(Part 1 of 2. To read part 2 click this link: “The Punch Bowl, After the Half“)
It’s all about the “Fed”—the Federal Reserve Bank. The stock market today is all about the Fed. Want to know why the stock market is up? Watch The Fed. Want to know why stocks were down? Watch the Fed. Want to know why the stock market has skyrocketed non-stop since April 2009? The Fed. Want to know which way the stock market is going tomorrow? Watch the Fed.
The latest monthly unemployment numbers come out. The stock market moves, up or down. Is the market moving because of the unemployment news? No. The market is acting in anticipation of how the Fed will react to the unemployment numbers. The latest inflation numbers come out. The market moves. Is the market reacting to the latest inflation report? No. The market moves anticipating how the Fed will react to the inflation numbers. Regular reporting of the GDP, the trade deficit numbers, manufacturing, inventories, consumer confidence numbers, etc. no longer move the overall stock market as measures of the health of the economy; what’s moving the market are big stock traders guessing how the Fed is going to react to these economic reports. Today, the Fed holds all the cards.
Wall Street doesn’t give a damn about the unemployment rate. They only care about how the Fed will react to changes in the unemployment rate. Wall Street traders make enormous amounts of money—and keep their jobs—if they correctly guess when and in which direction the Fed will change interest rates. Nothing wrong with making a buck legally. I love profits as much as the next guy. I’m just trying to be clear about causes and effects.
Since April 2009 every move in the stock market has been attributed to the Fed. Wall Street is one big party funded by the Fed. All of Wall Street is watching, worried to death the Fed will take away the punch bowl. I’ll get to the “punch bowl” in part 2, “The Punch Bowl, After the Half.”
All the big banks—probably your bank—are still in business because of the Fed. Your pension, 401k, and IRA (if you haven’t been forced to cash it out to keep your house and buy food yet) are up because of the Fed. Your Social Security checks are still arriving because of the Fed. Any government entitlement checks or coverage you may be receiving are because of the Fed. Students are still receiving student loans because of the Fed. General Motors is still producing cars because of the Fed.
The Federal Reserve is not a government department, agency, or office. The Federal Reserve is a private company. Look at a dollar bill in your wallet. See “Federal Reserve Bank” written all over it? The U.S. Department of Engraving runs the actual printing presses, but the Fed orders when to turn the presses on and off. Where do freshly printed dollars go? To the Fed, of course. When? Whenever the Federal Reserve wants to! I know, it’s astonishing.
The Federal Reserve Bank, or simply the “Fed” was created by an unconstitutional act of Congress in 1913. The Fed is a collection of fat cat bankers who cajoled and threatened Congress into letting them control banking across the country, set interest rates, and control America’s currency. The Federal Reserve is the most powerful private company in the world, and is arguably more powerful than the office of U.S. President.
I don’t want to get lost in the weeds here. I’m no expert on the Fed. Like I wrote recently, I only needed to learn enough to know why the market and economy crashed, how it would affect my family, and why no one was going to jail.
So, why is the Fed responsible for the skyrocketing stock market, rising 401k statements, keeping bank doors open and Social Security checks coming? Because the Fed prints dollars, then they buy stuff with it or loan it out. Not to us the consumer, but to banks and governments.
When the U.S. government doesn’t take in enough money in taxes to pay for government spending programs, the U.S. government borrows money from whomever will loan it to them. China, Japan, Germany and U.K. were big loaners to the U.S. Not so much anymore. When lenders to the U.S. walked away, the Federal Reserve picked up the slack, loaning the U.S. government the money. The Fed just printed U.S. dollars out of thin air for itself, then used that fresh money to buy U.S. Treasury bonds. The Fed holds the bonds, and the U.S. government gets fresh cash to spend on government programs. Politicians were thrilled with this idea because it meant they, the politicians, didn’t have to cut spending or raise taxes. Voters don’t like to hear their government check isn’t coming, or that their taxes are increasing.
What about all those banks that should have gone out of business in the crash of 2008? Those banks were insolvent—bankrupted—because they had given out so many home loans for homes whose values dropped when the housing market cooled off. Ah, here’s the evil beauty of spring 2009. The great trickery. Federal accounting rules were suspended for financial institutions—banks no longer had to “book” or show those loan loses to the public. Then the Fed swooped in to take those bad home loans off the books of banks. The Fed ordered billions of fresh printed dollars, went to the banks, and bought up all those bad home loans. Now the Fed owns most those bad home loans, and banks were flush with billions in fresh new cash.
What else did the Fed buy up with U.S. dollars printed out of thin air? Well, we don’t know exactly because the Fed is not subject to audit by the U.S. government! But we know enough to know the Fed is also buying up stock market loses from insurance and investment companies, defaulted student loans, defaulted credit card balances, defaulted auto loans, and buying up defaulted loans in Europe in order to prop-up those economies lest an economic contagion spread from there to here.
And the stock market. Oh, this is a beauty. So, the banks are flush with billions in fresh new cash from the Fed. And what do the banks do with the money? Loan it to consumers? No way. Consumers were broke, unemployed, and walking away from homes and closing businesses. Banks make money by collecting interest charged on loans they give. That’s fair and right. But, the banks are not lending money to consumers and business start-ups are they. The banks needed to make money somehow. So, what did they do? The banks spent all that fresh new cash buying stocks in the stock market of course—hundreds of billions in stocks. Perhaps trillions, we don’t know. And I suspect the Fed and the U.S. government forced banks to invest that money in the stock market.
So long as the Fed can print money at will, the banks are propping up the stock market. So much money is getting artificially pumped into the stock market by banks the stock market MUST rise. It’s a win-win for the banks. Which of course was the purpose of bankers creating the Fed in the first place—control.
Banks bet to be the last man standing. You want to know which direction the stock market is going? Watch the Fed! The Fed is the punch bowl. Follow the money—all the way to the printing press.
The bankers are happy. The politicians are happy. Wall Street is happy. 401k investors are happy. Everyone is happy but Main Street America—home owners, job seekers, part-time workers, small businesses, folks without employer-sponsored health insurance, retirees, everyone.
Save the banks. Save the stock market, no matter the cost. This little plan was cooked up between the U.S. government, the Fed, and Wall Street. Their plan was to raise stock market prices to boost confidence in the U.S. consumer. If they were lucky, they hoped to stop the market crash, steady the economy, and jump-start consumer spending. At best, they hoped to avoid a total complete global economic meltdown, civil unrest, chaos, and possibly a U.S. civil war. As you can see, politicians’, the Fed’s, and Wall Street’s plan worked pretty good—for them! The rest of America? Not so much. We were an after-thought so long as we didn’t riot.
History proves time and time again, you can’t print your way out of debt.
Many of our Founding Fathers feared bankers more than war. I fear we may soon find out why.
(Continued in part 2 of 2, “The Punch Bowl, After the Half.”)