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Letter to the editor: The fed revisited

Posted: Tuesday, Feb 4th, 2014

It occurs to me as of late that a more thorough explanation of the Federal Reserve System of the United States may again need to be offered. In the past the consistent reader knows that I have discussed at length the amount of “Funny Money” since 2009 that the Fed has printed and is printing both to fund a fair chunk of the stock market and to purchase the vast majority of our yearly deficits that Congress runs. But what I have failed to discuss is another issue relating to the Federal Reserve that is perhaps just as grave and may in fact prove to be our breaking point!

In addition to being able to print money at will, another important power of the Fed is its ability to set the target interest rates that banks charge one another (Federal Funds Rate) which therefore ultimately effects what the bank charges you in the form of interest on loans whether they are for home car or business etc. In this way the Federal Reserve is able to control the entrance of a great deal of new money into the nation’s general money supply as the economy grows! Raise the interest rates that banks charge one another and therefore what they charge you for loans, and the entrance of new money into the economy slows for the simple reason that as loans become more expensive with higher interest rates people and banks are less likely to take advantage of them. Lower the rates that banks charge one another and therefore charge you for loans, and more money enters the economy as both people and banks are then more likely to take advantage of them. Because the Fed can lawfully control many aspects of the money supply, they also have another very important power, which is their ability to control inflation or the rising prices on the things we buy on a day to day basis. In the past when inflation was a threat, the Fed raised the interest rates which curtailed the entrance of new money into the money supply, and when the extra money that was already in the system was absorbed by the growing economy, the money supply tightened and the dollar then gained value and prices began to fall as inflation was brought into check (so far so good).

Today however, what most people are not aware of is that a fair majority of the treasuries or debt that has been sold (over 17 trillion so far) are in short term treasuries, which means that if the Fed decides to bump interest rates up in order to control inflation in the future, the interest rates on a sizable stash of treasuries (short term) will most likely also rise if and when they are renewed at the higher rates. In the past this was not an issue, but because we have sold an additional 6 to 7 trillion dollars worth of new treasuries since 2009 (staggering) and many of them short term; if the Fed were to raise interest rates right now from close to zero percent (where they are now) to where they were just six years ago to say around 4 percent, the annual interest payments on all those additional treasuries, as well as the other 10 trillion in treasuries when they too are renewed, would rise from around 250 billion a year which we can afford at this time to close to one trillion dollars per year and probably much more (beginning to get the picture)!

Now because the Fed itself is buying much of our own yearly debt or Treasuries as of 2014, and has printed close to 5 trillion or more dollars out of thin air since 2009 to accomplish this (no one really knows), and this funny money continues to enter the money supply in massive amounts on a yearly basis; there will most likely be massive inflation in the not too distant future. The interest rates that will be needed at that time by the Fed in order to counter this unbelievable inflation and pull the excess money back out of the money supply and restore the value of the dollar, will most likely have to be in the double digits; meaning that the interest paid on many of those short term treasuries, if and when they are renewed will most likely rise accordingly and will consume most if not all of the federal budget and then some (did everyone get that). Because of this undeniable reality, the Federal Reserve will not at that time be able to raise the interest rates in any appreciable way in order to counter this coming inflation. In other words the Fed will have no real remaining weapons against what will most likely be hyper inflation (3rd World Banana Republic Civil Unrest Inflation). Even now the Fed effectively has no real weapon against inflation as the door has all but closed but nobody noticed.

I mean no offense by what I am about to say but it is the task of every citizen both public and private to understand the above mechanism that is now in play in the United States. Because the more people are informed and therefore aware, the more people will be able to deal with their Congressmen and Senators when these failed “Gate Keepers” attempt to ignore this staggering situation.

When the town halls and Kiwanis’s meetings and press releases together with the legislative updates have run their monotonous and lackluster courses as a result of the representatives who are visiting their districts, the looming destruction of the dollar will still be there and will still not have been addressed or dealt with in any meaningful fashion.

If there is a legitimate reason for Mr. Tipton who represents Southern Colorado together with other Republicans and Democrats to be challenged in their party Primaries later this year, it must be centered upon the dollar itself, and what would appear to be their general lack of understanding and alarm at the possible collapse of the dollar due to the deficits and the unbelievable amount of money printing since 2009 that is both ongoing and likely increasing. Many of these individuals in Congress, whether it is in the Senate or the House, operate as if it is 1989 and they have another 25 years to engage in this nonsense, but nothing could be further from the truth! The changes that are needed in order to reverse course at this late stage must be massive and bold in scope (see the fix PT 1 and PT 2 published earlier)! The time is now, as the wolf is nearly in the room! stevenforchange@gmail.com

Steven Howard

Monte Vista

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