Category Archives: The Debt Imperative

I was right about “quantitative tightening”

I was right about “quantitative tightening”
by Thomas H. Greco, Jr.

Just about two years ago, someone sent me a link to an article titled, Why America’s Federal Reserve might make money disappear, that appeared in The Economist on April 17, 2017. The gist of the article was the predicted move by the Fed to unwind quantitative easing, that is, to sell off some of the securities that it bought in the wake of the 2008 financial crisis. The expansion of Fed holdings from the $850 billion it held just prior to the crisis, to the $4.5 trillion it held at the time the Economist article was written, was a desperate move that was taken to keep a flawed financial system from crashing down.

After I read that article, this is what I wrote to my correspondent on April 25, 2017:

Dear…,
Thanks for alerting me to that article in the Economist. Interesting.
The sub-head reads, “The Fed has signalled that it will soon reduce the size of its balance-sheet,” yet the article says nothing about how it signalled that move. It seems to be the author’s own speculation based on the Fed’s recent small interest rate increase. To wit, “Today, however, the Fed, now led by Janet Yellen (pictured), is raising short-term rates, as it tries to keep a lid on inflation. So—the logic goes—it should also shrink its balance-sheet, to push up long-term rates.”

You need to ask, why did the Fed load up on government bonds to begin with?

I am reminded of a story about a man who wanted to invest in the stock market. He opened an account with a broker who immediately steered him into some penny stock.

The dialog went something like this:
Broker: Welcome aboard. I can get you in on the ground floor of this new company. Their stock is really hot right now and it’s only four dollars a share.
Customer: Fine, buy me 1000 shares.

The next day the broker calls and says,
Broker: Hey, that stock is now up to eight dollars a share.
Customer: Wow, that’s great, buy me 2000 more shares.

A couple days later, the broker calls again and says,
Broker: Amazing, that stock is now up to 12 dollars a share.
Customer: Fantastic, sell all my shares.
Broker: To whom??

In other words, the Fed is locked in to their position, it’s a one way street and there’s no going back.

The answer is that there was not nearly enough available capital in private hands to fund the government budget deficits, at least not at interest rates that would not make the deficits even more gigantic than they have been.

As I’ve written in my books, there is a collusive arrangement between bankers and politicians that goes back more than 300 years. Governments get to spend more than their revenues, while banks get to lend money into circulation by making interest bearing loans. Yes, open market operations by the central banks do distort financial markets as QE critics claim, but that is the fundamental role of central banks, to manipulate financial markets. It’s the biggest scam in history. The central bank is the lender of last resort, and the government is the borrower of last resort to keep the money supply pumped up as bankers suck interest earnings into their capital account.

The Fed will be lucky to get away with small interest rate increases, but unloading their holdings of government bonds will not happen.

The entire article seems disingenuous, suggesting the possibility of actions that cannot be taken without severely unbalancing government budgets and contracting the money supply which will send the economy back into recession.

Real inflation rates are much greater than government figures indicate.  See the Chapwood index, http://www.chapwoodindex.com/, and Shadow Stats, http://www.shadowstats.com/alternate_data/inflation-charts.

Also, follow Chris Martenson, https://www.peakprosperity.com/.
This interview is particularly pertinent, Oil, Gold, & The Collapse of Central Banking ~ Interview with Chris Martenson.

Regards,
Thomas

Now, on March 20, 2019, this Bloomberg article, Powell Signals Prolonged Fed Pause as Inflation Lags, Risks Loom, acknowledged that the Fed has thrown in the towel on tightening, saying, “Federal Reserve Chairman Jerome Powell said interest rates could be on hold for “some time” as global risks weigh on the economic outlook and inflation remains muted. … Officials also decided to slow the drawdown of the U.S. central bank’s bond holdings starting in May, then end them in September. Together, the moves complete the Fed’s 2019 pivot away from policy tightening and toward a markedly cautious stance.”

Surprise, surprise!

#     #     #

What we can and cannot afford

Can we afford health care for all, free education for all, housing for the homeless, food for the hungry, a decent and efficient national system of transportation, a clean and healthy environment, a fair and equitable distribution of our collective production, and a true democracy in which people decide their own fate and how their money is to be spent? Politicians of all stripes tell us we cannot. “Where will the money come from?” is their plaint whenever such measures are proposed.

But other countries have many of those things. There is a vast number of countries that have free or almost free universal health care, as can be seen in this list. And here is a list of 11 countries that have BOTH free universal health care AND free college. The list includes not only affluent countries like Sweden, Norway, Denmark and Finland, but relatively poor countries such as Greece, Argentina and Brazil.

Anyone who has traveled in western Europe knows that Amtrak is a bad joke compared HSRinChinato the extensive and efficient rail systems in Germany, Austria, Switzerland and elsewhere. China too has much better trains than the U.S. and has been rapidly expanding its transport infrastructure. According to Wikipedia, China already has “the world’s longest high speed rail network” which is “also the most extensively used, with 1.713 billion trips delivered in 2017 bringing the total cumulative number of trips to 7 billion.”

Way back in 2005 I rode from downtown Shanghai to the airport at  Pudong on the maglev train that reached speeds up to 431 kmph (268 mph).

Yet, when President Trump calls for an almost $80 billion increase to the military budget, hardly anyone asks, “where’s the money going to come from?” and the measure easily gains Congressional approval.

Here are the things we cannot afford:

  1. We cannot afford continuation of the Empire with its deployment of military forces around the world and endless overt and covert warfare.
  2. We cannot afford continuation of the interest-based, debt-money regime that forces unnecessary expansion of economic activity and centralizes power and concentrates wealth in the hands of a super elite.
  3. We cannot afford continuation of the environmental destruction and climate change that is caused by the fossil fuel based economy.

The $727 billion U.S. military budget for 2019 dwarfs all other segments and amounts to 61% of all discretionary spending. To trump2019_discpie_unbranded_largeput it in perspective, the U.S. spends many times more on military than any other country. According to the National Priorities Project, the next highest military spender, China, spends only about one third as much on its military.

I have written extensively about the defects inherent in the centrally controlled interest-based, debt-money regime, which is driving the endless expansion of debt that makes economic growth an imperative. See, for example, my article, Money, debt and the end of the growth imperative.

Ultimately, if we do not take appropriate action, nature will decide our fate. See the work of Joseph Tainter and Jared Diamond, starting with this interview of Joseph Tainter by Jim Puplava.

In a future post I will elaborate upon these points, but for now I recommend viewing the recent Jimmy Dore show at https://youtu.be/yHpN7X9iK3o.

#     #     #

Central Bank Interventions and the Looming Catastrophe

In this recent interview below, Dr. Paul Craig Roberts describes the “house of cards” that is today’s global regime of money, banking and finance. Since the financial crisis of 2008, the major central banks around the world—the Federal Reserve, the Bank of England, the European Central Bank, the Bank of Japan—have all been active in the securities markets, buying huge amounts of government and corporate bonds and shares of private companies, a process that is euphemistically called “quantitative easing.”

As Roberts points out, these actions are being taken to support the big banks. I agree, but it goes much deeper than that. The underlying objective is to preserve the global interest-based debt-money system which requires continual expansion if debt, an inherent systemic flaw which I call the “debt growth imperative.” The result of these market manipulations, of course, has been the inflation of market bubbles in bonds, stocks, and real estate, and the massive transfer of wealth into the hands of a small segment of the population.

Roberts does not mention it, but the recurrent waves of tax cuts for the rich likewise seem to be designed to keep these market bubbles pumped up. The wealthy class, for the most part, does not spend these windfall gains, they invest them in, you guessed it, bonds, stocks and real estate. If tax cuts were to go mainly to the lower and middle classes, what would they do with the money? They would surely spend much of it, which would stimulate consumption of consumer goods and restore the real economy, but much of it would go toward reducing the massive amounts of debt that these people carry and make it unnecessary for them to borrow even more. A system that requires perpetual expansion of debt cannot tolerate that.
Now, do you understand?

 

Thomas Greco’s Latest Interview–March 3, 2017

Here is my latest interview on Primo Nutmeg. Discussion topics include alternative currencies, credit, central banks, the Federal Reserve, Austrian economics, the gold standard, bitcoin, geopolitics, and the relationship between U.S. foreign policy and the global system of money and finance.

“The Big Lie” and the tragedy of Europe –Yanis Varoufakis blows the lid on Europe’s hidden agenda

In this interview, former Greek finance minister, Yanis Varoufakis, outlines the nature of the 2008 financial crisis, the reasons for the program of “quantitative easing” and the irrational actions of the western European leaders. The fundamental point he seems to miss is the debt growth imperative that is inherent in today’s global money system, the underlying fact that keeps everyone trapped in a system that is driving the whole of civilization toward disaster.

Recovery? What recovery?

Despite the happy talk coming out of Washington and New York about the supposed economic recovery, the present economic and political order remains on course toward self-destruction. I’ve said it over and over again that the fundamental flaw is the compound interest that is built into the global debt-money regime. The fact that virtually all money is created by banks that “lend” it into circulation at interest causes debts to grow faster and faster with the passage of time. A quick glance at the timeline for public and private debt makes this obvious.Total-US-DebtTo2014

Prof. Richard Wolff, in the video below, does not mention this debt-growth imperative, but he does a good job of explaining how the governments and the central banks managed to temporarily forestall total collapse following the 2008 financial crisis, and why their actions are failing to solve the basic problem of slack demand.

We need to look beyond economic ideologies to find ways of defusing the debt bomb which grows bigger and more deadly with every passing day. A shift toward innovative, interest-free, approaches to the exchange of value and the financing of enterprise development provides the most promising route toward a soft landing. See The End of Money and the Future of Civilization.

Bloomberg: The IMF Should Get Out of Greece

It has long been evident the Greek government, over the years, has been so overburdened with debt that much of it would eventually need to be forgiven. Now, even the mainstream media is touting that as the necessary solution to Greece’s predicament. In his recent article, published on the Bloomberg website, Princeton Prof. and former IMF deputy research director Ashoka Mody argues that the IMF is to blame for Greece’s debt situation and that it ought to pull out. He proposes that the IMF’s principal shareholders — the Europeans and Americans, must “honorably accept real losses.”

But he also points out that “the IMF’s Board, over the fierce opposition of several executive directors, the Europeans and Americans pushed through a bailout program that, contrary to the fund’s rules, did not impose losses on Greece’s private creditors. The decision was based on a spurious claim that “restructuring” private debt would trigger a global financial meltdown.”

So, here we have another case of private bank creditors being bailed-out. Yes, the Greek debt must be forgiven to allow the Greek economy to recover, but the burden now falls upon European and American citizens instead of on the banks’ owners, where it properly belongs.