Why the Federal Reserve is Oversupplying Money

The Federal Reserve in the US has become a champion to big corporations in the US by guaranteeing the availability of liquidity and capital at record volumes and low yields and it will continue to do so, as it will always be there for big corporations. The excuse given is that if this was done in the 1930s then the US (and the rest of the world) would not have gone through a depression, and by doing this this time round the Fed has prevented a similar depression-like scenario. But this action has reinforced the 'bad' behavior of large institutions and banks, and it will filter its way to the consumer eventually, once the consumer begins to borrow etc.

It is business as usual for most institutions (that are still around) and this euphoria was and is reinforced by the US Federal Reserve as it stated that it would not allow these large institutions to 'fail'. But they did and they will again. The difference between now and lets say the late 40s is that they would have the scars to remind them that there is a discipline involved in trading and speculating.

What surprises me is that a lot of the blame was directed at the previous US Fed Reserve and their ease of liquidity policy in around 2002 that allegedly 'caused' markets (including housing) to inflate. Even if this is true, then what is being done today by the Fed Reserve is potentially worse as the liquidity that's been provided is around 7 fold to the 2002 example.

But is there another reason why the US Federal Reserve is oversupplying capital? Could it be that by doing so, you are ensuring that the US has a weaker currency, thus helping your very large export corporations (some of which are at record highs on the stock market)? There will always be a winner in a game. The Fed also knows that by oversupplying the USD (making it cheaper) it has inevitably and inversely strengthened other currencies and conversely strengthened all commodities (most of which are at record highs). So what's the problem? The problem is that this inevitably creates inflation and true growth in your real economy has been stifled because of high inflation and high energy etc prices.

You can make your competitors (includes other countries) peddle backwards by deliberately 'creating' and reinforcing this low US dollar, high inflation, high commodity/energy prices. A lot of unrest has resulted from these inflationary scenarios. This inflationary scenario doesn't benefit China either as it battles serious inflation and needs a healthy world economy. So how much is the rest of the emerging-market world being priced-out of this game?

So is the US Federal Reserve that mean? Probably not, but they must know what effect the availability of unprecedented high volumes of cheap money is having on the rest of the world.

Your net value can go even higher just by making your competitors poorer.

Very interesting viewpoint! I am all for dumping the FED but I think you have a valid strategy. Thanks for the insight.

Actually, the Federal Reserve is that mean. They have the same agenda now as they had in 2002 and since they were unconstitutionally given power over our money.

www.abolishthefederalreserve.org

The article is "The federal reserve is a fraudulent, unconstitutional scam." this article will explain the feds role in every major war America has been led into. Amust read for anyone.

The "persona's" are multiplying exponentially on this site.

Originally posted by drifter1109
Actually, the Federal Reserve is that mean. They have the same agenda now as they had in 2002 and since they were unconstitutionally given power over our money.

www.abolishthefederalreserve.org

The article is "The federal reserve is a fraudulent, unconstitutional scam." this article will explain the feds role in every major war America has been led into. Amust read for anyone.

This was a good read. It's always good to read something on the Federal Reserve other than what Wikipedia suggests, for example. And I wonder how many people would believe this; "Despite what many people think . . . the Federal reserve is NOT . . . an agency of the United States government." ? It comes across as one though when you view finance channels etc.

But as for abolishing the Federal Reserve? What do you replace it with? One that's an agent of the government, I guess.

Interesting post. I been thinking and doing some reading about all this and it raises more questions than it answers at times.

Okay so increased capital = inflation = weaker USD against other currencies.

1) It encourages US exports and facilitates increased economic activity, which should result in lower unemployment, more income and more spending and more business activity and so on.
2) Conversely it strengthens other world currencies and discourages exports and has the effect of impeding economic activity.

Good for US not so good for other countries. Fellow Australians would be aware of this as we recently had some of our own retailers (Harvey Norman etc) complaining about customer base increasingly shopping overseas now with the AUD at approx parity with USD and a resulting reduction in business and profits.

The effect the QE would have on other countries less fortunate would be much more profound and this is perhaps why we see revolts throughout the MENA.

Questions

Effects of unrest aside, if the USD is devaluing, why aren't we seeing much more USD paid for oil? Or is this a case where oil suppliers are just receiving a lot less back for each barrel?

If the latter is the case, then is it plausible to suggest that oil supplying countries may get tired of their reduced profit from the USD and begin seeking alternative currencies to sell their oil?

If the reserve currency devalues further over time, does this decrease the value of those who own US debt? For example, if China owns 1 trillion US debt, is it now losing out on gains it would otherwise make due to depreciation of the USD? Could this become a risk to the US if China decides it no longer wants to hold onto that debt?

Are investors perceiving more risk in the USD? I understand that US treasuries bonds are increasing even though yields are decreasing because people are seeing risk in the financial markets, so ironically investors are parking their money in these bonds? That indicates confidence in the USD does it not?

Are the current QE measures sustainable or is this going to come back and hit hard on the US? Zimbabwe have a heavily inflated currency and it hasn't helped them at all, but perhaps that is because they have no industry and noone buys anything from the country, whereas with the US, people all around the world buy stuff from there.

I'm just trying to figure all this out because there is a lot of conflicting information, and a lot of 'the sky is falling' hyperbole. I find it very interesting, though I would rather be informed than run with emotion.

I cannot expect all these questions answered, I'm asking even for my own self discovery. I need to research further.

Thanks!

In my opinion this is a stealth trade war vs. china for there currency manipulation. With our weak economy and hellish high unemployment were seeing very little inflation atm in the usa. On the other hand china is getting rocked with double digit inflation.I think it all ties into obama's plan to create million of jobs by doubling us exports. IE stealth trade war woot.

reply to post by surrealist



I think you are very well informed, surrealist. You have made some very good conclusions. I find that you will not get many answers from some finance channels and web sites, as they either can't see some of these implications or they don't want to! Some of their sponsors would rather leave some of these delicate matters alone.

Personally, I see the US in a win-win situation, even though their domestic economy is at a standstill. China needs to keep its currency at a comfortable level but I see the US throwing a spanner (wrench) in the works here and deliberately creating inflation and thus a potential stronger yuan (less Chinese exports sold, as hard as this is to believe; slowly chipping away at it, like you might slowly grind at winning in poker).

Let's not get carried away; the US still has a dominant influence in the world's economy; and this is the first time I will have to disagree (I think) with Bill Gross (in charge of the biggest bond company, and perhaps the smartest investor in the world) when he said that the US is losing it's dominance on the world economic stage and its power with its currency. On the contrary, the US is showing the rest of the world at the moment that don't #%$@$%@# with us and don't get too comfortable as they will never let their thunder to be taken away from them. But of course domestically things are really different! But there really is a second side to the US economy and it is getting a foothold into the next generation of investing, or making sure that it's world competitors aren't! I do believe the latter is being played-out here, and I'm not overly critical of this strategy as plenty of other countries don't play by 'the' rules.

Your comments were really cleverly thought-out.

in the basket of PROs, the FED sees 0% money for the elite-insider Corporations as a way for them
to build up their Portfilio values...so to at least theoretically meet the continual; and future demands
of the health and retirement benefits they promised the workers (both blue collar & execuitives)

The firms benefiting (in 0% money) will speculate in the Stocks/DOW to generate their needed revenues...

thus lifting the wall-street economy....
but alas, the main-street economy is left to flail about, & must wait for the trickle-down --- inflation
caused Jobs that will soon result...


all these economic thinkers are sociopaths... i'm with MK
& no i don't mean MLK

The Federal Reserve is "oversupplying" money to establish and maintain control. First, you have to remember, it is not really money, that is why most of the western world is in massive debt. But, by "printing" money, and controlling governments, these few people maintain their power and wealth.
One way they maintain power of course is using this "money" to develop and control high tech weaponry. Once they established the dollar as the reserve currency, and created a global economy that depended on a strong dollar, they were free to exploit it. Not many people know what kind of technologies they has used these dollars to create and perfect. They have created a SUPERSOCIETY, by their own design.
These few people have built a network that enriches those that play the game, thus buying the loyalty of lower level scam artists. They simply buy out those that could cause them problems.
The oversupply of money is mostly in a few bank accounts, and in China, Japan...not your pocket. They know what they are doing. After all, YOU still work for THEIR dollar, right?

Great post! S+F!

Check out my silver thread, it kind of connnects to your story...


www.abovetopsecret.com...

Printing money devalues the currency and makes exporting US goods cheaper. This is good for US manufacturers. The only problem is all of Americas manufacturing has moved to china. This brings me to my next point.
America can’t compete with china when it comes to labor costs for manufacturing of goods because the Yuan is manipulated to remain low in relation to the dollar. So I think they are devaluing the dollar to force the chines to unpeg the Yuan from the dollar. If they don’t the inflation that it is causing in china right now will wreck there economy. If it works it could bring a lot of manufacturing back to the US. The down side is no one will be able to afford the products we will be making because are dollar will be toilet paper.

I still want to know where all of the money went.
Bernanke isnt talking.

The best thing to do is cut off their oxygen supply... get rid of your credit cards, do not get mortgages or loans of any kind. Save up and buy outright and buy when the prices are dropped only. A lot of foreclosures out there are pretty cheap now. If you can save the right money in a short time period now is the time to do it and buy a house cash up front.

Originally posted by v1rtu0s0
Great post! S+F!

Check out my silver thread, it kind of connnects to your story...


www.abovetopsecret.com...

Yes, indeed. This was an interesting read. Silver has gone relatively unnoticed and the bit on a potential mega margin call is scary.

I have to say the more I read about the Federal Reserve the more I tend to worry. It still seems strange that the American taxpayer had to bail out (and this is what happened, even though I have been criticized for saying this) companies that were linked (were they owned?) to the Federal Reserve. I spoke to someone at work before about this issue and he suggested I don't post it because it would be like criticizing an integral part of the US government. But this whole disaster that played-out three years ago meant that funds that would have been destined for all kinds of US government agencies would not have found their mark.

I wonder if some of the best US government agencies, and not just in law enforcement, are keeping an eye out on what is occurring with speculators this time round. Were and are their hands tied behind their backs by those that want them to look the other way?


"CosmicCitizen
I still want to know where all of the money went.
Bernanke isnt talking."

This is a great point. When there is a loser you must have a winner. The money couldn't have just disappeared. There were plenty of firms short selling during the GFC and they must have made a killing on the other side of that trade. Yet nothing was mentioned while all this played-out in Sep-Oct 08. I bet these companies didn't even declare their short-selling winnings and didn't pay any tax too. I bet all eyes were on the guy running down the street with a soda stolen from a store while perhaps the biggest heist in history occurred. But then again, if he's wearing a suit and shorting in cahoots with others, it's ok.

I'm still a believer of distinguishing between a market and highway robbery.