One of The Biggest Financial Scams In History

http://www.globalresearch.ca/excess-reserves-at-the-federal-reserve-one-of-the-biggest-financial-scams-in-history-a-whopping-us1-794-trillion/5339221

Excess Reserves at the Federal Reserve. One of The Biggest Financial Scams In History: A Whopping US$1.794 Trillion

By Matthias Chang

Banks’ excess reserves at FED is one of the biggest scam by the FED and there is a conspiracy of silence as to its actual implications. Economists and financial analysts spewing nonsense to mislead and divert attention to non-issues so that the public is kept in the dark.

The issue of banks’ reserves at the FED and other central banks in the world is a complex subject with much technical jargons that confuses a lot of people. Besides, don’t be surprised that your bank branch manager on Main Street as well as lecturers in finance and economics are also ignorant on this issue. In the case of the latter, this subject is hardly taught in universities. And this is the reason why the scam has not been exposed till today.

But, for those who have a basic idea of bank reserves and how this huge amount of “excess reserves” have been created by the FED, have you asked yourself, “Why have I not spotted this scam earlier?”

Many have been taken in by the propaganda that “excess reserves” is the means to encourage banks to extend credit (give out loans) to desperate borrowers who needed urgent funds to survive and to jump-start their businesses. This propaganda is grounded on the assumption that there is insufficient liquidity in the market.

This assumption is misleading.

What are Excess Reserves

The latest figures obtained from the H.3 release from the Board of Governors of the Federal Reserve System (the FED) shows excess reserves of about $1.794 trillion (data as of April 17, 2013), This level of excess reserves is unprecedented and is the highest since reserves were legislated as a requirement.

Please read the below paragraph carefully, ponder deeply before proceeding further. Don’t rush. It is important that you understand this simple fact as otherwise you would not appreciate the audacity of this financial scam!

Excess reserves are the surplus of reserves against deposits and certain other liabilities that depository institutions (collectively referred to as “banks”) hold above the statutory amounts that the FED requires in accordance with the law. The general requirement is that banks maintain reserves at least equal to ten percent of liabilities payable on demand. There is now data to show that as much as 50% of these “excess reserves” are held for United States banking offices of foreign banks.

Let me elaborate. Banks receives deposits from their customers which are inter-alia placed in current accounts (checking accounts) or time deposits (fixed deposit accounts) and which the customer can at any time withdraw from the bank. But, banking practice shows that at any one time, only a small fraction of customers would withdraw their deposits in full. So, there was no need for banks to keep all the deposits in their vaults to meet such a demand for payment. Laws were enacted to allow banks to keep in reserve a small amount of monies to meet such demands.

That being the case – if only 10% reserves is all that is required according to banking regulations to meet repayment demands, why should there be such a huge amount of reserves, beyond the legal requirement of 10%?

Keep this question at the back of your mind to understand the huge scam by the FED.

A Slight Digression

In a previous article, I had exposed the fact that when a customer deposits monies in a bank, he is in law a “creditor” (he has loaned the monies to the bank) and the bank is a “debtor” (and he can use the money in any way at his absolute discretion, even to speculate).

This is because the ownership of the money has been transferred to the bank. The money is no longer the money of the customer. It now belongs to the bank. And as long as the bank is solvent, and there is a demand for repayment of the deposit, the law of contract stipulates that the bank must repay together with the agreed interest that has accrued.

However, if at the time when demand for repayment is made, the bank is bankrupt (i.e. in a liquidation) then the depositor/customer in law is deemed an “unsecured creditor” and must join the queue of all unsecured creditors to share the proceeds of any remaining assets after all secured creditors have been paid. If there are no remaining assets, the depositors get zilch! Ouch!!!!!!

That is why and as illustrated in the bank confiscation of deposits in Cyprus banks acting in concert with central banks can expropriate all customers’ deposits to pay their secured creditors.

I will elaborate on this issue later.

Let’s return to the issue of excess reserves.

How Did The Excess Reserves Balloon To A Massive US$1.794 Trillion? A Simple Summary

The Fed’s overall balance sheet has expanded from about $909 billion before the crisis (i.e. before 2008) to about $3.3 trillion in 2013. Of the $2.4 trillion increase, approximately $1.8 trillion is excess reserves.

Banks were up to their eyeballs in toxic assets (financial sewage) and they are drowning in this cesspool but for the rescue efforts of the FED and other central banks they would have sunk to the bottom of the cesspool.

First Stage of Excess Reserves Scam

From the diagram below, you will see that the FED created trillions of money out of thin air by a digital entry in its books to purchase the toxic assets (financial sewage) in batches from the banks. The objective of QEs is to save the banks and to save the US Treasury from bankruptcy and not Joe Six-Packs. However, in this article we are focusing on the banks.

So, let’s say that the banks HAVE OVER US$10 trillion of financial sewage AND WANT TO DISPOSE THEM WITHOUT AROUSING ANY ALARM.

From the diagram below, you will see the monies flowing from the FED to the banks to purchase the financial sewage. The financial sewage is sucked into the FED’s financial vacuum. However the monies are not channeled to the banks’ branches in Main Street to be loaned out to Joe Six-Packs. It is re-routed back to the FED as “reserves”. When the reserves exceed the minimum 10% requirement, the excess is classified as “excess reserves.”

This is merely a book entry! And adding insult and injury to Joe Six-Packs, interest of 0.25% is paid on the reserves (i.e. giving profits to the banks).

The banks are allowed to survive in spite of their massive frauds and other financial hanky-pankies. The banks are allowed to use digital technology (e.g. high-frequency trading) to corner the market and destroy Joe-Six-Packs. But, Joe-Six-Packs have to suffer the indignity of unemployment, foreclosures, reduced unemployment benefits, survive on food-stamps, and other austerity measures. Additionally, and to prevent any opposition to the financial and ruling elites, Joe-Six-Packs are now under intense surveillance by NSA’s Prism Program that tracks every move, phone calls, emails, etc.

Can you now see the audacity of this scam?

The money flows from the FED to the Too Big To Fail (TBTF) Banksters to Buy Toxic Assets, which is sucked in by the FED’s Financial Vacuum, thereby cleansing the TBTF banks’ balance sheets. The money is then re-routed back to the FED as “excess reserves”.

The FED create monies out of thin air to bail-out the Too Big To Fail banks (TBTF banks) by purchasing their financial sewage (valued at book value as opposed to mark-to-market i.e. instead of paying only 10 cents on the dollar or less, the FED pays dollar for dollar) thereby removing the financial sewage from the balance sheet of the TBTF banks to reflect a “healthier” balance sheet as there are now less financial sewage in the banking system.

And, because the TBTF banks are suffering losses, the FED pays 0.25% interest on the “excess reserves” created so as to generate easy profits for the TBTF banks for doing nothing at all. They are earning profits merely from a book-entry in the FED’s books!

The propaganda which I referred to earlier that such monies were meant to enable the TBTF banks to extend credit is therefore bullshit and a load of financial nonsense. So why are the so-called reputable economists at leading universities such as Harvard, Princeton, Cambridge, Oxford etc. touting this propaganda?

There is so much financial sewage in the banking system, that in law the banks cannot extend further credits to Joe Six-Packs unless and until the balance sheets of the TBTF banks are cleaned up, and the banks properly re-capitalised to continue with their banking business. (See Basel III Accords).

The so-called record profits declared by the TBTF banks and the huge bonuses given out to the bankers and their hire-lings are all window dressing as long as the toxic assets are not marked-to-market and not declared as junk. If such assets are properly declared, the fiat money banking system would be staring at a bottomless black-hole of toxic assets and indebtness!

This is the reason why QE has to continue. The QE programs are to drain the financial sewage from the banking system.

I had earlier stated that banks are required at have at least 10% of the deposits as reserves.

This has compounded the problem. After the Global Financial Tsunami, all the TBTF banks don’t have enough reserves to meet the withdrawal of deposits placed by customers before the crash. The TBTF banks don’t even have the requisite 10% reserves to meet these demand deposits (Old Deposits). That is why this scam was perpetrated by the FED as illustrated in the above diagram.

However, banks are continuing to receive deposits from customers of which 10% of these deposits must be transferred to the FED as reserves.

Under the fractional reserve banking system, the banks are allowed and can loan out the remaining 90% of the deposits as loan by a multiplier of ten – i.e. if new deposits total US$100 million, US$10 million will be transferred to reserves to meet withdrawals as explained above. By fractional reserve banking principles, the bank can loan out (based on a multiplier of ten) US$90 million x 10 = US$900 million. Data shows that customers’ deposits are at an all time high (since 2007), but bank lending is not keeping pace.

Banks are not lending out what they are entitled to do so for two reasons:

1) The banks are using a portion of the “New Deposits” to meet the liability of having to repay the “Old Deposits” in the system. This is because even the excess reserves (created under the QE) are insufficient to meet the demand for repayment of the Old Deposits. So, part of the current New Deposits would be utilised for that purpose. This is the Deposit Ponzi Scheme.

2) Banks are earning no risk profits from interests on “Excess Reserves” at the FED and are only willing to lend to credible borrowers. In the present economic climate, there are just too few credible customers. This is another reason why banks are not lending.

Therefore, and as stated earlier, the problem is not liquidity but rather, it is and always has been the insolvency of the TBTF banks and the financial sewage clogging the entire fiat money banking system.

Food For Thought

“Reserves don’t even factor into my model, that’s not what causes inflation and not how the Fed stimulates the economy. It’s a side effect.” – Former Fed Governor Laurence Meyer, co-founder of Macroeconomic Advisers

Second Stage of Excess Reserves Scam

If and when the economy recovers (maybe 2019??), the FED will repackage the toxic assets into new financial products to be sold to a new generation of stupid investors. Banks are not even required to pay, as the monies are still kept with the FED (book entry). In this final transaction, there will be a reverse-entry in the banks’ books.

Laurence Meyer is saying what many has deliberately ignored and or missed out completely. When QE stops, the FED would not be out on a limp because the monies used to purchase the financial sewage from the TBTF banks are still in the FED’s books.

The Fed need only to have a reverse entry in it’s books after re-packaging the financial sewage INTO SOME NEW FORM OF FINANCIAL PRODUCT OR WHATEVER (which the TBTF banks are adept at doing before the crash and are still continuing to do so) and dumping them back to the banks and another generation of stupid investors at such time when and if the banks have recovered – maybe 2019?

Further, with the bank’s unbridled right (sanctioned by law) to confiscate the customers’ deposits (now commonly referred as “Bail-In”) using the Cyprus template, banks have additional financial resources to continue with the plunder and financial rape of the public. Wake Up, I rest my case. 

US Dollar Collapse and Japan’s Sham Currency War

US Dollar Collapse and Japan’s Sham Currency War: 

The Hidden Agenda Behind Japan’s Kamikaze Quantitative Easing

By Matthias Chang

US$ dollars have been flooding the financial markets ever since Bernanke launched quantitative easing allegedly to turnaround the US economy. These huge amounts of US$ toilet paper are mainly in financial markets (and in central banks) outside of the United States. A huge chunk is represented as reserves in central banks led by China and Japan.

If truth be told, the real value of the US$ would not be more than a dime and I am being really generous here, as even toilet paper has a value.

That the US dollar is still accepted in the financial markets (specifically by central banks) has nothing to do with it being a reserve currency, but rather that the US$ is backed/supported by the armed might and nuclear blackmail of the US Military-Industrial Complex. The nuclear blackmail of Iran is the best example following Iran’s decision to trade her crude in other currencies and gold instead of the US$ toilet paper.

If the United States were not a military threat and a global bully that can blackmail with impunity the oil exporting countries in the Middle East, the global financial system which hinges on the US$ toilet paper would have collapsed a long time ago.

The issue is why has the US$ not collapsed as it should have by now?

When we apply common sense and logic to the state of affairs, the answer is so simple and it is staring at you.

But, you have not been able to see the obvious because the global mass media, specifically the global financial mass media controlled mainly from London and New York, has created a smokescreen to hide the truth from you.

Let’s analyse the situation in a step by step manner, and apply common sense.

1. The US is the world’s biggest debtor. The biggest creditors are China and Japan, followed by the oil exporting countries in the Middle East. With each passing day, the value of the US$ toilet paper is worth less and less. Like I said earlier, even toilet paper has some intrinsic value. It reaches zero value when everyone has to carry a wheelbarrow of US$ to purchase anything.

2. For the US$ toilet paper creditors, they cannot admit the fact that they have been conned by the global Too Big To Fail Banks (TBTFs) acting in concert with the FED and the Bank of England to accept US$ toilet papers. The central bankers of these countries have a reputation to preserve (not that there is in fact any reputation, for their so-called financial credibility is also part of the scam) and the political leaders that relied on them is in a bigger bind. How can the political leaders be so very stupid to trust these central bankers (who have stashed away in foreign tax havens huge US$ toilet papers as a reward for their complicity). This is the current state of affairs in plain English. They are having sleepless nights worrying if and when the citizens would wise up to this biggest con in history i.e. the promotion and acceptance of fiat currencies, the US$ being the ultimate fiat currency.

3. The global financial elites led by the FED know that this state of affairs is to their advantage and they are exploiting it to the hilt! They also know that no country or organisation has the military resources to threaten the US to stop this global ponzi scheme which has been going on since 1945 and intensified since 1971 when President Nixon de-coupled the US$ from gold. The pound sterling is another story but, it is not relevant for the purposes of this analysis.

4. Additionally, and as a result of the above-stated scam, countries were led to believe and to accept the false economic theory that export generated growth (GDP) should be the foundation of economic development, as the United States having limitless US$ toilet paper has the ability and the means to purchase the global exports, it being the largest consumer market in the world. In the result, the world’s factories and their workers, including those in the developed world such as France and Germany worked their butts off to be rewarded with US$ toilet paper whose value is less than the paper and ink that produce it! The financial frolic went on for more than forty years and came to an abrupt and foreseeable end in the 2008 global financial tsunami.

5. When the party ended, the United States was up to her eyeballs in debts as a result of reckless financial speculation in the global derivatives casino and the consumption binge financed by housing mortgages. Debts must be repaid. But, the US has no means to do so. They cannot produce enough goods to earn the revenue to pay the debts because US manufacturing has been outsourced to the developing world – China became the world’s number 1 factory. So, the financial elite appointed helicopter Bernanke to lead the charge for the US and the UK to use the printing press (digital or otherwise) to print more US$ toilet papers to pay off the debt. In economic jargon, this is “monetising the debt”. It is outright fraud, but no one (i.e. central bankers) in his right mind would admit to this fraud as they would be hung from the lamp-posts if the truth is discovered as was the case when the Italian fascist leader Mussolini was hung by the Italian partisans.

6. Initially, central bankers confronted with this situation and having to face a restless populace embarked on a regime of competitive easing/ devaluation of their currencies. But, the price was horrendous. Inflation spiked in all these countries. But, this scheme of things did not work out as planned for the simple reason, the US$ toilet paper continued to be lower as a result of more QE by Bernanke. China realised the danger and adopted other means to overcome this situation, one of which was to enter into bilateral arrangements with her trading partners to finance trade in their respective currencies. Such agreements were entered between China and Japan, members of BRIC, Malaysia etc. This counter-measure was perceived as a threat to the continued dominance of the US$ toilet paper regime. In the result, Obama declared at the urging of the financial elites (he does not have the grey cells to think) a foreign policy shift – the Asia Pivot to prevent a further deterioration of US$ dominance.

7. When Japan entered the agreement with China, her behaviour was deemed unacceptable since Japan was under the nuclear protection of the US. Japan was caught between a rock and a hard place. It was expected that sooner or later the US would apply the squeeze on Japan to behave in a proper manner. Applying geopolitical strategies, the US towing South Korea along provoked North Korea by launching a military exercise which included flying B-2 bombers which are capable of carrying nuclear weapons. North Korea responded in the manner that was expected. Japan was exposed and in like manner reacted by seeking US protection. To muddy the waters and complicate the situation, the US engineered a Idispute between China and Japan over the sovereignty of the Diaoyu Islands. This was followed by the installation of a new regime in Japan by the election of the Prime Minister Shinzo Abe and the appointment of Haruhiko Kuroda as the Governor of the Bank of Japan (BOJ).

8. Now comes the mechanics of US counter-measures in shoring up the artificial dominance/value of the US$ toilet paper. Japan was ordered to do its part as a quid pro quo for being protected by the US’s nuclear umbrella. A new version of the Plaza Accord must be put in place – a “reverse Plaza Accord”.

9. Let me explain. In the 1985 Plaza Accord, the dollar was devalued to reduce the current account deficit and to help the US recover from the recession of the early 1980s. It was a managed devaluation and the exchange value of the Dollar versus the Yen declined by 51 per cent from 1985 to 1987 – reaching ¥151 per US$1 in March 1987. The dollar continued to slide till 1988. The effect of the strengthened Yen depressed Japan’s exports and brought about the expansionary monetary policies that resulted in the infamous asset bubbles of the late 1980s. The G-6 countries then gathered in 1987 in Paris to arrest the slide of the dollar and to manage and stabilise the international currency markets. The end result was the Louvre Accord. In the next 18 months the dollar strengthened to ¥160 per US$1.

10. However, in the current situation, the devaluation of the US$ toilet paper was the result of massive QEs so as to enable US to monetise her debts. However, for US to continue to monetise her debts and have the world’s central banks agreement to continue to hold dollar reserves, the value of the dollar must appreciate, failing which the dollar would collapse, the US defaulting on her debts, as creditors would no longer accept US$ as payment. The trick was to artificially inflate the value of the dollar without arousing any suspicions.

11. In the 1970s, following the de-coupling of the dollar from gold by President Nixon, the dollar would have collapsed in like manner as it was not backed by gold. It became pure fiat money! The trick then was to create an artificial demand for dollar which would in turn raise the value of the currency. This was effected by the proposal of Kissinger to the Arabs that if they would dollarize their oil exports, the US would guarantee their safety and survival even from the threats of Israel. When the Arabs agreed to this arrangement, every country in the world had to buy oil in US$. Countries have to exchange their currencies into US$ to buy oil. This demand for US$ strengthened the currency and prolonged the US fiat money monopoly.

12. However, this option is no longer available presently as oil is now being sold in other currencies besides the US$. The petro-dollar is no longer in dominance. In any event, the continued use of petro-dollars would spike the oil price and this would be inflationary and detrimental to the US economy as well as the world’s economy in the present economic climate – i.e. deep recession. Another means must be used.

13. This is the reason for the sudden “shock and awe” monetary policy of the new Japanese regime of Shinzo Abe and Haruhiko Kuroda. My detractors will accuse me of indulging in conspiracy theories. But, the facts speak for themselves. I had said earlier, that the G-7 countries have collectively attempted to devalue their currencies but, it did not stem the slide of the US$ because Bernanke was increasing the intensity of QE since 2008. And the EU was not willing and or able to adopt a suicide policy of massive QE as Germany was well aware of such a risk having suffered the negative effects of hyperinflation. China would not kow-tow to the US and in fact together with fellow members of BRIC was adopting counter-measures to confront Bernanke’s QE financial weapon. That left only one country who can be compelled to do the US bidding, to commit Hara-kiri to save and or prolong the US$ toilet paper regime – Japan!

14. And so, Japan launched its sudden massive QE and the desired effect is that now the US$ toilet paper has artificially appreciated in value vis-a-vis the Yen and less so with other currencies. This cannot be disputed by my detractors because:

On May 11, the financial elites of G-7 countries explicitly agreed with this kamikaze policy of Japan.

Koichi Hamada has also declared earlier that the target for this policy is to allow the dollar to rise to ¥110 per US$1 and this rise would be managed in a staggered fashion in small increments (step by step approach) thereby controlling the rate of inflation in Japan which would not be allowed to exceed the agreed target rate.

It is suggested that Japan can do this because it can utilise its huge dollar reserves of US$1.2 Trillion to manage the devaluation! According to Alan Ruskin, the global head of Group of 10 foreign-exchange strategy in New York at Deutsche Bank ASG, he said “I think we are opening up the door to look at 105 in the next few months and 110 by the end of the year …” and this surely must be interpreted to mean that Koichi Hamada’s strategy is definitely in play.

In conclusion, it is my view that such “managed artificial appreciation” of the US$ toilet paper while effective in the short run would fail in the long run because the fundamental issues of the US economy have not been addressed and resolved. Only real economic growth can reverse the dollar’s demise.

Seriously, would Bernanke stop further QE when the yen exchange rate reaches ¥110 by the year end? Has not Bernanke declared that QE would continue till 2015? And since Japan has drawn the Red Line at ¥110, can Japan risk further damage to its economy and continue to back-stop US beyond ¥110?

The US$ quadrillion derivative casino is the millstone around the US and the global economy, and as long as this is not resolved, the crisis would only get worse. Like water, after sufficient heat, the boiling point would be reached.

While I cannot forecast the precise date of the implosion, I am of the view that the end is near, sparked by a black swan event and then snowballed to its final devastation.