? Did the people of the world willingly choose this? Of course not. To my knowledge, there has never been a single vote where the people of a nation have willingly chosen to establish a central bank. Instead, what has happened is that central banks have been imposed on all of us. All over the world, people have been told that monetary issues are “too important” to be subject to politics, and that the only solution is to have a group of unelected, unaccountable bankers control those things for us.
So precisely what does a central bank do?
You would be surprised at how few people can actually answer that question accurately. The following is how Wikipedia describes what a central bank does…
A central bank, reserve bank, or monetary authority is an institution that manages a state’s currency, money supply, and interest rates. Central banks also usually oversee the commercial banking system of their respective countries. In contrast to a commercial bank, a central bank possesses a monopoly on increasing the monetary base in the state, and usually also prints the national currency, which usually serves as the state’s legal tender. Examples include the European Central Bank (ECB), the Bank of England, the Federal Reserve of the United States and the People’s Bank of China.
In the United States, we are told that we have a free market system. But in a true free market system, market forces would determine what interest rates are. We wouldn’t need anyone to “set interest rates” for us.
And why have we given a private banking cartel (the Federal Reserve) the authority to create and manage our money supply? The U.S. Constitution specifically delegates that authority to Congress.
It is not as if we actually need the Federal Reserve. In fact, the greatest period of economic growth in U.S. history happened during the decades before the Federal Reserve was created.
Unfortunately, a little over 100 years ago our leaders decided that it would be best to turn over our financial future to a newly created private banking cartel that was designed by very powerful Wall Street interests. Since that time, the value of our currency has diminished by more than 96 percent and our national debt has gotten more than 5000 times larger.
But despite all of the problems, the vast majority of Democrats and the vast majority of Republicans are not even willing to consider slightly curtailing the immense power of the Federal Reserve. And the idea of getting rid of the Fed altogether is tantamount to blasphemy to most of our politicians.
Of course the same thing is true all over the planet. Central banks are truly “the untouchables” of the modern world. Even though everybody can see what they are doing, there has not been a single successful political movement anywhere on the globe (that I know about) to shut a central bank down.
Instead, in recent years we have just seen the reach of central banking just continue to expand.
For example, just look at what has happened to some of the countries that were not considered to be “integrated” into the “global community”…
-In 2001, the United States invaded Afghanistan. In 2003, Da Afghanistan Bank (who picked that name?) was established by presidential decree. You can find the official website of the bank right here. Now Afghanistan has a modern central bank just like the rest of us.
-In 2003, the United States invaded Iraq. In early 2004, the Central Bank of Iraq was established to manage the Iraqi currency and integrate Iraq into the global financial system. The following comes from the official website of the Central Bank of Iraq…
Following the deposition of Saddam Hussein in the 2003 invasion of Iraq, the Iraqi Governing Council and the Office for Reconstruction and Humanitarian Assistance began printing more Saddam dinar notes as a stopgap measure to maintain the money supply until new currency could be introduced.
The Banking Law was issued September 19, 2003. The law brings Iraq’s legal framework for banking in line with international standards, and seeks to promote confidence in the banking system by establishing a safe, sound, competitive and accessible banking system.
Between October 15, 2003 and January 15, 2004, the Coalition Provisional Authority issued new Iraqi dinar coins and notes, with the notes printed using modern anti-forgery techniques, to “create a single unified currency that is used throughout all of Iraq and will also make money more convenient to use in people’s everyday lives. Old banknotes were exchanged for new at a one-to-one rate, except for the Swiss dinars, which were exchanged at a rate of 150 new dinars for one Swiss dinar.
The Central Bank of Iraq (Arabic: البنك المركزي العراقي) was established as Iraq’s independent central bank by the Central Bank of Iraq Law of March 6, 2004
-In 2011, the United States bombed the living daylights out of Libya. Before Muammar Gaddafi was even overthrown, the U.S. helped the rebels establish a new Central Bank of Libya and form a new national oil company.
Central banks are specifically designed to trap nations in debt spirals from which they can never possibly escape. Today, the debt to GDP ratio for the entire planet is up to an all-time high record of 286 percent. Humanity is being enslaved by a perpetual debt machine, but most people are not even aware that it is happening.
It is time for an awakening. We need to educate as many people as possible about why we need to get rid of the central banks. For those living in the United States, my previous article entitled “On The 100th Anniversary Of The Federal Reserve Here Are 100 Reasons To Shut It Down Forever” is a good place to start. In other countries, we need people to write similar articles about their own central banks in their own languages.
The global elite dominate us because we allow them to dominate us. Their debt-based system greatly enriches them while it enslaves the remainder of the planet. We need to expose their evil system and the dark agenda behind it while we still have time.
From the dawn of history, elites have always attempted to enslave humanity. Yes, there have certainly been times when those in power have slaughtered vast numbers of people, but normally those in power find it much more beneficial to profit from the labor of those that they are able to subjugate. If you are forced to build a pyramid, or pay a third of your crops in tribute, or hand over nearly half of your paycheck in taxes, that enriches those in power at your expense. You become a “human resource” that is being exploited to serve the interests of others. Today, some forms of slavery have been outlawed, but one of the most insidious forms is more pervasive than ever. It is called debt, and virtually every major decision of our lives involves more of it. For example, at the very beginning of our adult lives we are pushed to go to college, and Americans have piled up more than 1.2 trillion dollars of student loan debt at this point. When we buy homes, most Americans get mortgages that they can barely afford, and when we buy vehicles most Americans now stretch their loans out over five or six years. When we get married, that often means even more debt. And of course no society on Earth has ever piled up more credit card debt than we have. Almost all of us are in bondage to debt at this point, and as we slowly pay off that debt over the years we will greatly enrich the elitists that tricked us into going into so much debt in the first place. At the apex of this debt enslavement system is the Federal Reserve. As you will see below, it is an institution that is designed to produce as much debt as possible.
There are many people out there that believe that the Federal Reserve is an “agency” of the federal government. But that is not true at all. The Federal Reserve is an unelected, unaccountable central banking cartel, and it has argued in federal court that it is “not an agency” of the federal government and therefore not subject to the Freedom of Information Act. The 12 regional Federal Reserve banks are organized “much like private corporations“, and they actually issue shares of stock to the “member banks” that own them. 100 percent of the shareholders of the Federal Reserve are private banks. The U.S. government owns zero shares.
Many people also assume that the federal government “issues money”, but that is not true at all either. Under our current system, what the federal government actually does is borrow money that the Federal Reserve creates out of thin air. The big banks, the ultra-wealthy and other countries purchase the debt that is created, and we end up as debt servants to them. For a detailed explanation of how this works, please see my previous article entitled “Where Does Money Come From? The Giant Federal Reserve Scam That Most Americans Do Not Understand“. When it is all said and done, the elite end up holding the debt instruments and we end up being collectively responsible for the endlessly growing mountain of debt. Our politicians always promise to get the debt under control, but there is never enough money to both fund the government and pay the interest on the constantly expanding debt. So it always becomes necessary to borrow even more money. When it was created back in 1913, the Federal Reserve system was designed to create a perpetual government debt spiral from which it would never be possible to escape, and that is precisely what has happened.
Just look at the chart that I have posted below. Forty years ago, the U.S. national debt was less than half a trillion dollars. Today, it has exploded up to nearly 18 trillion dollars…
But the national debt is only part of the story. The big banks which control the Federal Reserve also seek to individually dominate our lives with debt. We have become a “buy now, pay later” society and the results have been absolutely catastrophic. 40 years ago, the total amount of debt in our system was just a shade over 2 trillion dollars. Today it is over 57 trillion dollars…
The big banks do not loan you money because they want to help you achieve “the American Dream”. The elitists loan you money because it will make them wealthier. For example, if you only make the minimum payment on a credit card each month, you will end up paying back several times as much money as you originally borrowed. It is a very insidious form of debt enslavement that most Americans simply do not understand.
Meanwhile, the Federal Reserve is also systematically destroying the wealth that you already have. If you try to buck the system and actually save money, the purchasing power of that money is continually being eroded by the Federal Reserve’s inflationary policies. The following chart comes directly from the Federal Reserve and it shows how the value of the U.S. dollar has plummeted over the past 40 years…
Overall, the U.S. dollar has lost approximately 98 percent of its value since the Fed was first established in 1913.
Most people seem to assume that if we could just send the “right politicians” to Washington D.C. that we could get our economy back on the right track.
What those people do not understand is that our system is fundamentally broken. We are trapped in a perpetual debt spiral that is destined to end in a horrifying collapse. Just “tweaking” a few things here or there and adjusting tax rates a bit is not going to fix anything. The vast majority of the “economic solutions” that our politicians talk about are basically equivalent to rearranging the deck chairs on the Titanic.
And of course the elite don’t want the rest of us to truly understand what is going on. Just think about it. Even though the Federal Reserve is one of the most important institutions in our society, and even though it is at the very heart of our economic system, our kids are taught next to nothing about the Fed in school. The vast majority of them have absolutely no idea where money comes from.
Isn’t that pathetic?
But the elite know that if we did understand what they were doing to us that most of us would start to get very upset. Henry Ford, the founder of Ford Motor Company, once said the following…
“It is well enough that people of the nation do not understand our banking and money system, for if they did, I believe there would be a revolution before tomorrow morning.”
Please share this article with as many people as you can. The truth sets people free, so let us do what we can to wake our fellow Americans up to this insidious debt enslavement system which dominates our society.
Mark this day on your calendars. The Dow is at 16974, the S&P 500 is at 1982 and the NASDAQ is at 4549. From this day forward, we will be looking to see how the stock market performs without the monetary heroin that the Federal Reserve has been providing to it. Since November 2008, the Fed has created about 3.5 trillion dollars and pumped it into the financial system. An excellent chart illustrating this in graphic format can be found right here. Pretty much everyone agrees that this has been a tremendous boon for the financial markets. As you will see below, even former Fed chairman Alan Greenspan says that quantitative easing was “a terrific success” as far as boosting stock prices. But he also says that QE has not been very helpful to the real economy at all. In essence, the entire quantitative easing program was a massive 3.5 trillion dollar gift to Wall Street. If that sounds unfair to you, that is because it is unfair.
So why is the Federal Reserve finally ending quantitative easing?
Well, officially the Fed says that it is because there has been so much improvement in the labor market…
The Fed’s language, however, did suggest that they were getting more comfortable with the economy’s improvement. It cited “solid job gains,” citing a “substantial improvement in the outlook for the labor market,” as well as pointing out that “underutilization” of labor resources is “gradually diminishing.”
But that is not true at all.
The percentage of Americans that are working right now is about the same as it was during the depths of the last recession. Just check out this chart…
So there has been no “employment recovery” to speak of at all.
And as I wrote about yesterday, the percentage of Americans that are homeowners has been steadily falling throughout the quantitative easing era…
So let’s put the lie that quantitative easing helped the “real economy” to rest. It did no such thing.
Instead, what QE did do was massively inflate stock prices.
The following is an excerpt from a Wall Street Journal report about a speech that former Fed chairman Alan Greenspan made to the Council on Foreign Relations on Wednesday…
Mr. Greenspan’s comments to the Council on Foreign Relations came as Fed officials were meeting in Washington, D.C., and expected to announce within hours an end to the bond purchases.
He said the bond-buying program was ultimately a mixed bag. He said that the purchases of Treasury and mortgage-backed securities did help lift asset prices and lower borrowing costs. But it didn’t do much for the real economy.
“Effective demand is dead in the water” and the effort to boost it via bond buying “has not worked,” said Mr. Greenspan. Boosting asset prices, however, has been “a terrific success.”
Moving forward, what did Greenspan tell the members of the Council on Foreign Relations that they should do with their money?
This might surprise you…
Mr. Greenspan said gold is a good place to put money these days given its value as a currency outside of the policies conducted by governments.
It almost sounds like Greenspan has been reading the Economic Collapse Blog.
Since November 2008, every time there has been an interruption in the Fed’s quantitative easing program, the stock market has gone down substantially.
Will that happen again this time?
Well, the market is certainly primed for it. We are repeating so many of the very same patterns that we saw just prior to the last two financial crashes.
For example, there have been three dramatic peaks in margin debt in the last twenty years.
One of those peaks came early in the year 2000 just before the dotcom bubble burst.
The second of those peaks came in the middle of 2007 just before the subprime mortgage meltdown happened.
And the third of those peaks happened earlier this year.
You can view a chart that shows these peaks very clearly right here.
The Federal Reserve appears to be confident that the stock market will be okay without the monetary heroin that it has been supplying.
We shall see.
But it should be deeply troubling to all Americans that this unelected, unaccountable body of central bankers has far more power over our economy than anyone else does. During election season, our politicians get up and give speeches about what they will “do for the economy”, but the truth is that they are essentially powerless compared to the immense power that the Federal Reserve wields. Just a few choice words from Janet Yellen can cause the financial markets to rise or fall dramatically. The same cannot be said of any U.S. Senator.
We are told that monetary policy is “too important” to be exposed to politics.
We are told that the independence of the Federal Reserve is “sacred” and must never be interfered with.
I say that is a bunch of nonsense.
No organization should have the power to print up trillions of dollars out of thin air and give it to their friends.
The Federal Reserve is completely and totally out of control, and Congress needs to start exerting power over it.
The first step is to get in there and do a comprehensive audit of the Fed’s books. This is something that U.S. Senator Ted Cruz called for in a recent editorial for USA Today…
Americans are seeing near-zero interest rates on their savings accounts while median incomes are falling, and millions of people are facing higher gas prices, food prices, electricity prices, health insurance prices. Enough is enough, the Federal Reserve needs to open its books — Americans deserve a sound and stable dollar.
Whether you agree with Ted Cruz on other issues or not, this is one issue that all Americans should be able to agree on.
If you study any of our major economic problems, usually you will find that the Federal Reserve is at the heart of that problem.
So if we ever hope to solve the issues that are plaguing our economy, the Fed is going to need to be dealt with.
Hopefully the American people will start to send more representatives to Washington D.C. that understand this.
It is widely expected that the Federal Reserve is going to announce the end of quantitative easing this week. Will this represent a major turning point for the stock market? As you will see below, since 2008 stocks have risen dramatically throughout every stage of quantitative easing. But when the various phases of quantitative easing have ended, stocks have always responded by declining substantially. The only thing that caused stocks to eventually start rising again was a new round of quantitative easing. So what will happen this time? That is a very good question. What we do know is that the the performance of the stock market has become completely divorced from economic reality, and in recent weeks there have been signs of market turmoil that we have not seen in years. Could the end of quantitative easing be the thing that finally pushes the financial markets over the edge?
After all this time, many Americans still don’t understand what quantitative easing actually is. Since the end of 2008, the Federal Reserve has injected approximately 3.5 trillion dollars into the financial system. Of course the Federal Reserve didn’t actually have 3.5 trillion dollars. The Fed created all of this money out of thin air and used it to buy government bonds and mortgage-backed securities.
If that sounds like “cheating” to you, that is because it is cheating. If you or I tried to print money, we would be put in prison. When the Federal Reserve does it, it is called “economic stimulus”.
But the overall economy has not been helped much at all. If you doubt this, just look at these charts.
Instead, what all of this “easy money” has done is fuel the greatest stock market bubble in history.
As you can see from the chart below, every round of quantitative easing has driven the S&P 500 much higher. And when each round of quantitative easing has finally ended, stocks have declined substantially…
And of course the chart above tells only part of the story. Since April 2013, the S&P 500 has gone much higher…
If someone from another planet looked at that chart, they would be tempted to think that the U.S. economy must be expanding like crazy.
But of course that is not happening.
This market binge has been solely fueled by reckless money printing by the Federal Reserve. It is not backed up by economic fundamentals in any way, shape or form.
And now that quantitative easing is ending, many are wondering if the party is over.
For example, just check out what CNN is saying about the matter…
Even in this bull market, all good things must come to an end.
The Federal Reserve is expected to close a chapter in history this week and announce the conclusion of its massive stimulus program. Known as quantitative easing, the program is widely credited with driving investors back into stocks in the aftermath of the financial crisis.
“I think to some extent quantitative easing has provided an assurance to investors that (has) kept them optimistic,” said Bruce McCain, Chief Investment Strategist of Key Private Bank in Cleveland, Ohio. “Now we’re going to have to see whether investors can ride without training wheels.”
Everyone knows that quantitative easing was a massive gift to those that own stocks.
So how will the stock market respond now that the monetary heroin is ending?
We shall see.
Meanwhile, deflationary pressures are already starting to take hold around the rest of the globe. The following is an excerpt from a recent Reuters report…
After months of focus on slack in U.S. labor markets, the Federal Reserve faces a new challenge: the possibility that weak inflation may be so firmly entrenched it upends the return to normal monetary policy.
The soft global inflation backdrop, from sliding oil prices to stagnant wages in advanced economies, has triggered debate over whether the Fed and its peers merely need to wait for a slow-motion business cycle to improve, or face a shift in the underlying nature of inflation after the global recession.
That uncertainty has become the Fed’s chief concern in recent weeks, likely to shape upcoming policy statements and delay even further the moment when interest rates, pinned near zero for nearly six years, will start rising again.
If the Federal Reserve and other global central banks were not printing money like mad, the global economy would have almost certainly entered a deflationary depression by now.
But all the Federal Reserve and other global central banks have done is put off the inevitable and make our long-term problems even worse.
Instead of fixing the fundamental problems that caused the great financial crash of 2008, the central bankers decided to try to paper over our problems instead. They flooded the global financial system with easy money, but today our financial system is shakier than ever.
In fact, we just learned that 10 percent of the biggest banks in Europe have failed their stress tests and must raise more capital…
The European Central Bank says 13 of Europe’s 130 biggest banks have flunked an in-depth review of their finances and must increase their capital buffers against losses by 10 billion euros ($12.5 billion).
The ECB said 25 banks in all were found to need stronger buffers — but that 12 have already made up their shortfall during the months in which the ECB was carrying out its review. The remaining 13 now have two weeks to tell the ECB how they plan to increase their capital buffers.
Most people do not realize how vulnerable our financial system truly is. It is essentially a pyramid of debt and credit that could fall apart at any time.
Right now, the “too big to fail” banks account for 42 percent of all loans and 67 percent of all banking assets in the United States.
Without those banks, we essentially do not have an economy.
But instead of being careful, those banks have taken recklessness to unprecedented heights.
At this moment, five of the “too big to fail” banks each have more than 40 trillion dollars of exposure to derivatives.
Most Americans don’t even understand what derivatives are, but when the next great financial crisis strikes we are going to be hearing a whole lot about them.
The big banks have transformed Wall Street into the biggest casino in the history of the planet, and there is no way that this is going to end well.
A great collapse is coming.
It is just a matter of time.