Smoke and Mirrors! Bernanke and Geithner are destroying the purchasing power of the US Dollar!

How to spend $1.5 trillion without Congressional approval

Step 1: Federal Reserve purchases $1.5 trillion in Fannie Mae and Freddie Mac securities, creating $1.5 trillion of monetary base to pay for these purchases. In FED speak this is called Quantitative Easing or something from nothing!

Step 2: U.S. Treasury quietly announces unlimited support for Fannie Mae and Freddie Mac on December 24, 2009, exploiting a loophole in a 2008 law that was originally written to insure a maximum of $300 billion in total mortgage principal (not losses, but principal).

Step 3: Over the next several quarters, the U.S. Treasury issues $1.5 trillion in new Treasury debt to the public, taking in the $1.5 trillion in base money created by the Fed in Step 1.

Step 4: U.S. Treasury hands that $1.5 trillion in proceeds from the new debt issuance to Fannie Mae and Freddie Mac.

Step 5: Fannie Mae and Freddie Mac use the proceeds to redeem the $1.5 trillion in mortgage securities held by the Fed, thus reversing the Fed’s transactions in Step 1, without the need for any other “unwinding” transactions (watch). The base money created by the Fed comes back to the Fed, and the mortgage securities purchased by the Fed disappear, by burdening the American public with a new, equivalent obligation in the form of U.S. government debt.

Outcome: The Federal Reserve closes its positions in Fannie Mae and Freddie Mac securities, the quantity of outstanding Fannie Mae and Freddie Mac liabilities declines by $1.5 trillion, thus allowing their remaining assets repay the remaining liabilities without a $1.5 trillion hole of insolvency, and the outstanding quantity of U.S. Treasury debt expands by $1.5 trillion in order to protect the lenders, while ordinary Americans continue to lose their homes and jobs.

Throughout this crisis, the ultimate objective of Bernanke and Geithner has consistently been to protect the bondholders. This objective will not change unless the leadership changes.

The above 5 steps are copied from Dr John Hussman’s current weekly comments:

http://www.hussmanfunds.com/wmc/wmc100125.htm

Economically this is exactly what is occurring. You would be very hard pressed to argue these steps any other way. IF you care about the truth and what sound economics really are, please take the time to read Hussman’s comments.

Start with last week’s Inflation Myth and Reality to further support his overall analysis:

http://www.hussmanfunds.com/wmc/wmc100119.htm

These weekly comments are in-depth and will take a concentrated effort to read and understand. IF you do invest this time, then you will gain a very strong macro-economic understanding of what is really going on. Please take this challenge!

- GarysOpinion

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