Friday, January 1, 2010

How the Fed Banking Cartel Stays a Cartel

kcb wrote: "It's a free market, right? So if the Fed is charging banks more than the free market does for currency, then clearly the banks would prefer to get their currency from the free market and not from the Fed, right? So what prevents them from doing precisely that?"

Great question (and Happy 2010).

Nothing prevents that, normally. Depositors are a major, and the cheapest source of bank capital. Problem is, we have massive internet-based, speed of light bank runs occurring as we speak, not net deposits. De-leveraging, not leveraging.

In other words, banks have people lining up and the teller window to claim, not deposit, cash. Banks printed leveraged cash for roughly 39 out of of 40 the people lining up, and most of that cash has been lost to wild banker speculation. The bank thought the FDIC would cover their losses, but that only worked for the first $50B or so, which has already been sucked dry. The next $15T in bank losses is the part that hurts.

0% short term Treasury rates prove that people are moving their money out of banks at a pace few dreamed possible (I dream a lot faster pace, within a year or two). Overwhelming demand at the Treasury window (now THEY have net deposits) means the current 3M-T Bill yields less today than the day Hitler rolled over Poland (the previous all-time low).

That is the main reason the private Federal Reserve central bank (supposedly) exists, to counter bank runs with freshly printed cash. But that is a myth for non-cartel banks, the Fed simply turns them away (by charging a few thousand percent too much during times of severe distress) in an attempt to destroy them.

While the Fed is charging outrageously high interest rates for new capital, as they are today, they leave non-cartel banks no recourse but to (1) go farther in the hole, paying through the nose to support the Fed or (2) close, and have their assets seized by one of the NY Fed cartel banks.

That's how the private Bank of NY (aka the Federal Reserve) guarantees US banking power stays concentrated in NY.


  1. FDR, isn't it possible that banks that borrow money from the fed are putting it somewhere where they can get a higher rate of return?What is keeping them from taking their $'s overseas, which is what the carry-trade crowd is doing?

    The Fed makes a nice profit, the banks still profit. For now...

  2. FDR best wishes for a great 2010!!
    According to prechter in a recent interview “Yes, a depression is a period that’s difficult for many many people, but it’s not the apocalypse, it’s not the end of the world. It’s just a tough period that’s gonna last, you know, five to seven years and then we’ll come out the other side.”
    It seems that prechter is not that pessimistic and hopes to see a recovery in about 5-7 years but your stand if i am not wrong is we will be seeing deflation for decades if not more.Neither does prechter see a end of the world or a move into the dark ages...then why are you so pessimistic ? Do you still believe we are headed into the dark age?

  3. FDR: In a way, you didn't really answer the question.

    You assert that the Fed is charging a few thousand percent too much for cash they issue.

    The question is: relative to what?

    If there is some other source of currency that free market players can get it from, then why wouldn't the banks get their currency from that market and simply ignore the Fed?

    What you're saying implies that such a source doesn't actually exist. After all, if it did, then institutions (such as banks, but not necessarily limited to banks) could get their currency from that market and bypass the Fed entirely. But you appear to be arguing that they're not doing that, either. And that means that your assertion that the Fed is charging a few thousand percent too much must be speculative.


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