The Federal Reserve may be responsible for the biggest financial meltdown yet to come. In fact, this meltdown could be even bigger than the subprime mortgage crisis in 2008.
Let me explain. We all know the Federal Reserve has created an artificial economy that has been built on the availability of easy access to cheap money due to near-zero interest rates. There is no argument here. Via its aggressive quantitative easing programs, the Federal Reserve has produced an economy that is dependent on cheap capital.
Here’s the dilemma:
The climate of historically low interest rates has driven a false sense of comfort. Consumers are buying more due to the low financing charges. Whether it’s a home, furniture, vehicle, computer, or other non-perishable good or service, the incentive of low interest rates has resulted in an economy that could be in trouble once interest rates ratchet higher—and they will.
According to the Federal Reserve Bank of New York, aggregate consumer debts increased by $31.0 billion in the fourth quarter, which is not a big change; but consider the amount of consumer debt at the end of 2012—it was an astounding $11.3 trillion. (Source: “Quarterly Report on Household Debt and Credit: February 2013,” Federal Reserve Bank of New York web site, last accessed March 13, 2013.) The amount is below the record $12.7 trillion in the third quarter of 2008, but it’s still high and extremely vulnerable to higher interest rates, which will have an impact on consumer spending and gross domestic product (GDP) growth. Retailers could feel the pinch again.
During fiscal year 2012, $359,796,008,919.49 that had been forcibly extracted from American taxpayers was transferred into other hands. Most of it ended up in the pockets of the global elite. So what did the American people get in return for that 359 billion dollars? Nothing at all. No roads were built, no schools were constructed, no teachers were paid and none of it went to national defense. It was simply interest that was owed on the national debt, and most of it just made the ultra-wealthy even wealthier. But this is exactly what the Federal Reserve system was designed to do when it was created back in 1913. It was designed to get the U.S. government trapped in an endless spiral of debt that would systematically drain the wealth of the American people and transfer it to the ultra-wealthy and the international bankers. When most people think of a “wealth redistribution scheme”, they think of a government raising taxes in order to give money to poor people. But the Federal Reserve system works in reverse. Money is taken from all of us and it is redistributed to the global elite. That is why a federal income tax was instituted the exact same year that the Federal Reserve was. Money is extracted from all of us through taxation, and then it is transferred from the federal government to the ultra-wealthy through debt payments.
So what role does the Federal Reserve system play in all of this?
Many critics of the Fed focus on how much money the Fed makes each year, but that is a mistake. The truth is that the Fed returns the vast majority of the money that it makes to the U.S. Treasury. The Fed is not a money making machine itself. Rather, it is a system that enables others to make hundreds of billions of dollars each year.
I think that it is easiest to think of the Fed as a “middle man” between the U.S. government and the global elite. It was designed by the international bankers for the benefit of the international bankers. The entire goal of the Federal Reserve system is to make the ultra-wealthy even wealthier.
Beneath the positive headlines Bloomberg’s Joe Brusuelas notes that there is evidence that a good portion of consumers continue to face a difficult adjustment to the $125 billion tax hike in January and the 15 percent increase in gasoline prices during the past four months. Spending among the upper quintile of income earners is masking weakness elsewhere but it is jobs headlines that are really hiding the dismal reality in America. As the following chart shows, confirming our earlier discussion, the middle-class income-earner is becoming an endangered species (with no ‘conservation group’ willing to stand up for them) as the government holds the lowest income earners’ hand and Bernanke the highest.
Today legendary Jim Sinclair made one of his boldest predictions ever regarding the gold market when he spoke with King World News. Also, Egon von Greyerz, who is founder of Matterhorn Asset Management, told KWN that central banks “… are creating the most ideal conditions for the biggest bull market ever in gold.” We will get to Sinclair’s bold prediction, but first here is what Greyerz had to say in his remarkable interview: “Debt is going up everywhere. Central banks are printing unlimited amounts. They’ve gone from $2 trillion to $12 trillion if you take all of the central banks’ balance sheets in the last 10 years. $10 trillion has been created by central banks.”
Egon von Greyerz continues:
“Government borrowing is growing in all major economies. Not only is government debt exploding, but in the US there is the illusion that corporate balance sheets are very strong. Well, as a matter of fact US corporate debt is at an all-time high. It’s at 80% of GDP.
That’s the highest ever….
I worry about the time when the current asset inflation will give way to a serious asset deflation, which will inevitably happen sometime in the future. As an observer of markets I am, therefore, concerned that the decline in gold prices could be telling us that we are about to enter a period of asset deflation.