Below is a chart that produces the most concern for Drew Matus, senior US economist at UBS.
Basically the U.S. Treasury issues bonds which are purchased by the Federal Reserve, and the Fed makes a profit on this from the interest paid on these bonds. Now this is no different to you or me purchasing a Treasury issued bond. Basically we help out our country by purchasing its bonds to help finance its debt. This allows the Treasury to deal with the debt, and helps the purchaser of the bonds to make profit from interest on the bond. WIN WIN. Well not quite. In "normal healthy circumstances" the Federal Reserve only purchases small % amounts of bonds from the Treasury, but because the debt is so F%&king huge, the Federal Reserve is now purchasing 90% to help out US deal with its debt and stimulate the economy. But wait, where does the federal reserve get its money from to purchase these bonds???
ANSWER: Magic. Its called "printing money" which these days is Ben Bernanke waking up in the morning putting on his robe and waltzing downstairs to his office and typing in whatever number he feels like whilst still plucking out his nose hairs. That number is now part of the US "money base" .. and he has done this so many times that the money base has gone from $850 billion in 2008, to $3,200 billion as of the end of March 2013. Do you know how insane that is? I'll tell you how much, that's an increase of 377% ... to put that in perspective from 2004 the base went from $400 billion to $850 billion over 4 years and that was considered larger then usual, hmmm i wonder what happened between 2004 and 2008? Before then the monetary base stayed sustainably increasing 15 years from 1989 to 2004, as it should. Chart is below.
Elizabeth MacDonald at Fox Business recently took off her kitchen apron, licked the cookie dough from her fingers and worked out that the rate of increase in the stock markets is directly linked to the increase of the monetary base (article) .... checkout this great chart below she put together.
If Daddy Fed is always going to buy me what I want, it means I never have to work and will forget the value of money!!! Which leads into my next post in a few days on the true impact of unemployment and underemployment of America's youth. I'm also working on a post about the Australian Housing Bubble, and a post about Ben Bernanke called "Vocabulary Easing", this will coincide with the more formal promotion of this blog. For now, please comment or email me nickj4848@gmail.com and enjoy Fox Business Lizzie MacDonald in her kitchen with her husband Fred the Fed.
No comments:
Post a Comment