Click amount to donate direct to CounterPunch
  • $25
  • $50
  • $100
  • $500
  • $other
  • use PayPal
HAVE YOUR DONATION DOUBLED!

If you are able to donate $100 or more for our Annual Fund Drive, your donation will be matched by another generous CounterPuncher! These are tough times. Regardless of the political rhetoric bantered about the airwaves, the recession hasn’t ended for most of us. We know that money is tight for many of you. But we also know that tens of thousands of daily readers of CounterPunch depend on us to slice through the smokescreen and tell it like is. Please, donate if you can!

FacebookTwitterGoogle+RedditEmail

The Federal Reserve and an Unsustainable Empire

by

Is the Fed “tapering”?  Did the Fed really cut its bond purchases during the three month period November 2013 through January 2014?  Apparently not if foreign holders of Treasuries are unloading them.

From November 2013 through January 2014 Belgium with a GDP of $480 billion purchased $141.2 billion of US Treasury bonds.  Somehow Belgium came up with enough money to allocate during a 3-month period 29 percent of its annual GDP to the purchase of US Treasury bonds.

Certainly Belgium did not have a budget surplus of $141.2 billion.  Was Belgium running a trade surplus during a 3-month period equal to 29 percent of Belgium GDP?

No, Belgium’s trade and current accounts are in deficit.

Did Belgium’s central bank print $141.2 billion worth of euros in order to make the purchase?

No, Belgium is a member of the euro system, and its central bank cannot increase the money supply.

So where did the $141.2 billion come from?

There is only one source.  The money came from the US Federal Reserve, and the purchase was laundered through Belgium in order to hide the fact that actual Federal Reserve bond purchases during November 2013 through January 2014 were $112 billion per month.

In other words, during those 3 months there was a sharp rise in bond purchases by the Fed. The Fed’s actual bond purchases for those three months are $27 billion per month above the original $85 billion monthly purchase and $47 billion above the official $65 billion monthly purchase at that time. (In March 2014, official QE was tapered to $55 billion per month and to $45 billion for May.)

Why did the Federal Reserve have to purchase so many bonds above the announced amounts and why did the Fed have to launder and hide the purchase?

Some country or countries, unknown at this time, for reasons we do not know dumped $104 billion in Treasuries in one week.

Another curious aspect of the sale and purchase laundered through Belgium is that the sale was not executed and cleared via the Fed’s own National Book-Entry System (NBES), which was designed to facilitate the sale and ownership transfer of securities for Fed custodial customers. Instead, The foreign owner(s) of the Treasuries removed them from the Federal Reserve’s custodial holdings and sold them through the Euroclear securities clearing system, which is based in Brussels, Belgium.

We do not know why or who. We know that there was a withdrawal, a sale, a drop in the Federal Reserve’s “Securities held in Custody for Foreign Official and International Accounts,” an inexplicable rise in Belgium’s holdings, and then the bonds reappear in the Federal Reserve’s custodial accounts.

What are the reasons for this deception by the Federal Reserve?

The Fed realized that its policy of Quantitative Easing initiated in order to support the balance sheets of “banks too big to fail” and to lower the Treasury’s borrowing cost was putting pressure on the US dollar’s value. Tapering was a way of reassuring holders of dollars and dollar-denominated financial instruments that the Fed was going to reduce and eventually end the printing of new dollars with which to support financial markets.The image of foreign governments bailing out of Treasuries could unsettle the markets that the Fed was attempting to sooth by tapering.

A hundred billion dollar sale of US Treasuries is a big sale.  If the seller was a big holder of Treasuries, the sale could signal the bond market that a big holder might be selling Treasuries in large chunks. The Fed would want to keep the fact and identity of such a seller secret in order to avoid a stampede out of Treasuries. Such a stampede would raise interest rates, collapse US financial markets, and raise the cost of financing the US debt. To avoid the rise in interest rates, the Fed would have to accept the risk to the dollar of purchasing all the bonds.  This would be a no-win situation for the Fed, because a large increase in QE would unsettle the market for US dollars.

Washington’s power ultimately rests on the dollar as world reserve currency.  This privilege, attained at Bretton Woods following World War 2, allows the US to pay its bills by issuing debt. The world currency role also gives the US the power to cut countries out of the international payments system and to impose sanctions.

As impelled as the Fed is to protect the large banks that sit on the board of directors of the NY Fed, the Fed has to protect the dollar. That the Fed believed that it could not buy the bonds outright but needed to disguise its purchase by laundering it through Belgium suggests that the Fed is concerned that the world is losing confidence in the dollar.

If the world loses confidence in the dollar, the cost of living in the US would rise sharply as the dollar drops in value. Economic hardship and poverty would worsen. Political instability would rise.

If the dollar lost substantial value, the dollar would lose its reserve currency status. Washington would not be able to issue new debt or new dollars in order to pay its bills.

Its wars and hundreds of overseas military bases could not be financed.

The withdrawal from unsustainable empire would begin.  The rest of the world would see this as the silver lining in the collapse of the international monetary system brought on by the hubris and arrogance of Washington.

Paul Craig Roberts is a former Assistant Secretary of the US Treasury and Associate Editor of the Wall Street Journal. Roberts’ How the Economy Was Lost is now available from CounterPunch in electronic format. His latest book is How America Was Lost.

Dave Kranzler spent many years working in various analytic jobs and trading on Wall Street.

 

More articles by:

Paul Craig Roberts is a former Assistant Secretary of the US Treasury and Associate Editor of the Wall Street Journal. Roberts’ How the Economy Was Lost is now available from CounterPunch in electronic format. His latest book is The Neoconservative Threat to World Order.

Weekend Edition
October 20, 2017
Friday - Sunday
John Pilger
Clinton, Assange and the War on Truth
Michael Hudson
Socialism, Land and Banking: 2017 compared to 1917
Jeffrey St. Clair
A Day in the Life of CounterPunch
Paul Street
The Not-So-Radical “Socialist” From Vermont
Jason Hirthler
Censorship in the Digital Age
Jonathan Cook
Harvey Weinstein and the Politics of Hollywood
Andrew Levine
Diagnosing the Donald
Michelle Renee Matisons
Relocated Puerto Rican Families are Florida’s Latest Class War Targets
Richard Moser
Goldman Sachs vs. Goldman Sachs?
David Rosen
Male Sexual Violence: As American as Cherry Pie
Mike Whitney
John Brennan’s Police State USA
Robert Hunziker
Mr. Toxicity Zaps America
Peter Gelderloos
Catalan Independence and the Crisis of Democracy
Robert Fantina
Fatah, Hamas, Israel and the United States
Edward Curtin
Organized Chaos and Confusion as Political Control
Patrick Cockburn
The Transformation of Iraq: Kurds Have Lost 40% of Their Territory
CJ Hopkins
Tomorrow Belongs to the Corporatocracy
Bill Quigley
The Blueprint for the Most Radical City on the Planet
Brian Cloughley
Chinese Dreams and American Deaths in Africa
John Hultgren
Immigration and the American Political Imagination
Thomas Klikauer
Torturing the Poor, German-Style
Gerry Brown
China’s Elderly Statesmen
Pepe Escobar
Kirkuk Redux Was a Bloodless Offensive, Here’s Why
Jill Richardson
The Mundaneness of Sexual Violence
Caoimhghin Ó Croidheáin
The Choreography of Human Dignity: Blade Runner 2049 and World War Z
Missy Comley Beattie
Bitch, Get Out!!
Andre Vltchek
The Greatest Indonesian Painter and “Praying to the Pig”
Ralph Nader
Why is Nobelist Economist Richard Thaler so Jovial?
Ricardo Vaz
Venezuela Regional Elections: Chavismo in Triumph, Opposition in Disarray and Media in Denial
Kevin Zeese - Margaret Flowers
NAFTA Talks Falter, Time To Increase Pressure
GD Dess
Why We Shouldn’t Let Hillary Haunt Us … And Why Having a Vision Matters
Ron Jacobs
Stop the Idiocy! Stop the Mattis-ness!
Russell Mokhiber
Talley Sergent Aaron Scheinberg Coca Cola Single Payer and the Failure of Democrats in West Virginia
Michael Barker
The Fiction of Kurt Andersen’s “Fantasyland”
Murray Dobbin
Yes, We Need to Tax the Rich
Dave Lindorff
Two Soviet Spies Who Deserve a Posthumous Nobel Peace Prize
Rafael Bernabe – Manuel Rodríguez Banchs
Open Letter to the People of the United States From Puerto Rico, a Month After Hurricane María
Oliver Tickell
#FreeJackLetts
Victor Grossman
From Jamaica to Knees
Michael Welton
Faith and the World: the Baha’i Vision
Barbara Nimri Aziz
Kirkuk the Consolation Prize?
Graham Peebles
Beyond Neo-Liberal Consumerism
Louis Proyect
On Gowans on Syria
Charles R. Larson
Review: Candida R. Moss and Joel S. Baden’s “Bible Nation: the United States of Hobby Lobby”
David Yearsley
Katy Perry’s Gastro-Pop, Gastro-Porn Orgy
FacebookTwitterGoogle+RedditEmail