How to grow your wealth during the coming collapse?

(Martin Jones) #1

180 THE BiG DROP



  1. The Fed is now insolvent. By buying highly volatile
    long-term Treasury notes instead of safe short-term
    treasury bills, the Fed has wiped out its capital on
    a mark-to-market basis. Of course, the Fed carries
    these notes on its balance sheet “at cost” and does
    not mark to market, but if they did they would be
    broke. This fact will be more difficult to hide as in-
    terest rates are allowed to rise. The insolvency of the
    Fed will become a major political issue in the years
    ahead and may necessitate a financial bailout of the
    Fed by taxpayers. Yellen is a leading advocate of the
    policies that have resulted in the Fed’s insolvency.

  2. Market participants and policymakers rely on mar-
    ket prices to make decisions about economic policy.
    What happens when the price signals upon which
    policymakers rely are themselves distorted by prior
    policy manipulation? First you distort the price sig-
    nal by market manipulation and then you rely on
    the “price” to guide your policy going forward. This
    is the blind leading the blind.
    The Fed is trying to tip the psychology of the consumer
    toward spending through its communication policy and low
    rates. This is extremely difficult to do in the short run. But
    once you change the psychology, it is extremely difficult to
    change it back again.
    If the Fed succeeds in raising inflationary expectations,
    those expectations may quickly get out of control as they did
    in the 1970’s. This means that instead of inflation leveling off
    at 3%, inflation may quickly jump to 7% or higher. The Fed
    believes they can dial-down the thermostat if this happens, but
    they will discover that the psychology is not easy to reverse
    and inflation will run out of control.
    The solution is for Congress to repeal the dual mandate and
    return the Fed to its original purpose as lender of last resort and
    short-term liquidity provider. Central planning failed for Stalin
    and Mao Zedong and it will fail for Janet Yellen too.

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