Sunday, April 10, 2005

Abolish The Fed Ponzi Scheme

by Arthur Radley, Sunday April 10 2005

The Federal Reserve's off-balance-sheet 'custody' holdings for foreign official accounts are up $214 billion, or 18.2%, over 52 weeks, to almost $1.4 trillion.

$1.4 trillion is 67% larger than the Fed's own balance sheet. Although it's not counted in the US money supply, it represents foreign exchange reserves that are part of other countries' money supplies. And this is so-called 'high-powered money,' which gets pyramided through the 'money multiplier' effect of fractional reserve banking into far larger sums of commercial and retail credit.

In a globalized world where much international trade and 70% of forex reserves are dollar-denominated, perhaps we should consider the 'worldwide dollar supply' rather than just the domestic US monetary base.

The combined growth rate for the Fed's own $833 billion balance sheet, plus the $1.4 trillion of 'high-powered money' it holds in custody for foreign central banks, has been almost 12% over the past year.

Why are global oil, steel and copper prices exploding? Because the irresponsible Bubble blowers at the Greenspan Fed are pumping the global dollar monetary base at 12% annually to keep their teetering Ponzi scheme going.

Probably the only reason that manufactured goods prices are not already rising at the same 12% is an overhang of production capacity, in so many industries including automobiles.

The Economist was publishing articles 4 or 5 years ago about global overcapacity in auto production. It took time, but the entirely predictable train wreck is underway, and naturally is taking out the weakest players.

When it comes to commodity-oriented industries that have suffered from underinvestment, the combination of runaway fiat credit plus supply shortages produces horrors such as the past year's runup in energy prices.

With the Fed's custody account expanding at an 18% annual rate -- and Leeson's [Greenspan] banksters elbowing in to Fannie and Freddie's mortgage turf -- I see no sign that efforts to maintain the US-sponsored global Ponzi Bubble have diminished.

What may be surprising to many is that slowing economic growth can actually INCREASE the rate of price inflation. It is a counterintuitive, but common, late business cycle phenomenon, partly due to the 12 to 18-month lags associated with monetary policy. Bubble-like conditions now are still benefitting from the 1% Fed Funds rate of 12 months ago. The "Al's Folly" rate hikes begin to kick our ass later this year.

Abolish the Federal Reserve!

Hard labor for the central planners!


At 11:10 AM, Anonymous Anonymous said...

Great article!!! please inform us of any new essay of yours in the future. Tnx...

At 2:46 PM, Anonymous Anonymous said...

The first 3 words of your title was all that was needed.


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