Wednesday, February 25, 2015

Reason #5: End Fed Due To Its Credit Mentality

The Federal Reserve is not only a sickness to sound money which rewards hard work with the fruits of labor, but it affects the mentality of a nation. When rational people see how it operates, they succumb to the thinking of easy money and credit to act irrationally.
The original push to create a central bank at the turn of the 19th century centered upon the fact that liquidity was a major recurring problem in the economy. The backer's, big money banks, stated that a central bank could keep credit and currency steady in the economy. There was no talk of an inflation mandate or an unemployment watchdog.
Then and Now
We now know their system is based on new money covering old debt through the destructive practice of stealth inflation. They slowly devalue our currency by printing new money to buy old bonds that provide liquidity for government to spend what they don't have in revenues. This is the argument that Republicans claim that Democrats are the "spend and tax" party. The only problem is that they do the same thing by taxing the nation as they generate returns with loopholes and subsidies for their backers who were the same people who pushed for the Fed in the first place back in 1913.
Since the Fed began, the value of our dollar has declined by 95%. They failed at their original concept and worse, they have insidiously affected both our corporate thinking as well as our individual approach to debt and credit.
Back in the "old" days before credit and debt were plentiful, people saved to make a purchase and paid in cash. After WW 11, with checking and the advent of credit cards, people slowly changed their approach to want and needs. With LBJs "Good Society" why not buy today and enjoy life. I can pay at the end of the month and balance my account. Their children learned this approach. It worked well until daddy got laid off or lost his job. Then, credit becomes a burden that must be repaid, but individuals cannot print money to over their expenses. We had a recession in the 1970s and a study shows that social mobility peaked in 1971, the same year President Nixon ended our currency tied to the gold standard.
Cheap Money
The advent of cheap money began with Greenspan and a study shows this is the beginning of the wealth gap in the US economy which grows each year due the continuation of cheap money. A study by Bank Rate finds that 25% of Americans have more debt than savings. In addition, another 13% have no debt and no savings. Together (37%) are living from paycheck-to-paycheck.
Then, there is the continual, make it up as we go along approach by the Fed. HARP loans is a program designed for people under water with their mortgages due to the last boom and bust mentality of the Fed. It has helped, but check this out. Now, you can refinance without an appraisal. Before the recession you could buy with a Ninja loan(No income, no job, no assets)and now, money no matter what the value.
Dear reader, it gets worse because the Fed was determined to get rid of the gold standard and now, it wants to eliminate currency from our society. They put out the virus and the creative, destructive nature of capitalism takes over. Everyone knows that credit cards make big bucks and therefore, an opportunity to take market share from them.
Pay Pal, Apple Pay, Square - Bitcoin
Technology helps the credit mentality by using your smart phone to spend what you don't have. You believe that you can settle up at the end of the month or put the bill on another credit card by playing rotation cards of credit. This works until your hours are cut or get laid off or fired(See Daddy above in 1970s). The serious problem that I see is this: Our economy has $11.7 trillion in M 2, which is currency in circulation, deposits, money market accounts and notes, but the currency segment is only $1.3 trillion. Any liquidity problem will cause cash to disappear from circulation due to fear that bank accounts, credit cards and checking will be frozen like in Cypress. The very first mandate will be violated again because cash will trump credit and of course, gold will trump cash. Funny, how that works.
Corporate World
This same approach to cheap money effects corporations. People, G.E. has more debt than Greece! Corporations issue bonds and only use the money to cover dividends and buy back stock. There is little or no research for new or better products. IBM has seen its revenues decline quarter after quarter, but it makes its estimated income. Why? Because the buybacks shrink the shares in the market and covering their guidance is easy. They are not alone as this is the standard practice of S & P 500 companies. Earnings and revenues are down, but the market is at all-time highs. Everyday people take for granted that these people know what they are doing. Ha! See or find Lehman. AIG went from $1451 a share to $7 bucks. Countless others would be long gone, shares worthless, if it weren't for the Fed intervening.
It is not only the corporate world. Government agencies know that the Fed will print and cover their asses. The FHFA, Federal Housing Finance Agency recently increased obligations of our government and us, taxpayers by lowering restrictions to Fannie Mae who went from $60 a share to .30 cents. Its sibling Freddie Mac did likewise. So now, they can buy and sell bonds to generate income to pay the government even if they are losing money. They are true wards of the state(so much for capitalism). At present, they have increased their ledger to the tune of $408 billion. If they fail again, and they will, who gets the bill? We do. The Fed will bail out the government, but no one will bail out you. The backers knew that back in 1913. This is the real reason why they wanted a central bank. It was the same reason why President Jackson ended the(central) Second Bank of the US. The central bank is socialism for the banking industry in case they screw up which they have, multiple times. This is another reason why I say, End the Fed!