Bernanke Desperate, Fed Out of Ammo

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by: Golden Economizer

On Wednesday, Ben (the helicopter) Bernanke, current chief of the Federal Reserve (which is about as federal as Federal Express, and has no reserves), announced that the Fed would start buying US treasury bonds on the open market.

Also, that they would be buying mortgages and mortgage backed securities for a total of $1.25 trillion over the next six months.

I was watching CNBC at the time, and 10 year Treasury yields fell from yielding 2.95% to 2.51% in a heartbeat. Literally, one second they were trading at 2.95% yield and the next second they were trading at 2.51% yield. I have never seen anything like this happen before.

This may seem good for current Treasury bond holders, but certainly not for foreign bond holders. The US dollar has lost 5% in the last two days of international trading, a huge slap in the face to China, Japan, Saudi Arabia, etc.

Now, many of the clueless talking heads in the news media are reporting that mortgage rates have fallen/will fall to record lows.

Well, bond yields have already climbed back to 2.65% currently, and mortgage rates are priced not only by the bond market, but more importantly by the Fannie Mae 60 day delivery rate, which is a gauge of how much they can sell these mortgages for once they make them. There is a lag time before mortgage rates adjust, and it is not instantaneous as with the bond market.

So far we have seen a slight improvement in mortgage rates, about back to where they were a month ago, but not nearly back to the record lows we saw in late December/early January.

Mortgage companies will wait and see where the bond yields stabilize before giving us the benefit of any drop in yields.

In the long run, this move was extremely harmful to the economy, and will inevitably create inflation and higher interest rates.

This recent move is an act of desperation by the Federal Reserve, and has only ever been done in third world countries before the US did it this week, and the UK did it last week.

It is called "quantitative easing", a new euphemism for the reckless printing of money, which you will be hearing more and more if you follow the news media.

The reason they did it was because their normal arsenal of economic weapons is out of ammo. The Fed funds rate has already been set to zero, and cannot be lowered any further. Japan tried this in 1991, and their economy has never recovered.

If the Fed tightens up reserve requirements on banks, it would insure many new bank failures, which is actually something that the Federal Reserve wants to happen, that is, the failure of small banks, not the large banks which are actually owners of the Federal Reserve.

The Federal Reserve is a private corporation with a tax free status, started by bankers and owned by banks, many of them foreign banks. The actual owners are a well kept secret. The Federal Reserve was established in 1913 by an unconstitutional act of congress, which granted them the power to create and regulate the US currency, which had been reserved for the congress in the US constitution. All US treasury reserves of gold bullion were turned over the Federal Reserve at this time.

The Fed manipulation of the US money supply caused both the great depression and the current economic crisis.

In a 2002 speech commemorating Milton Friedman's birthday, Bernanke delivered a keynote address at the University of Chicago, where he said:

Let me end my talk by abusing slightly my status as an official representative of the Federal Reserve. I would like to say to Milton and Anna: Regarding the Great Depression. You're right, we did it. We're very sorry. But thanks to you, we won't do it again.

Well, they are doing it again, and representative Ron Paul of Texas has recently introduced a bill in congress to abolish the Federal Reserve. Did any of you hear about this in the news media? I wonder why not?

There are nationwide rallies scheduled for May 25th to demand that the Federal Reserve be abolished.

On Friday, the "official" unemployment rate in California was announced to be 10.5% Using the previous criteria to calculate unemployment from time of the Clinton administration, this would be 20%, and using the criteria from Reagan's first term as president, would be even higher.

During the Reagan administration, those currently serving in the US military were transferred from a third category, and began to be counted as "employed". Take away over a million people actively serving the US in uniform, and the unemployment figures start to get more realistic.

Now is still an excellent time to purchase or refinance, and since there is about a one month processing and underwriting time to get a loan approved, it would be wise to start the process now if you can benefit from the current low rates.

The San Francisco bay area is one of the three worst real estate markets in the country, having fallen 33% so far, compared to the rest of the country which is down an average of 25%.

When it finally does begin to recover, it should rebound more quickly and sharply than the rest of the country.

Disclosure: no positions