FED Claims Of Profit Nothing More Than Giant Ponzi Scheme
January 13, 2010 - The FED has just posted its numbers for 2009 and at first glance they are impressive. They made a profit of $46 Billion; more than in any other year. And, also at first glance, that is good news for taxpayers. After all, all FED profits are turned over to the Treasury Department. $46 Billion in profit means that taxpayers should have to pay a lot less in taxes. Unfortunately, all of these first impressions are wrong. A closer look at these profits leads one to wonder if the FED has actually hired Bernie Madoff as a consultant?
The FED's mission is to keep inflation low and to work to see that employment remains steady. They do this by controlling the money supply - that is the amount of money that is available in the economy - and by setting interest rates for borrowed funds. The FED is the only organization that can actually legally create money out of thin air. And creating money has been at the core of the FED's business since late 2008. Between September 2007 and the end of August 2008, the FED more than doubled the money supply. And although they did reduce the amount of money available over the course of 2009, the supply is still significantly higher than it was at the beginning of 2008. This will eventually lead to inflation.
The reason that the FED created so much money was because of the economy. The FED and the federal government were trying to infuse cash into the market and to make credit available for business and qualified individuals. What they created was a program called the Troubled Asset Relief Program or TARP. It has been a disaster from the beginning. Banks took the money offered through the program but to this day they are still not lending the way that they should.
The FED also used its newly created wealth to buy securities. Among other things, it purchased mortgage backed securities and US Treasury Bonds. Now, let's take a good look at the profit that it just reported.
It purchased mortgage backed securities from Fannie Mae and Freddie Mac; two companies which were taken over by the government in 2008. So in essence, the FED (which is part of the government) purchased securities from these other organizations (which were also owned by the government) and got paid interest on them. Because they simply printed the money to purchase these securities, they actually got the securities for free - nothing more than the cost of paper and ink. And because most of these mortgage backed securities were still performing, they realized a profit.
But wait a second. If Fannie Mae and Freddie Mac had kept these securities, wouldn't they have been paid this same interest? Well, the short answer is, "yes". Something is wrong here. The only purpose for these purchases was to hide an expansion of the money supply. It is a fraud being committed against American taxpayers and the way that bill will be paid is likely to be through inflation.
But that isn't the worst part. The worst thing that the FED did is to start buying US Treasury bonds. These bonds are how the United States finances its massive debt. Normally, bonds are sold to individual investors, large institutional investors and to foreign governments. But when the economy started to fall apart, both the institutional investors and foreign governments cut back on their purchases of US bonds.
So, because the government needed large amounts of cash to pay for TARP and the stimulus bill, the FED created more money and then bought Treasury bonds. Put another way, the FED (which is a government organization) purchased bonds using more money that it simply printed up from the Treasury Department (a government organization that pays interest on US bonds). So the government is paying itself interest on bonds that were purchased using money that was created out of thin air and then claiming it as a profit!
This is fraud, pure and simple. There is no profit here. At best, the net effect of this activity will be to create inflation and to steal performing assets from two organizations owned by taxpayers; both organizations continue to hemorrhage money.
The victims in this scheme are American taxpayers. The only thing that the FED should have done with that $46 Billion "profit" was contract the money supply by that amount. But that is not what they did.
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