Last month I wrote about how the Federal Reserve operates in an environment of cycles: Interfering in multiple markets which lead to creating a bubble. The Bubble then explodes and creates massive financial uncertainty. They then intervened with the creation of new money, followed up by more new money, which creates another bubble waiting to burst.
The Great And All Powerful Fed
This action by the Fed significantly oversteps their role. Instead of having normalized free markets, we have had artificially induced, supplemented markets that have not operated on their own merits. Markets went up in value by artificial means, not by historical healthy business fundamentals. This “Money Drug” only creates addictive economic behavior that adulterates normalcy. If it wasn’t for the actions of the Fed ballooning their balance sheet, the Dow would not have risen from 6,600 points in 2008 to over 17,000 points in 2015 through the Quantitative Easing programs of I, II, and III. The Fed’s balance sheet went from $550 Billion dollars to $4.5 Trillion Dollars. This is something no Central Bank in history has ever done. The Fed era of an eight-year-long period of monetary accommodation has ended, creating a bubble that not even the Fed knows how to deal with. They admit this openly. When it comes to looking at their balance sheet the markets have more questions than answers. As they look to the Fed they are scratching their head dismay. The biggest question is what will happen to the value of the dollar when the Fed stops buying Treasuries.
Going Behind the Curtain
Our country is operating like The Land Of Oz, where everything is just fine while the massive control behind the curtain is about to unravel. The Fed is the largest owner of U.S. Treasuries. It holds approximately $2.5 Trillion Dollars in Treasuries and the other major asset is $1.8 Trillion Dollars in Mortgage Back Securities. Remember all the bad loans that defaulted in 2007-2009? The Fed bought a boat load of these securities otherwise we would have had a banking collapse. Now they want to and are also forced to sell both. For the first time, a trend starting in 2001 has grown to unproportioned scale. The trend of Foreign Central Banks selling our U.S. Debt, called U.S. Treasuries. The big money of the world has voted NOT to hold our debt. This has escalated to the highest level according to the report released recently by the U.S. Treasury, “$80.3 Billion Dollars in U.S. Treasuries sold by Foreign Central Banks in a month, the largest ever in history”. Some entity now has to buy our debt otherwise the whole “system” would fall apart as we know it. This structure is the backbone to our country’s financial stability. This has forced the Fed to be the buyer of last resort. Think about what I just said and that should be enough to cause you to buy gold right now. But let’s continue…
The Fed is losing money in Treasuries when they raise interest rates, which is now the roadmap they have announced. The Fed isn’t going to sit tight and have a guaranteed loss in holding Treasuries so they are forced to sell. The Fed now also is saying THEY don’t want to hold our debt. This is a global problem since Central Banks YTD have purchased $1 Trillion Dollars in financial assets so far, which is annualized at $3.6 Trillion Dollars. This is the highest ever! The rest of the world is currently creating more debt to stimulate their economy while the Fed is done supporting our economy and now raising interest rates. Again, welcome to The Land Of Oz, where everything is just wonderful. In reality, if we don’t’ find the ‘next buyer” of our debt our country will start its massive fall from grace. Hopefully, your eyes are now being opened as you see the real fragileness of the U.S. behind the curtain.
The Fed has tried for years test after test to reduce their balance sheet in different models. The most detailed and in-depth test of all failed. The results were announced in The Wall Street Journal in December of 2013. Since then they have not succeeded in any test of scaling back its balance sheet without causing significant inflation. The Fed’s released details of this failure did not bring any hope. In this historical test, the Fed called upon the most experienced team ever assembled in Fed history. The two kingpins that previously created the Quantitative Easing programs were Brian Sack, the former head of the New York Fed’s market group and Joseph Gagnon, a former Fed Economist. If any individuals could come up with a plan to unravel the Fed balance sheet without creating inflation, these two would be the ones. In the initial press release by the Fed, they announced that this program if it worked, is the test module. It would become the “linchpin” for the way the Fed manages interest rates and their balance sheet in the future. The program on the inside of the Fed was called “The Interest Rate On Excess Reserves”
The Test Field
The team was built and they started the testing. They did their in-depth research and created a model which ran simulation after simulation and making every adjustment possible. The challenge was enormous. In the end, after all, testing was done, the report cites “The Fed has never tightened monetary policy with such abundant amounts of liquidity (Fed Balance sheet of $4.5 Trillion Dollars) in the financial system”. The end results were beyond devastating. The Fed concluded that there wasn’t a way to raise rates effectively with such a large balance sheet without causing market and economic uncertainty.
This is why a multitude of economists have said recently that the path to monetary normalization will be fraught with surprises and setbacks. The delicate navigation of shrinking the Fed’s balance sheet is completely untested and could create massive havoc in their unwinding.
The Fed is in a quandary where they need to shrink their balance sheet in order to not lose money. They need to sell Treasuries without signaling alarm. In doing this no major entity would be supporting the Treasury market, hence the highest ever foreign sell-off recently announced.
The Buyer of Last Resort?
Who is now the Buyer of last resort? That is now you! Your savings and your retirement according to the Dodd-Frank Act are in jeopardy. In addition to this law not only changing the legal ownership of your money where you now no longer own your own money, it created the entity to seize your money. The Consumer Financial Protection Bureau (CFPB) was created to “help” Americans. Ironically the head of the CFPB went before Congress one month after being created and told Congress it was looking into the legal ability to manage American retirement assets. They felt “Americans can’t manage their money” and they wanted to “help” you. There are many other entities involved in this such as the FDIC. Cross reference a report by the FDIC with the Bank of England on December 10th 2012, two years after the Dodd-Frank Act. In their third paragraph of the Executive Summary, it clearly describes the Dodd-Frank Act and how your money is no longer legally your money.
Could this also be the reason why the Minneapolis Fed President Neel Kashkari said recently “The largest banks do not have enough equity (cash) today to protect the taxpayers.” “Too big to fail is alive and well.” The Taxpayers are now on the hook”. Then he went on to say that the odds are nearly 70% of another crisis where the taxpayer will be left holding the bag.
It is natural to think and even say how crazy this happening in America sounds. I thought the same way, which is why it took me over three years to finally pen the first edition of a white paper I wrote titled “The Coming Bail In”. This is now in its 6th edition. I highly encourage you to get this edition and read it.
Follow the Yellow Brick Road
We are moving into an inflationary environment. Here is why recently Treasury rates have increased which has caused the Fed to also raise rates. In this new era gold has risen and will continue. We are only in the beginning stages of this. As inflation rises gold benefits. Rate hikes are just price increases and this is how this is being played out. On December 15th, 2015 the day before the Fed Raised rates for the first time in nine years, gold was at $1050 per ounce. Fast forward to today: three rate hikes later gold is in the $1260’s. During this time the economy was growing in the fourth quarter of 2015 at 0.9%. Last quarter’s growth was half of that at 0.45% according to the Atlanta Fed. While stocks are on the move with all the cheering of the Dow, year to date Gold is out-performing the Dow at almost a 2 to 1 ratio.
Our country’s debt is going to go much higher and the powers that be are either going to deal with this by inflating our way through it which historically caused gold to move up 500% in 5 years, as the number one performing asset during the inflationary times in the 70’s. Or, they will induce a Bail-In like 9 other countries have done recently to manage their debt.
In the mind of some, there is a tendency to just want to make it all go away and make it much different. In essence, click our red shoes together say “I want to go home”. That obviously is just ignoring all of the facts. The only way to insulate, protect, and grow your hard earned money is to “get out of OZ” and to follow the yellow brick road. The government, the Fed, Foreign Central banks are all saying “follow the yellow brick road”.
I am on national radio where somewhere around 3 million listeners across 800 plus stations hear my voice weekly. They hear me talk about many topics one specifically about our country wanting to seize our hard earned money. Many people have researched the information in my reports and have seen with their own eyes the facts about a government seizure of American wealth has been set up legally. Most of the websites that are mainstream and even government websites.
If you believe, like many of my listeners, that the Fed has and will influence the markets, directly or indirectly, then it is the time to now get on the “yellow brick road”. Call one of my representatives today to take your next step towards financial protection, which is not only financial freedom in an ultimate way, but in addition may be the best investment of the next decade.
