Donor Matching Funds Announced!

A generous donor has offered to match all contributions dollar-for-dollar for the next $10,000 raised, doubling the impact of your donation and helping us reach our fundraising goal faster.

$17,410 of $60,000 raised

Federal Reserve’s Latest Bailouts More Proof Bad Times Ahead

by | Oct 8, 2019

Federal Reserve’s Latest Bailouts More Proof Bad Times Ahead

by | Oct 8, 2019

Since September 17, the Federal Reserve Bank of New York has pumped billions of dollars into the repurchasing (repo) market, the first such intervention since 2009. The Fed has announced that it will continue to inject as much as 75 billion dollars a day into the repo market until November 4.

The repo market provides a means for banks that are temporarily short of cash to obtain short-term (usually one day) loans from other banks. The Fed’s interventions were a response to a sudden cash shortage that caused interest rates for these short-term loans to climb to 10 percent, far above the Fed’s target rate.

One of the factors blamed for the repo market’s cash shortage is the Federal Reserve’s sale of assets it acquired via the Quantitative Easing programs. Since launching its effort to “unwind” its balance sheet, the Fed had reduced its holdings by over 700 billion dollars. This seems like a large amount, but, given the Fed’s balance sheet was over four trillion dollars, the Fed only reduced its holdings by approximately 18 percent! If such a relatively small reduction in the Fed’s assets contributed to the cash shortage in the repo market, causing a panicked Fed to pump billions into the market, it is unlikely the Fed will be continuing selling assets and “normalizing” its balance sheet.

Another factor contributing to the repo market’s cash shortage was a major sale of US Treasury securities. Sales of government securities leave less capital available for private sector investments, increasing interest rates. This “crowding out” effect provides one more justification for the Federal Reserve to pump more money into the markets.

The crowding out effect is just one way federal debt increases pressure on the Fed to keep interest rates low. Increasing federal debt increases pressure on the Fed to maintain low interest rates to keep the federal government’s interest payments from reaching unsustainable levels. The over one trillion dollars (and rising) federal deficit is the major reason the Federal Reserve is likely to keep interest rates low or even adopt the insane policy of negative interest rates.

The American people are not even allowed to know what banks benefited from the Fed’s intervention in the repo market, or what plans the Fed is making for future bailouts — even though the people will pay for those bailouts either through increased taxes, debt, or the Federal Reserve’s hidden inflation tax when the next crash occurs. Of course, the average people who will lose their savings and their jobs in the next crash will not be bailed out. This is one more reason why it is so important Congress takes the first steps toward changing monetary policy by passing Audit the Fed.

The need for the Fed to shove billions into the repo market to keep that market’s interest rate near the Fed’s target shows the Fed is losing its power to control the price of money. The next crash will likely lead to the end of the fiat money system, along with the entire welfare-warfare state. Those of us who understand the Fed is the cause of, not the solution to, our problems must redouble our efforts to educate our fellow citizens on sound economics and the ideas of liberty. This way, we can create the critical mass necessary to force Congress to cut spending, repeal the legal tender laws to restore a free market in money, and audit, then end, the Fed.

Republished with permission from The Ron Paul Institute of Peace and Prosperity. 

Ron Paul

Ron Paul

Ron Paul is a doctor, author, former member of Congress, Distinguished Counselor to the Mises Institute, and Chairman of the Ron Paul Institute for Peace and Prosperity.

View all posts

Our Books

libertarian inst books

Related Articles

Related

TGIF: Damn Consumers!

TGIF: Damn Consumers!

Global free trade is about individual, not national, freedom—for consumers and producers who import raw materials, tools, and semi-finished products. Aside from its role as an aspect of personal liberty, free trade's efficiency benefits have been well-established...

read more
You Don’t Want to Get Out of Line…

You Don’t Want to Get Out of Line…

The fallout from the failed assassination attempt on former President Donald Trump during a rally in Butler, Pennsylvania continues. Speculation abounds that it was an “inside job,” the head of the Secret Service became “embattled” and resigned, and the assassin’s...

read more
Black Magic, Mad Science, and Super-Nazis

Black Magic, Mad Science, and Super-Nazis

On a London soundstage in 1987, a British pop star is filming a music video when he is interrupted by a visitor who has what he considers an insane request: You’re asking me to help you because Nazis from another dimension are trying to take over the world and only...

read more

Restricting Production

"At the bottom of the interventionist argument there is always the idea that the government or the state is an entity outside and above the social process of production, that it owns something which is not derived from taxing its subjects, and that it can spend this...

read more
America’s Palace Coup

America’s Palace Coup

On Sunday, July 21 at around 1:30pm Eastern time someone with access to President Joe Biden’s social media accounts posted that he was dropping out of the presidential election. The announcement was not on any form of official stationery and the signature was...

read more

Pin It on Pinterest

Share This