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October 6, 2015

Financial Repression When Governments Boost Their Coffers and Hold Down Interest Rates

Treasury Secretary Jacob Lew said the government will run out of money to pay its bills sooner than previously thought around November 5, 2015.  Lacking sufficient cash, it would be impossible for the United States of America to meet all of its obligations for the first time in our history.
Again, another year, to increase the USA debt limit by the government. Will monetary and fiscal policy ever return to “sanity”?  Will the political leaders ever become brave enough to quit spending more of the taxpayer’s monies than they bring in without fear of losing elections? Will Americans ever elect someone who doesn’t just promise them more and more “stuff,” and who will just start acting responsibly with the nation’s treasury?
Political leaders continue to “kick the can down the road” over and over again. Now, like games that involve kicking something over and over again, it won’t get rid of the economic grim reaper. Their “Keynesian mantra” is that the solution to debt is simply to spend more money. They believe it will stimulate an economic recovery that never occurred in the first place over all these years.
Until a proper resolution is reached to these issues, debt will rule.  When a nation loses control of its finances through debt, bad things happen in all other aspects of its existence. It loses its power and survival becomes a challenge and no longer a taken for granted right.
What is really required is the attention to what is really going wrong. There must be a willingness to repair, reform, correct and heal it. This awareness is now growing throughout the world. There is a feeling that something is out of balance financially in the world. The issue of tax reform and getting rid of government waste continues to be discussed and that surely has not helped.
The key of all this will be to get people back to work. The USA “unofficial” unemployment rate is approximately 21%. Let’s correct these policies and activities that aren’t working.  Make them work again in new and different ways
 

Why Is The Federal Reserve Bank of New York So Important?

The Federal Reserve Bank of New York plays a special role in the Federal Reserve System for several reasons. First the reason for the New York Fed’s special role is its active involvement in the bond and foreign exchange markets.  The New York Fed houses the open market desk, which conducts open market operations, the purchase and sale of bonds, which determine the amount of reserves in the banking system. This is the process of how the FED creates liquidity and controls the money supply.
The involvement in the Treasury securities market, as well as its walking-distance location near the New York and American Stock Exchanges, the officials at the Federal Reserve Bank of New York are in constant contact with the major domestic financial markets in the United States.  In addition, the Federal Reserve Bank of New York also houses the foreign exchange desk, which conducts foreign exchange interventions on behalf of the Federal Reserve System and the U.S. Treasury.  Its involvement in these financial markets, means that the New York Fed is an important source of information on what is happening in domestic and foreign financial markets, particularly during crisis periods, as well as a liaison between officials in the Federal Reserve System and private participants in the markets.
Second, its district contains many of the largest commercial banks in the United States, the safety and soundness of which are paramount to the health of the U.S. financial system.  The Federal Reserve Bank of New York conducts examinations of bank holding companies and state-chartered banks in its district, making it the supervisor of some of the most important financial institutions in our financial system.  Not surprisingly, given this responsibility, the Bank Supervision group is one of the largest units of the New York Fed.
The third reason for the Federal Reserve Bank of New York’s prominence is that it is the only Federal Reserve Bank to be a member of the Bank for International Settlements (BIS).  Thus the president of the New York Fed, along with the chairman of the Board of Governors, represent the Federal Reserve System in its regular monthly meetings with other major central bankers and interaction with foreign exchange markets means that the New York Fed has a special role in international relations, both with other central bankers and with private market participants.  Adding to its prominence in international circles is that the New York Fed is the repository for over $100 billion of the world’s gold, an amount greater than the gold at Ft. Knox.
Finally, the president of the Federal Reserve Bank of New York, is the only permanent member of the FOMC among the Federal Reserve Bank presidents, serving as the vice chairman of the committee.  Each of the Federal Reserve banks is a “quasi-public”, part private and part government, institution owned by the private commercial banks in the district in which they serve.  The member banks own stock in their Federal Reserve Bank.  This is a requirement of membership. Originally, the FED was not responsible for the health of the economy. . Over time, it acquired the responsibility to promote a stable economy through its control of the money supply and its ability to influence interest rates.  It is subject to the influence of Congress because of the legislation that structures it is written by Congress and subject to change at any time. It reports quarterly to the banking committees of the House and the Senate.
Our debt problem is now out of control. Between 2007 and 2014, the total global debt increased by over 40%. Governments, financials, corporations and households have all increased their absolute debt levels in the last few years. The chart shows that total global debt has reached $200 trillion USD. World global output measured by the gross world product was around 76 trillion USD in 2013. This means that on a global scale we have a debt ratio of approximately 270% of the total yearly world output.

 

In short, the Treasury is part of the executive branch of the US government. They must follow the direction of the President. The Federal Reserve is independent of the executive branch, almost like the Supreme Court.  The voting members of the controlling body of the Fed are nominated by the President. The goal is to limit the impact of short-term politics on decisions about the money supply. Specifically, there is a concern is that if  the Federal Reserve was not independent, politicians would seek to obtain short-term economic growth through expanding the money supply, at the cost of long-term inflation. But the fact of the matter is, everyone is addicted to creasing the money supply and every week that goes buy with this artificial stimuli the worse uglier things will be in the future for those not prepared.
A Global Rest is required.  Gold is the only asset I know that has no sort of counterparty risk and has been considered to be of value for thousands of years.  I follow gold’s price daily.  I am currently awaiting for my Proprietary Trend Systems Analytics’ Model to confirm that the bottom is in place so that I may load up on much more.
I believe it is possible that this gold/silver/miners play alone could potentially fund an individual’s retirement if invested in at the correct time. And I will be sharing this with members of my Gold newsletter at:http://www.thegoldandoilguy.com/
Chris Vermeulen


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