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This Is How Crises Begin…Easy Money Rules

Wednesday, September 18, 2019 16:57

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“This Is How Crises Begin…Easy Money Rules”

by David Stockman

“Everything predicted by the enemies of banks, in the beginning, is now coming to pass. We are to be ruined now by the deluge of bank paper. It is cruel that such revolutions in private fortunes should be at the mercy of avaricious adventurers, who, instead of employing their capital, if any they have, in manufactures, commerce, and other useful pursuits, make it an instrument to burden all the interchanges of property with their swindling profits, profits which are the price of no useful industry of theirs.”

– Thomas Jefferson,

“Letter to Dr. Thomas Cooper” (January 16, 1814)

“I know the Federal Reserve cut its benchmark interest rate by 25 basis points this afternoon. But did you notice that U.S. money markets are in disarray? As Reuters put it, “Chaos deep inside the plumbing of the U.S. financial system has thrown policymakers an unexpected curveball.”

Most people – including those in the financial media – have no idea what a repurchase agreement even is or why there are so many of them. Suffice to say, though, it’s never good when the repo market makes front-page news. That’s because it’s the source of short-term funding for banks and other big financial institutions. It’s how things like payrolls are met.

At issue is the overnight general collateral repo rate, an indicator of stress in the secured-lending market and, by extension, dollar funding shortages. It soared from Friday’s close of 2.25% to a high of 3.80% on Monday, a spike of more than 150 basis points.

And disarray in the money markets is especially bad when it coincides with a mini oil shock and a trade war between the world’s two biggest economies. Are we talking about another dollar funding storm? Well, consider it another sign that the days of Bubble Finance are coming to an end – appropriately enough, on the day the Federal Open Market Committee re-consummates its fealty to easy money.

The most important development of the present woebegone interlude is Donald Trump’s harsh, unhinged, and unrelenting attacks on the U.S. central bank. Like no politician since December 1913 – when the Federal Reserve System was midwifed into existence by the great financial statesman, Congressman Carter Glass – the Donald has exposed its awful secret. Glass intended to create a modest, passive “bankers’ bank.” Its mission would be to provide back-up liquidity to the banking system against good commercial collateral at a penalty spread above the free market rate of interest.

Over more than a century, the Fed has morphed into an all-powerful monetary politburo. It’s now a rogue agency endowed with open-ended state powers. Its regime of monetary central planning inherently and demonstrably creates unspeakable windfalls for Wall Street and wealthy elites while causing the failure of the Main Street economy.

In today’s fully integrated $85 trillion global economy, its purportedly sacrosanct pursuit of statutory growth and inflations mandates amounts to nothing but cover for self-aggrandizing, perverse regime, an unattainable, threadbare farce.

Calling out in advance – loudly, explicitly – that the next financial crisis and economic recession is the sole responsibility of the Federal Reserve will be the Donald’s everlasting service to whatever future prosperity may yet be attainable in America.

Neither “sound money” scribblers nor Ron Paul’s “End the Fed” candidacy could break the spell Alan Greenspan cast over the mainstream financial press. But Bubblevision can’t marginalize Trump. The Tweeter-in-Chief has a 60-million-strong social media following. His take-no-prisoners style is actually well complemented by the yawning empty space under his combover when it comes to even the rudiments of monetary policy. There’s only so much to say in 240 characters.

All he has to do – all he is going to do – is name and blame the Federal Reserve for the calamity coming down the pike. On his call for even lower interest rates and a resumption of “quantitative easing,” of course, he’s totally wrong. But his conclusion about the Fed’s culpability is absolutely correct.

His crude candor is something totally new under the sun compared to the servile fawning of Obama, Clinton, and the Bushes. He’ll bag his institutional prey because he can’t be choreographed, scripted, and deployed to do masters’ bidding.

There’s no way to get back to free market prosperity until our self-perpetuating cabal of monetary central planners are politically lacerated and beaten to smithereens. After the fragments end up all over the cutting room floor, we can figure out what to do next. But you must take down this institution first because the Fed is the No. 1, the No. 2, and the No. 3 enemy of prosperity, capitalism, free markets, individual liberty, and the wealth of people in American and in the world today.

The one thing Donald Trump is going to accomplish in his misbegotten tenure is that his ferocious attack against the Federal Reserve will tear away its veil. It’s what’ll make him the Great Disruptor.”

- http://deepstatedeclassified.com/

Source: http://coyoteprime-runningcauseicantfly.blogspot.com/2019/09/this-is-how-crises-begineasy-money-rules.html

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