Quantitative Easing Explained

[Warph]

What the Federal Reserve is up to, and how we got where we are.

Once upon a time, in a wonderland far-far away, Federal Reserve Chairman Ben Bernanke told the truth.  From the Rabbit-Hole, I bring you the transcript from a speech at the National Press Club that Bernanke would never give, because it's the truth:


Ben Bernanke speaking:

The Federal Reserve, in conjunction with the European Central Bank and the major nations of the West, is engaged in the most extraordinary bailout in history. Through a series of measures, both overt and covert, we are subsidizing the financial system and backstopping the major securities and derivatives markets with what amounts to a blank check. These operations are continuing, even expanding, even as we claim that the bailout is being wound down, and that the bailout is turning a profit. Without these extraordinary, taxpayer-funded, efforts, there would be no financial system.

The Federal Reserve and other regulators are doing everything we can to help the banks dress up their books, to hide the extent of their losses.  These efforts have been remarkably successful at allowing these totally bankrupt institutions to keep their doors open, and pretend to be profitable.  In doing so, we have successfully avoided runs by depositors, investors, and counterparties which could have destroyed these banks virtually overnight, and taken the financial system with them.

The Federal Government has, for all intents and purposes, become the residential real estate mortgage market, issuing or guaranteeing some 95% of new mortgages, and providing Federal guarantees for huge amounts of mortgage-backed securities and other mortgage-related derivatives.  The maintenance of the illusion that these securities have value is a matter of the highest national security, as it is preventing the total collapse of the banking system.

To get through this crisis, the Fed is systematically destroying the value of the dollar.  This will allow is to pay back our future obligations with cheaper dollars, a time-tested technique.  At the same time, we must continue to sell huge amounts of dollar-denominated Treasuries to fund our deficit and raise money for the bailout.  Therefore, we must publicly insist that we are committed to a strong dollar.... even though our actions show that insistence is a lie.

The fact is that we are piling up new debt at a staggering rate, while the capability to service that debt is collapsing.  We understand that this is unsustainable, but we view it as a short-term measure needed to help us get through the transition to a new financial system.  We have no illusions that the old system can be saved, even though we constantly talk about how sound it is, and how it is recovering.  We are lying, to keep the peasants calm while we set up our new global dictatorship.


If we told you the truth about what was coming.... you would panic.  We do not have the resources to keep the vast majority of the world's population alive, and save the financial system.  We are therefore forced to choose between the monetary system and the people.  The choice is hard, but obvious: we must protect the money, since it is money that makes the world go around.  Without capital, we can not have finance, we can not have trade, there would be no credit for the economy.  In the post-bubble world, under the new global system, the carrying capacity will be much smaller. That may be unpleasant, but we ignore Malthus at our peril.  For now, we require austerity and depopulation, as we return to a sustainable balance.

At the same time, we will require a dramatic contraction in the size of the global financial system.  The first to go will be the institutions most closely associated with the peasant.... what some call the "real" economy.  That means the commercial banks which depend upon making loans to ordinary people and businesses, which will be the first to feel the effects of the economic contraction.  When a bank's customer base goes broke, the bank is never far behind.  We've closed some 300 banks over the past couple of years, and eliminated many others through mergers, but there are still thousands to go.  Meanwhile, the biggest banks... ones with big securities operations in addition to their commercial banking activities... are increasing their dominance over the economy.  This is all according to plan.  At some point soon we will have to deal with these big banks, but for now we continue to insist they are healthy.

We are lying to you, for your own good.  This is a period of great social engineering, and the herds are much easier to control when they are calm.  Our plan requires moving the people to the slaughterhouse in an orderly fashion, and we can not, and will not, tolerate any stampedes.  We would rather do this in a civil manner, but will take whatever steps are necessary to ensure our success.

The nation-state is an outmoded concept.  In our modern, inter-connected world with its global marketplace, there is no room for such artificial divisions.  If the markets are global, then governance must also be global.  One world, one set of rules.  The markets, and the corporations which operate within them, are far more efficient at managing scarce resources and economic activity.  If the world is to get through this crisis, we must abandon outmoded concepts like nation-states and move into a truly globalized
world.   The Fed is doing its part to make this transition, even as we pretend the steps we are taking are for the benefit of the United States.

Then the spell was broken and Bernanke went back to being a lying son of a bitch.  Shortly after that, the riots began.