Q Anon Dead Wrong: New Federal Reserve Plan A Disaster for the Heartland

The White House seems to be forging ahead with a radical change to the Federal Reserve System. The mysterious "Q Anon", popularized by the "X22 Report" and who started on a disgusting porn drop site that has since been shut down, has been telling a certain group of desperate people just what they want to hear: Keep trusting Trump, he's about to start arresting all the people you don't like, end the federal reserve with this brilliant new plan, and usher in a new era of prosperity for people like you.

I am well aware of how human nature works. Mark Twain said "it is easier to fool people than to convince them they have been fooled." Indeed, the normal human reaction to someone explaining how a person has been conned is for that person to lash out at the explainer, and double-down on defending the person conning them. So be it. My obligation is to give the warning. Hopefully, if enough give the warning this plan won't come to pass. If it does, then hopefully, the more noble of those who I warned will at least remember that I tried to warn them. There is another class of persons who will persist in error even if it means the world burns, because they want everything to change except themselves. Warnings are wasted on such persons. They are born to be used by those who will tell them what they want to hear. People who want to be lied to will always get their wish. 

I hope the plan is stopped. If this plan is implemented and it turns out to be a good thing, never listen to anything I say ever again. But if I'm right when leading lights from both parties and the "Qs" of this world are pulling for it, remember who saw it coming. 

Most people who are against the federal reserve gravitate towards that quote where one of the guys founding it was supposed to have said "we will charge them interest on money we create out of thin air." That really doesn't apply to taxpayers directly though. The Federal Reserve is really a bunch of private banks who have a special relationship with the Federal Government, not a government agency. And according to the arrangement, any profits they get from interest payments are to be remitted to the U.S. Treasury. So the interest they get from thin air is mostly not so direct as all that. Were the scam that simple, most people would catch on and demand that it be ended. 

They have to have more shells in the game to pull off the crime, but the subtle execution does not lessen the magnitude of the theft. They can still steal vast amounts of wealth, without most people ever connecting the dots. What the federal reserve allows them to do is to "over-leverage". That is, use a financial asset as the basis for creation of credit through debt to acquire another financial asset, which they then use as the basis for more credit creation and so forth. 

Here's an example I give of leverage:  If I borrow a billion to make a billion plus a million, then I am a millionaire even though I gained only one-tenth of one percent on the money I borrowed. But if I lose one-tenth of one percent, I am insolvent and can't even pay back all of the billion that I owe. What if I owe that to someone who is also highly levered and they need my money to stay solvent? Then the people they owe money to are in trouble. It is a house of cards built on leverage, which as I explain in my book, should be strictly regulated. This explains the basis for a lot of the "wealth" in our nation. We have corporations and people who are paper millionaires that have a billion dollars in debt. 

Obviously that is extremely risky and no one could get away with it for long because even a slight miscalculation in which the value of what you own goes down would leave one insolvent. That's where the Federal Reserve comes in. What happened in 2008 was that a medium-sized default threatened to turn into a system crash because all the big players were highly-leveraged. The Fed launched several programs to make sure the big boys stayed solvent regardless of how reckless they had been using leverage. Of course, if you or I got strung out on debt, they'd take our homes. 

The localist answer is to limit by law both global corporations and the leverage they use to buy up the world on credit. And hold officers of the bank personally responsible for the assets of the bank. The banker's answer is to make the tax payer the lender of last resort so that massive leverage can continue. The big picture is this will keep us tottering along a narrow path between deflationary collapse or hyper-inflationary financial ruin until we fall off one way or the other. 

When the market would not supply the banks with the "liquidity" they needed, the federal reserve was there to buy the asset, or loan against it, at an above-market price. In this case "liquidity" really means "pay me for this 'asset' according to what I paid for it, not according to what the market prices it at now, so that I don't go down in a giant storm of debt." And the Federal Reserve has done it. Their balance sheet of stuff they have bought is huge. Far larger than it has traditionally been. They are buying their buddy's assets, propping up the price, but not selling the same stuff because putting more on the market would lower the price. The effect of their operations is to artificially lift the price of what they are massively buying.

That's also because if they sell the assets they would be taking money out of the market, and they need to keep pumping more money into the market to keep up with the ever-increasing amounts of leverage the big players are creating. If you need only 1% margin to protect against price shocks, every time a big bank levers up and creates another billion dollars then you need to pump in another ten million dollars to provide that margin. What if prices get volatile? Like they have lately. What if assets face a sustained drop in price, like they have lately? The Federal Reserve has tried make loans almost free for the big players, and it has tried every buy-back program allowed by law, but it isn't enough.

The second problem is that some of the assets the Fed bought may never reach the "market price" they paid for them. Some assets don't have a liquidity problem- a liquidity problem means it will take time before they can be sold at a profit but they are worth at least what you paid for them. This is different from a solvency problem. A solvency problem means the asset has lost real value and will never be sold for what was paid for it. The Federal Reserve can hide this for quite a while, because they can keep creating more money and credit and are never forced to "liquidate". As long as they pay below the maturity price for a secure asset that will pay 100% of the time, they can slowly transfer the losses of their friends onto the backs of everyone else holding dollars without it being noticed much.

A hedge fund or investment bank may have bought a treasury that pays $1,000,000 in a years time for $998,500. Then used that asset as the basis for a loan for the price of the asset. In other words, leveraged. It works great when asset prices are going up. But when they are dropping, you borrowed money to buy something that lost value and you still owe the money. If the market price for bonds dropped to $995,000 they are stuck. That's where the Federal Reserve comes in. If you are one of the connected they can pay you an above-market price for that asset- like what you paid for it. They will still, on paper, make money just by holding it until it matures. 

The fact that these people can buy certain government bonds and act like they still have the money they used to buy the bonds has made the bonds super popular, even if they pay little interest. In some places, the government bonds have negative interest. The buyer pays to loan the government money. They pay $1,000,100 for the right to a government bond that will pay them only $1,000,000 in a year. Ever wondered who would do something that dumb? It's not dumb if they can have the promise of $1,000,000 in a year and in the meantime still get the money in a low interest loan used to buy higher-interest securities. That works great so long as the securities keep going up in price. That's the key to keeping this asylum running.

But negative interest rates are the end of the road for the Federal Reserve's tactic of bailing out its friends while still showing a paper profit. It would show a paper loss on that transaction, and an overall loss if it didn't have a large supply of instruments which paid at least some interest. And that's where we are. And their friends now have widespread losses on a whole range of securities that they bought with borrowed money. They are bankrupt billionaires with friends in high places.

That's where this new scheme comes in. I will quote from the Bloomberg article starting with a long list of asset-purchase programs which will be run by the U.S. Treasury, not the federal reserve. The federal reserve will merely provide loans to the Treasury to fund the bailouts.....

CPFF (Commercial Paper Funding Facility) – buying commercial paper from the issuer. PMCCF (Primary Market Corporate Credit Facility) – buying corporate bonds from the issuer. TALF (Term Asset-Backed Securities Loan Facility) – funding backstop for asset-backed securities. SMCCF (Secondary Market Corporate Credit Facility) – buying corporate bonds and bond ETFs in the secondary market. MSBLP (Main Street Business Lending Program) – Details are to come, but it will lend to eligible small and medium-size businesses, complementing efforts by the Small Business Association. 

To put it bluntly, the Fed isn’t allowed to do any of this. The central bank is only allowed to purchase or lend against securities that have government guarantee. This includes Treasury securities, agency mortgage-backed securities and the debt issued by Fannie Mae and Freddie Mac. An argument can be made that can also include municipal securities, but nothing in the laundry list above. 

So how can they do this? The Fed will finance a special purpose vehicle (SPV) for each acronym to conduct these operations. The Treasury, using the Exchange Stabilization Fund, will make an equity investment in each SPV and be in a “first loss” position. What does this mean? In essence, the Treasury, not the Fed, is buying all these securities and backstopping of loans; the Fed is acting as banker and providing financing. The Fed hired BlackRock Inc. to purchase these securities and handle the administration of the SPVs on behalf of the owner, the Treasury. 

In other words, the federal government is nationalizing large swaths of the financial markets. The Fed is providing the money to do it. BlackRock will be doing the trades.
This scheme essentially merges the Fed and Treasury into one organization. So, meet your new Fed chairman, Donald J. Trump. 

In 2008 when something similar was done, it was on a smaller scale. Since few understood it, the Bush and Obama administrations ceded total control of those acronym programs to then-Fed Chairman Ben Bernanke. He unwound them at the first available opportunity.

 There will be no unwind this time and if there is, it will be at a titanic loss borne by the taxpayers. The financiers learned that they were too big to fail and kept going back to the casino. They are about to take all of their losing bets to the Treasury, which will buy them at an above-market price- if it wasn't an above market price, the owners could just sell it on the market. Wall Street will keep its profitable investments, and unload its bad investments on the rest of us. This is going to be a massive dump of toxic trash to the taxpayers books.

I have been saying since the 2008 bailouts that this was going to be a situation where the connected dump all of their losing investments on the taxpayers while keeping the winnings for themselves. But even then, I never understood how to get the last piece in place- those purchases from the 09 bailouts were not on the books of the U.S. Government, but the consortium of private banks managing our currency- the Federal Reserve System. I had wondered exactly how they were going to get their losing bets transferred to the taxpayers books. This is how. This is the conduit for the largest bank robbery in world history- but its the banks and hedge funds that are robbing the rest of us.

What I said at first, about the Federal Reserve not "charging interest off of money we create from thin air" directly from taxpayers won't apply anymore. The Federal Reserve will charge taxpayers interest for money they create out of thin air. If they remit that money back to the Treasury, it will only be so that Treasury can buy the losing assets of Federal Reserve Member banks at above-market prices. They have a system in place where they absolutely cannot lose money no matter what they do- but it is built on the backs of the honest labor of the rest of us. This plan is not some kind of godsend for the heartland, it is betrayal. Woodrow Wilson is supposed to have said on leaving office that he had "unwittingly betrayed his country". On his watch the Federal Reserve was created. Now, if he goes through with this, Donald Trump will also betray his country. We should pray that he doesn't follow through.

Get the books

A Harbinger of Doom - No Banks Park Bonds, All Sell to Fed

The Federal Reserve is both buying bonds and paying banks to park their bonds with the fed for a while. Looks like no one is parking them. You can count on the fed paying the banks above-market rates for those bonds with either option, otherwise they wouldn't use the fed, they would just sell or lease them on the open market. It looks like the real reason for the failure of the repo market is that banks are desperate to dump treasury debt. They don't want to hang onto it and rent it out to people who temporarily want collateral. 

An analogy would be if the big landlords in a town realized their community was going to lose its largest employers shortly and that the demand for rent houses was about to plummet. So they want to sell the houses and get out before its clear they are worth less. But if they all try to sell at once, the market will respond to that by causing the price of a house to go down. So it is a lose-lose for the landlords. They misallocated capital. But of course in this world, where the big banks own the political system, they believe that socialism is the answer - for their losses. They will keep their profits. They want the US government to buy their "houses" at what was the market price, before things went south. 

So at the risk of using too many analogies, imagine you have the right to have someone flip a coin. If its heads you win $100, if it is tails, you get nothing. That right is worth $50. Let's say you bought that right from someone else for $49. If you do that 1,000 times a day you keep the spread and do well. This amounts to waiting for the coin to be flipped, and if you lose, selling the "right to the profits" to the government as if you could still win the coin toss. It's pretending that the instrument is still worth $50 before we had price discovery and found out it was worth nothing. That's kind of like what the banks are now doing to all of the rest of us every day on a large scale, with the full approval of your favorite politician and your most hated politician of both parties. 

Whatever the answer to stopping this looting is, it isn't continuing to vote for one of the two established private political clubs that the media owned by the same folks keep telling you are your only options.

This is a bail-out for the banks at what will ultimately be the expense of the rest of us, and that is criminal and treasonous enough, especially since your favorite politicians are all going along with it. But why is this a harbinger of doom? We should be very alarmed that the banks are all choosing to sell rather than rent their bonds to the fed. This can only mean they expect those bonds to go down further in the future and are dumping a bad investment. When bonds go down, it is because interest rates rise.

There is no way our economy can prosper with rising interest rates, but with so much debt to sell, the market pressure for rates to increase will be enormous. Either the economy will crash due to much higher interest, or the dollar will crack due to much higher inflation if they suppress interest rates. Or both could happen, a return to 1970's style deflation.

A Disease of the Global Travelers and Centralization's Hidden Costs

The Coronavirus seems to disproportionately impact the international and political classes. Normal folks who stay in one area and don't hob-knob with jet-setters are much less likely to be exposed, at least in the first few waves.

This is a crises in which are elites are disproportionately at risk, and disproportionately have access to care. Politicians, international businessmen, and celebrities are in the news as "testing positive" for the virus. That makes the average person think that "someone they know" has it. But you don't really know those people. The magic of mass-media just makes you think you do. While the elites test positive, we can't even get a test!

Notice how in smaller nations, with less entrenched bureaucracies, the known effective treatment gets to patients much more quickly. It isn't like hydroxychloroquine is a new drug, we've known the risks associated with it for decades when fighting other maladies. In tiny Bahrain, it took five days for them to go from "discovery that it is effective" to "administer to patients". Here, even though our Chief Executive has known and publicly touted its efficacy in treating Coronavirus, he can't seem to get past his own government's built-in hurdles to get it to the public quickly. Localism protects people better than large centralized governments.

This has been a recurring theme of mine- localism is security. We pay for insurance, we pay for setting up firewalls in computer systems and office buildings. Think of the costs of forsaking the "efficiency" of globalization as insurance. And we now see that "efficiency" comes with hidden costs. Not only is mass global commerce risky as far as spreading pathogens goes, but the vast bureaucracy which grows around a central state is actually an impediment to effective treatments reaching the general public in a timely fashion. And in a pandemic, time matters. 

That doesn't even include the long-term damage our ruling class is doing to the economy in an effort to stop short-term damage now.

A Decentralized Approach to Fighting the Coronavirus

The estimates of a million or more deaths in the US from the Coronavirus neglect that fact that people, groups, businesses, cities, and states alter their behavior voluntarily in the face of an epidemic. Some people seem to think that if the Federal government doesn't do something, then nothing gets done. That's not true, especially in a some-what free society. The ham-fisted totalitarian crack-down we have seen in China has slowed the spread of the virus, but that doesn't mean that this should be emulated. We should have an American answer to the virus, one which works with our strengths of freedom, decentralization, and ingenuity.

Let's start with something that needs to be said: Big Media is owned by global corporations, and so it should not be surprising that they have a pro-globalist outlook in their news, reporting, and entertainment. As such we cannot expect them to tell the truth about how secure national borders, a fire-walled economy which makes many of its own products and whose companies are national rather than global is much better at protecting people from pandemics than an open-borders globalists society which is always and in mass quantity sending and receiving goods and people to all other nations. In other words, decentralization is security. It is insurance. It is a firewall. And not just against highly contagious diseases. If our economy is vitally linked with that of say, China, when they go down, we go down too. Globalism has a lot of hidden costs, and the globally-owned media and the politicians they promote cannot be trusted to tell you that particular truth.

So if we were a more localist nation and society we would already be safer than we are now. Our economy and stock markets would already be more stable and resilient than they are now. We would not have to take any government action to make us safer than we are now because a decentralized government is inherently safer from the kind of threats we are now facing.

This is a problem made worse by an over-connected global economic and political system. Naturally, those who made the problem worse with over-centralization also advocate centralized responses to fix the problems which over-centralization caused. There are all sorts of government responses to prop up the stock market and provide "liquidity" to Wall Street financiers. There are calls to mandate lockdowns, China-style. And of course there are calls for more funding for various central-government programs to provide top-down management of the issue.

The reason doctors and health care is so expensive in America is that long ago the medical profession colluded with government to artificially restrict the supply of doctors by erecting unnecessary barriers to entry into the medical field. Government intervened on the supply-side to limit supply. Restricting supply always causes price increases. Normally that would reduce demand and the situation would correct, but this is health care, which is an inelastic good. People pay whatever it takes because they can die if they don't. So government's "solution" was to intervene on the demand side as well!  So government started throwing government money at health-care to make it "affordable". In other words, intervening to prop up the demand-side too.

Government first intervened in a way guaranteed to increase costs, and then tried to make up for it be heavily subsidizing those costs for increasing numbers of people. That didn't fix the underlying affordability problem which government helped produced, it just made it bigger by transforming it from a family issue to a national issue. 

Central government intervention has the potential to mess up pandemic response just like they did the rest of health care. They've already done it. For example the bottleneck in testing for the Wuhan Virus in the United States was in large part due to the fact that the Food and Drug Administration had ordered that all testing for the virus go through the Centers for Disease Control. Until last week only FEDGOV could process the tests! The CDC developed the tests. Only in the face of a massive bottleneck did the bureaucrats loosen their grip and on March 9th, less than a week ago, lifted this burdensome restriction. It is madness to look at facts like these and think that the root problem is inadequate central government action.

Still, people are focusing on socialist answers. For example I have heard calls for making any vaccine developed "free". No doubt socialists expect some drug company to risk massive amounts of money developing a vaccine and then give it out to the government at cost! This is an example of how, no matter how reasonable it sounds, socialism kills people with stupidity masked as caring and virtue. Socialism only looks good compared to what we have- Corporate Crony Rule where they get to socialize their losses but keep most of their profits. 

A better government response would be one which frees private firms from the government restrictions which hinder them. For example, I'd ask drugmakers what the ten most useless regulations government has imposed on them that slow down the roll out of vaccines. Then I'd suspend them as regards to this vaccine. I'd also push for legislation making the first billion dollars in profits tax free for any company with a safe and effective vaccine for the virus. And I'd push for legislation allowing them all to deploy without worrying about patent issues for two years- we could sort out who came up with the version that's going to get patent protection later. 

I'd also push for cheaper general flu anti-bodies right now using some of the same tactics. My kid had the flu last year. We payed $153 plus a doctor's visit for a general flu anti-body so that a flu which normally took three weeks to run its course took only a few days. That's available right now to lessen the impact of basically any flu. We just need to make sure people know that's a viable option, plus provide incentives similar to those described above to get the cost down, and awareness up. The central government needs to be a clearing-house for best practices used by others, not a command center. State and localities can decide for themselves what measures are truly necessary. Somewhere out there is an effective batch of strategies to beat this disease. We just need to free everyone to find it and let them reap the rewards for doing so, instead of them worrying about politicians jumping in and stealing both the credit, and the rewards with counter-productive government action disguised as "helping". 

Call For "Liquidity" Sign That Government Debt Load is Cracking Economy

I keep hearing complaints from Wall Street media outlets that there is "no liquidity". It's usually phrased in such a way that the average person thinks it should be some kind of problem for them and coupled with demands that the government "do something". Government has been doing something, for a long time, and that's only feeding an unsustainable addiction to credit and leverage.

When hedge fund dealers complain "there is no liquidity" what they mean is that banks won't loan them the amount of money they want at a price they like on the collateral that they have. Say they borrow a Government bond overnight, and then use that bond as collateral for a loan, then use that loan to buy something for one day that pays slightly more interest than the bond. Each transaction makes only a tiny profit from all that moving of paper and digits around, but when you move a billion dollars a day around, even a tiny net can get you very rich. At least on net. You may need to borrow a billion a day to make a billion and ten thousand a day.

This doesn't really add much to the real economy. It doesn't produce a product people use. It doesn't provide a service people want. It just gets in the middle of other transactions and reaps a tiny profit each time. But financialization has grown to become such an enormous part of the economy that if it goes down, it will be disruptive.

Look, when people buy a U.S. Treasury, it should be good collateral for a loan. So someone should be willing to pay to borrow them to use as loan collateral. This may be in the form of an agreement where "I will buy at price X for three days and you will buy it back from me at price Y at that point in time." A lender should be willing to loan some amount for some price against that collateral. But the bond in this case is a hot potato. They don't really want the bond for itself, just as something that can be used as collateral over and over again. The dealers just buy the bonds because the government allows them to buy it, then create credit from thin air based on the bond as collateral to buy something else, then rent the bond out on a short-term basis for others to use as collateral.

If this system breaks down at any point- including any player in the chain deciding they want more compensation for the transaction - then not only can those who spend all day doing this not skim, but the demand for bonds as collateral would collapse.  These bonds pay interest below even the official rate of inflation. They are not a  good investment in themselves, but government has managed to juice demand for them by allowing them to be used as top-notch collateral in all sorts of complicated schemes. Basically the financial industry can buy bonds that pay almost no interest but then borrow money against it for the full amount and rent it out to others for them to do the same and also use that money to buy something else. If you can do that, why not buy the bonds? Why not leverage to the moon and buy up the whole earth with it? That's what certain connected players have been doing for years now.

But highly-levered players are players that will go broke if their investments ever lose even a tiny percentage. If I borrow a billion to make a billion plus a million, then I am a millionaire even though I gained only one-tenth of one percent on the money. But if I lose one-tenth of one percent, I am insolvent and can't even pay back all of the billion that I owe. What if I owe that to someone who is also highly levered and they need my money to stay solvent? Then the people they owe money to are in trouble. It is a house of cards built on leverage, which as I explain in my book, should be strictly regulated.

When people along this chain can't be sure the other players can make good, they either don't loan them as much, or raise the price, or don't loan them anything at all. Why should the government care if rent-seekers and gamblers go broke? Because government bonds have become the chips. Their value has been grossly inflated by their use as "collateral". If that system breaks down and people only want the bonds for their value as final investments instead of collateral for other speculation, then the price, or interest rate the bonds pay, would have to reflect true market value. And that would be the end-of-the-world-as-we-know-it. The US government is teetering on the edge of insolvency now, and only gets away with it because of the ridiculously low payments it makes on bonds.

If the demand for these bonds is cut in half because the other half of the players are suspected of not being able to pay back their debt, then who will buy government bonds? Increasingly, governments themselves are doing that. That is the expressway to currency collapse but it may be the only off-ramp on the super-highway to deflationary collapse. When leverage is this high in the system, an economy has to ride a razor's edge to keep from veering off to one side or the other. The only way to build resiliency in the system is to restrict leverage, but then the moguls on Wall Street would really have to work for a living instead of getting rich gaming the system. Politicians couldn't just borrow and spend with impunity. Unsafe levels of leverage has allowed both. Localism has the solutions.