The Fed Ends a Phase of the
Financial Crime of the Century
Oct. 29, 2014 (EIRNS)As of the Federal Reserve Open Market (FOMC)'s announcement this afternoon that it was ending Phase IV of the "quantitative easing" policy in effect since late 2009, the central bank had essentially monetarized, "cornered", bought up, U.S. medium- and long-term debt. There was not much left for it to buy, and thus, if for no other reason, "QE" came to an end, for now.
The Fed owned, as of Oct. 15, 2014, $2.35 trillion, or about half, of all the roughly $5 trillion of "publicly held" U.S. Treasury debt of 3 years' or greater maturity ("publicly" meaning not held by the Social Security, Medicare, or other trust funds administered by the government). The central banks of China, Japan, and a few other countries, along with some sovereign wealth funds, held most of the other half of the Treasury's "medium-" and "long-term" publicly held debt. What was left for the Fed to buy?
During the five long years of this money-printing, this $2.3 trillion, plus the $2 trillion or so of money-printing to buy mortgage-backed securities (MBS), had ALL gone to the largest trans-Atlantic banks and been used by them to build up their "excess reserves" and to speculateremoving any need or incentive for them to lend money to Mittelstand businesses or to households. They have starved the economies of private credit while blowing the derivatives bubble up to $750 trillion-$1 quadrillion nominal value. This has been the financial crime of the century.
BUT, during most of the time the Fed has been "cornering" U.S. long-term debt, Treasury issuance of that debt has rapidly decreased. Why? Austerity against the discretionary parts of the U.S. budget, and making the Medicare Trust Fund "live within its means" by austerity against seniors' medical care. And all of this austerity has been steadily counseled by Federal Reserve chairpersons who also lied to Congress that the Fed "could not invest in infrastructure bonds" under its charter.
In other words, the United States' one big, fat creditor was its central bank. This giant creditor wanted economic austerity, and got it, as the condition for super-low interest rates. Members of Congress who naively proclaimed that "interest rates are at zero, now's the time to borrow for infrastructure investments!" missed the nature of the financial crime being carried out.
And American savers, who would have bought Greenback-style bonds with reasonable interest for infrastructureas now Egyptians are doing, for examplegot no chance to do so.
The rest of the crime? There is roughly $5 trillion in publicly-held short-term Treasury debt out there, so nearly at zero interest that no saver or money-market fund can afford to hold it. The Fed has very little of this short-term Treasury debt, less than $400 billion. Well over half of it is held by big trans-Atlantic banks, who use it as a speculative tool, including in the repo markets. The Fed has bought $1.8 trillion in MBS from the U.S. big banks; those banks hold $2 trillion in this short-term Treasury debt as of this week. How convenient: The banks used the proceeds of selling their toxic MBS to the Fed, to buy short-term Treasury debt and speculate with it!
U.S. issuance of national credit means removing the Federal Reserve, and Obama.