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The Fed Hasn't Solved Anything… All It's Done Is Set Up an Even Bigger Crisis
The 2008 Crisis was caused by too much debt/ leverage, particularly in the form of illiquid derivatives (mortgage backed securities get the most attention, but the derivatives market was well over $800 trillion at the time of the crisis).
To combat the financial crisis, the Fed did three things:
1) Cut rates to zero.
2) Abandon accounting standards.
3) Engage in Quantitative Easing/ QE.
None of these policies represented “solutions” to the crisis. In fact, you couldn’t even accurately argue that they represented “containment.” What the Fed did was permit the very cancerous securities that nearly imploded the Wall Street banks to spread beyond from the private sector onto the public’s balance sheet.
You cannot cure cancer by letting it spread from one area of the body to the next. You cannot solve a termite problem by letting the termites move somewhere else in a house. So how could one argue that you could solve a financial crisis by letting the problems spread elsewhere in the financial system?
Consider mere leverage levels. Going into the 2008 crisis, the investment banks sported leverage levels in the 30-40s. Lehman was leveraged at 31 to 1. Morgan Stanley was leveraged at 30 to 1. Merrill Lynch peaked out in the low 40s.
Today, the Fed’s has $57.6 billion in capital and $4. 4 TRILLION in assets. That represents a leverage level of 75 to 1.
The Fed will argue that this leverage does not matter because it can print money to increase its leverage levels. This is technically true, but doesn’t alter the fact that the Fed has backed itself into a corner by buying up over $3.5 trillion worth of stuff... which the Fed has no idea how to exit.
Indeed, we know that Janet Yellen was “somewhat concerned about exit strategies” back in 2009 when the Fed’s balance sheet was $2 trillion or so. Today it’s more than TWICE that. One wonders just how “concerned” she is today, with the Fed’s balance sheet larger in size than the GDP for most developed countries.
Even more absurd is the Fed’s ongoing issue with interest rates. Never before in history has the Fed kept rates at zero for 5+ years. But then again, never before has the Fed’s real taskmasters, the TBTFs, been sitting on over $180 trillion in interest rate based derivatives.
Those who shrug off these issues are overlooking the fact that the treasury dept. has ordered survival kits for employees at the TBTFs… while the New York Fed, has been boosting its satellite office in Chicago in preparation for potential market dislocations when the inevitable interest rate hike hits.
Indeed, nothing exposes the fallacies of the Fed’s policies of the last five years like its horror at the prospect of raising rates even a little bit. Rates have been effectively zero for five years. Today, the Fed is so concerned about what even ONE rate hike would do that it is actively preparing for potential systemic risk.
A second round of the great crisis is coming. The Fed didn’t fix 2008.; it simply set the stage for something even worse.
If you’ve yet to take action to prepare for the second round of the financial crisis, we offer a FREE investment report Financial Crisis "Round Two" Survival Guide that outlines easy, simple to follow strategies you can use to not only protect your portfolio from a market downturn, but actually produce profits.
You can pick up a FREE copy at:
http://www.phoenixcapitalmarketing.com/roundtwo.html
Best Regards
Phoenix Capital Research
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The Austrian system views the world monetary system like a old river system:
Nowadays, river systems have dams (old and new), irrigation systems, filteration systems, flood planes, etc.
There are no old unmodified river systems left. There are no unmodified economies left.
The FEDs of the world have created dams and modified every river system in the world. They continue to modify them via debased currencies, debased Accounting systems, crony capitalistic modifications, even wars and agreements with dictators.
Eventually the river system will revert back to its early historical norm. The dams will eventually fail, over hundreds if not thousands of years. But they hope that a minimal maintenance to the adjustments to the river system will keep the dams and modifications from failing...
Same with their duct taped economic modifications....
Some of you don't get it. The FED job is to provide an illusion and distraction while the handlers of the FED trade their funny money for things with true value. And then year by year devaluating their funny money so after working a life time the average joe ends up with a pile a funny money that worthless. We are nearing the point where the FED handlers will introduce some new funny money because their old funny money is worthless and start the process all over again.
Grandma Yellen will throw her hands up, untie her apron, and walk out of the kitchen twitching
THe Fed cant hold Oil prices, it cant counter GEO political events, but they are all so smart, degreed, and full of themselves...
You see, according to them, they know better than the market. But anyone with real life experiences in the markets know that the market is smarter, much smarter, than the economics professors from the Ivy League.
But they who are making the calls will live off their public pensions, protected from inflation, and retreat into the woodwork when the s**t hits the leaf blower
It's all very simple really.
Wall Street was essentially Bankrupt as is the USA,
The FedRes just took the Risk away for the Largest. A Risk Free environment contorts.
And QE did the rest. Increased Unemployment, increased personal taxation for the unwashed,
real inflation, volatility, wars, arms sales, murder, mayhem, more leverage, theft and incompetence.
What Bank wants to lend into a Risk Market? Answer: None.
Now they want a cashless society - that will end up good as it is Totalitarianism.
QE causes the end of nations and massive Unemployment
Which all leads to a Marx type State controlled by Force, Torture, Fear and Incarceration.
Today the Banks are King and their word is Law.
Indeed it is strange as everything the Central Bankers have done in the West appears to have been done to Destroy the West. This is the Mystery.
And there is a damned good chance that this end will arrive Q$ 2015 - with a Big Bang
Ho hum
Phoenix Capital is like a summary for new readers of ZH...
says the same thing everybody on here already knows.. but we forget new readers have to get the basics.
Well said.
Free the accountants. Arrest the Fed.
The 2008 Crisis was caused by too much debt/ leverage, particularly in the form of illiquid derivatives (mortgage backed securities get the most attention, but the derivatives market was well over $800 trillion at the time of the crisis)."
That's the proximate cause...of 2008.
The actual cause is shortsighted western corporate outsourcing of middle class income (real wealth) producing jobs.
THAT also played a rising role in crashes back to 1987. The real effects of mindless outsourcing crescendoed in 2008. Easy credit extended, to pump western GDP beyond lost incomes, itself, was essentially criminal. A serious conversation about the actual cause of our problems should have ensued in the 1999-2002 timeframe. Ross Perot tried to tell us the truth a number of years earlier--to no avail.
Beginning with the firing of Greenspan, we should have taxed still-outsourcing western corporations (to eat up any labor savings by transferring yet more jobs and industries offshore), and quashed defense/social spending not DIRECTLY related to restoring middle class labor. We should've seen we had no industrial enemy abroad, like the domestic corporate termites, to justify such expenditures.
We didn't do that. The corporations got away with the benefits, working Americans got shafted.
We're STILL paying that price without the slightest utterance of what really created this mess, or what can be done about it at this late stage. Absent earth-shaking changes, we are terminal.
As if it weren't bad enough, Wall Street's needs are STILL taking precedence over Main Street, and it STILL never occurs to the economic hacks, in and out of government, that that very neglect is the reason we are not recovering.
When it finally goes, remember who said and did what. These folks can't ever have anything to do with whatever emerges to finally replace the shit we are mired in.
Enough is enough.
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But the newspaper is filled with "Want Ads" every day ... the China Daily news, that is.
Thanks, Immelt.
Another day another Phoenix Capital EOTWAWKI story.
The best part about this article is the reminder of the debasement of Accounting Standards.
People forget that debasement of Accounting standards was done.
When you fake the counting and measurement vehicles for the markets, you remove any facade of logic and the ability to compare with history. We are way more worse than we have been...
Outcome based economics, because we say so.....
Yes, but factual and true