The Fed Rate, and Why?

A lot of people buy into the absurd notion that the Federal Reserve, an exclusive ring of politically connected private banks, exists to help the public make money. It is truly funny that virtually everyone in America has bought into this audaciously cynical scheme.

"So, if these 12 banks, led by the Bank of NY, don't exist to guaranty my investment returns at their own private expense, why do they exist at all?", John Doe inquires. Hmmm, John, I wonder...

The interesting thing about the privately held Federal Reserve banks, which makes them different from other banking corporations, is that they operate with the blessing of Congress and they only make loans that are backed by the U.S. tax base. In other words, they never take any risk. Why does congress facilitate such a deal? For a cut of the action, of course, the same reason every thug protects their bookie instead of going into business themselves. Sure, it's "technically" illegal for bankers to print new cash and immediately spend it. That's why they loan it to you instead, at interest, of course. It's also "technically" illegal for politicians to pay cash for votes. That's why they borrow it on your behalf, at interest, of course. Both of these dubious deeds are big, big business in the modern USA.

Let's ignore the fact that central banking (the Fed's business) is expressly illegal per Article I, Section 8 of the Constitution of the United States of America, an Article that has never been amended. To save some readers a bit of time, that Article reads:

The Congress shall have the Power:

To coin Money, regulate the Value thereof, and of foreign Coin, and fix the Standard of Weights and Measures; provide for the Punishment of counterfeiting the Securities and current Coin of the United States

No wiggle room there, the Bank of NY and other private banks in the Federal Reserve system have no Constitutional authority to print a national currency. Preventing private profiteering from legitimate governmental function (known in dumber parts of the world as "royalty") is the primary reason the U.S. Constitution exists.

Clear illegality of the Federal Reserve racket aside, why do they set their rates where they do? I have already explained at length how the Fed steals hundreds of billions of dollars annually from U.S. citizens, flagged in the blog section labeled "Please Read Me First." In this post, I want to look at the rate at which the Fed rakes in private profits, and why they do so.

First, it is important to understand why the Fed claims they exist, which is, specifically, to keep the world spinning on its axis. Yes, I'm serious. The Fed actually says the world will stop spinning if they are ever shut down. Don't believe me? Watch the Fed's own propaganda video: here.

After keeping the Earth rotating, the Fed's next big lie is that they were formed to prevent another Great Depression, conveniently forgetting that the Federal Reserve was created in 1913 and was the sole reason the Great Depression was perpetrated on America. After that, they have no good explanation for their own existence.

In fact, the USA was formed to rid us from the scourge of corrupt British profiteering from central banking, and we operated for the first half of our national existence without the Federal Reserve private central banks. During the times the Constitution was observed, and we had no central banking, the cumulative national inflation rate was 0%. This is easily confirmed by the dollar price of an ounce of gold between the American Revolution and 1913 when the Federal Reserve was formed: a steady $20/ounce. Since then, the Federal Reserve corporation's private shareholders have looted 98 cents of every U.S. dollar. The same ounce of gold now costs over $1,000, and the Fed managed to inflate the price of most other assets even more.

So if the Fed doesn't actually make the world turn on its axis, as they claim to, do they control anything? Well...

Does a Vegas sports bookie control the Superbowl by setting the point spread? Does a loan shark control the city by cracking knee caps for interest payments? Does the Federal Reserve control global capitalism by selling freshly printed FRNs?

The answer to all of these questions, is "no."

The Fed controls nothing. That's right, nothing. Like all the shysters listed above, the Federal Reserve corporation simply tries to maximize profits by operating within existing markets. Everything they do is aimed at this singular goal, to increase their shareholders personal wealth at the most expeditious rate the market will bear. The best rate the market can deliver is what determines the Fed's own interst rate, and the Fed constantly adjusts their rate as they chase daily market action.

Most economists firmly believe (not to be confused with "think") the Fed changes rates preemptively, you know, to keep the planet aligned and spinning properly on its axis. In fact, it is trivial to prove that the Fed controls absolutely nothing in a macroeconomic sense. Lots of intelligent people scream this, but they are shut up or shut down by unthinking robots in academia and the main stream media (which are, btw, the two worst places to actually learn something).

So, if the Fed actually does nothing to facilitate global utopia, what are they doing when they cut or increase interest rates? The answer is simple: the Fed cuts rates when banks can no longer profitably markup the Fed's freshly printed new cash. In other words, the Fed adjusts their rate to follow major markets, not to influence them. If individual investors believe their economic investments will bear fruit, then they are willing to borrow lots of bank cash, and the Fed can charge more for new bank reserves. If investors choose, instead, to place money in hiding, they will not borrow, and the Fed must reduce their markup in order to keep selling new cash. In other words, they have no choice but to discount their profits in order to keep buying hookers and blow.

"So if this is trivial to prove, prove it." John requests.

Ok. Below, is a chart of 3-Month Treasury rates, which is the market rate (determined by global auction) at which investors will opt to protect money rather than put it to work. The Fed loans freshly printed cash to their Primary Dealers for less than 60 days, but clearly they have the ability to mark their loot up a bit since they historically chase the 3-M Treasury rate when "setting" even shorter term rates. The Fed is always behind the 3-M T-Bill rate; the rate the market will bear. There is no other method to their madness, ever. Bob Prechter's elliottwave.com illustrates this nicely for his members (no affiliation), and well in advance of Fed actions:



There is a good reason for this, ask any Vegas bookie: if they try to play in the market instead of following it, they risk actually developing a position, or take risk, which is tantamount to placing a bet. That is what every bookie works to prevent by discounting spreads: becoming a player, instead of a kingpin.