The Fed’s Hollowing Out Of US Banks
Have the Federal Reserve’s unprecedented market and banking interventions fundamentally weakened America’s banks? In this article, we will illustrate how the Federal Reserve has been hollowing out the US banking system. We will show how the Fed has been creating a banking industry shell that looks strong on the surface, but is increasingly empty beneath that facade, with less and less economic strength, and an ever greater reliance on the Federal Reserve’s monetary creation ability.
Using a single loan as an example, we will explore in step by step detail how almost 10 percent of US bank assets have been hollowed out, with former investments in the economy being replaced by excess reserve balances at the Federal Reserve. On paper, these balances are the highest quality assets which a bank can own, yet in economic reality, they represent an investment in nothing at all.
Creating A Trillion From Thin Air
...that’s the perfect way to steal by the trillions – do it in plain sight, but in such a manner that the people are blind to what you’re doing...
What the Federal Reserve did was to intervene in the troubled markets on a historically unprecedented scale. The Fed bought close to a trillion dollars of securities, at 100 cents on the dollar, meaning that it quite deliberately overpaid, and covered what the banks’ losses would have been if they had sold into a free market. Except, the Fed didn’t have a spare trillion lying around, and neither did the US government, or anyone else. Which raises the question: where did that money come from?
Containing Inflation Via Unlimited Money Creation: The Fed’s Strategy
The Federal Reserve was well aware of the severe inflationary dangers when it directly created almost a trillion dollars as part of its separate bailout of Wall Street. If this cash – which exists in highly liquid form right now - escapes into general circulation, the result could be immediate and major inflation that would devastate the value of the dollar and all of our savings. Therefore, even as it created the trillion dollars, the Fed set up a series of barriers to contain the new cash and ultimately return it to the void from whence it came, lest the new cash break out and wreak monetary havoc.
While described in detail in Federal Reserve Chairman Ben Bernanke’s own speeches, the creation of the new money, the barriers to contain it, and the strategy for destroying it are understood by very few in the media or on the web. Yet, the significance is profound and there are powerful, game-changing implications for the economy, the housing market, the inflation / deflation debate and the very fundamentals of long-term and retirement investing.
In this article we will illuminate what looks on paper to be a brilliant economic strategy, and then cut through the theory to get to the real world bottom line for all of us: you and I stand to lose everything if an ambitious but profoundly dangerous strategy goes awry, while the bonuses and future rewards continue to go straight to those whose short-sighted greed created this mess in the first place.
