INTRODUCTION by
Tyler
Durden on 11/11/2014
Our political-financial system has gone from the
dysfunctional to the failed to the surreal. Speculation, once left to
individuals and investors, is now federally sponsored, subsidized and
institutionalized. When this sham finally buckles and the next shoe falls and
rates do eventually rise, the stock market will tank, liquidity will die, and
the broader economy will plunge into a worse Depression than before. We are not
there yet because of these coordinated moves and the political force behind
them. But we are on a precarious path to that inevitability.
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A funny thing happened on the way to the ‘end’ of the
multi-trillion dollar bond buying program known as QE - the Fed chronicles.
Aside from the shift to a globalization of QE via the European Central Bank
(ECB) and Bank of Japan (BOJ) as I
wrote about earlier, what lingers in the air of “post-taper” time is an
absence of absence. For QE is not over. Instead, in the United States, the
process has simply morphed from being predominantly executed by the Federal
Reserve (Fed) to being executed by its major private bank members. Fed Chair,
Janet Yellen, has failed to point this out in any of her speeches about the
labor force, inflation, or inequality.
The financial system has failed and remains a threat to
us all. Only cheap money and the artificial inflation of asset values can make
it appear temporarily healthy. Yet, the Fed (and the Obama Administration)
continue to perpetuate the illusion that making the cost of (printed) money
zero by any means has had a positive effect on the population at large, when in
fact, all that has occurred is a pass-the-debt-ponzi-scheme co-engineered by
the Fed and big US bank beneficiaries. That debt, caught in the crossfires of
this central-private bank arrangement, is still doing nothing for
American citizens or the broader national or global economy.
The Fed is already the largest hedge fund in the world,
with a book of $4.5 trillion of assets. These will plummet in value if rates
rise. Cue the banks that are gearing up their own (still small in
comparison, but give them time) role in this big bamboozle. By doing so, they
too are amassing additional risk with respect to interest rates rising, on top
of all their other risk that counts on leveraging cheap money.
Only the super naïve could possibly believe that the
Fed and its key banks haven’t been in regular communication about this US
Treasury security shell game. Yet, aside from a few politicians,
such as former Congressman Ron Paul, Congressman Sherrod Brown and Senators
Bernie Sanders and Elizabeth Warren, the notion that Fed policy has helped
bankers, rather than other people, remains largely divorced from bi-partisan
political discussion.
Adding more fuel to the central-private bank collusion
fire, is the fact that the Fed is a paying client of the JPM Chase. The
banking behemoth is bagging fees for holding and executing transactions on the
$1.7 trillion New York Fed’s QE mortgage portfolio, as brilliantly exposed
by Pam Martens and Russ Martens.
Wouldn’t it be convenient if JPM Chase was also trading this
massive mortgage book for its own profits? Or rather - why wouldn’t they
be? Who’s going to stop them – the Fed? Besides, they hold more trading
assets than any other US bank, so why not trade the Fed’s securities ostensibly
purchased to help the public - recover?
According to call report data compiled by the extremely
thorough website www.BankRegData.com,
nearly 97% of all bank trading assets (including US Treasuries) are held by
just 10 banks, led by JPM Chase with 43.80% and followed by Citigroup at 24.51%
of all bank trading assets.
Last quarter, US Treasuries were the fastest growing form of
security bought by banks, increasing by 26.3% or $72 billion over the prior
quarter. As the Fed tapered, banks stepped in to do their part in the
coordinated Fed-private bank QE game. In the past year, banks have
added $185.8 billion of US Treasuries to their books, more than doubling their
share of government debt.
Just seven banks comprised nearly all ($70.5 billion) of
this quarterly increase: State Street Bank, Capital One, JPM Chase, Wells
Fargo, Bank of America, Bank of NY Mellon and Citigroup. By the end of the
third quarter of 2014, Citigroup, with $95 billion, was the largest holder of
US Treasuries, followed by Bank of America at $54.8 billion and Wells Fargo at
$37.8 billion from nearly zero at the start of 2014. Bank of NY Mellon holds
$25.3 billion and JPM Chase holds $15 billion US Treasuries.
This increase in US Treasury holdings reflects another
easy money element of our federally subsidized banking system. Banks take
deposits from individuals for which they pay close to zero in interest, in
fact, charge customers fees for keeping their money (courtesy of the
Fed’s Zero-Interest-Rate policy.) They can turn that around to make a cool
risk-free 2.3% by parking the money in 10-year US Treasuries. Why lend to Joe
the Plumber, when the US government is providing such a great deal?
But, the recent timing here is key. Banks only started
buying US Treasuries in earnest when the Fed announced its tapering plans.
Thus, not only are they participants in the ZIRP game as recipients of cheap
money, they are complicit in effecting monetary policy. As the data
analyzed so expertly by Bill Moreland at www.BankRegData.com makes clear, there
has been no taper. Thus, the publicized reason for tapering – better
job and economic growth – is also bogus.
During the third quarter, Wells Fargo and Bank of America
matched Fed purchases of US Treasuries, keeping the total amount of US
Treasuries in QE land neutral. With such orchestration to keep rates down
and the prices of US Treasury securities up, all the talk about whether the
labor force is strengthening or inflation exists or not is mere show. Banks
haven’t even propped up the labor market in their own industry. They chopped
11,400 jobs last quarter. In the past two years, they cut 57,236 jobs.
No one in either political party mentioned any of this
during the mid-term elections. Yet, our political-financial system has gone
from the dysfunctional to the failed to the surreal. Speculation, once left
to individuals and investors, is now federally sponsored, subsidized and
institutionalized. When this sham finally buckles and the next shoe
falls and rates do eventually rise, the stock market will tank, liquidity will
die, and the broader economy will plunge into a worse Depression than before.
We are not there yet because of these coordinated moves and the political force
behind them. But we are on a precarious path to that inevitability.
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Then There’s The Things You Couldn’t Even Make Up 1)
G20 taxpayers (you, me) subsidize the fossil fuel industry. 2)
Then there’s the huge amount of the subsidies: $88 billion a year.
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