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Federal Reserve At End Of Monetary Road

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Federal Reserve At End Of Monetary Road

The all important context for Federal Reserve’s interest rate decision, where the Federal Reserve raised interest rates by 0.25% for the first time in nearly a decade has been examined by the insightful Grant Williams. He is very skeptical of the Fed’s ability to continue to control markets much longer … and this is a gross understatement:

None of this has been tried before and, to me, that just demonstrates the dangers. Once you get into a situation like the central banks did in ’08 with this panicking — everyone calls it the Hotel California — you can’t get out. And, so incrementally, they have to keep doing something. Instead of stepping back and letting free markets and business cycles and forces of nature have their way and flush out all of the impurities in the system, this is what happens. And, yet, this time, for whatever reason, I think since post-Volker, Greenspan has basically started this ball rolling with this knee-jerk reaction to slash interest rates. And, you can kind of understand it, because everyone was still traumatized by the high inflation of the ‘70s. But, they started and they started down that road.

Click the play button above to listen to Chris’ interview with Grant Williams (59m:06s)

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Fri, 12/18/2015 - 06:55 | 6938468 AntiSanta
AntiSanta's picture

Why does the Fed complain about the banks not lending, while at the same time paying those same banks INTEREST on the "10%" of their assets that they're required to store at the Fed? Those "required reserves" allow private banks to create 9x the amount of those deposits out of thin air, then loan them out and collect interest on them. To add insult to injury, the Fed also pay interest on "excess reserves" which are deposits "over" 10% of a private bank's assets that it's storing at the Fed.

If the Fed would simply STOP paying interest on required and excess reserves held with them, private banks would find more productive uses for those reserves. At the moment banks are borrowing $TRILLIONS from the Fed at less than the Fed rate, then they deposit the borrowed money with the Fed as "excess reserves" and are paid the Fed rate on the same money they have "borrowed." It's an utterly riskless way for banks to make billions, and it serves no purpose other than enriching the TBTF banks. Raising the amount paid on required and excess reserves by 0.25% makes this scam even MORE profitable.

I realize we're talking about a central bank which is comprised of a bunch of regional banks, so this policy is a way for the Fed to spread free profits around to themselves and their buddies. Fine, congress has the power to REVOKE the right for the Fed to pay interest on required and excess reserves. So DO it!

The result would be the return of a few $Trillion in loans in from private banks back to the Fed, which should whisk that money out of existence, since the Fed created those dollars out of thin air in the first place and they haven't been circulating. (Plus I highly doubt they'd care to explain how a few $Trillion MORE just appeared on their balance sheet.) Banks would no longer have any incentive to store excess reserves with the Fed (other than being able to make more loans and print more money from nothing of course) but at least that money would be loaned into the PRIVATE sector, where it would actually do some good!

Thu, 12/17/2015 - 11:46 | 6935216 InnVestuhrr
InnVestuhrr's picture

Pure hype propaganda designed to fan fear and sucker people into buying shiny lead.

The USA regime, including the FED, has DECADES more debauchery, corruption, debasement, spending and debt accumulation ahead.

And there is correspondingly more decades decline in the quality of life.

 

Thu, 12/17/2015 - 16:59 | 6936752 Milestones
Milestones's picture

Nope--too many weopens and not nuff things and particularily food, oil and patience. I will be amazed if we get thru Spring. Milestones

Thu, 12/17/2015 - 13:29 | 6935687 lunaticfringe
lunaticfringe's picture

Whenever I hear someone predict the future, as in "decades more", I know I am reading gibberish. That is not to say I disagree with the rest of your characterization- but I cannot buy into your assumption that we will have decades more of this shit unless you are John of Patmos or Nostradamus.

Thu, 12/17/2015 - 13:46 | 6935759 InnVestuhrr
InnVestuhrr's picture

The USA regime has ZERO problems making debt + principal payments and decades more capacity to accumulate more debt while still making debt + principal payments, especially with

rest-of-world in even greater mess than USA

USD still global reserve currency + US treasuries still global reserve asset

AND

USA will always have FED that will buy as much of the debt that US Treasury issues as needed to keep merry-go-round spinning merrily.

Just simple facts and numbers.

Regimes do not crash just because they suck and we want them to - if you want the regime terminated, then you have to do it by force, not passive wishing and buying + burying inert metals.

Fri, 12/18/2015 - 00:39 | 6938207 bagehot99
bagehot99's picture

I would sadly agree. 

I'd also like to think there are enough people who see reality to rise up and topple this House of Horseshit. But there aren't, and they won't.

Japan has managed to drag this comedy on for two decades. We've only just begun. When you can create reams of zeroes in a computer, and people treat it as 'wealth', there's a long way to go before the music stops.

Thu, 12/17/2015 - 20:34 | 6937665 PoasterToaster
PoasterToaster's picture

Debt is not their problem.  Debt is their tool of enslavement.

The problem, for them, is losing the "narrative" and allowing people to see the ugly truth.  That's when they lose control and people leave them behind.

Thu, 12/17/2015 - 11:32 | 6935130 actionjacksonbrownie
actionjacksonbrownie's picture

End of the road??? They just hopped on the expressway!

 

You ain't seen nothin' yet!

Thu, 12/17/2015 - 11:23 | 6935047 Insurrexion
Insurrexion's picture

Good discussion Chris & Grant.

Thanks.

Grant, please...it is quite obvious that you are in love with Stephanie Pomboy.

British discretion man.

 

Love,

Madame Insurrexion.

Thu, 12/17/2015 - 11:14 | 6935007 Jungle Jim
Jungle Jim's picture

They don't seem to have any difficulty keeping the price of gold under control.

Thu, 12/17/2015 - 11:13 | 6934998 arbwhore
arbwhore's picture

Nope. Plenty of road left. At least another 3 or 4 years.

Thu, 12/17/2015 - 10:07 | 6934672 lordbyroniv
lordbyroniv's picture

OWL: What happened to the American dream?

THE COMEDIAN: It came true.

Thu, 12/17/2015 - 13:33 | 6935711 LowerSlowerDela...
LowerSlowerDelaware_LSD's picture

Sadly it actually did.  Then Central Planning took control...

Thu, 12/17/2015 - 09:50 | 6934582 thunderchief
thunderchief's picture

I think the Fed policy now is one of a strong dollar, scorched earth policy.

Since the USA is really not recovering, they are smashing everything else, emerging markets, their currencies etc.

The US Dollar is what I like to call a flame thrower currency, burning everything in its path, gold included,  physical being another issue the US military may deal with in the future. 

Fed policy is now in perfect sync with the military industrial complex, creating failed state after failed state, to deplete their resources.   Russia unfortunately will having nothing to do with this.

Welcome to the post QE flame thrower dollar.

Thu, 12/17/2015 - 17:23 | 6936892 doctor10
doctor10's picture

99% of what is being written about the "rate hike" is a load of steaming &*it.

Credit is useless to the average Joe. Thats why its cheap. Nobody can use it. Regulation, taxation, licensing and legal tort threat has shut down all small business competition to the big boyz. That's precisely the way the big boyz want it.

The "rate hike" is simply the fee Fed.Gov is charging the big boyz for having kicked out the competition and helping to implement their monopolies.

that's all.

Thu, 12/17/2015 - 11:29 | 6935090 Kagemusho
Kagemusho's picture

With Au taking a 20 dollar back-street beating since this morning it will be interesting to see how 'strong' the dollar is in the Asian markets later today. I doubt Russia and China are happy, watching their  massive Au stockpiles suffer even more artificially-crafted losses. I fully expect to see a shit-storm of Treasury dumping, not purchases. I also doubt Russia and China will  sell any; it's an even better time, better than ever before, to buy what amounts to monetary ammo (depending on what's actually available, that is; COMEX inventories are supposed to be way down) . Does Uncle Sam really want to do that? WTF?

Really, raising the Fed rate a tiny percentage caused that? Just prior to the rate hike, Au was on the way up as a vote-of-no-confidence in Yellen and Co. and by derivation the USD, itself. I doubt confidence in the USD has burgeoned that much in just a few hours to justify this. Looks like the GLD boys are in double-down mode.

Thu, 12/17/2015 - 22:40 | 6938013 lasvegaspersona
lasvegaspersona's picture

Do you really think Russia and China view their gold in dollar terms?

My bet is that they see only tons and the potential for use in a future monetary system where gold is used as a wealth asset and central bank reserve. It's value will be much greater used in that way than it is  today... a mere commodity.

Thu, 12/17/2015 - 11:50 | 6935244 GRDguy
GRDguy's picture

The banksters will manipulate the price until they can't, just like as shown in the 1981 movie "Rollover,"when all hell breaks lose because people finally figure out the lies.  Banksters hate gold because they lose access to their client's money. Wealth management today simply means THEY manage YOUR wealth into THEIR pockets. 

Thu, 12/17/2015 - 11:47 | 6935228 InnVestuhrr
InnVestuhrr's picture

"I fully expect to see a shit-storm of Treasury dumping, not purchases"

Check the charts - interest-paying treasuries getting BOUGHT, money losing gold being SOLD.

Thu, 12/17/2015 - 13:35 | 6935716 LowerSlowerDela...
LowerSlowerDelaware_LSD's picture

Who is buying and who is selling?

Thu, 12/17/2015 - 13:50 | 6935778 InnVestuhrr
InnVestuhrr's picture

Does not matter to the price.

Thu, 12/17/2015 - 15:41 | 6936307 LowerSlowerDela...
LowerSlowerDelaware_LSD's picture

Sure it does.  Fake prices are caused by fake (gubmint/FED) "buyers."

Thu, 12/17/2015 - 16:36 | 6936633 InnVestuhrr
InnVestuhrr's picture

Yes, BUT the rising price is still a profit to me.

Fri, 12/18/2015 - 00:34 | 6938203 Tarzan
Tarzan's picture

Most buyers are the mega corps who can barrow at near zero to buy back there own stocks and artificially levitate their stock price, while the Company is actually worth less. It explains why the DOW can be up even when most stocks are down.

It's like saying 500 shares at $100 each is worth more then 1,000 shares at $50. Smoke and mirrors...

The Fed will continue this sad comedy as long as they continue to fool the People into thinking it's in our best interest to not know what they're up too, that a real audit of the Fed is somehow not in the Countries best interest.

We're fools for believing them,

and those in Washington who could change it are SCARED TO DEATH to oppose them.

As long as the Fed is allowed to operate in secrecy, to baffle the People with bullshit, the end of this monetary system will come as a thief in the night, The People won't know what happened until the ATMs are shut down and their 401k "profits" have vanished!

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