Federal Reserve Swells Assets to $6.13 Trillion, in Attempt To Bail Out Worthless Speculative System
April 10, 2020 (EIRNS)—The U.S. Federal Reserve’s balance sheet of assets soared to a record $6.13 trillion this week, as the Fed, seizing its newly granted powers, voraciously purchased assets—a few assets useful, others purely worthless. On behalf of the City of London, the Fed is attempting the Sisyphean labor of bailing out the unsalvageable world speculative bubble. On March 11, the Fed’s assets stood at $4.31 trillion; today, they are $6.13 trillion, a monthly increase of 42%, which, if annualized, would be a compounded rate of 6,852%. Only a lunatic—or, which amounts to the same thing, a London banker—would attempt that.
Let’s look at what the Fed is buying.
• The Fed and government created the Municipal Liquidity Facility, which can offer up to $500 billion in lending to states and municipalities. The Treasury will provide $35 billion of credit protection to the Federal Reserve for this facility, to cover losses.
This poses a real problem: States, counties, and municipalities are incurring expenses during the shutdown of the economy, in part triggered by the novel coronavirus. For example, states are responsible for Temporary Assistance for Needy Families (what used to be called welfare), and food programs. While they will eventually be reimbursed, this is a cost they have to bear now. Also, the closing of businesses and loss of jobs, is sharply reducing tax revenues. This facility could, in part, be useful, if a recovery is governed by LaRouche’s Four Laws. Otherwise, if the municipalities default, the losses to the facility will be large.
• As part of the new $2.3 trillion so-called “Main Street” lending program, announced yesterday, the Fed will be enabled to use its Primary Market Corporate Credit Facility, a special purpose vehicle, to invest in bonds, including purchasing junk bonds.
An important concern is that today, two of the largest rating services downgraded the debt of Ford Motor Company, America’s second-largest motor vehicle manufacturer, to junk bond status.
• Meanwhile, Bloomberg news service disclosed today that through the Term Asset-Backed Securities Loan Facility (TALF), a vehicle that was used during the 2008–2009 meltdown, “the Fed can now also purchase top-rated tranches of new CLOs (collateralized loan obligations).” These highly toxic derivatives, tied to leveraged loans—that is, loans to corporations that have impaired credit ratings—are valued at $1.2 trillion, according to the Bank for International Settlements, but are closer to $2.2 trillion, according to a study by the Bank of England. Buying these is like purchasing a jar of nitroglycerin to take on an off-road bumpy bike ride.
• Finally, the Fed holds $1.46 trillion in risky mortgage-backed securities as part of its assets.
The net result of this, is that every piece of worthless paper will be concentrated in the Federal Reserve’s balance sheet: sheer kindling-wood for the next financial conflagration.
As Lyndon LaRouche would say: Get away from these madmen! Put the system through bankruptcy reorganization, and immediately implement LaRouche’s Four Laws.