The Federal Reserve

Another Way That The Federal Reserve Makes Massive Gobs Of Money For The Big Banks

When most people discuss how the Federal Reserve benefits the big banks, they usually only focus on the ways that the Federal Reserve directly brings in income.  But there is so much more to it than that.  The truth is that the Federal Reserve is used in a whole variety of ways to indirectly assist the big banks in making huge gobs of money.  One of the ways this is currently being accomplished is through the U.S. Treasury carry trade.

So how does this carry trade work?

Well, it basically has three steps and it works something like this….

#1) Mr. Big Bank goes over to the Federal Reserve and says, “Hey Mr. Federal Reserve – please loan me a big bag of cash for next to nothing.”  Of course, the Federal Reserve is more than happy to loan it to him.

#2) Mr. Big Bank then invests the same big bag of cash into U.S. Tresuries which have a much higher interest rate than what Mr. Big Bank just borrowed at.  To give  you an idea, 10-year U.S. Treasuries are earning around 3 and a half percent right now.

#3) Mr. Big Bank sits back and enjoys the huge amount of risk-free cash which comes pouring in.

This little three step procedure helped enable four of the biggest U.S. banks (Goldman Sachs, JPMorgan Chase, Bank of America and Citigroup) to have a “perfect quarter” during the first quarter of 2010.  What that means is that these four banks had zero days of trading losses in the first quarter.

Wouldn’t you like to have a perfect batting average?

Don’t you wish you could pitch a perfect game every time?

Well, it certainly helps when you are being subsidized by the Federal Reserve as Bloomberg recently explained….

The trading results, which helped the banks report higher quarterly profit than analysts estimated even as unemployment stagnated at a 27-year high, came with a big assist from the Federal Reserve. The U.S. central bank helped lenders by holding short-term borrowing costs near zero, giving them a chance to profit by carrying even 10-year government notes that yielded an average of 3.70 percent last quarter.

Doesn’t it just seem like whenever we turn around the Federal Reserve is doing something new to “help out” the big banks?

This is just getting ridiculous.

Remember all of that talk about how the U.S. government had to help out Wall Street so that they could help out Main Street?

Well, a ton of money did get injected into the banking system.

In fact, the Federal Reserve pumped hundreds upon hundreds of billions of dollars into the banking system since the beginning of the financial crisis.  This has caused the U.S. monetary base to explode….

So did the big banks use all of that money to help out Main Street?

No.

In fact, business lending by the big banks has been falling precipitously.

So what have the big banks been doing with all of that money?

Buying U.S. government debt of course….

So instead of making loans to American businesses who desperately needed it, most of this new money has gone to pump up yet another bubble.  This time the bubble is in U.S. Treasuries.  Asia Times recently described how this trillion-dollar carry trade in U.S. government securities is setting up a very dangerous situation….

Remarkably, the most aggressive buyers of US government debt during the past several months have been global banks domiciled in London and the Cayman Islands. They borrow at 20 basis points (a fifth of a percentage point) and buy Treasury securities paying 1% to 3%, depending on maturity.

This is the famous “carry trade”, by which banks or hedge funds borrow short-term at a very low rate and lend medium- or long-term at a higher rate. This works as long as short-term rates remain extremely low. The moment that borrowing costs begin to rise, the trillion-dollar carry trade in US government securities will collapse.

But as long as the gravy train of the U.S. Treasury carry trade continues, why should the big banks make risky loans to American businesses and consumers when increasing numbers of them are turning out to be deadbeats anyway?

That is a good question.

Meanwhile, we have this sick situation where the Federal Reserve subsidizes the big banks and enables them to buy up a big chunk of the debt the U.S. government is constantly churning out.

Our national banking resources are increasingly being turned away from building up our once great system of free enterprise, and instead are being devoted to servicing the never ending spiral of government debt and funny money that we have created.

But a bunch of folks down on Wall Street are getting exceedingly rich from this little game, so they certainly aren’t going to complain about it.  And as long as the vast majority of Americans continue to stay in the dark about all of this, the bouncing ball will just continue to keep rolling.

Federal Reserve Chairman Ben Bernanke Warns Congress That The Federal Reserve Will Not “Print Money” To Pay For The Exploding U.S. National Debt

On Wednesday, Federal Reserve Chairman Ben Bernanke warned Congress that the Federal Reserve does not plan to “print money” to help Congress finance the exploding U.S. national debt.  In fact, Bernanke told Congress that the U.S. could soon face a debt crisis as bad as the one in Greece if the U.S. government does not get things in order financially.  This represents a fundamental change in policy for the Federal Reserve, because they have been enabling the massive borrowing by the U.S. government over the past couple of years by “buying” the majority of new U.S. government debt that has been issued.  But now the fat cats over at the Federal Reserve have apparently changed their minds.  Using uncharacteristic bluntness, Bernanke told Congress that the Federal Reserve is “not going to monetize the debt”.

So why is the Federal Reserve changing course?

Well, there are a couple of possibilities.  One is that the Federal Reserve could legitimately be concerned that the exploding U.S. debt could actually collapse the U.S. economy and ultimately the U.S. government.

You see, the Federal Reserve is a parasite.  They make money for their owners by sucking money out of the U.S. government and out of U.S. taxpayers.  So, just like any parasite, they must strike a delicate balance.  They have to keep feeding off the host without killing off the host completely.  If the host dies it could end up killing the parasite.  So the Federal Reserve actually needs to try to keep the U.S. economy alive so that it can slowly keep draining it.

In fact, during his remarks to Congress, it certainly sounded like Bernanke honestly desires that the U.S. government will come up with a sustainable financial plan for the future….

“It is very, very important for Congress and administration to come to some kind of program, some kind of plan that will credibly show how the United States government is going to bring itself back to a sustainable position.”

The second possibility is a bit more insidious.  As we have written previously, it looks like “the financial powers that be” have decided to reduce the money supply, tighten credit and hoard cash.  All of those things reduce economic activity. 

This new public stance by Bernanke is right in line with that.  If the Federal Reserve will not finance the exploding U.S. government debt, then either the U.S. government will have to dramatically cut back on spending (which would seriously slow down the U.S. economy) or the U.S. government will have to borrow from other sources at much higher interest rates (which will have very serious negative effects on the U.S.. economy).  Either way, this new stance by the Federal Reserve is not good news for those hoping for U.S. economic growth.     

The truth is that someday the exponential growth of the U.S. national debt will basically force the Federal Reserve to “print money”, but for now it looks like the financial powers have another agenda. 

From all indications, it look like that agenda is seriously going to slow down the U.S. economy.

That is likely to seriously anger American voters.  Already, millions of Americans have lost their homes and their jobs, and things are probably only going to get worse.

The result is that there is likely to be an overwhelmingly strong anti-incumbent mood in the nation as we approach the election season of 2010.  Even now, only 10% of American voters say that Congress is doing a good or excellent job.

That is not good news for the fat cats in Washington.

Not that we should feel sorry for them when they get voted out.

Anyway, as always we welcome your comments.  If we do not publish your comment right away, don’t be discouraged, because sometimes we hold on to a comment for a bit because we want to figure out a way to feature some of the very best comments in a future article.

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Barack Obama, The Federal Reserve And The New York Times: Millions Of Unemployed Americans Are NOT Going Back To Work Any Time Soon

Most Americans seem to be under the impression that the millions of Americans who have lost their jobs over the last few years will soon be going back to work as the U.S. economy recovers.  But that is not going to happen.  In fact, even Barack Obama, the Federal Reserve and the New York Times are all admitting that millions of unemployed Americans are not going back to work any time soon – and they are some of the biggest optimists regarding the long-term prospects for the U.S. economy.  Many are calling this a “jobless recovery”, but what we are experiencing right now is not a “recovery” at all.  Rather, we are currently in a “lull” in the economic storm.  All of the “bailouts” and “stimulus packages” have stabilized the U.S. economy for now, but they have made our long-term debt problems far worse.

So what does that mean?

It means that eventually millions and millions more Americans will lose their jobs.

So don’t count on the millions of Americans who are currently unemployed going back to work any time soon.

Even the most important newspaper in the United States (the New York Times), the most important financial institution in the nation (the Federal Reserve) and the president of the United States (Barack Obama) all say that the employment situation is not going to improve for quite some time…. 

*Barack Obama’s most recent budget proposal projects that the U.S. unemployment rate will remain at about 10% in 2010.  Of course we all know that the current official unemployment rate of approximately 10% is actually more like 18-22% in reality.

*The Federal Reserve also caused a stir recently when they said that the official U.S. unemployment rate will continue to stay up around 10% throughout 2010.

*In a recent article entitled “Millions of Unemployed Face Years Without Jobs”, the New York Times admitted that millions of Americans that have lost their jobs during this “recession” may be out of work for years.

Meanwhile, according to the Department of Labor, approximately 2.7 million unemployed Americans will lose their unemployment check before the end of April unless the U.S. Congress decides to extend their payments.

So what happens when millions of unemployed Americans don’t even have an unemployment check coming in?

Things are getting bad out there, and many financial institutions are beginning to take steps to protect themselves.

In fact, Citibank is now telling some of their customers that they are reserving the right to require 7 days advance notice before allowing a customer to withdraw their own money.

Yes, this is true.

Citibank is currently sending the following notification to their customers all over the United States, but according to them it was only supposed to go to their customers in Texas: “Effective April 1, 2010, we reserve the right to require (7) days advance notice before permitting a withdrawal from all checking accounts. While we do not currently exercise this right and have not exercised it in the past, we are required by law to notify you of this change.”

Could you imagine having to give your bank 7 days notice before you take your money out?

Dark economic times are ahead.

The truth is that the once great U.S. economy is crumbling.  Just check out the chart below.  Does this look like part of a “normal” economic cycle to you?….

Quotes About The Federal Reserve And Central Banking

Our last post, “It Is Now Mathematically Impossible To Pay Off The U.S. National Debt“, has created a ton of controversy and has generated over 100 comments so far.  Much of the discussion has been about the role of the Federal Reserve and how they create money and debt.  The truth is that the Federal Reserve system is a very complex subject that is very difficult to get a handle on.  One thing that the Federal Reserve is NOT is a government agency.  In fact, it is about as “federal” as Federal Express.  It is a private central bank designed to make money for the people who created it.  In fact, the Federal Reserve was the culmination of an effort by the international banking elite to force a permanent private central bank on the American people that began all the way back during the days of our Founding Fathers. 

But don’t just take our word for it. The following are famous quotes about the Federal Reserve and central banking from past presidents, congressmen and other notable historical figures….  

“Most Americans have no real understanding of the operation of the international money lenders. The accounts of the Federal Reserve System have never been audited. It operates outside the control of Congress and manipulates the credit of the United States.”
-Sen. Barry Goldwater

It is well that the people of the nation do not understand our banking and monetary system, for if they did, I believe there would be a revolution before tomorrow morning.”
-Henry Ford

“The regional Federal Reserve banks are not government agencies. …but are independent, privately owned and locally controlled corporations.”
-Lewis vs. United States, 680 F. 2d 1239 9th Circuit 1982

“The Federal Reserve banks are one of the most corrupt institutions the world has ever seen. There is not a man within the sound of my voice who does not know that this nation is run by the International bankers.”
-Congressman Louis T. McFadden

“The real truth of the matter is, as you and I know, that a financial element in the large centers has owned the government of the U.S. since the days of Andrew Jackson.”
-Franklin Delano Roosevelt

“As soon as Mr. Roosevelt took office, the Federal Reserve began to buy government securities at the rate of ten million dollars a week for 10 weeks, and created one hundred million dollars in new [checkbook] currency, which alleviated the critical famine of money and credit, and the factories started hiring people again.”
-Eustace Mullins

“This [Federal Reserve Act] establishes the most gigantic trust on earth. When the President [Wilson} signs this bill, the invisible government of the monetary power will be legalized….the worst legislative crime of the ages is perpetrated by this banking and currency bill.”
-Charles A. Lindbergh, Sr. , 1913

“When you or I write a check there must be sufficient funds in our account to cover the check, but when the Federal Reserve writes a check there is no bank deposit on which that check is drawn. When the Federal Reserve writes a check, it is creating money.”
-Putting it simply, Boston Federal Reserve Bank

“We have, in this country, one of the most corrupt institutions the world has ever known. I refer to the Federal Reserve Board. This evil institution has impoverished the people of the United States and has practically bankrupted our government. It has done this through the corrupt practices of the moneyed vultures who control it.”
-Congressman Louis T. McFadden in 1932

“The few who understand the system, will either be so interested from it’s profits or so dependent on it’s favors, that there will be no opposition from that class.”
-Rothschild Brothers of London, 1863

“While boasting of our noble deeds were careful to conceal the ugly fact that by an iniquitous money system we have nationalized a system of oppression which, though more refined, is not less cruel than the old system of chattel slavery.”
-Horace Greeley

“The Federal Reserve bank buys government bonds without one penny…”
-Congressman Wright Patman, Congressional Record, Sept 30, 1941

“…the increase in the assets of the Federal Reserve banks from 143 million dollars in 1913 to 45 billion dollars in 1949 went directly to the private stockholders of the [federal reserve] banks.”
-Eustace Mullins

“The financial system has been turned over to the Federal Reserve Board. That Board administers the finance system by authority of a purely profiteering group. The system is Private, conducted for the sole purpose of obtaining the greatest possible profits from the use of other people’s money”
-Charles A. Lindbergh Sr., 1923

“Bankers own the earth. Take it away from them, but leave them the power to create money and control credit, and with a flick of a pen they will create enough to buy it back.”
-Sir Josiah Stamp, former President, Bank of England

“All the perplexities, confusion and distress in America arise, not from defects in their Constitution or Confederation, not from want of honor or virtue, so much as from the downright ignorance of the nature of coin, credit and circulation.”
-John Adams

“Whoever controls the volume of money in any country is absolute master of all industry and commerce.”
-James A. Garfield, President of the United States

“A great industrial nation is controlled by it’s system of credit. Our system of credit is concentrated in the hands of a few men. We have come to be one of the worst ruled, one of the most completely controlled and dominated governments in the world–no longer a government of free opinion, no longer a government by conviction and vote of the majority, but a government by the opinion and duress of small groups of dominant men.”
-President Woodrow Wilson

“History records that the money changers have used every form of abuse, intrigue, deceit, and violent means possible to maintain their control over governments by controlling money and it’s issuance.”
-James Madison

“I believe that banking institutions are more dangerous to our liberties than standing armies. Already they have raised up a monied aristocracy that has set the government at defiance. The issuing power (of money) should be taken away from the banks and restored to the people to whom it properly belongs.”
-Thomas Jefferson

“The money powers prey upon the nation in times of peace and conspire against it in times of adversity. It is more despotic than a monarchy, more insolent than autocracy, and more selfish than bureaucracy. It denounces as public enemies all who question its methods or throw light upon its crimes. I have two great enemies, the Southern Army in front of me and the bankers in the rear. Of the two, the one at my rear is my greatest foe.”
-Abraham Lincoln

“Give me control of a nation’s money and I care not who makes it’s laws”
-Mayer Amschel Bauer Rothschild

Are you starting to get the picture?

The Federal Reserve is at the center of a controversy over central banking that has been around since the very beginning of the United States.  But unfortunately, the Federal Reserve system is so incredibly complex and the American people of today are so uneducated that the vast majority of people out there simply do not even understand enough about what is going on to get upset about anything.

But that is changing.  An increasing number of people are starting to wake up.  Instead of thinking that “we’ll get this debt under control if we could just get the right person in the White House”, more Americans than ever are realizing that it is the Federal Reserve that is the root of our debt problem.

As always, we welcome you to leave a comment with your opinion about the Federal Reserve.  We read every single comment that gets left on this site, and we actually learn a lot from reading them.

We also encourage you to follow us on our daily news website, The Most Important News, which features the best collection of alternative news stories that you will find anywhere.

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