first majestic silver

Federal Reserve Shooting Blanks

December 19, 2013

After five years of (empty) promises; this is it? Today, to the thunderous applause of the Corporate Media, the Federal Reserve announced what is being called “modest tapering”. However, to appreciate how truly trivial and token was the “tapering” announced today requires first stepping back, and recalling what Big-Talk Bernanke was saying five years ago:

…he promised to quickly unwind massive Fed lending programs when the economy improves, so they don’t stoke inflation.

However, after five years of a (supposed) U.S. economic recovery,  instead of “quickly unwinding” this reckless money-printing (and 0% interest rate) with the Exit Strategy that Bernanke promised the world again and again; he has tripled his money-printing.

Now, today, after tripling what he promised to “quickly unwind” five years ago; B.S. Bernanke is taking bows because he has reduced one portion of this money-printing (the visible portion) by 10%. But with the Federal Reserve continuing to conceal all of its “lending activities” (among other things); today’s sleight-of-hand is nothing more than another clumsy performance by a Cheap Magician.

For any adults in the audience; B.S. Bernanke has no credibility: promising one thing, doing the opposite, year after year. For today’s announcement of (supposed) “tapering” to possess any legitimacy, this would require that the Cheap Magician show us what he is doing with both of his hands.

Understand that the exponential, out-of-control explosion in the monetary base of the United States (indicated in the previous chart) is a “two-fisted” operation. One hand gives out “quantitative easing” sugar-plums to Wall Street at a nominal rate of $1 trillion per year. Meanwhile; the other hand dishes out an equally sweet treat: (supposed) “0% loans”, funneled into the vaults of Wall Street at an undisclosed rate.

To appreciate how/why any so-called “0% loan” is a prima facie financial fraud can be illustrated in a quick and easy manner.

“I.Q.” Test:

Q:  When does one repay a 0% loan?

A:  Never.

Obviously no profit-making entity of any kind would ever repay a 0% loan – a “loan” to which interest never accrues. To call these (undisclosed) gifts of further $trillions to Wall Street “loans” is simply another one of Bernanke’s lies, like all of his previous Exit Strategy promises. While he may claim that some of these gifts are being/will be repaid; the previous chart completely refutes that possibility.

With the Fed continuing to refuse to even disclose the size and number of these sham-loans; we see yet another illustration of how the U.S. financial system operates like a crime syndicate rather than a banking system. As the Cheap Magician makes his token reduction of $10 billion per month with his “QE hand”, for all we know his “0% loan hand” is increasing those sugar-plums by $20 billion/month (or more).

However, compounding the inherent fraud of what B.S. Bernanke calls “0% loans”; we see layer upon layer of fraud with respect to the so-called “asset purchases”, the deceitful label applied to these mega-subsidies to Wall Street.

To begin with, in this new era of U.S. mark-to-fantasy accounting; the actual value of any of the Wall Street “assets” being swapped for the Federal Reserve’s sugar-plums ranges from “dubious” to worthless. Indeed, we can’t forget that what Wall Street is allowed to call “assets” can have an actual value of far less than zero – thanks to the casino-gambling of these same banks (otherwise known as the derivatives market).

Why was Wall Street allowed to abandon any/all legitimate accounting practices in 2009, and arbitrarily assign fantasy-valuations to what it calls “assets”? Because when the U.S. housing-bubble burst and housing prices plunged 30% (with all of these fraud-factories leveraged by more than 30:1); as a matter of basic arithmetic, this bankrupted all of these mega-gamblers ten times over.

Mark-to-fantasy-accounting was the “solution” which allowed Wall Street banks to pretend to be solvent, while the Federal Reserve money-pump sprayed $trillions per year of its new Monopoly Money into their vaults. Five years later; all these worthless and less-than-zero “assets” remain on Wall Street balance sheets – except for what has been laundered in the form of Federal Reserve “asset purchases”.

Thus not only are all of the “assets” which the Fed has purchased from Wall Street likely completely worthless; with countless $trillions in paper losses still being hidden following the Crash of ’08, the Federal Reserve is almost certainly absorbing gigantic liabilities from Wall Street, in return for its gifts of trillions of “QE” dollars.

How “gigantic”? A glimpse at just one of the derivatives contracts amongst these fraud-factories is highly illuminating. This “glimpse” comes courtesy of a lawsuit between Citigroup and Morgan Stanley. Why did Citigroup have to sue Morgan Stanley in order to attempt to get payment on an ordinary derivatives contract?

Because while these Banksters love to make big bets (literally $trillions and $trillions every year); like any Crooked Casino operators, they hate making payments when they lose. In the case of the previous bet in question; even after liquidating Morgan Stanley’s “collateral” (which supposedly backed the bet), Morgan Stanley was legally obligated to make a 300:1 pay-out.

This equates to not simply a 100% loss for Morgan Stanley on its derivatives bet, but rather a 30,000% loss. Thus with respect to these fraudulent “asset purchases” by the Fed, each time Wall Street claims it is “selling $1 trillion in assets”, it could (theoretically) actually be unloading as much as $300 trillion in liabilities.

In other words; the actual size of the official $1 trillion/year subsidy to Wall Street which Bernanke (fraudulently) labels “asset purchases” could be hundreds of times as large as what is publicly disclosed. The Federal Reserve has become History’s largest financial toilet.

More to the point; with the liabilities the Fed is absorbing from Wall Street likely many times as large as the newly-printed dollars being swapped for these liabilities; this makes the microscopic $10 billion/month reduction announced today an even bigger joke. A sliver of ice is being trimmed off the tip of a gigantic iceberg, while the iceberg itself remains completely concealed.

As the Federal Reserve shoots blanks today, while the Corporate Media rolls out its marching bands to commemorate the occasion; this is a propitious time to summarize the last five years of fraud and deceit from Bernanke and the other Fed-heads (including his new replacement, Janet Yellen):

  • Five years ago; Bernanke and the Fed embarked upon the most radical/reckless emergency rescue-operation ever conducted by a central bank: 0% interest rates and endless $billions of “quantitative easing”, currency simply conjured out of thin air – no different than any paper counterfeited in some back-room Mafia scam.
  • Because these desperation measures were so radical; they were accompanied by the unequivocal promise that all these programs would be ended as soon as the U.S. economy demonstrated any sustained growth.
  • However, while Bernanke boasted about “the U.S. recovery” year after year, rather than ending his reckless monetary policies as promised; he tripled his money-printing and made his 0% interest rate permanent.
  • What Bernanke has been calling “0% loans” for the past five years, and bestowing upon Wall Street by the $trillions – in undisclosed amounts – is a prima facie fraud. A “0% loan” (with no ‘strings’ of any kind) is, in reality, an open gift. Yet not only does Bernanke refuse to disclose the amounts of these fraudulent gifts, he has ceased even musing about ending this form of hand-out until at least 2015.
  • What Bernanke calls his “asset purchases” is most likely a much, much larger fraud than his (undisclosed) “0% loans”. The reason why it is impossible to conclude with certainty that this fraud is larger is because this program is even more heavily covered-up than the 0%-loan scam. We know the Federal Reserve is absorbing $trillions in hidden losses from the fraud-infested balance sheets of Wall Street; we simply don’t know how many $trillions.

As previously explained; the vast majority of the Federal Reserve’s multi-trillion dollar gravy-train to Wall Street is completely concealed beneath a thick blanket of fraud, lies, and arrogant secrecy. Thus when Bernanke claims to be reducing his monthly hand-outs to Wall Street (and the associated money-printing) by $10 billion/month; he could, in reality, be increasing the hand-outs/money-printing by $20 billion, or $50 billion, or $100 billion.

In this totally opaque monetary system, where any announced “tapering” could be (is) a complete sham; this begs an obvious question. Why not announce even more “tapering”, thus allowing Bernanke to re-acquire at least some small vestige of credibility? Why not pretend that he was reducing this money-printing by $50 billion/month – and then simply increase his (hidden) 0% ‘loans’ to Wall Street by an identical amount?

The answer is simple. This Ponzi-scheme economy is now so frail and unstable that even pretending to “taper” the money-pump feeding this Ponzi-scheme by more than a token amount would cause the entire house-of-cards to topple.

We saw this illustrated earlier this year. Six months of merely talking about “tapering” caused the interest rate on U.S. 10-year bonds to double. For the debt-laden U.S. economy as a whole; this equated to roughly $100 billion per month being drained out of it in higher interest payments.

It was the harm being caused by pretending he was going to “taper” which forced Bernanke to “shock markets” a mere three months ago – and admit there would be no tapering. His reason for breaking yet another promise? The United States could no longer afford to pay “market rates” of interest (i.e. legitimate rates) on its debts.

Today Bernanke couldn’t even pretend to reduce his money-printing by any meaningful amount, because the U.S.’s Ponzi-scheme debt market would implode, and its Ponzi-scheme equity markets would crash. The only way any meaningful reduction in the money-printing could/will ever really take place would be to deliberately induce such a collapse.

The Federal Reserve is shooting blanks, and simply passing its gun to a New Shooter isn’t going to make the tiniest bit of difference.


Jeff Nielson

Jeff NielsonJeff Nielson is co-founder and managing partner of Bullion Bulls Canada; a website which provides precious metals commentary, economic analysis, and mining information to readers/investors. Jeff originally came to the precious metals sector as an investor around the middle of last decade, but soon decided this was where he wanted to make the focus of his career. His website is

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