Tag Archives: Fed funds rate

Gold Continues To Defy Fed’s Attempt To Control The Price

Bloomberg News admitted that it is aware of the Fed’s “hidden” mandate to control the price of gold when it published an article last Sunday titled, “Yellen Can’t Halt Trump Gold Rally That Funds Bet Against” – Bloomberg/Yellen/Gold.

That title, combined with the content of the article, implied that the journalists and editors at Bloomberg are aware that the Fed actively manipulates the price of gold.  It’s hard to know if this admission was put forth intentionally or unwittingly. But the headline outright acknowledges that the Fed’s goal with respect to the price of gold is to prevent it from moving higher. The Fed’s current tool for this purpose is the “good cop/bad cop” routine played out on a daily basis between the Fed Governors who purport the need for more interest rate hikes and the Fed Heads who advocate waiting until the economy improves.

Lost in the smoke of Orwellian propaganda is the absurd notion that the two “rate hikes” were a mere quarter of a percentage point in magnitude.  This can hardly be described as “raising interest rates.”  It certainly is not even remotely close to the concept of “interest rate normalization,” whatever that is supposed to mean.   In mid-2007, about a year before the financial system nearly collapsed, the Fed Funds rate was 5.25%.   A little more than a year later it had been dropped to near zero.

If the financial analyst “Einsteins” define “rate normalization” as the 5.25% level in 2007, it will take about about 20 years using the speed of rate hikes by the Fed over the last two years.   On the other hand, going back to 1954, which is as far back as the Fed’s database takes us for the Fed funds rate, the median level for the Fed Funds rate is somewhere around 7%.   Is THAT level how one would define “normalized rates?”  You can do the math on how long it would take thereby to achieve “normalized interest rates” if 7% is the goal.

Since mid-December 2016, when gold appears to have bottomed out from the manipulated price “correction” that began in August, gold has been trading in defiance of the Fed’s attempts at price control.  Yesterday’s (Wednesday, Feb 22nd) trading action is point in case.  Gold was slammed for about $9 right after the paper trading market on the Comex floored commenced.  This is standard operating procedure.  But about 5 1/2 hours later, when the Fed released the minutes from its last meeting, gold spiked up and reclaimed the full $9 price take-down.    Today gold has soared another $16.

At the Shadow of Truth, we suspect both Yellen and the editorial staff at Bloomberg News are mumbling to themselves.  In today’s episode, we discuss the trading action in gold and the potential more interest rate hikes this year:

Who Is Buying China’s Dumped Treasuries?

According to the latest Treasury International Capital report (for October), China unloaded nearly $42 billion in Treasuries in October. In the last 12 months, China has unloaded nearly $150 billion in Treasuries, equivalent to more than one month’s worth of new Treasury issuance by the U.S. Government.

The Zerohedge/mainstream financial media narrative is that China is selling Treasuries to defend the yuan. They hold reserves other than dollars. Why not sell those? They are trying to unload their Treasuries w/out completely trashing the market. Imagine what would happen to the bond market if China announced a bid wanted in comp for $1.1 trillion in Treasuries. They are working with Russia to remove the dollar’s reserve status and the U.S. doesn’t like it which is why there is an escalating level of military aggression toward Russia and China by the U.S.

Too be sure, China’s Treasury selling has contributed heavily to surprising spike up in long term Treasury yields.  But who is buying what China is selling?  Japan has been unloading Treasuries every month since July.  On a net basis, foreigners unloaded $116 billion Treasuries in October.  A colleague in the pension industry told me today that pensions are not buying Treasuries because the yield is too low.

Phil and John (Not F) Kennedy invited me on to their engaging and entertaining podcast show to discuss the chaos that has enveloped the global financial markets including the Fed rate hike, the manipulated take-down of gold and silver and the deleterious effects from the spike up in interest rates.

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Adios To The Housing Market

That popping sound you just heard is the Fed popping the housing bubble.  The housing bubble that it inflated with ZIRP and zero-bound credit requirements to qualify for a mortgage.    But first, let’s get this out of the way:  Goldman’s Jan Hatzius – apparently the firm’s chief clown economist commented that the Fed’s “faster pace” of rate hikes reflects an economy close to full employment.  That statement is hand’s down IRD’s winner of “Retarded Comment of the Year by Wall Street.”

I guess if an economic system in which 38% of the working age population is not working can be defined as “full employment” then monkeys are about to crawl of out Janet Yellen’s ass.  I guess we’ve witnessed more stunning events this year…

Before we start assuming the Fed will raise rates three times in 2017, let’s consider that Bernanke’s “taper” speech was delivered in May 2013.  3 1/2 years later, the Fed Funds rate has been nudged up a whopping 50 basis points – one half of one percent.

I hope the Fed does start raising rates toward “normalized” rates, whatever “normalized” is supposed to mean.  Certainly there’s nothing “normalized” about an economic system in which real rates are negative – that is to say, an economic system in which it’s cheaper to borrow money and spend it than it is to save.

Having said all that, put a big pitch-fork into the housing market.  Notwithstanding the highly manipulated “seasonally adjusted annualized rate” data puked on a platter  and served up warm by the National Association of Realtor and the Census Bureau – existing and new home sales data, respectively – the housing market in most areas of the country is deteriorating at an increasing rate.    I review this data extensively and in-dept in my Short Seller’s Journal.

Even just marginally higher mortgage rates will choke off the ability of most buyers to qualify for anything less than an conventional mortgage with 20% down and a 720 or better credit score.   With a rapidly shrinking full-time workforce – the Labor Department reported that last month the economy lost 100,000 full-time jobs – the percentage of the population that has a 720 credit rating and can afford 20% is dwindling rapidly.

The Dow Jones Home Construction index is down 2.5% today.  What will happen to the stocks in that index when the Fed cranks back up it’s “we’re raising again” song and dance?

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Despite the rampant move in the Dow/SPX since the election = while the Dow and SPX were hitting all-time highs almost daily – the momentum was not enough to propel the homebuilder stocks even remotely close to a 52-week high.  Hell, the 50 dma (yellow line) has remained well below the 200 dma (red line) and has not even turned up.  THAT is the market sending a message.

Here’s a weekly version of the same graph that goes back to 2005, when the DJUSHB hit an all-time high:

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When looked at it in that context, one has wonder where this great housing boom has been hiding? The stock market certainly didn’t price in a booming housing market. That’s because the truth is that the housing market since 2008 has been driven by massive Fed and Government intervention. The intervention enabled a segment of the population to buy a home that could not have otherwise afforded to buy a home. It was really not much different than the previous bubble fueled by liar loans and 125% loan-to-value mortgages. As I detailed yesterday, the system is now re-entering a cycle of delinquencies, defaults and foreclosures.

If you are thinking about buying a home – primary, vacation or investment – wait.  You will be happy you waited.  Prices have been pushed up to near-record levels by 3% down payment mortgages and credit assessment that gears the amount of mortgage available to a buyer based on maximizing the monthly payment based on monthly gross income.  That system is over now.  Prices and volume are going to spiral south.

If you need to sell your home, you better list it as soon as possible.  You will find that you will be competing with a surge in new sellers that descend like locusts.  “Price reduced” signs will blossom everywhere.  Just like 2008…

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Operation Mockingbird And The Mainstream Media

Notice how EVERYTHING – even the most trivial of events – on Fox News/Business, Bloomberg, CNBC, CNN and MSNBC is “BREAKING NEWS?” The presentation of the news and the exploitation of sensationalism has itself become an insidious form of propaganda.

Operation Mockingbird was implemented by the CIA in the early 1950’s as operation to influence the media.  The idea is that, regardless of the truth, the first headline read by the public in the media was the version of the news that would stick with the public.  As an example, whenever a bomb explodes somewhere in the U.S., the first headlines that hit the newswires blame it on ISIS.

The genesis of this propaganda tool was Edward Bernays (nephew of Sigmund Freud), who is credited with being “the guy” behind Joseph Goebbels and the father of the “Virginia Slims Girl,” among another nefarious accolades.

In this latest episode of the Shadow of Truth, we discuss the reasons why that, for almost anything connected with politics and economics, the opposite of anything reported by the mainstream media likely the truth.

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FOMC No Rate Hike: Gold, Silver, Miners Pop – Stocks Drop

We’re very bullish on gold, which is the anti–paper money, of course, and is underowned by investors around the world.   – Paul Singer, Elliot Management Corp

Predictably, the Fed did not raise the Fed Funds rate by a piddly one-quarter of one percent today.  It’s not because the economy is crashing – which it is – but because the foundation of the massive, money-printing inflated asset bubble in the U.S. and globally rests on the teetering foundation of zero-percent interest rates.

Negative rates rates presents another dilemma:  a western financial system that is completely dysfunctional from over eight years of bombarding the western economies with ZIRP and money printing.  At least most of the eastern hemisphere countries have Central Bank lending rates well above zero.  China’s is 4.35%;  Russia’s is 10.5%.

This blog unequivocally said three weeks ago, when the usual Fed clowns began their routinized interest-rate hike threat that the FOMC would whiff again.  What the heck happened to today’s meeting be in “live,”  John (SF Fed’s John Williams)?  Now that the Fed balked once again at nudging rates 25 basis points closer to China’s overnight Central Bank lending rate, does that mean that today’s meeting was not “live?”

Interestingly, stocks were pushed higher overnight and gold was pushed lower.   When I saw it at 5:30 a.m. EST, gold was down $7 from where it opened the overnight CME Globex electroning session (6:00 p.m . EST).

After the “not live” meeting was over and the results hit the tape, both gold and the stock market popped.  But the stock market apparently saw through the transparency of Yellen’s smoke-blowing and interpreted another “dead” meeting to mean the economy is indeed dead.  While gold ramped up toward $1300, the S&P 500 plunged 11 points in the last 28 minutes of trading.

I have been suggesting to my Short Seller’s Journal subscribers that the S&P 500 is starting to tip over – finally.  I think there’s a better that 50/50 chance that the S&P 500 repeats the same kind of cliff dive it took in August 2015 and the beginning of 2016.

On the other hand, it seems that a lot of western money – wealthy individuals and smart hedge fund managers – are beginning to plow a lot of money into physical gold.  Why? Because the price-movement of paper gold relative to the size of the Comex open interest is running in higher in defiance.   This is something that has not occurred in the last 15 years and it’s caught a lot of market analysts wrong-footed.

The character of the market has changed.  I don’t know how much leverage the Fed/bullion banks have to push gold a lot lower at these levels.  We’ll find out as gold challenges $1300 again and we get closer to BREXIT.  The Fed/ECB/BOE are making it clear that they will do their best to manage the price of gold into this potential event.

For anyone interested in opportunities to profit from getting in on the early stage of this next leg of gold’s bull market, check out my Mining Stock Journal.  I present long term view ideas on high potential junior micro-cap mining stock ideas.

I present the views. My service is research-based, not trading-based. Everyone has to
buy/hold/sell according to their own risk/return preferences and tolerances.  I buy LONG term core positions in my ideas and trade in and out of maybe 20% of the position but not very often.  You don’t get rich trading the market. You get rich finding very undervalued ideas and holding them until they are overvalued. We are 90% away from juniors being overvalued.   You can subscribe using this link:  Mining Stock Journal.  You will start with the current issue plus get all of the back-issues (it’s bi-monthly).

 

Is The Fed Beginning To Lose Control?

I enjoyed Stockman’s piece on Dec. 30th – LINK – concerning the impact of the meltdown in the commodity industries. I think people are seriously underestimating the impact.  –  New Year’s Day email from John Embry

I would like to point out that John and I always discuss a few pleasant topics as well as plot the demise of the global economy.   On that note:  Happy New Year everyone (Buon Anno a tutti).

I pointed out to John that Stockman’s analysis did not include any consideration of the amplification caused by derivatives on the destruction to the world/U.S. economy that is going to be felt from the price collapse of oil and basic industrial commodities.   In fact, I would argue, though it’s next to impossible to prove, that the Fed spends a significant amount of time working to prevent any evidence of the brewing derivatives nightmare from reaching overt public view,  in conjunction with the ECB, BoE and U.S. Treasury (the exchange stabilization fund).

An interesting event first brought at least to my attention by Zerohedge occurred on December 31.  The Fed funds (FF) rate plunged significantly below the lower bound of the Fed’s .25-.50% FF rate to the rate set that day at .12% (source:  Zerohedge, with my edits in black) click to enlarge:

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The question is, why did this happen?  To begin with, although it went largely unnoticed, the Fed also jacked up the interest it pays on bank excess reserves (IOER) from .25% to .50% at the same time it nudged up the FF rate.   Let’s first review what Fed funds are and how they work mechanically.

The Fed funds is the mechanism by which banks who have cash in excess of what they need to meet reserve requirements lend these “excess” reserves to banks who might need a temporary loan in order meet reserve requirements.  It is thus a system by which banks with extra liquidity make short term loans to banks who need liquidity.  The Fed funds rate is the rate at which excess funds are loaned out. The FF rate is set in a competitive bidding process each day based on the supply of funds made available to lend and the demand to borrow these funds.

In theory the Fed is supposed to be able to “control” the FF rate by regulating the amount of ready-liquidity in the banking system.  The Fed “adjusts” systemic liquidity using the reverse repo and repo “tools” (it can also adjust the minimum reserve ratio but this is rare). If the FF rate is headed above its target range, the Fed repos cash liquidity into the banking system.  Conversely, it uses the reverse repo if the FF rate is headed below the lower bound of its target range in order to remove systemic liquidity.

The IOER “mechanism” was put in place when the Fed began using its “helicopter” to dump printed money into the banking system.  Note:  half of the printed money either remained inside the banking system, which is a closed system, or went to the U.S. Treasury via transmission through the banking system;  the other half of the printed money was injected into the mortgage banking system through Fannie Mae, Freddie Mac and the FHA via the banking system.  The latter form of helicopter money ignited the mini-housing bubble and has led to mortgage and derivative products similar to the same products presented in “The Big Short.”

Prior to the Fed’s paying interest on excess reserves, banks were not earning any interest on their excess reserves at the Fed unless they lent out that money to other banks via the Fed funds mechanism.

The justification used by the FOMC in implementing the IOER was that it would enable the Fed to control the lower bound of the FF rate despite the flood of bank excess liquidity sitting at the Fed.  This is because if the FF rate were to slip too far below the IOER rate, banks would keep their excess liquidity sitting in the excess reserve account rather than make those funds available for interbank lending.   In the current framework for this interest rate management model, the FF target range is .25-.50% and the IOER is .50%.  A further elaboration of this idea can be found here:  LINK.

Without getting too theoretical, in theory the FF rate should be slightly below the IOER rate.  This is because Fed funds are collateralized by Treasuries and triple-A mortgage paper.  The IOER is “collateralized” by the Fed’s balance sheet, which has a tiny book value in relation to the size of the balance.  In other words, on a “risk-adjusted” basis, a Fed funds loan is slightly less risky than a deposit sitting in a Federal Reserve account. Therefore, the Fed funds rate, everything else being equal, should be slightly lower than the IOER rate.

This brings us to the Friday event, when the Fed funds rate crashed below the .25% lower bound of the current FF rate policy, indicating that the amount of liquidity made available for Fed funds borrowing was well in excess the amount demanded to be borrowed and well in excess of the Fed’s ability to keep the FF rate at the .25% lower bound.

Why did this occur?  The simplest explanation is that the Federal Reserve is losing control of the amount of liquidity sloshing around the banking system and therefore is losing control of interest rates.  Yet, on Friday, the FF rate was set not only significantly  below the IOER rate but it also plummeted below the Fed’s “lower bound” rate.  This means that some banks chose to lend to other banks at a rate that was significantly below the IOER rate.  Bernanke’s Fed told us this would not happen.

It’s possible that this will be attributed to an end of year technical glitch.  As Zerohedge points out in the article linked above, the FF rate dropped at month end every month in 2015.  But it remained within the Fed’s lower bound of 0%.

The Fed could have prevented this from occurring if it had removed significantly more than $105 billion in liquidity from the banking system when it nudged up the FF rate (using the reverse repo tool).  In fact, some estimates were that the Fed would need to remove up to $1 trillion in reserves in order to maintain the lower bound of the FF rate target range.

There must be some reason that the Fed did not remove more liquidity from the system.   This line of reasoning further points to the probability something might collapse if the Fed were to remove the amount of liquidity from the system necessary to keep the FF rate from dropping below the lower bound.  It also suggests that the Fed is losing control of its ability to manage the massive liquidity monster it has created.

I want to close out this post with a quote from someone (I’ll refer to him as “MC”) with whom I was discussing this subject yesterday afternoon.  We both agreed that the Zerohedge post, while informative, was missing some key ingredients in its description of what had occurred.   It was MC’s comment below that led me to meditate further on this ordeal and the more I ponder the “ingredients” which went into Wednesday’s events, the  more I believe MC is on the right track here:

If I had to choose between excess liquidity or a bank that can’t afford a rate in the channel [i.e. the Fed fed funds target range] it would be the latter.  But really?  [The Fed] must be going to extreme measures to avoid any appearance of stress somewhere in the system.

Flexing my conspiracy theory brain cells, it must be something big like JPM where it is big enough to have a real demand for funds where these small differentials [i.e. the difference between the .25% lower bound for the FF rate and the lower rate of .12 at which the FF rate was set on Wednesday Dec 31] could matter and is systemically important and they don’t want attention drawn, yet… Like going to the discount window, etc

Stick A Fork In The United States

The tragedy of our day is the climate of fear in which we live and fear breeds repression. Too often sinister threats to the Bill of Rights, to freedom of the mind, are concealed under the cloak of anti-Communism.  – Adlai Stevinson, Speech to the American Legion Convention, 1952

Today the climate of fear being fomented is concealed under the cloak of terrorism/ISIS. Severe repression is coming.  The policies and laws implemented since the inauguration of Bush 2 in 2000 have been slowly strangling the middle class, financially and legally.  The affects of the latter are about to become more apparent and more painful for everyone.

The American public has stood by passively in complete acceptance of the horrendous acts of brutality, savagery and wealth confiscation thrown at it since the passage of the Patriot Act.  We stood by and watched as our Government implemented an illegal attack into Iraq predicated on blatant lies, conducted unimaginable acts of torture on illegally detained prisoners of “war,” bombed weddings and funerals (Hillary Clinton:  “oops, my bad”) – the list seems endless.  The U.S. Government shamelessly throws propaganda in our face which turns the truth inside-out.  Everyone else is the bad guy.  The U.S. is exceptional and therefore entitled to trample over the rest of the world.

Perhaps the most egregious crimes have been right under our own noses, where the elitists have been openly wiping the last crumbs of middle class wealth off the table and into their own pockets.  You really think your retirement fund or pension money will be there when you retire?  That’s laughable.

I’m still trying to sort out and understand the exact reason why the Fed decided to push up the Fed funds rate from zero to not-much-more-than-zero.  What you might of missed is that the Fed raised the interest it is paying to the Too Big To Fail banks who have $2.4 trillion in cash given to them from QE that is earning interest in the Fed’s “Excess Reserve Account.”  The rate was raised from .25% to .50%, effectively doubling the amount of free cash flowing into the banks from their Excess Reserve largesse.   On the other side of this, consumer borrowing rates were immediately raised.

The only conclusion that can be reasonably drawn by the Fed’s move is that the noose described above – put in place quietly over and with no resistance over the last 15 years – is now being tightened.

The S&P 500 Is Set Up To Crash

Let me preface this commentary with the proviso that none of us has any idea the extent to which the Fed and the Working Group On Financial Markets, which has its offices in the same building as the NY Fed, has the ability to prevent a stock market accident.

Having said that, a large portion of the stock market has been in a tail-spin. The Dow Jones Transports Index is down over 18% from its peak last November; the SPDR retail ETF, XRT, is down 15% from mid-July this year; the iShares Biotech ETF, IBB, is down 18% since its high close in mid-July – perhaps ironically one day after XRT closed at its high; AAPL is down 20.3% from its February 23, 2015 all-time high – technically AAPL is now in a bear market; Dow Jones homebuilder/construction index, DJUSHB, is down over 10% from its high close (not even close to all-time high) in August – notwithstanding all the other fundamental headwinds starting blow at housing with full force, hiking interest rates will act like a roadside bomb on the housing market.

The point here is that many sub-sectors of the NYSE, sectors which had been extraordinarily hot as Untitled1stock trades, are now reflecting the truth about the deteriorating condition of the U.S. economy. (click on image to enlarge).

We can dissect the debate over the reasons why the Fed has decided to start “normalizing” – whatever that means – interest rates now. The fact of the matter is that it is impossible to know for sure why the Fed decided to nudge the Fed funds rate up by one-quarter of one percent. What we know based on reams of empirical evidence is that the U.S. economy is now collapsing at the rate it was collapsing in 2008/2009. Unless the FOMC is completely brain-dead – a consideration I would not fully dismiss – the Fed must have had some ulterior for setting a posture of tighter monetary policy.

With the high yield, and now investment grade, bond sectors imploding (I suggested over 2 weeks ago that the virus infecting the junk bond market would spread to investment grade), the next part of the capital structure that will be attacked is the equity “layer.” Many of you might have missed this news release yesterday:  Fed Votes To Limit Bailouts. The Fed is now restricted legally in the scope of its ability to prop up crashing banks.  There has to be a reason this legal restraint was allowed to be executed, because certainly the big banks and the Fed had the ability to derail it.  Perhaps it’s just putting window dressing on impending market developments that the Fed is now powerless to prevent anyway.

I have suggested for quite some time that eventually the natural forces of the market could not be prevented from seizing the S&P 500 and pulling it down to a level that reflects the true underlying economic and fundamental conditions from which markets derive their intrinsic over long periods of time.  History has already shown us many times that market interventions never work indefinitely.  Just ask OPEC.

Again, it’s impossible to time the markets perfectly, but the probability of a big downside event in the stock market is now highly skewed in the favor of those who set up their market bets to take advantage of the coming downside action.  My SHORT SELLER’S JOURNAL is a weekly subscription service, delivered to your email on Sunday night or Monday morning, is a market briefing with two ideas for shorting the market.  I also include some market comments not covered in this blog.

This week I will be featuring a financial stock and some interesting information on the housing market that you won’t see anywhere – at least not at this point.  You can subscribe to this service by clicking here:   SHORT SELLER’S JOURNAL.  If you subscribe by Sunday afternoon, you’ll get last week’s report plus this upcoming report.

The Fed’s Rate Hike Was Largely Meaningless

Last week I suggested that if the Fed nudged up the Fed funds rate, it would likely trigger a pop in stocks and precious metals.    The reason is twofold.  First,  the markets would be relieved that lunacy surrounding the event was over – a “relief” rally, if you will.   Second, it’s obvious to everyone, the Fed inclusive, that the economy is tanking.  The stock/precious metals rally after the hike reflects the view that the next policy move by the Fed would be a reversal of today’s decision plus more money printing.

Paul Craig Roberts and I spent a few moments discussing the mechanics of Wednesday’s decision by the FOMC to raise rates.   The product of our discussion was his insightful commentary about the ramifications of the FOMC’s decision to hike:

What Does Today’s “Rate Hike” Mean?

Paul Craig Roberts – The link to his article here:  What Does Today’s “Rate Hike” Mean?

The Federal Reserve raised the interbank borrowing rate today by one quarter of one percent or 25 basis points. Readers are asking, “what does that mean?”

It means that the Fed has had time to figure out that the effect of the small “rate hike” would essentially be zero. In other words, the small increase in the target rate from a range of 0 to 0.25% to 0.25 to 0.50% is insufficient to set off problems in the interest-rate derivatives market or to send stock and bond prices into decline.

Prior to today’s Fed announcement, the interbank borrowing rate was averaging 0.13% over the period since the beginning of Quantitative Easing. In other words, there has not been enough demand from banks for the available liquidity to push the rate up to the 0.25% limit. Similarly, after today’s announced “rate hike,” the rate might settle at 0.25%, the max of the previous rate and the bottom range of the new rate.

However, the fact of the matter is that the available liquidity exceeded demand in the old rate range. The purpose of raising interest rates is to choke off credit demand, but there was no need to choke off credit demand when the demand for credit was only sufficient to keep the average rate in the midpoint of the old range. This “rate hike” is a fraud. It is only for the idiots in the financial media who have been going on about a rate hike forever and the need for the Fed to protect its credibility by raising interest rates.

Look at it this way. The banking system as a whole does not need to borrow as it is sitting on $2.42 trillion in excess reserves. The negative impact of the “rate hike” affects only smaller banks that are lending to businesses and consumers. If these banks find themselves fully loaned up and in need of overnight reserves to meet their reserve requirements, they will need to borrow from a bank with excess reserves. Thus, the rate hike has the effect of making smaller banks pay higher interest expense to the mega-banks favored by the Federal Reserve.

A different way of putting it is that the “rate hike” favors banks sitting on excess reserves over banks who are lending to businesses and consumers in their community.

In other words, the rate hike just facilitates more looting by the One Percent.

The FOMC Meeting: Theatre Of The Absurd

Well, the “big” day has finally arrived.  Since Bernanke’s infamous “taper” speech, there’s been an absurd amount of time, energy and resources spent by analysts, financial news television mannequins and bloggers discussing when and if the FOMC would take the unimaginably bold step of raising the Fed funds rate by 25 basis points.   Into how much money does this translate?  25 basis points on $1 million is $2500.  Laughable.

After the Fed deferred the life-shattering decision to nudge rates up slightly at the November meeting, the threats issued by various Fed officials became a daily occurrence. Given that the “bar” that was set to trigger the massive nudge up in rates was a 5% unemployment rate, the non-farm payroll report for November seemingly calcified the decision.  The die is cast, the Rubicon has been crossed.

Meanwhile, every possible economic report, index and indicator originating from private sector sources show that U.S. economic activity is plunging at a rate last experienced in 2008-2009.  Notwithstanding the fact that monetary policy implemented by the Fed since 2008 will be looked upon by history as Bernanke’s Waterloo, certainly any move to redirect this disaster by raising rates even a small fraction right now will only serve to throw the economy into the abyss.

The entire episode between the November and December meetings has been nothing short of one big Hollywood production.  Theatre of the Absurd in its purest form.  Like it really matters whether or notUntitled the Fed raises the Fed funds target rate by 25 basis points. Since 2009, the effective Fed funds rate has averaged around .13 percent.  In reality, even if the Fed does hike the Fed funds target range by 25 basis points to .25-.50 from 0-.25, and removes enough banking system liquidity to enforce minimally the lower bound, the effective funds rate might go up less than 12 basis points.   All this “hoopla” over what will likely amount to raising the big bank borrowing rate from the Fed by 12 basis points.  That would be $1200 on $1 million.

There is, of course, an insidious Orwellian aspect to this entire charade.  By focusing the entire market’s attention on what amounts to a completely meaningless hike in the Fed funds rate, the Federal Reserve/Government hand-puppet operators have effectively deflected the debate and focus away from the real issues plaguing our system.

Lost in the discussion has been the fact that the Government-reported employment, inflation and GDP statistics are entirely fraudulent.  The true unemployment is closer to 25% than 5%; the cost of everything that matters has been escalating at 5-10% per year for several years; the upper .1% of the wealth strata in this country has sucked an enormous amount of wealth away from a middle class that is shrinking into oblivion; and the entire political system has become dysfunctional to the point at which a confirmed criminal is one of the leading candidates to become the next President.

Other than that, Mrs. Lincoln, did you enjoy the production of “Our American Cousin?”