Tuesday, November 18, 2014


With the Federal Reserve turning 100 this week I thought it would be a good idea to share a few things about the Fed that most Americans never think about. The information below helps us understand why middle America is not doing so well in spite of record streaks on Wall Street, and record profits in the financial sector.

The sad truth is the Federal Reserve works for the banks - as the 2008 bailout demonstrated - and can create money out of thin air to help America's largest financial institutions.

From the "10 Things That Every American Should Know About the Federal Reserve" we also learn the following ...

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Did you know that the Federal Reserve is actually paying banks not to make loans?

It is true.

Section 128 of the Emergency Economic Stabilization Act of 2008 allows the Federal Reserve to pay interest on "excess reserves" that U.S. banks park at the Fed.

So the banks can just send their cash to the Fed and watch the money come rolling in risk-free.
So are many banks taking advantage of this?

You tell me. Just check out the chart below. The amount of "excess reserves" parked at the Fed has gone from nearly nothing to about 1.5 trillion dollars since 2008....

But shouldn't the banks be lending the money to us so that we can start businesses and buy homes?

You would think that is how it is supposed to work.

Unfortunately, the Federal Reserve is not working for us.

The Federal Reserve is working for the big banks.

Sadly, most Americans have no idea what is going on.

Another example of this is the government debt carry trade.

Here is how it works. The Federal Reserve lends gigantic piles of nearly interest-free cash to the big Wall Street banks, and in turn those banks use the money to buy up huge amounts of government debt. Since the return on government debt is higher, the banks are able to make large profits very easily and with very little risk.

This scam was also explained in a recent article in the Guardian ...
Consider this: we pretend that banks are private businesses that should be allowed to run their own affairs. But they are the biggest scroungers of public money of our time. Banks are lent vast sums of money by central banks at near-zero interest. They lend that money to us or back to the government at higher rates and rake in the difference by the billion. They don't even have to make clever investments to make huge profits.

That is a pretty good little scam they have got going, wouldn't you say?

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The Federal Reserve is currently giving billions of dollars away, in the form interest payments to banks who "deposit" money with the Fed. This policy was put in place well before 2008, and could cost the American taxpayer close to $80 billion.

In effect, what we have is another bailout program, sanctioned by the Federal Reserve, and winked at by the U.S. Congress.

The fact that few people understand how any of this works should be a problem.

- Mark 

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