END FED: Keiser Explains How Fed-Banks Create Revolutions & Genocide; Speculation, Food-Oil Prices

Posted: Feb 14, 2011

How To Go To Heaven: EASY MONEY POLICY The Federal Reserve has followed an easy money policy for most of the last 20 years. What that means is they have allowed banks to borrow from them especially in times of crisis and they have lent at below market rates, again chiefly when the economy was weak or during a financial crisis. Markets got use to the removal of moral hazard aka the Greenspan put. CHEAP MONEY & SPECULATION Cheap money will flow into areas of speculation which is why we have had a running series of bubbles during this time. The stock market, housing, and, now, commodity markets are the areas that have seen hot money. These money flows have distorted prices and lead to economic dislocations the biggest being the huge amount of foreclosures due to overbuilding of homes. NEW 2011 COMMODITY BUBBLE In 2008, crude oil approached $150/barrel and $5/gallon by the summer. This was another bubble and it could not be sustained because commodity prices eventual run into the consumers ability to pay. Unlike previous bubbles the commodity bubble hurt many more people than it helped and it made a bad recession much worse. We are seeing the return of the commodity bubbles in 2011 and I think it will have the same effect. Look at charts of soybeans, oil, gold, the stock market, and many other markets and you will see people piling onto trends caused not by economic growth but by cheap credit offered by central banks all over the world in the mistaken notion that the only way to fight deflation is with inflation. Unfortunately this is likely to end badly.* Watch long term interest rates. I think they will keep going up as long as the commodity bubble is alive. I still think deflation is going to win in the long run. We have to ring out the excess speculation** out of economy before it can begin growing again in a non-stimulated, business driven way. Low Interest Rates: The Good, the Bad and the Ugly THE GOOD In general, low interest rates are good for anyone who wants to borrow money In general, lower interest rates are seen as stimulative for the economy, as consumers tend to buy more, businesses invest more, and governments can afford social programs. THE BAD Very low interest rates can lead consumers, businesses, and governments to take on more debt. They can also make it very difficult for retirees and other risk averse investors to achieve the returns they need. THE UGLY Interest rates that are held too low for too long can lead to unintended consequences like asset bubbles, inflation, and other economic dislocations: 1. Real Estate Bubbles: Housing and commercial real estate prices can rise too high too fast, pricing some buyers out of the market. This can lead to a number of factors that might burst the housing bubble. 2. Commodity Bubbles: When inflation expectations rise (regardless of whether or not there is real inflation), investors tend to pile into hard assets like gold, oil, and base metals. 3. Equity Bubbles: Investors who are looking for higher returns may flock to stocks rather than fixed income instruments, causing equity prices to rise, perhaps out of line with reasonable valuations. 4. Debt Bubbles: Cheap money, especially when offered for extended periods of time, can lead borrowers to become complacent and take on more leverage than they can really afford. Bubbles don't become ugly until they pop. There are 2 main problems with any type of bubble: First, they always pop eventually. Secondly, we never know when they are going to do it. What was the initial spark that set off the bonfires consuming the Arab world? In a word--Inflation. The revolt in Tunisia was called "The Hunger Revolution", because it was sparked by the dramatically rising cost of grains across the country. A Chinese economist, Andy Xie, has just published a remarkable article outlining the long term effect of the low interest, easy money policies the Greenspan fostered (and Bernanke followed)..... Cheap money only helps people with assets. It does not help the Egyptian bread seller. It inflates asset prices (stocks and real estate), and causes radical income inequality. It inflates the casino economy of Wall Street, but does nothing to help foster a real productive economy. When your rising cost of food takes up 70% of your paycheck in Egypt and yet you see a ruling class getting richer off inflating asset prices, you take to the streets in anger. Ron Paul Peter Schiff Julian Assange Paul Craig Roberts Gerald Celente Alex Jones Kieth Olbermann Rachel Maddow Glenn Beck Bill O'Reilly Wayne Madsen Webster Tarpley WikiLeaks