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Fed Continues Monetary Meddling

December 13, 2012 by  

Fed Continues Monetary Meddling

The Federal Reserve yesterday announced that it will continue to keep interest rates near zero and continue to buy debt and print money. But the central bank has at least linked its monetary policy to specific targets for the first time.

Fed officials say that it will hold off on raising interest rates until unemployment dips below 6.5 percent or inflation climbs above 2.5 percent. As predicted by economists, the Fed said it would expand efforts at quantitative easing and buy $45 billion in Treasury bonds per month, beginning in 2013. Monthly purchases of $40 billion in mortgage debt are already under way.

While officials have set goals that would allow the Fed to draw down on its aggressive monetary policy, central bankers say that lack of improvement will lead to further financial meddling.

According to the Federal Open Markets Committee:

The Committee will closely monitor incoming information on economic and financial developments in coming months. If the outlook for the labor market does not improve substantially, the Committee will continue its purchases of Treasury and agency mortgage-backed securities, and employ its other policy tools as appropriate, until such improvement is achieved in a context of price stability. In determining the size, pace, and composition of its asset purchases, the Committee will, as always, take appropriate account of the likely efficacy and costs of such purchases.

The Fed asserts that the economy continues to grow “at a moderate pace” but believes that the economy remains too weak to stand on its own.

Sam Rolley

Staff writer Sam Rolley began a career in journalism working for a small town newspaper while seeking a B.A. in English. After learning about many of the biases present in most modern newsrooms, Rolley became determined to find a position in journalism that would allow him to combat the unsavory image that the news industry has gained. He is dedicated to seeking the truth and exposing the lies disseminated by the mainstream media at the behest of their corporate masters, special interest groups and information gatekeepers.

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  • johno

    I’m not financially astute. Can some one explain? I thought treasury bonds were bought by people but noone would buy bonds if the interest rate was nil or even very low. So if the fed is buying bonds doesn’t that just mean they are going to print more money?

    • Cliffystones

      No one (not “noone”) in their right mind would buy bonds to get a 0.1% return on investment. The bed bugs in your mattress would pay a bigger return!

      And as for “inflation” where in he!! do the Feds get the idea that is below 2.5%? My wife just ordered some boxes of See’s candy. $16.90/lb.! I remember not too long ago when it was about $7/lb.

      • momo

        The inflation rate the government puts out is about as reliable as their unemployment rate.

      • Dennis48e

        “The inflation rate the government puts out is about as reliable as their unemployment rate.”

        Ain’t that the truth.

    • momo

      Its a financial fraud. The fedeal government sells bonds to the fed, because nobody else will buy them, the fed then has to fire up its printing pressses, and presto changeo new money goes into the federal treasury. What they don’t tell you is that new money is just about worthless. And if the federal government was stable, don’t you think more people would buy their bonds?

      • Paul Wells

        A Ponzi scheme even Charles Ponzi (or Bernie Madoff, for that matter) would have saluted and said, yes, that’s even better than the one *I* came up with!!!

    • manuel a

      What Is Too Big to Fail?:

      The phrase, “too big to fail,” arose during the 2008 financial crisis to describe why the government needed to bail out some companies. These banks, insurers and auto companies had improved their profitability by creating, then selling, complicated derivatives. They also traded risky loans, commodities, currencies and stocks.

      When the economy was booming, they derived an unfair competitive advantage, took over smaller firms, and became even bigger. When their investments started going south, they knew the taxpayers would be forced to bail them out — or risk global economic collapse.

      Why AIG Was Too Big to Fail:

      A great example is AIG, one of the world’s largest insurers. Most of its business was traditional insurance products. When it got into “credit default swaps,” it got into trouble.These swaps insured the assets that supported corporate debt and mortgages. AIG was too big to fail because, if AIG went bankrupt, it would trigger the bankruptcy of many of the financial institutions that bought these swaps.

      What Other Companies Were Too Big to Fail?:

      An investment bank, Lehman Brothers, was also too big to fail. Lehman wasn’t a big company, but the impact of its bankruptcy was alarming. This became apparent in 2008, when Treasury Secretary Hank Paulson said no to its bailout, and it filed for bankruptcy. On the following Monday, the Dow dropped nearly 350 points. By Wednesday of that week, widespread panic in the financial markets threatened overnight lending, needed to keep businesses running. The problem was beyond what monetary policy could do. This meant a $700 billion bailout was needed to re-capitalize the major banks

      Banks That Were Too Big to Fail:

      Citigroup received a $20 billion cash infusion from Treasury. In return, the government received $27 billion of preferred shares yielding 8% annual return, and warrants to buy no more than 5% of Citi’s common shares at $10 per share.

      The investment banks, Goldman Sachs and Morgan Stanley, were also too big to fail. Although they weren’t taken over by the Federal government, as AIG was, they became commercial banks. This ended the era of investment banking made famous by the movie “Wall Street.” The 1980s mantra, “Greed is Good,” was now seen in its true colors — Wall Street greed led to taxpayer and homeowner pain.

      Fannie and Freddie:

      The mortgage giants, Fannie Mae and Freddie Mac, were also too big to fail because they guaranteed 90% of all home mortgages by the end of 2008. Treasury guaranteed $100 million in their mortgages, in effect returning them to government ownership. If Fannie and Freddie had gone bankrupt, the housing market decline would have been much, much worse since banks were not lending without their guarantees.

      How Did AIG Almost Fail?:

      AIG’s swaps against subprime mortgages pushed the otherwise profitable company to the brink of bankruptcy. As the mortgages tied to the swaps defaulted, AIG was forced to raise millions in capital. As stockholders got wind of the situation, they sold their shares, making it even more difficult for AIG to cover the swaps. Even though AIG had more than enough assets to cover the swaps, it couldn’t sell them before the swaps came due. This left it without the cash pay the swap insurance. (Source: WSJ, U.S. to take over AIG, September 17, 2008)

      What Saved AIG?:

      The Federal Reserve provided an $85 billion, two-year loan to AIG to prevent bankruptcy and further stress on the global economy.In return, the government received 79.9% of AIG’s equity, the right to replace management, and veto power over all important decisions, including asset sales and payment of dividends. In October 2008, the Fed hired Edward Liddy as CEO and Chairman to manage the company.

      The plan was for the Fed to break up AIG and sell off the pieces to repay the loan. However, the stock market plunge in October made that impossible, as potential buyers needed any excess cash for their own balance sheets. The Treasury Department purchased $40 billion in AIG preferred shares from its Capital Repurchase Plan. The Fed will purchase $52.5 billion in mortgage-backed securities. The funds are allowing AIG to retire its credit default swaps rationally, saving it and much of the financial industry from collapse.

      Ending Too Big to Fail:

      The Dodd-Frank Wall Street Reform Act was the most comprehensive financial reform since the Glass-Steagall Act. It sought regulate the financial markets and make another economic crisis less likely. It set up the the Financial Stability Oversight Council to prevent any more banks from becoming too big to fail. How? It looks out for risks that affect the entire financial industry. It also oversees non-bank financial firms like hedge funds. If any of these companies get too big, it can recommend they be regulated by the Federal Reserve, which can ask it to increase its reserve requirement.

      The Volcker Rule, another part of Dodd-Frank, also helps end too big to fail. It limits the amount of risk large banks can take. It prohibits them from trading in stocks, commodities or derivatives for their own profit. They can do so only on behalf of their customers, or to offset business risk.

  • Wayne Leach

    “the Fed said it would expand efforts at quantitative easing and buy $45 billion in Treasury bonds per month, beginning in 2013. Monthly purchases of $40 billion in mortgage debt are already under way.”

    So, the taxpaying producers in the US are going to be loaded with even more interest to pay on more and more bonds! Wow! When will the people awaken to the fraudulent “Ponzi scheme” the privately owned central bank has perpetrated on them?
    Keep kicking the proverbial can down the road, and it will soon be a container-sized entity so large that it will be impossible to move, regardless of the size of the Communist boot doing the kicking! Private banks, progressive taxes, and other Communist Manifesto “planks” will ruin any nation if the people allow it.

  • Wayne Leach

    The “Fed” buys bonds, orders the Bureau of Engraving & Printing to create some more counterfeit funny money, and charge interest until the bonds are called sometime in the future.The longer we wait, the higher the interest. Anyone who thinks the private banks who buy these bonds will not demand payment is naive, at best. The plan is to bankrupt the nations who play the game. Almost all of our gold reserves in NY central bank (about 90% of all we do have, most of the rest is in Fort Knox) are actually owned by foreign central banks!

    • JC

      You’re dead right about that.
      It’s literally like playing monopoly in a game where the banker has an endless supply of money. Eventually the banker will own…everything. And that is the goal.

  • Patriot higgins

    The GOLD that we own was stolen from us many years ago. You can’t audit what you don’t have. The guards are there to keep that secret,,secret!
    These thiefs are now buying ALL THE NOTES with made up $ that WE THE PEOPLE keep letting them do. Easy answer; DEFAULT ON THE FED !!! The $ that they use came from $ heven so now it can go back.
    6.5% ??? try 23% ( johnwilliams ) So I guess that means that interest
    rates will never go up. Force more sheep into the market to keep robbing them.
    Even if there plan works than inflation will go wild with all of that funny money out there.

  • Gillysrooms from Australia.

    Too much missinformation in the replies so far.

    I disagree …some people would put money in bonds at nil interest knowing the capital would be safer than in any other of your banks, though i would not suggest these as suitable long term investments. Bonds are good when you dont know where to put your money and you want to sleep peacefully for a few months. I’m sure you know some of your friends who invested in something they thought they would earn big returns only to lose 100% of their investment. Government bonds give you short term peace of mind…but long term you would lose when inflation takes off.

    When your Federal Reserve buys back long term bonds from vendors like banks and other pension funds…its actually putting the cash money back into the system for the vendors to do as they please. The interest payable by those bonds goes to the federal reserve unless they extinguish the bonds when the buy them back, Some of the money raised throuh sales by institutions will be going back into the non government business economy or some might go back into shorter dated government securities. The Federal Reserve is buying when no one else is buying the security vendors want to sell for lots of reasons. Its a good thing to help businesses get out of their liquidity bind.

    If inflation seems like it might get out of hand, it can then increase interest rates and issue other bonds to take money out of the economy…but this is an on-going process the Federal Reserve does every day. You should all see this as a possitive not a negative when you read what some of your other writers say in their articles there are too any people jumping to all manner of conclusions which are untrue..


    When the federal-reserve holds down interest rates the average person receives less than 1 percent on money-market funds or certificates of deposit — that is, money used for precautionary and low-risk savings.

    At the same time, the Fed has allowed inflation to rise to an annual rate of more than 3.5? percent. When inflation rates are higher than interest rates, people suffer an effective real tax rate above 100 percent.

    At present rates of interest and inflation, this means that most Americans pay effective tax rates on their savings ranging from 360 percent for lower-income people to 390 percent for higher-income people.

    Inflation is a non-legislated wealth tax. If you had kept a $100 bill a year ago, today you would be able to buy just $96.20 worth of goods and services, given the current 3.8 percent inflation rate.

    The Fed, by its failure to preserve the value of the currency as it is charged to do, has imposed a stealth wealth tax on you.

    The Internal Revenue Service (IRS) has made it worse by imposing a tax on nominal savings income, not just on inflation-adjusted income. The 16th Amendment to the Constitution gave the federal government the right to impose a tax on “incomes.”

    The Fed robs us blind, and our Government CAN’T do a damn thing about it!

    • momo

      And if you would have kept a 100 bill from 1913, when the FED came into being, you would now need $2,327.00 to euqal its purchasing power in 1913. Pretty scary, no?

    • Vicki

      WTS/JAY writes:
      “The Fed, by its failure to preserve the value of the currency as it is charged to do, has imposed a stealth wealth tax on you.”

      Where is the Federal Reserve (a private corporation) charged with the job of preserving the value of it’s little pieces of paper we call money (they call them federal reserve notes)

      The government CAN do something about it. Return to honest money and do the job that the government IS tasked to by the Constitution. (Article 1 Section 8)

      Tell your congressmen to return us to honest money NOW.

      • WTS/JAY

        Vicki: Where is the Federal Reserve (a private corporation) charged with the job of preserving the value of it’s little pieces of paper we call money (they call them federal reserve notes)

        Nowhere, but that’s the common misconception. Glad you caught it!

        Vicki: The government CAN do something about it. Return to honest money and do the job that the government IS tasked to by the Constitution. (Article 1 Section 8)

        Of course the Government can do something about it. But lets be realistic, will they?

        Vicki: Tell your congressmen to return us to honest money NOW.

        Sure, we would be irresponsible if we didn’t…

  • David169

    What’s this 3.5%, it certainly isn’t 3.5% in the US. When our family gets together for Thanksgiving each of us brings a dish. I bring the turkey. I have a list of the items I need to buy to stuff and roast the turkey. I left last years grocery store receipt with the list. To my surprise the same list cost me 86% more this year. Everything is up at least 20% from last year and a lot of stuff has doubled. All my utilities have increased dramatically, fuel for my truck has substantially increased, food such as meat and bread has gone out of sight; I just bought a small loaf of bread for $4.99; local fresh fruit has doubled. I can’t think of one item I buy that hasn’t dramatically increased in price.
    Bernacke and Nero have started us on the road to hyperinflation and if they arn’t stopped quickly it will be the end of the US dollar. I believe we are at or near the tipping point where the government will have to keep printing more and more money to keep functioning. The tipping point is where that unearned money causes prices to dramatically rise, increasing the prices for the government who then needs to print substantially more and more money to make ends meet. The printing gets greater with each cycle which becomes shorter. The Feds started the last fiscal year with borrowing on a pro-rated basis about 20% of the budget. This year the first 2 months borrowing on a pro rated basis is at 46% of the federal budget. That more than double last year. Will it double again beore the end of this fiscal year? U-betcha!

  • America Rules

    I believe that banking institutions are more dangerous to our liberties than standing armies. If the American people ever allow private banks to control the issue of their currency, first by inflation, then by deflation, the banks and corporations that will grow up around [the banks] will deprive the people of all property until their children wake-up homeless on the continent their fathers conquered. The issuing power should be taken from the banks and restored to the people, to whom it properly belongs.
    Thomas Jefferson, (Attributed)


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