By Michael Mccune: The Rant (US Government auditor for 16 years In Cheyenne, WY. - Fed Policy Creates Financial Sinkhole (( to Have Michael send you the Rant to your Email contact Him Here (( mccrant@gmail.com))

Fed Policy Creates Financial Sinkhole

Before you walk, sit or lie down these days you could be forgiven for double checking the stability of the ground upon which you reside given the number of sinkholes cropping up. The biggest sinkhole risk is not to your personal safety but to any investment you might have in any financial institution.

 

You see, the market's turnaround in 2009 was the only indicator that the recession was over. On this technicality alone the Obama Administration was able to declare the recession over. Based on normal government activities, that assumption would have been valid. But the Federal Reserve's money manipulation only glossed over the surface while the thin air the surface is set upon conceals the sinkhole aspect underneath.

 

It has long been the Rant's position the market rise was phony, achieved at the expense of printing dollars and shoving them into the financial system with reckless abandon. Since then there has been a rising chorus of support for this position but further validation comes from two sources who should have inside knowledge. The first is former Treasury Secretary Timothy Geithner whose book exposes a lot of ugliness about the government machination during the period of recovery. The second source is the Congressional Budget Office (CBO) whose ability to discern the truth is hampered by its inability to use any information not provided by official sources.

 

Since Geithner was a tax-dodger before he was appointed Treasury Secretary but while working for the Fed as President of the New York branch and he has a great desire to inflate his income now he has left the government's employ, his book includes some interesting details about his time in the Obama Administration. On page 510 he has a terse reminder for "investors" what happened the last time the financial markets had this little volatility.

 

"I got to see [first hand] how much power belief in the 'Great Moderation' had over people and to witness its expression in the credit boom [1996-2006] when investors happily believed the market only moved higher." This resulted, he claims, in the "financial fires" he fought as Treasury Secretary. The 'Great Moderation' has returned and that is a red flag.

 

It is his reference to the credit boom that brought the CBO report to the forefront. One of the biggest forms of credit abuse today is in the student loan area. What the CBO report, released yesterday, reveals is (big gasp of surprise is expected here) the government has used "faulty" accounting methods that allow the government to record student loans as cash inflows rather than the expenditures that are the reality.

 

Remember last year when the government economists finally made the adjustment to put the knowledge factor into the economy so they could continue the myth the economy was growing? That bit of chicanery is totally subjective because, even if people have 'knowledge' the government does not know how they will use that knowledge. If it is for a positive use, then yes it could be an asset for future economies. But if it is used negatively, like say a Ted Kaczynski/Unabomber style, then it is a big liability. Non-use of the knowledge is of course a wash and with so many college graduates unable to get jobs that fit their abilities, the education in those cases is lost also. But the government counts the knowledge factor as always an asset.

 

A third point is the combination of the faulty government accounting methods with the laissez faire (hands off, no accountability here) style of the current President.  He has made promises that are simply impossible for government revenues to handle, making the debt load for the future uncertain at best for a struggling economy. If interest rates rise, even a fraction towards normal, the resulting debt service load will make continuation of the 279 various assistance programs Americans have become addicted to unmanageable.

 

Since current Treasury rates sit at 2.55% for 10-year notes, there is little to be excited about because that is less than half the average set during the 1980s and 1990s. That means the interest on the outstanding debt can be expected to at least double shortly which hinders the government's ability to continue the entitlement programs it is so fond of. If interest rates rise back toward the 1970 levels America must brace for a four-fold increase in debt service each year alone. There is no way for that to be accomplished at the current tax levels.

 

The fourth point is the soon-to-be-implemented regulations from Dodd-Frank. Since Geithner also revealed how strongly the Administration considered nationalizing the banking system in 2009, the implementation of Dodd-Frank leaves every penny residing in a savings account, checking account, money market or CD at risk of 'garnishment' by the government as it views every penny in the banks as belonging to the FDIC that runs the banks and not the depositor anyway.

 

This is the sinkhole on which the economic picture resides. It is there under the surface of apparent stability but is much more massive than any sinkhole nature has ever devised.

 

If this type of sinkhole were just an American problem, I'd move. But central bankers around the globe have done the same thing as our Federal Reserve. The sinkhole threatens the entire world economy. The harmful aspect is the central bank that finds itself in a position to precipitate the disaster might be better prepared and thus is a position to become the leading currency in the world in the ensuing panic. 

 

I'm not willing to bet our Federal Reserve might not be the trigger-puller if it thought it could gain more control and power in the long run. After all, we have a President who covets control.

 

"I have sworn on the altar of God eternal hostility to every form of tyranny over the mind of man."--Thomas Jefferson

 

Please note: due to Memorial Day the Rant's next issue will be on Tuesday, May 27. In addition, I will be the speaker at the Weld County Republican breakfast Wednesday, May 28. The meeting is at Randy's All American Grill in the Westlake Shopping Center at 2118 35th Ave. in Greeley, CO. The breakfast begins at 6:30 am with the presentation to start about 7:10 am. It will provide an opportunity to ask any questions you might have directly.