The Beginning Of The End
The Beginning Of The End By Michael T. Snyder - Kindle Version

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The Federal Reserve Is Monetizing A Staggering Amount Of U.S. Government Debt

Federal Reserve Balance SheetThe Federal Reserve is creating hundreds of billions of dollars out of thin air and using that money to buy U.S. government debt and mortgage-backed securities and take them out of circulation.  Since the middle of 2008, these purchases have caused the Fed’s balance sheet to balloon from under a trillion dollars to nearly four trillion dollars.  This represents the greatest central bank intervention in the history of the planet, and Janet Yellen says that she does not anticipate that it will end any time soon because “the recovery is still fragile”.  Of course, as I showed the other day, the truth is that quantitative easing has done essentially nothing for the average person on the street.  But what QE has done is that it has sent stocks soaring to record highs.  Unfortunately, this stock market bubble is completely and totally divorced from economic reality, and when the easy money is taken away the bubble will collapse.  Just look at what happened a few months ago when Ben Bernanke suggested that the Fed may begin to “taper” the amount of quantitative easing that it was doing.  The mere suggestion that the flow of easy money would start to slow down a little bit was enough to send the market into deep convulsions.  This is why the Federal Reserve cannot stop monetizing debt.  The moment the Fed stops, it could throw our financial markets into a crisis even worse than what we saw back in 2008.

The problems that plagued our financial system back in 2008 have never been fixed.  They have just been papered over temporarily by trillions of easy dollars from the Federal Reserve.  All of this easy money is keeping stocks artificially high and interest rates artificially low.

Right now, the Federal Reserve is buying approximately 85 billion dollars worth of U.S. government debt and mortgage-backed securities each month.  We are told that the portion going to buy U.S. government debt each month is approximately 45 billion dollars, but who knows what the Fed is actually doing behind the scenes.  In any event, by creating money out of thin air and using it to remove U.S. Treasury securities out of circulation, the Federal Reserve is essentially monetizing U.S. government debt at a staggering rate.

But Federal Reserve officials continue to repeatedly deny that what they are doing is monetizing debt.   For instance, Federal Reserve Bank of Atlanta President Dennis Lockhart strongly denied this back in April: “I object to the view that the Fed is monetizing the debt”.

How in the world can Fed officials possibly deny that they are monetizing the debt?

Well, because the Fed is promising that it is going to eventually sell back all of the securities that it is currently buying.

Since the Fed does not plan to keep all of this government debt on its balance sheet indefinitely, that means that they are not actually monetizing it according to their twisted logic.

Try not to laugh.

And of course that will never, ever happen.  There is no possible way that the Fed will ever be able to stop recklessly creating money and then turn around and sell off 3 trillion dollars worth of government debt and mortgage-backed securities that it has accumulated since 2008.  Just look at the chart posted below.  Does this look like something that the Federal Reserve will ever be able to “unwind”?…

Federal Reserve Balance Sheet

Remember, just the suggestion that the Fed would begin to slow down the pace of this buying spree a little bit was enough to send the financial markets into panic mode a few months ago.

If the Fed does decide to permanently stop quantitative easing at some point, stocks will drop dramatically and interest rates will skyrocket because there will be a lot less demand for U.S. Treasuries.  In fact, interest rates have already risen substantially over the past few months even though quantitative easing is still running.

Right now, the Fed is supplying a tremendous amount of the demand for U.S. debt securities in the marketplace.  According to Zero Hedge, Drew Brick of RBS recently made the following statement about the staggering amount of government debt that is currently being monetized by the Fed…

“On a rolling six-month average, in fact, the Fed is now responsible for monetizing a record 70% of all net supply measured in 10y equivalents. This represents a reliance on the Fed that is greater than ever before in history!

Overall, the Federal Reserve now holds 32.47 percent of all 10 year equivalents, and that percentage is rising by about 0.3 percent each week.

If the Federal Reserve does not keep doing this, the financial markets are going to crash because they are being propped up artificially by all of this funny money.

But if the Federal Reserve keeps doing this, it is going to become increasingly obvious to the rest of the world that the Fed is simply monetizing debt and is starting to behave like the Weimar Republic.

The remainder of the planet is watching what the Federal Reserve is doing very carefully, and they are starting to ask themselves some very hard questions.

Why should they continue to use our dollars to trade with one another when the Fed is wildly creating money out of thin air and rapidly devaluing the existing dollars that they are holding?

And why should they continue to lend us trillions of dollars at ultra-low interest rates that are way below the real rate of inflation when the U.S. government is already drowning in debt and the money that will be used to pay those debts back will be steadily losing value with each passing day?

The Federal Reserve is in very dangerous territory.  If the Fed wants the current system to continue, it is going to have to stop this reckless money printing at some point or else the rest of the world will eventually decide to stop participating in it.

If the Fed wants to go ahead and make quantitative easing a permanent part of our system, then eventually it will need to go all the way and start monetizing all of our debt.

Right now, the Fed is stuck in the middle of a “no man’s land” where it is monetizing a significant amount of U.S. government debt but it is trying to sell everyone else on the idea that it is not really monetizing debt.  This is a state of affairs that cannot go on indefinitely.

At some point, the Fed is going to have to make a decision.  And for now the Fed seems to be married to the idea that eventually things will get back to “normal” and they will stop monetizing debt.

Even Janet Yellen is admitting that quantitative easing “cannot continue forever”.

However, she also said on Thursday that it is important not to end quantitative easing too rapidly, “especially when the recovery is still fragile“.

Well, at this point quantitative easing has been going on in one form or another for about five years now.

Will it ever end?

And when it does, how bad will the financial crash be?

Meanwhile, with each passing day the faith that the rest of the world has in our dollar and in our financial system continues to erode.

If the Fed continues to behave this recklessly, it is inevitable that the rest of the globe will begin to move even more rapidly away from the U.S. dollar and will become much more hesitant to lend us money.

Ultimately, the Federal Reserve is faced with only bad choices.  The status quo is not sustainable, ending quantitative easing will cause the financial markets to crash, and going “all the way” with quantitative easing will just turn us into the Weimar Republic.

But anyone with half a brain should have been able to see that this debt-based financial system that the Federal Reserve is at the heart of was going to end tragically anyway.  The 100 year anniversary of the Federal Reserve is coming up, and the truth is that it should have been abolished long ago.

The consequences of decades of very foolish decisions are catching up with us, and this is all going to end very, very badly.

I hope that you are getting ready.

Everything Is Going To Be Alright?

Is the U.S. economy going to be okay?  Well, if the only source you listened to was the mainstream media, you would be left with the distinct impression that the U.S. economy is heading toward a full recovery and that everything is going to be alright.  Unfortunately, that is not the case at all.  The United States is rapidly becoming poorer as a nation and less competitive in the global marketplace.  At the same time, consumer debt levels are rising, corporate debt levels are rising, state and local government debt levels are rising and the U.S. government is indulging in a debt binge unlike anything the world has ever seen.  Considering the insane amount of money the U.S. government has been pumping into the economy, we should have seen a much more robust recovery by now.  Instead, the employment statistics have barely moved and government dependence is at an all-time high.  That is really sad, because this is as good as “the recovery” is going to get.  The next major economic downturn is just around the bend, and in future years millions of us will desperately yearn for the “good old days” of 2012.

Below, I have compiled a list of things that I have entitled “Everything Is Going To Be Alright?”

It is composed in the form of a song, but it really isn’t meant to be sung.  It is probably actually more of an economic horror poem than it is a song.  What I have tried to do is to point out the absurdity of what we are all being told by our politicians and by the media.  Hopefully you will enjoy reading it as much as I enjoyed writing it….

—–

Yahoo is going to be laying off thousands of workers starting next work.

Don’t worry about a thing – Barack Obama says everything is going to be alright.

Best Buy has just announced plans to close 50 stores.

Don’t worry about a thing – JPMorgan Chase CEO Jamie Dimon says everything is going to be alright.

The mayor of Los Angeles has announced that the city will be laying off “a large number of employees“.

Don’t worry about a thing – Barack Obama says everything is going to be alright.

Baltimore is so broke that it has decided to look into selling off some of the most famous historical landmarks in the city.

Don’t worry about a thing – the mainstream media says everything is going to be alright.

The city of Costa Mesa, California is so broke that is has decided to sell off its police helicopters.

Don’t worry about a thing – Barack Obama says everything is going to be alright.

The city of Trenton, New Jersey is so broke that it has decided to indefinitely postpone buying more toilet paper for city buildings.

Don’t worry about a thing – Joe Biden says everything is going to be alright.

The capital city of Pennsylvania is so broke that it has decided to start skipping debt payments.

Don’t worry about a thing – Barack Obama says everything is going to be alright.

The state of Nevada has a 12.3 percent unemployment rate.

Don’t worry about a thing – the pretty people on television say everything is going to be alright.

Total student loan debt in America has now passed the 1 trillion dollar mark, and about 270 billion dollars of those loans are at least 30 days delinquent.

Don’t worry about a thing – Barack Obama says everything is going to be alright.

The savings rate in the United States has fallen back to pre-financial crisis levels.

Don’t worry about a thing – Harry Reid says everything is going to be alright.

Home prices in the United States hit a 10 year low in the month of January.  They are now down 34.4 percent from the peak in 2006.

Don’t worry about a thing – Barack Obama says everything is going to be alright.

The average price of a gallon of gasoline in the United States is rapidly approaching the $4.00 mark.

Don’t worry about a thing – Anderson Cooper says everything is going to be alright.

Median household income in the United States is down 7.8 percent since December 2007 after adjusting for inflation.

Don’t worry about a thing – Barack Obama says everything is going to be alright.

When Barack Obama first took office, the number of “long-term unemployed workers” in the United States was approximately 2.6 million.  Today, that number is sitting at 5.6 million.

Don’t worry about a thing – Nancy Pelosi says everything is going to be alright.

The BRICS countries (Brazil, Russia, India, China and South Africa) are publicly declaring that it is time to move away from the U.S. dollar as the primary reserve currency of the world.

Don’t worry about a thing – Barack Obama says everything is going to be alright.

One out of every five Americans will be 65 or older by 2030 and nobody has any idea where all the money is going to come from to pay them the benefits that they have been promised.

Don’t worry about a thing – Rachel Maddow says everything is going to be alright.

More Americans are dependent on the government right now than at any other time in all of U.S. history.

Don’t worry about a thing – Barack Obama says everything is going to be alright.

The number of Americans on food stamps has increased by 14 million since Barack Obama became president and is sitting at an all-time record high.

Don’t worry about a thing – Hillary Clinton says everything is going to be alright.

The U.S. government will add more to the national debt in 2012 than it did from the time that George Washington became president to the time that Ronald Reagan became president.

Don’t worry about a thing – Barack Obama says everything is going to be alright.

The U.S. national debt is currently increasing by about 150 million dollars every single hour.

Don’t worry about a thing – Federal Reserve Chairman Ben Bernanke says everything is going to be alright.

The Federal Reserve bought approximately 61 percent of all government debt issued by the U.S. Treasury Department in 2011.  This is a Ponzi scheme that will completely collapse at some point.

Don’t worry about a thing – Barack Obama says everything is going to be alright.

—–

So what is your opinion?

Do you believe that everything is going to be alright?

Please feel free to leave a comment with your thoughts below….

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