This Is How the Fed Steals from You... and Gives to the Very Rich

This Is How the Fed Steals from You... and Gives to the Very Rich By Porter Stansberry Wednesday, December 18, 2013

On December 23, just five days from now, we "celebrate" 100 years of a currency system controlled by a select few private corporations. In 1913, a bill passed through a poorly attended Senate session… and was rushed to the White House, where Woodrow Wilson signed it into law that same night.  It established the Federal Reserve… which is not technically owned by the federal government, nor does it have any actual reserves.  Today, the Federal Reserve is a fixture in our economy. It controls the quantity and frequency of currency issued by the United States. Take a dollar bill out of your wallet and notice what it says on the top, "Federal Reserve Note." That currency is what we use to transact business in our lives. It is also what we get paid in when we work hard or take risks.  The Federal Reserve enjoys a great reputation. Every few months, the chairman visits Congress. He gives a speech on the condition of the nation's economy. Markets wait patiently for his statements and hang on his every word when the Fed issues policies. (This afternoon, you'll see the chairman's latest pronouncement.)  When it comes to the Fed, people assume that the experts are handling things. They forget that the Fed is a cartel, and the purpose of forming a cartel is to protect its members…  The Fed primarily relies on two tools to drive its monetary policy. First, it can adjust the "federal-funds rate," which is the short-term rate banks pay to borrow funds from each other overnight. Nearly all interest rates – mortgages, corporate debt, etc. – are linked either explicitly or implicitly to the federal-funds rate. So when the Fed lowers rates, the cost of borrowing drops for everyone. When rates are low, folks build more cars, buy bigger houses, and start new businesses.  The Fed can also manipulate the economy by purchasing or selling Treasury bonds. The Fed has to create new money to pay for Treasury purchases. And conversely, when the Fed sells these bonds, it essentially takes currency out of the system.  Recently, the Fed has been buying Treasury debt like crazy… about $85 billion worth a month. To fund these purchases, it is creating vast sums of money out of thin air. The Fed doesn't like the phrase "creating vast sums of money out of thin air"… It sounds reckless and irresponsible. "Quantitative easing" has a much more academic ring to it. But don't be fooled… When the Fed announces quantitative easing, it's about to print money out of thin air and drop it on the economy.  Money for nothing might sound like a good idea. But both of the Fed "tools" are inflationary. They make every one of your dollars less valuable…  When the Fed lowers interest rates, it is essentially bribing people to spend more money. When more people have more money to spend on the same goods and services… they will inevitably bid prices higher.  This is what happened with the recent housing crisis. With rates low, banks were encouraged to lend at a record pace. Suddenly, everyone could borrow money for record-low rates and buy "more house." Real estate prices soared around the entire country. Of course, we later learned the banks had been loaning to folks who couldn't repay. The inevitable slew of defaults drove home prices down and sent our country into a deep recession.  Since December 2008, the Fed's nominal interest rate has effectively been 0%. Since the Fed can't lower nominal interest rates below zero, the only tool it has left to manipulate the currency is "quantitative easing." So for the past several years, the Fed has been printing money in an effort to "ease" our way to prosperity.  Has it worked? As we explained in October, quantitative easing has been a godsend for some:  [Federal Reserve Chairman Ben] Bernanke permitted and encouraged the largest housing bubble in history. Its inevitable collapse allowed me to buy rental real estate paying yields in excess of 20% and trophy properties in Miami Beach for prices last seen 15 years ago… And for the very, very rich… Bernanke did even more, God bless him. Bernanke dropped real interest rates well into negative territory. That allowed the world's wealthiest capitalists – like renowned investor Warren Buffett and Stephen Schwartzman, head of the private-equity firm Blackstone Group – access to unprecedented amounts of capital at rates of interest that literally paid them to borrow. They did the only logical thing… they responded with a wave of leveraged buyouts that dwarfed every other private-capital cycle in history… This was a massive aggregation of wealth. Almost none of these deals would have been possible without Ben Bernanke's policies… Yes, for rich people all around the world, Ben has been a living saint. Thank you, Ben! We couldn't have done it without you! None of us ever thought we'd be quite this rich… or end up owning all of those incredible assets. Newly printed Fed money tends to find its way into the pockets of those who need it least…  The same thing is happening with businesses. People like to debate whether quantitative easing has helped small businesses. But it has clearly helped the "too big to fail" banks get even bigger. Last month,Forbes made a list of 29 banks that were "too big to fail." And topping the list… JPMorgan, the namesake bank of the man who helped drive the Federal Reserve's creation 100 years ago.  Along with Citigroup, Goldman Sachs, and other big banks, JPMorgan is one of the Fed's "primary dealers." These dealers act as the Fed's agent at Treasury auctions and in other markets. Under the current system, once the dealers buy the government bonds, they sell them to the Fed – for a slight profit, of course.  Not only do they profit from every Treasury bill the Fed purchases… but many people believe that their "seat at the table" offers the Fed's primary dealers insights into – and even influence over – our nation's monetary policies. The Fed has become a cartel with membership privileges.  Quantitative easing has re-inflated the entire banking system. The chart below tracks the balance sheets of the Federal Reserve. Notice that assets (the black line) have ballooned from around $900 billion to nearly $4 trillion.  Meanwhile, JPMorgan has seen its assets grow from $1.6 trillion in 2007 to $2.5 trillion today. That is 58% in just a little more than five years. It has also seen earnings per share (the gray line) grow by 43% over the same period.  Meanwhile, Federal Reserve manipulation of the dollar has undermined the lives of millions of Americans. It has driven down the standard of living for the average American in two key ways. First, the average household is earning less money at a time when prices are increasing.  Second, it's nearly impossible for people to protect the value of any extra cash they can save. The cash that is left in bank accounts will buy less next year than it does today.  The Fed has set interest rates so low, it's impossible to earn a decent return. Remember, all interest rates are tied – either directly or indirectly – to rates set by the Fed. This is great for the banks that own the Fed. They get to borrow for 0% and lend to the rest of us at 4% or 5%. But it's terrible if you're trying to hang onto your savings for retirement 15 or 20 years down the road.  In short, the Federal Reserve has changed the markets. It has also changed how we invest. There are considerations today that we would never have imagined 20 years ago. It is no longer enough to study business cycles and company fundamentals. We have to consider the unintended consequences of quantitative easing…  Tomorrow, I'll show you the results of a study we just conducted on what will happen when the Federal Reserve begins to rein in its quantitative-easing bond-buying policies. This is what people refer to as "tapering."  We looked at how the Fed's previous exits from the bond market have influenced every sector of the stock market – and how "tapering" could affect our recommended stocks.  Specifically, we studied more than 2,000 stocks across 39 industry segments. We spent dozens of hours on this analysis (which we've seen nowhere else, by the way).  We found there wasn't a single sector of the stock market that had gone up, on average, during the last three Federal Reserve "taper" periods.  But we did find a "window" of opportunity. I'll show you exactly where in my next essay…  Regards,  Porter Stansberry Source: Daily Wealth Follow us on Twitter: @blacklioncm

How Every Decision You Make Can Make You Richer – or Poorer

How Every Decision You Make Can Make You Richer – or Poorer

By Mark Ford, wealth coach, The Palm Beach Letter

Tuesday, May 22, 2012 You go to lunch with a colleague. Everything is good. When the waiter puts the bill on the table, the total is $26. Do you pick it up? Do you wait and hope he does? Or do you suggest you split it?  On the surface, this is a minor decision. But in truth, it is one of a million chances you've had, have, and will have to become wealthier.A cheapskate might look at it this way:  If I pay the whole bill, I'll be $26 poorer. If we split the bill, I'll be $13 poorer. If I can get him to pay it, I'll be $13 richer. To the cheapskate, the best decision is obvious. So when the bill arrives, he gets up to "go to the bathroom," hoping he'll be $13 richer when he returns. But I have a different view. Wealth building, like quantum mechanics, often operates according to laws that seem contrary to what is "obvious."  Paying the tab, in other words, might actually make you richer. Because the $13 you spend on your lunch partner might give you a return of much more than $13. Your generosity might signal to him that you are the kind of person he can trust. It might tell him you are someone who is willing to give first without demanding recompense. If he sees you in that light, a relationship might be seeded by this small investment on your part. A year later – it is possible to imagine – he might recommend you for a promotion when he himself gets promoted to head up your department. It depends on your assessment of his character. If he impresses you as a person who believes – as you do – in reciprocity, you will know that the $13 is a wise investment. If, on the other hand, he shows you that he is a person who believes in exploiting others, the wise move might be to pay only your share of the bill and not develop the relationship any further. In either case, you are richer.In the first case, you are richer in a potentially lucrative business relationship. In the second case, you are richer in knowledge – knowledge about him that can help you avoid trouble or seize opportunity in the future. I am making two points: First, almost every event in your life is an opportunity for you to become richer. And second, by seeing every situation as a wealth-building opportunity, you can take the actions that will gradually make you very rich. The people I call "instinctive wealth builders" understand this on a gut level. They see every transaction – social, personal, or business – as a wealth-related opportunity. They are always angling, even subconsciously, to increase their wealth. Most of us aren't born with that instinct. For us, a casual conversation is just a casual conversation. And choosing to join a club or hire or fire an employee is that and nothing more. But the moment we put this principle into practice, we see the world very differently. Its potential is no longer limited. It is enormous, maybe even infinite. And we view every action we engage in as a chance – big or small – to increase or diminish our wealth. Train yourself to ask the following four questions – keeping in mind that every situation, big or small, is an opportunity for you to become richer… 1.   "In what way is this an opportunity for me to become more wealthy?" (Note: I don't ask, "Is this a wealth-building opportunity?" – because every situation is a wealth-building opportunity.)  2.   "What is the potential of this opportunity?"  3.   "What are the possible problems with this opportunity?"  4.   "What can I do to seize this opportunity?" Look at every situation you find yourself in as an opportunity to make yourself richer. And I do mean every situation, even the most mundane. This includes: •   The first thought you put in your mind when you wake up each morning. •   What you listen to on your commute to work. •   How you greet your boss and fellow workers. •   What you talk about at the coffee machine. •   The expression on your face and the firmness of your grip when you shake hands. •   The conversation you initiate with the person next to you on a plane. •   Whether you buy a brand-new car or a used one. •   How your voice sounds when you answer the phone. •   How you prepare for a meeting. •   Whether you buy your clothes at Saks or Marshalls. •   Whether you go out to lunch or eat at your desk. Some of your opportunities will be small and some large. But by asking yourself these four questions first, you will bring your batting average way up…If you make it a habit to approach every situation this way, it will soon become automatic. And before you know it, you will have seized hundreds – even thousands – of wealth-building opportunities… each one making you a littler richer. Regards,  Mark Ford Source: Daily Wealth