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Federal Reserve’s Latest Bailouts More Proof Bad Times Ahead
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Since September 17, the Federal Reserve Bank of New York has pumped billions of dollars into the repurchasing (repo) market, the first such intervention since 2009. The Fed has announced that it will continue to inject as much as 75 billion dollars a day into the repo market until November 4.

The repo market provides a means for banks that are temporarily short of cash to obtain short-term (usually one day) loans from other banks. The Fed’s interventions were a response to a sudden cash shortage that caused interest rates for these short-term loans to climb to 10 percent, far above the Fed’s target rate.

One of the factors blamed for the repo market’s cash shortage is the Federal Reserve’s sale of assets it acquired via the Quantitative Easing programs. Since launching its effort to “unwind” its balance sheet, the Fed had reduced its holdings by over 700 billion dollars. This seems like a large amount, but, given the Fed’s balance sheet was over four trillion dollars, the Fed only reduced its holdings by approximately 18 percent! If such a relatively small reduction in the Fed’s assets contributed to the cash shortage in the repo market, causing a panicked Fed to pump billions into the market, it is unlikely the Fed will be continuing selling assets and “normalizing” its balance sheet.

Another factor contributing to the repo market’s cash shortage was a major sale of US Treasury securities. Sales of government securities leave less capital available for private sector investments, increasing interest rates. This “crowding out” effect provides one more justification for the Federal Reserve to pump more money into the markets.

The crowding out effect is just one way federal debt increases pressure on the Fed to keep interest rates low. Increasing federal debt increases pressure on the Fed to maintain low interest rates to keep the federal government’s interest payments from reaching unsustainable levels. The over one trillion dollars (and rising) federal deficit is the major reason the Federal Reserve is likely to keep interest rates low or even adopt the insane policy of negative interest rates.

The American people are not even allowed to know what banks benefited from the Fed’s intervention in the repo market, or what plans the Fed is making for future bailouts — even though the people will pay for those bailouts either through increased taxes, debt, or the Federal Reserve’s hidden inflation tax when the next crash occurs. Of course, the average people who will lose their savings and their jobs in the next crash will not be bailed out. This is one more reason why it is so important Congress takes the first steps toward changing monetary policy by passing Audit the Fed.

The need for the Fed to shove billions into the repo market to keep that market’s interest rate near the Fed’s target shows the Fed is losing its power to control the price of money. The next crash will likely lead to the end of the fiat money system, along with the entire welfare-warfare state. Those of us who understand the Fed is the cause of, not the solution to, our problems must redouble our efforts to educate our fellow citizens on sound economics and the ideas of liberty. This way, we can create the critical mass necessary to force Congress to cut spending, repeal the legal tender laws to restore a free market in money, and audit, then end, the Fed.

(Republished from The Ron Paul Institute by permission of author or representative)
• Category: Economics • Tags: Federal Reserve 
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  1. Truth3 says:

    The so called Federal Reserve Bank needs to be investigated, then shut down.

    The Jews running it, that destroyed the American Citizens’ futures, need to be put on trial, convicted, and put behind bars (and not at any country club prison) for good.

  2. T.G.Congdon disagrees re ‘a recession’?
    “Given that the Fed and the ECB have shown a welcome pragmatism in responding to the current global slowdown, and given also that – despite our concerns – money growth trends remain more or less satisfactory, a central forecast for 2020 can sensibly be for roughly trend growth of the world economy accompanied by low inflation. As ever, many worries surround a benign view of this sort, but recent financial events in China and India – like those in the developed world – also support it. “

  3. If the REPO loans are short term, usually over night, then the money should be returning to the Fed in short order. Why then is it necessary to pump in additional funds daily to keep this fraudulent system going?

    I think this is a complete lie. The Fed knows the end is near and is simply giving the banks additional funds with which to purchase the assets of the country when they finally decide to pull the plug. That’s what happened during the ‘Great Depression’ and the same script is being used once again.

    This REPO BS is cover for simply giving the banks extra money before the SHTF. Research the PLOS 1 article that show the banks own the bulk of the world already and now they want to take the rest of it.

  4. Anonymous[150] • Disclaimer says:

    Keep stackin’ boys. Silver, for now. Trade the ratio between the only two stable elements of money and multiply your stash.

    • Replies: @Justvisiting
  5. @Anonymous

    I have never been a believer in gold and silver, even though I know they are a much better store of value than fiat currency.

    The problem (at this stage of our post-industrial cluster f***) is that when the fiat currency collapses worldwide (and it will be worldwide), there will be no “market” to trade in…..just barter, and a barter economy runs on stuff you can use. The only store of value in a barter economy is non-perishable stuff you can use.

    We do have actual barter economies in some rural areas in the US. I have relatives in rural Kentucky who own a farm (that makes no real money) and barter what they have to offer (hay and mechanical repair skills of family members) with other members of their community. They would laugh at you if you talked about gold or silver.

    • Replies: @RoatanBill
  6. @Justvisiting

    It is the perishable stuff, namely food and water, that sustains us all. That will run out quickly once SHTF time rolls around. As we all don’t want to die of starvation and thirst, we will restart the economy as a matter of survival, and do it quickly.

    Once commerce is reestablished using the old fiat currency we all possess as there is no other immediate option, there will be a natural yearning for real money, stable money and that’s when gold and silver will return to their rightful place.

    It’s a timing issue. I doubt your relatives want my circular saw, a non perishable item, for a sack of potatoes. Barter will give way quickly to ‘money’, even fiat script since the average person doesn’t know the difference between currency and money anyway.

  7. d dan says:

    What the Federal Reserve is doing is Quantitative Easing 2.0 (or is it 3.0, 4.0?), except they don’t call it that way. This should be one of the most important if not THE most important news today. But look at the coverage and interest in this topic. 🙁

    That is the reason I am so pessimistic about the future of this country.

    • Replies: @Justvisiting
  8. @d dan

    The lack of media coverage of quantitative easing (in its many variants) is not a coincidence.

    It is a _feature_ of quantitative easing.

    The owners of major media outlets are one of the main beneficiaries of quantitative easing. It increases the value of the assets they own (stocks, real estate, collectibles).

    They are loving the party–no need to let the neighbors know they are imbibing the good stuff!

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