I debated whether to add this on to one of the two recent threads about Fed policy but this sort of chrystalizes and encapsulates the failure of both Fed and Treasury policy.
1. Yesterday on "Meet The Press", Alan Greenspan echoed many other Fed analysts by noting that Quantatative Easing has NOT filtered down through the economy. Lending has been flat. QE II has been great for Wall Street banks who can borrow for next to nothing and then lend it back to the Treasury at 3.5 % on the 10 Year Note or 4.5% on the 30 Year Bond. As I pointed out in another thread, if we look at exactly WHO got "emergency financial assistance" it is clearly a sick joke ! Billions in bailout money to banks in Mexico, Bahrain and Germany ? Billions to Japanese car companies ? $2 TRILLION each to Citigroup and Morgan Stanley ! $800 billion to Goldman Sucks ! Billions more to billionaires and millionaires with Cayman Islands and Bermuda addresses ? Literally welfare for billionaires under the Term Asset-Backed Securities Loan Facility or TALF. For instance Cristy Mack and Susan Karches ( Cristy is the wife of John Mack, Chairman of Morgan Stanley and Susan's late hubby Peter was President of Morgan Stanley's investment banking division ) put up $15 million, borrowed $220 million from the Fed and used it to buy student loans and commercial mortgages. Under the Fed's unbelieveably generous terms, they got to keep 100 % of their profits and the Fed and Treasury promised to pay 90% of any losses. Multiply what these gals did by hundreds of similar type investments and there goes a TRILLION dollars of taxpayer money to people who don't need to get a nickel . Literally public assistance for a wealthy wife and a rich widow. No wonder Ben didn't want Congress to do an audit or to show anyone the Fed's books !
2. Wages and salaries have gone up $55 billion. Every penny of that increase has been eaten up by the increase in food and gasoline prices. REAL wages are stagnant.
3. The Fed is buying 70 % of the Treasury's new issues of debt. S & P just downgraded the credit rating for the U.S. What interest rate will be required when the Fed withdraws in June and new lenders have to be found to replace the Fed ?
4. Cheap money policy ALWAYS leads to a recession. It did in the 1970's when the REAL Federal funds rate was negative and again in 2003 when Greenspan cut the rate to reduce unemployment. At the time it was 6.3 %. Now it is 8.8 % after all the reckless behavior in the housing and financial markets.
5. Speaking of housing , one purpose of QE policy was supposed to be stimulation of the housing market. Housing prices are down close to their bottom from 2009.
6. Speaking of the markets, 20 % of Americans own 93% of the equities. Since the Dow hit its bottom in 2009, the "fat cats" have gotten fatter as the Stock Market has shot up.
7. Fed policy was SUPPOSED to help local and regional banks. In 1999 the five largest U.S. banks held 38% of all banking assets. That is the % that Bank of America holds today by itself. The top five now hold 52 % of all banking assets.
8. The latest squabble over budget "cuts" ( which really did NOT reduce Federal spending ) is nothing compared to what is going to happen over raising the Federal Debt Limit. Yesterday, Geithner seriously said that he expects Congress to send Obama a "clean bill" i.e. an increase in the debt limit WITHOUT any spending cuts , limits or restraints whatsoever. A Republican House is supposed to believe Obama on fiscal responsibility based on what ? His latest partisan harangue designed to serve only his reelection campaign ? If Boehner and the Tea Party House members are remotely serious about reining in Federal spending, why would they simply hand over their best weapon for getting real cuts ?
Bottom line : Buy more gold and short the long bond.



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