Thursday, June 30, 2011
"The Federal Reserve is like a con artist that is desperately trying to stay one step ahead of everyone else."
The entire U.S. financial system has become a gigantic shell game. While it is still in motion, a shell game can be mesmerizing to watch. But when it ends the consequences can be painful. So exactly what is a shell game? According to Wikipedia, a shell game "is portrayed as a gambling game, but in reality, when a wager for money is made, it is a confidence trick used to perpetrate fraud." Sadly, that is exactly what is happening on the global stage today. The Federal Reserve is like a con artist that is desperately trying to stay one step ahead of everyone else. The folks at the Fed know that the debt that the U.S. government has accumulated is not sustainable and will eventually collapse. They also know that the U.S. dollar is eventually going to become essentially worthless. But for now the Federal Reserve is putting on a grand show and is trying to keep everyone believing that the game is fair and legitimate.
The Federal Reserve's much ballyhooed "QE2" program has come to an end, and most Americans still don't even understand what "quantitative easing" is.
Basically, what the Federal Reserve did was zap hundreds of billions of dollars into existence out of thin air and used them to buy U.S. government debt.
It is kind of like if you are playing poker with someone and they reach under the table and pull out a gigantic pile of chips which they add to their own stack.
In the process, the big banks made a ton of money because they are the ones that the Federal Reserve was buying U.S. Treasuries from and the U.S. government was happy because all of the new government debt being issued was getting soaked up by the system.
Of course all of this is one giant Ponzi scheme, but up to this point the Federal Reserve has gotten away with it.
Meanwhile, average Americans were getting the short end of the stick because all of this new money has been causing the price of food and the price of gas to go up.
But now QE2 has come to an end.
So does that mean that "quantitative easing" is going to be completely over?
No, not really. The shell game continues.
The Federal Reserve has announced that it is going to continue to purchase U.S. government debt using the proceeds from maturing debt that it already owns. It is being projected that the Federal Reserve will purchase 300 billion dollars in U.S. government debt over the next 12 months using this method.
This isn't being called "quantitative easing", but that is essentially what it is. In fact, one CNN article is calling it "QE2.5"....
QE2 is just about done. But the Federal Reserve will still be buying massive amounts of long-term Treasuries.
In fact, the Fed's purchases over the next year will likely be at least $300 billion. That's half the size of QE2 -- even if QE3 never takes place.
But "quantitative easing" is just one example of a shell game run by the Fed. There have been lots more.
For example, during the financial crisis the Federal Reserve started loaning gigantic amounts of cash to the big banks for next to nothing.
The big banks took a lot of this cash and invested it in U.S. Treasuries. U.S. Treasuries typically only pay a couple of percentage points, but when you can borrow massive amounts of nearly free money suddenly they become extremely profitable.
Instead of loaning out large amounts of money to all of us to get the economy rolling again, the big banks just parked huge amounts of cash in U.S. Treasuries and watched the risk-free profits come rolling in.
In this way, the Federal Reserve helped big banks make a ton of money and they supported the exploding federal government debt load at the same time.