Do you remember years ago (not too many if I recall) when the Fed would meet and “signal” through open market activities “what” they decided to do? Back then (maybe 2002 or ’03, I can’t remember), the Fed NEVER, EVER announced policy or policy changes. Then, Alan Greenspan decided to make the Fed “more transparent” and actually announce policy and any policy changes that were decided. I can still remember laughing at the time, thinking how it was all “public relations” and it was still more important to watch “what” they did rather than what they said. Now, Ben Bernanke does CNBC interviews, public announcements and even 60 Minutes interviews.
That said, I would contend that the Fed is far more “opaque” than they ever were in the past. Just over the last 4 years they have made $ Trillions in loans to banks, foreign banks, corporations here and abroad and even individuals. Yes, that’s correct, both Treasury and Fed loans ended up directly in certain individuals’ hands. Of course, NONE of this would have come out if not for FOIA requests. My point is this, the Fed was far more “above board” in the old days. Maybe because “money” was, well, shall we say “more real” or “less fake”. In any case, up until 1971, Dollars had at least some link to Gold and until 2007-2008 the Fed had not blown up their balance sheet.
“Blowing up their balance sheet”, funny thing, the Fed HAS already done this by tripling its size in less than 4 years…but wait…there’s more. Let’s look at the new and improved Operation Twist. Now, they will be buying Treasury securities from 6 to 30 years out in maturity, does this make sense? They are vastly extending the average maturity in their portfolio at the same time they have dropped interest rates to nonexistent levels. I bet that past Fed Presidents would ask Ben Bernanke if he was crazy for extending maturities when rates are at all time lows (I bet even Paul Volcker is scratching his head on this one). Yes, I know, a central bank can never go “bankrupt” because they can print whatever they need, whenever they need it. So when, not if, interest rates start to rise, the Fed can and will watch losses mount in their bond portfolios. They will of course also experience some (probably mucho) defaults on the nearly 2/3rd’s of their portfolio that consists of junk of all sorts but that’s another story for another day. They can’t become “insolvent” because of their ability to print, BUT they can and will end up with a negative net worth!
To me, it really doesn’t make sense, why go through all of these contortions? Why buy Treasuries and jam the maturity out into the future? They are buying all of these bonds that promise to pay them…wait for it…in Dollars! Why not cut out the middleman, print Dollars and just pay themselves? It would be a lot easier right? I of course am being sarcastic but think about it, the Fed buys Treasury and other bonds of all sorts that promise to pay Dollars, who are they fooling? They “invest” so they can earn Dollars that they themselves create? Why not just wave a magic wand? The Fed of course would reply that they do what they do for “the benefit of the economy”. Do you believe this? Is it fair that the participants in the economy work and give their labor for pieces of paper that are created at will.
I wrote the title and made mention of “the old days” to try to illustrate just how easy it is to “forget”. And FORGET we have! The monetary system has become a total joke that would have either been laughed out of town or strung up on lamp posts less than 50 years ago for “Ponziism” (new word?). Which leads me back to the title, people just don’t remember “back when”. They don’t remember because they have been “helped” to forget. The Fed’s “going public” was not for transparency, no, the Fed makes announcements for public consumption and public consumption alone. You do understand “public consumption” right? In other words to propagandize or brainwash? The sheep, must be kept in line and cannot be allowed to stray to far from the Ponzi system. They especially cannot be allowed to do it en masse because that would put an end to the Ponzi.
So the next time that you see, hear or read any announcement from the Federal Reserve, please remember that it didn’t used to be this way. It didn’t need to be because free market forces were allowed to correct malinvestment, today is a different story. Today, things are “explained” to us so that we will “understand”.