Send this article to a friend:

November
02
2019

Fed Repos Signal End of Fiat Federal Reserve Notes
Wayne Jett

For weeks, financial observers have been agitated by astonishingly high sums of Federal Reserve Notes (“hundreds of billions of dollars”) moving from the Federal Reserve to borrowers under lending instruments known as repurchase agreements, or “repos.” On September 17, e.g., the Fed created and loaned $53 billion to unnamed parties and, on September 18, an additional $75 billion. Those two days are the mere tip of the iceberg. Who are the borrowers and why is the Fed providing them so much money?  

To put in perspective these increases in monetary base, recall the angst in 2008, when the Fed’s increases in monetary base during 2002 to 2006 were (wrongly) blamed for expansion of home mortgage lending during that decade and for the ensuing 2008 financial terrorism. The largest increase in monetary base during an entire year between 2002 and 2006 was $45 billion. 

Now the Fed is eclipsing that amount in a single night! Who is getting the money, what are its uses, is it likely to be repaid, and what are the implications of these giant loans?

The Fed’s Public Statement

On Friday, October 11, the Fed issued a statement describing its intentions and actions in part as follows: 

•    In light of recent and expected increases in the Federal Reserve's non-reserve liabilities, the Federal Reserve will purchase Treasury bills at least into the second quarter of next year in order to maintain over time ample reserve balances at or above the level that prevailed in early September 2019.

•    In addition, the Federal Reserve will conduct term and overnight repurchase agreement operations at least through January of next year to ensure that the supply of reserves remains ample even during periods of sharp increases in non-reserve liabilities, and to mitigate the risk of money market pressures that could adversely affect policy implementation.

The first item tells us the Fed expects higher operating expenses, so has issued additional Fed notes to buy Treasury bills (short term loans) which pay interest. So the additional interest income will pay the Fed’s higher expenses.

The second item of the Fed’s statement tells us the Fed is using “term” repos (loans with a term longer than overnight, which the borrower promises to buy back, with interest) as well as overnight repos to add new currency, but gives no hint how long the terms of individual repos may be. 

Further on the second item, the Fed presently intends to continue what it is doing now "at least through" January 31, 2020. But the terms of repo agreements may extend beyond that date, so far as we are told. Perhaps, according to the Fed, this may help to assure that activities in "money markets" have sufficient liquidity so their interest rates do not "adversely affect" the Fed's efforts to hit its targeted interest rate for overnight funds. 

This is all the Fed is telling the general public about its re-po activities and intentions at present. So Fed insiders and their friends almost surely maintain a significant edge in available information. Do not assume this is all the Fed is presently doing or all the Fed plans to do. The statement may be merely what the Fed wishes public observers to believe presently. Or, more likely, it is part or all of what the Trump administration asked or demanded from the FOMC at this time.

Nonetheless, the FOMC statement gives no assurance that it describes all of the consequential actions being taken or even the entirety of the repo transactions. No doubt the big banks which are the Fed’s primary dealers in Treasury securities are getting profitable business in carrying out this Fed “policy.”

That is as much attention as we ought to expend tracking the Fed’s official description of its current activities.  

The Fed: Global Cabal’s Instrument and Weapon

Better to proceed further by putting the Fed into perspective as a powerful instrument of the global cabal’s wealth acquisition apparatus. Concurrently, the Fed is a destructive weapon to be used against the global cabal’s enemies. 

This global cabal which controls the Fed is the same “vast and dominant pecuniary interest” which undertakes to write the laws and mold thoughts in every nation, as first described by Henry George in 1880 in his great book Progress and Poverty. By much historical and contemporary evidence, the global cabal incites wars, funds terrorism, traffics drugs and humans, spreads de-population diseases and vaccines, engages in satanic rituals including human sacrifice, and is presently seeking to over-throw constitutional government in the U. S. by means of a coup d’état. 

Contemporary aspects of this criminal cabal’s conduct is, by some accounts, under investigation presently by the U. S. government both domestically and internationally. Evidence has mounted that the cabal’s operatives wield power and influence in many aspects of American society. How else could those operatives challenge and attempt to overthrow, by subversion and perhaps by violence, even the elected and inaugurated president of the federal government? The Bottom Line(s)     

Here is what can be said of the Fed’s recent actions to fund mammoth purchases of Treasury bills by creating new currency. Most likely it is being done at the behest of President Trump and the U. S. Treasury in an effort to keep the market for Treasury bills relatively stable, even strong, for a continuing period, perhaps long enough to accomplish balancing the current account deficit through revised trade deals and re-setting the U. S. monetary system to a gold-backed dollar. 

Nonetheless, monetizing federal debt with such large injections of new Federal Reserve Notes will sharply decrease the dollar’s purchasing power over time. The fact that other trading nations are devaluing their currencies even faster than the Fed notes – thus making the dollar appear “strong” in comparison – will not shield Americans entirely from the pain of inflation-caused increases in cost of living.   

But this should be no surprise. People subjected to fiat currencies have never fared well in the end. Had the Fed continued with its earlier pattern of increasing interest rate targets, economic decline and monetary failure likely may have been underway by now. Perhaps the president has gained a little more time to accomplish his plan.

If President Trump pulls off this monetary reform – getting Americans and the world back to sound money – this will be the monetary win of the millennium.

Hello, and thank you for your interest in the effects of U. S. government policy on Americans and other societies in the world today. My interests involve understanding, applying and explaining principles of classical economics as they relate to public policy and resulting living conditions. Unfortunately, with federal officials almost universally captured by elite influences of the financial sector, nearly every government action and observable current event are most notable, not for their consistency with classical economic principles, but for violation of those principles.

Classical economic principles worked hand-in-glove with increasing political rights of common people to empower the new Middle Class and deliver human society out of the Dark Ages. The 500 years of Dark Ages measured the duration of elitist influence over public policy under a political-economic system historically called "mercantilism." The name originated because the influential circle around the monarch or other head of government gained great personal wealth, usually by obtaining monopolistic charters, licenses or land grants to deal in necessary goods and services. Common people, of course, were kept impoverished.

Mercantilist interests and influences were present in the American colonies and remained so after the War of Independence. Those influences frequently brought unwarranted hardship to Middle Class Americans even during times of relative progress and prosperity. But never before was the mercantilist assault against the Middle Class more aggressive and severe than in 1929 and the ensuing 15 years.

Mercantilists did not lose their grip on American government and economic policy after 1945. To the contrary, their discretionary power at the Federal Reserve System increased exponentially in 1971 when they were given authority to manipulate the dollar's value. Since then, they have devalued the dollar 97 percent during a period of unprecedented monetary volatility and instability, which has never been worse than at present.

I am managing principal of Classical Capital engaged in economic analysis and publishing. I began speaking to chartered financial analyst societies on economic and monetary policy in 2005. In 1999 and 2000, I wrote a  book called  A General Theory of Acquisitivity to explain that Adam Smith's "invisible hand" is actually a natural mechanism designed into each person, which efficiently allocates scarce resources to individuals able to use them most productively. 

Between 2005 and 2011, I researched and wrote the book titled The Fruits of Graft - Great Depressions Then and Now (Launfal Press, Los Angeles: 2011) identifying and explaining the actions which caused the Great Depression. The book then proceeds to trace mercantilist influences in the U. S. through 2010, giving special attention to the Federal Reserve, the Securities & Exchange Commission and the financial events of 2000-2002 and 2007-2010.

In private law practice in California during 1970-1999, I argued cases in the Supreme Court of the United States, the U. S. Court of Appeals, and the federal and state trial and appellate courts. I have led seminars in supply-side economics for CFA Society of Los Angeles and for Security Analysts of San Francisco, and I speak and write on constitutional, tax reform, monetary policy and financial market issues.

I hope you will find this website beneficial and, if you do, that you will call it to the attention of others. Doing so will improve our prospects for achieving reforms of U. S. policies so urgently needed.

Wayne Jett

goldsilver.com