The Fed’s Policy of Near Zero Interest Rates

Published on Global, by Bob Chapman, November 16, 2009.

… Instead of upsetting the economy it has been suggested that excess reserves be drained form the banking system so that business and the investors do not understand what is going on. A bit of slight of hand. Then perhaps the program of the Fed monetizing CDOs, Agencies and Treasuries be ended. Such a move would send the economy plummeting into oblivion. Borrowing by government would screech to a halt and again deflation would reign.

These programs are supposed to be over, or in the case of CDOs and MBS, they are supposed to end next March. This is why the Fed cannot face an audit.  They have for some time been secretly buying or arranging to have been bought all of these debt obligations illegally. The CDO, MBS program cannot be stopped. Otherwise the big banks could never clear their balance sheets and the result would be bankruptcy. Thus, until those banks, brokerage houses and insurance companies are rid of their problem assets the program cannot end. If the program ends they all go under.  The toxic assets being bought by the taxpayer via the Fed will have to be worked off over the next 30 years with grievous losses.  

The high sounding Supplementary Financing Program is a transference of debt from banks, Wall Street and insurance to the taxpayer. Even worse is the Fed’s ability to pay interest on the money banks have borrowed from them at a higher rate of course, allowing the taxpayer to give free money to the banks, which, of course, is insane.

Even if reserves were drained it would have to encompass at least a two-year period. They propose to remove trillions of dollars from the economy and even being left with trillions in the economy after the general withdrawal of funds. Unfortunately as this occurs more than 2,000 banks will have gone out of business. These are the small and medium-sized banks that are not too big to fail. This, of course, is part of a nationalization process to consolidate banking in order to bring about world banking under the IMF. The Fed may have taken an enormous amount of debt supply out of the market, but as that has occurred a new massive amount of debt has hit the market. These capital demands are going to put big upward pressure on real interest rates over the next two years. As you can see the Fed, the elitists have no way out.

In the midst of all this professionals worldwide are losing confidence concerning the strength of our so-called recovery. That is because these professionals believe an unwinding of stimulus, less money and credit and monetization will lead to less economic activity, that would lead to depression. They are correct. Making matters worse unemployment continues to deteriorate. It is our opinion quantitative easing will be with us for at least another two years.

The commercial mortgage crisis will demolish any illusion of recovery. The paid shills and liars will again be exposed for what they are.

The U.S. ambassador in Kabul sent two classified cables to Washington in the past week expressing deep concerns about sending more U.S. troops to Afghanistan until President Hamid Karzai’s government demonstrates that it is willing to tackle the corruption and mismanagement that has fueled the Taliban’s rise, senior U.S. officials said … //

… In the past two years, the FDIC has seized 145 banks, compared with only three in 2007. The casualties include four of the 10 largest failed banks in U.S. history. The agency projects that the cost of all failures resulting from the current crisis will reach $100 billion.

Marsh & McLennan Cos., the second- biggest insurance broker, will pay $400 million to settle a lawsuit by investors who said they lost money because the company failed to disclose illegal practices.

Investors led by state pension funds in New Jersey and Ohio sued the company after its share price dropped by about half in October 2004 as then-New York Attorney General Eliot Spitzer probed bid rigging in the industry. About half the sum to settle the case in U.S. District Court in New York will be covered by the firm’s insurance and the rest will be paid with cash on hand, the company said today in a statement.

The settlement “holds Marsh accountable for its wrongdoing and requires Marsh to compensate investors,” Ohio Attorney General Richard Cordray said in a separate statement.

Chief Executive Brian Duperreault is resolving cases that predate his tenure after taking the top post last year from Michael Cherkasky, who negotiated an $850 million settlement with Spitzer to secure Marsh & McLennan’s survival. The broker agreed separately to a $35 million settlement in a case filed on behalf of employees tied to declines in their holdings through their retirement plans, the New York-based company said today.

Confidence among U.S. consumers unexpectedly dropped in November as the loss of jobs threatened to undermine the biggest part of the economy.

The Reuters/University of Michigan preliminary sentiment index decreased to a three-month low of 66 from 70.6 in October. A report from the Commerce Department showed the trade deficit widened in September by the most in a decade as rising demand for imported oil and automobiles swamped a fifth consecutive gain in exports.

Rising joblessness puts the economy at risk of slipping into a vicious circle of firings and declines in consumer spending that will limit the emerging recovery. The dollar’s 12 percent decline since March and growing demand from Asia and Europe will probably spur exports further, giving factories a lift and making up for some of the weakness among households.

“Consumers face a lot of headwinds, and rising unemployment is the No. 1 worry,” said David Sloan, a senior economist at 4Cast Inc. in New York, whose forecast for confidence was the lowest of economists surveyed. “The recovery, in its early stages, will be led by increases in manufacturing rather than by consumers. Markets in Asia are rebounding quite nicely.”

The U.S. trade gap widened 18 percent to the highest level since January, the Commerce Department said. Imports rose 5.8 percent, the most since March 1993, as the cost of a barrel of crude climbed to the highest level since October 2008 and volumes also rose. Exports increased 2.9 percent, propelled by sales of aircraft and industrial machines.

U.S. import prices posted their seventh increase over the past eight months in October, led by higher fuel prices, the U.S. Labor Department reported Friday.

Despite the latest increase, import prices remain 5.7% below their October 2008 level, and the sluggish recovery suggests there are few inflation risks in the U.S. economy for now.

Import prices rose by 0.7% in October. That follows a revised 0.2% increase in September. The September increase in import prices was originally estimated to be 0.1%.

The Federal Reserve’s latest weekly money supply report Thursday shows seasonally adjusted M1 rose by $27.9 billion to $1.696 trillion, while M2 fell $6.5 billion to $8.387 trillion.

The trade deficit for September widened by 18.2%.

Banks have to pay $45 billion to the FDIC by the end of December. (full long text).

(Bob Chapman is a frequent contributor to Global Research. Global Research Articles by Bob Chapman).

Links: CDO; ABS; MBS; FDIC, et Google News results for FDIC.

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