Why the Federal Reserve Is A Threat to Little Old Ladies

Just remember, the consumer makes up for 70 percent of the US GDP. New 2010-2011 QE will result in possible inflated assets, with strapped consumers, including the little old ladies, pulling back in the face of inflated prices. Or, more likely, QE will not work and will just reveal the weakness in the US economy.

Update: The United States government debt will be in excess of 100 percent within 5 years, according to Bill Gross, manager of PIMCO funds. The danger of this massive debt is obvious. It could 1. weaken the ability of the US government to become free of moneychanger international banker debt or 2. cause a default of the United States, which could result in a currency devaluation and possibly a new reserve currency that is WORLDWIDE.

There are many east coast professors who want a one world currency. (See the link for "We Already Have One World Government" below.) The moneychangers will have absolute power once this is accomplished and they have near absolute power now. The cost to borrow money in the USA will SKYROCKET. Prosperity in the United States will become even more difficult to achieve, putting the country at risk.

Why would the federal reserve be a threat to little old ladies? Because they have decided to purchase treasury bonds out of money created from nothing. The ultimate immediate impact of these purchases is to:

1. give more business to the banks, as they will resell these bonds to the banks down the road, causing the national debt to rise. If they would just keep the bonds and return the interest to the US on a permanent basis it would cost the government less.

2. keep interest rates low, (since they have already driven short term rates to zero through monetary policy so they can do nothing there), and

3. worst of all, to debase the value of the dollar.

The first reason would be ok, except that makes banks less eager to loan. The second reason destroys the return on savings of the elderly. This is criminal theft, only the Fed can do it legally. The third reason, ie, the decrease the value of the dollar sets a dangerous precedent. The result is that already overpriced assets, such as cars, houses and food will not fall to fair value. Gas could go through the roof with a weak dollar.

All this will likely not be accompanied with appropriate wage increases or cost of living increases to the little old ladies of the USA which are generally capped This is, in effect, a tax, a market manipulation, a government interferance into the free market.

You are saying, "what else is new", but this is indeed new. The fed is not in the habit of debasing the currency of the United States in this fashion. What is happening is that the government prints treasury bonds. The fed prints money. Then they make an exchange, and the money that is used to purchase treasuries is not coming from production of goods and services.

Evidently, Bernanke and the fed just want to steal from the savings of the little old ladies, and then they want the same little old ladies to go out and buy a Mazerati or something on credit! Helicopter Ben is messing up the economy in very unpredictable ways.

If Americans start borrowing up to their eyeballs when they are already tapped out what good result can come of this?

There are intended and unintended consequences of the policy to buy up bonds by the Federal Reserve Bank. The first, and maybe intended consequence, is that China will be happy for awhile because their bonds will be worth more, backed by Helicopter Ben's purchases of more of those bonds.

But remember, we would not have to be buying bonds if we weren't printing so many bonds because of our refusal to nationalize the banks. Our refusal to let the bondholders of the banks and insurance companies take shared pain and our continual raiding of the treasury to bail out the likes of AIG is making it necessary to buy these excess MBS, GSE and Treasury bonds, quelling our creditors' (like China) concerns.

There is a worry that there will be so many bonds coming onto the market that demand will dry up. While that is doubtful there could be softening of demand, ultimately defeating the aim of the Federal Reserve.

But there could be other unintended consequences. One unintended consequence is that inflation could rage in the near future causing those who buy houses at the new low rates to be trapped in their homes by massively rising interest rates. These high rates will be needed to stop the raging inflation that is most assuredly coming. America has not used these banana republic methods to spur economic "growth" in the past. This is a disturbing development.

I have been warning people not to buy houses because they are overpriced still, and now the added risk of higher interest rates in the future has become even more likely than before.

Warning, this effort to stimulate the housing market is a trap. It is no less of a trap than the trap of no doc liar and adjustable rate loans!! You have been warned!

Of course, if the stimulation of printing money doesn't work then we will be in even greater financial trouble sooner. The fed is at a crossroads. If they do not buy enough of the treasuries they will not be able to lower interest rates on 10 year bonds, the benchmark for fixed income mortgages. But if they now increase their purchases they will only temporarily be able to lower those rates, because inflation will rise as the ugly gorilla in the room.The fed is at a crossroads and I believe that they are boxed in.