Two weeks ago, the Fed announced lowering interest rates … again.
Soon afterward, articles began surfacing alleging that Wall Street banks were struggling with liquidity, on the verge of default, and that the New York Fed had stepped in with massive bailouts, dropping billions into accounts of desperate banks, just to keep them alive.
Is that really what was happening? Not really. It’s just the process of manipulating interest rates.
Remember, the Fed payments to Wall Street began simultaneously with the interest rate announcement. But the Fed’s board cannot raise or lower interest rates with a simple announcement.
They can only establish a “target” interest rate, in this case, between 1.75% and 2%, down a quarter percent from where it was.
To execute that new policy, since any market rate of interest would be well above the rates we are talking about, the Fed must actually go into the market with dollars and buy prevailing rates down.
So, to accomplish that the Fed creates a whole pot-full of brand-new money. They do that on computer screens, conjuring dollars solely using electricity and keystrokes, as opposed to using dollars anyone has actually earned. Then they execute a financial maneuver they call, “open market operations.” Here’s how that works.
First, the N.Y. Federal Reserve Bank takes a measured portion of its brand-new computer dollars, and uses them to buy up a certain cache of existing, relatively high-yielding Treasury bonds presently in the hands of “primary bond dealers” such as Goldman Sachs on Wall Street.
To push interest rates lower, the N.Y. Fed pays Goldman Sachs much more for their existing bonds than Goldman paid in the first place.
Goldman then takes the proceeds from those sales and, using the entire amount, less of course a fee, for their time, buys replacement bonds on the open market, again paying more for them than they are actually worth. That raises the price of “riskless” U.S. treasuries on the competitive market, which lowers the yield, which effectively lowers prevailing interest rates all across the American financial markets. In so doing, the Fed steers interest rates toward their newly-announced target.
What I describe is nothing new. It is how the Fed bastardizes a free market. This is how all central banks around the world manipulate interest rates. There is no free market when it comes to money. And there will never be a free market as long as private institutions are allowed to determine the cost of money, with nothing to lose themselves, through this kind of hidden manipulation.
So don’t worry about the U.S. government ever going broke, regardless how much it owes. That won’t happen. The banks won’t let it happen. The Fed has as many dollars as it has electricity and keystrokes. The Fed, teamed with Wall Street banks, can keep the U.S. government on life support forever, maybe even hundreds of trillions in debt eventually, who knows.
And all the while this system operates, silently the banking system is sucking wealth out of the American economy, away from the people, in this example spending the people’s wealth, covertly lowering interest rates below market value, which keeps the economy going, and keeps their primary instrument of plunder, the U.S. government, in operation.
The only limit to the amount of wealth this banking system can steal occurs when the larceny is so great that there is not enough real wealth remaining in the economy to keep it going, as in the 1930’s.
President Trump knows all this, although the untrained eye may even believe he is helping the bankers at their craft. Not so.
Trump knows he must work within this system, pulling all the stops to keep the American economy chugging as fast as it can, at least until the elections of 2020. He really has no choice. To ensure a second term, Trump must maintain the economy running at full speed, whatever that speed is, until after his re-election, beyond which my bet is he will make structural changes in the way dollars are issued into the economy.
Trump will skip the step of financing government operations by allowing the Fed to create keystroke dollars and trade them for mounting U.S. debt. Instead, Trump will return the vital money creation function back to the U.S. Treasury.
At such time, each dollar the government issues in retiring debt will be paid in government paper, issued free of interest cost, rather than private paper loaned at interest from Wall Street banks. And that is how the national debt gets paid. That is the only way.
And so at this point, with every yahoo politician in Washington trying to impeach Trump for absolutely nothing, you should begin to see why they are devastatingly afraid of what Trump might do in his second term.They are afraid that Trump is going to kill their golden goose.
That goose, the banks of the Federal Reserve, and their ability to create money out of keystrokes for their own purposes, has made politicians rich and powerful. But the politicians have no real power other than the power the financial elite give them.
After 2020 Trump will yank that source of power at the root and return the money creation function back to the U.S. government.
Trump thus represents an existential threat to the globalists and the puppets running America all these years. That is why they are crazed and what this entire D.C. soap opera is all about.
Hank Sullivan is a Forsyth County resident, businessman, author and speaker on American history, economics and geopolitics.