The Fed’s ‘War on Wealth’ and the Risk of Default

Charles Ortel, managing director of Newport Value Partners, tells Accuracy in Media in an exclusive interview that the Federal Reserve plan to buy $600 billion of U.S. Government securities “borders on the criminal” because the impact will be the devaluation of the dollar by 20 percent and the destruction of $10 trillion of household net worth.

“Any potential benefit to GDP and incomes [from the Fed’s action] pales in comparison to the wealth loss (in real terms) and to the damage done to foreign investor confidence,” Ortel says.

Ortel, who has been critical of U.S. economic and monetary policy under President Obama, fears that “investors will run faster from the dollar and we may soon experience the sizeable pain that comes when foreign capital rushes for the door.”

Ortel has publicly warned that the Obama Administration has been pursuing what amounts to “destructive” policies that endanger the American capitalist system through rising levels of government debt and spending. On CNBC, he first warned in May 2009 that the administration seems to be waging a “war on capitalism.” In February of this year he warned that there is a very real risk of a U.S. default on a total debt of over $50 trillion.

With the Fed’s new move, the “war on capitalism” has become an even more debilitating “war on wealth,” he says.

The latest Fed action was announced on November 3, after Americans believed they had registered their electoral protests against a growing and intrusive federal government. The Federal Reserve said a massive $600 billion “stimulus” for the economy would take place in the form of expanding the Fed’s “holdings of securities.”

The announcement was put forward in a press statement from the Board of Governors of the Federal Reserve System. The Fed’s new action, labeled “quantitative easing” or QE2, follows a first attempt at “QE” that certainly does not seem to have been effective, judging apparent results. All “QE” means is that the Federal Reserve is printing more money and buying more government debt. In total, according to Investor’s Business Daily, “the Fed will have created $2.5 trillion out of the blue.”

Paulson, Bernanke, Geithener

Despite the press release about the decision, Fed Chairman Ben S. Bernanke explained his reasoning in a column for the November 4 Washington Post, saying the Fed has a “particular obligation to help promote increased employment and sustain price stability.” But the Post and other media were slow to question this move and examine its dangerous ramifications.

“Investors cheer new Fed action,” the Post proclaimed in a front page headline on November 5, with a smaller headline about “some Republicans” such as Rep. Tom Price and Senator-elect Rand Paul objecting to what Bernanke is doing.

Price declared, “Quantitative easing is a fancy way of saying that the money in Americans’ pockets is about to buy a lot fewer groceries, clothes, and gasoline. Printing $600 billion of new currency does not make us $600 billion richer. It does not create jobs or prosperity. It simply makes Americans’ savings less valuable while laying the foundation for future asset bubbles and crises.

“Printing hundreds of billions of dollars is a risky gamble by the Fed. Voters just handed a staggering defeat to the idea that Washington should have more control over the distribution and value of Americans’ money. They clearly want a more limited and responsible government that will remove barriers to job creation instead of speculative economic engineering.”

While the Fed’s action garnered stories and headlines across the country, the fact that one member of the Federal Open Market Committee of the Federal Reserve system had voted against the policy was buried in or ignored by most news stories. The press statement from the Fed noted that, “Voting against the policy was Thomas M. Hoenig. Mr. Hoenig believed the risks of additional securities purchases outweighed the benefits. Mr. Hoenig also was concerned that this continued high level of monetary accommodation increased the risks of future financial imbalances and, over time, would cause an increase in long-term inflation expectations that could destabilize the economy.”

Ortel says it is time for the Congress to demand accountability from the Fed. He tells Accuracy in Media, “I definitely think the Fed (and all central banks) should be required to prepare meaningfully incisive, timely statements of their financial condition (as should all government entities and any corporation that issues securities).” It is time, he says, to have a rigorous and comprehensive look at the balance sheet of the Federal Reserve.

“The last time I checked,” Ortel explains, “the consolidated financial statements for the Fed system showed scant equity and assets of less than Triple A caliber. The accounting standards employed by the Fed are hardly strict, so these statements are far from reassuring.”

Ortel called for “Trust but Verify” reporting on the operations of the Fed.

Regarding the new QE2 actions, Ortel says that he would love to see the legal and financial analysis supporting these actions, “especially the work done to consider downside scenarios.”

In terms of the impact on ordinary Americas, who are somehow supposed to benefit from the Fed’s actions, Ortel explains how and why the injection of $600 billion into the economy can backfire and result in even more problems down the road.

He says, “According to the Federal Reserve itself, household net worth in the U.S. is about $52 trillion. In contrast, GDP is just $14 trillion and GDP is akin to gross revenues. The amount that trickles down annually to household wealth is less than 10 percent of GDP. Call it $800 billion this year for talking purposes.

“Devaluing the dollar, which is the direct consequence of QE2 by 20 percent (Bill Gross of PIMCO has this estimate) immediately knocks $10 trillion off of household net worth which borders on the criminal. Any potential benefit to GDP and incomes pales in comparison to the wealth loss (in real terms) and to the damage surely done to foreign investor confidence.”

He adds, “Resorting to another round of QE tells the world plainly that the Fed is out of effective ammunition and simply grasping at straws.”

Ortel predicts a “coming shakeout” and a new global regulatory regime that will emerge “after a great deal of financial (and I hope not real) blood has been shed.”


Cliff Kincaid is the Editor of Accuracy in Media, and may be contacted at cliff.kincaid@aim.org.

Image added by Gulag Bound
Article originally appeared published, 11/5/2020


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Comments

  1. Illegal Fed and their fake illegal money, yet another violation of our rights. Add it to the list of gov’t violations of our right:
    They violate the 1st Amendment by placing protesters in cages, banning books like “America Deceived II” and censoring the internet.
    They violate the 2nd Amendment by confiscating guns.
    They violate the 4th and 5th Amendment by molesting airline passengers.
    They violate the entire Constitution by starting undeclared wars for foreign countries.
    Impeach Obama and sweep out the Congress, except Ron Paul.
    (Last link of Banned Book):
    http://www.iuniverse.com/Bookstore/BookDetail.aspx?BookId=SKU-000190526

  2. When you were born in the fine print of your Birth Certificate your parents were tricked in to creating a fictitious entity with the same name as you. That fictitious entity was spelled out in all CAPITAL LETTERS. In legal documents when you see your name in all CAPITAL LETTERS it indicates the fictitious entity. Rights to ownership of that fictitious entity were signed over by your parents to the government. They created a contract between the fictitious entity and the government. Your parents agreed that the Government could create debt using that fictitious entity as collateral.Once you began responding to that fictitious entity through tax documents, bank statements, etc. you assumed responsibility for the debt that was assigned to that fictitious entity. YOU declared that you represent the fictitious entity. By depositing money in to a bank account that has that fictitious entity’s name on it, you have agreed that YOU will fund the fictitious entity. The Bank and the Government can sieze this money at any time because legally it is their’s because they own the fictitious entity. Now if you challenge this in court (it’s their court, not yours, it represents them, not you) the court will inform you that even if you didn’t respond when the name was called in court “Is JOHN J. SMITH present?” they will deem that you are still liable for this debt, the bankers and government have created because you set a precedent by answering for this fictitious entity in the past. Therefore all debt assumed in the name of this fictitious entity is assigned to you. If you can not produce this fictitious entity in court (how could you produce a fake entity?), you will face the punishment as the representative of that fictitious entity. Now you know

  3. This is all very interesting.

    The big problem I see arising from Bernanke’s persistent and total failure to engage the enemy (the enemy being Wall Street and banker fraud), is the moral problem.

    He is encouraging Wall Street and the credit economy, trying to fight a war with the devil credit economy with more credit economy. The credit economy is immoral, -period.

    Some reformers want to go halfway reining in the credit economy. Why? It will only fester up again. In fact, it cannot be fixed this time. The credit economy is going to eat everything American -on the path that Bernanke has cut out for our economy.

    The real economy is not the credit economy.

    The credit economy is a relatively recent phenomenon.

    The real economy is the cash economy, which has been almost entirely obliterated by the credit economy, which sells credit terms, credit terms that strangle the finances of Americans, so they have no disposable income left to spend in the real economy -the cash economy.

    The real economy is made of entrepreneurs. And the credit economy has strangled American entrepreneurs. The American entrepreneurial class has been gutted over the last 20 years..

    I ran my own business(es) for many-many years. These were always cash businesses. I never extended credit, and neither did I ever accept credit cards.

    The credit card company terms are prohibitively expensive for entrepreneurs.

    The credit economy is what makes Walmart so competitive, and Lowe’s too. They extend credit, and it is the credit that leaves the consumer cash-strapped, -depriving the cash economy with any means by which it can compete.

    These big box stores get better terms from the credit card companies than do small entrepreneurs. And the big box stores accommodate easier -the added expense of the credit economy too. So, the big box stores rule the roost. But there’s nothing entrepreneurial about the big box stores.

    It is all fascism. The big box stores waltz with politicians at every level in our society.

    Credit got so many people in trouble around 2000, I closed my business. The thieves moved in. The big box stores made the thieves, because people started losing their economic stability once credit became so widely extended in our society. They were mailing out credit cards to people who hadn’t worked in ten years. They were handing credit cards out to university freshmen. Brilliant!

    A whole generation grew up thinking they’d be able to credit-card their way through life.

    There has been no entrepreneurial opportunity in the US ever since.

    And now, Bernanke is impoverishing the very people (the cash people) who have the business sense to rebuild the economy once it collapses completely. And it will collapse completely.

    This $600 billion dollars is not going to stimulate the American economy. That money will be overseas before you can say, -trade deficit. And just like TARP, it won’t be just $600 billion. This is simply going to bury the American economy, and gut our entrepreneurial class even further.

    This guy Bernanke has a trillion soldiers and he has never even broken camp to engage the enemy. He refuses to engage the enemy. He wants more provisions and more soldiers.

    Bernanke will never get on with prosecuting the economic war.

    TARP put the country into a very deep hole. QE2 is digging the hole deeper. Bernanke thinks it is a fox hole. But it is growing into a bottomless pit filled with venomous credit economy vipers.

    If the fed falls, it is Bernanke’s fault, Bernanke, Paulson, Summers and Geithner.

    You can thank these clowns for refusing to prosecute the economic war and get after the enemy, the massive amount of bank and Wall Street fraud.

  4. What the Fed practical does is to print/issue money in order to buy its own issued papers back.

    Please, tell me what that is? It surely isn’t smart.

  5. THE OBAMA CODE

    The wolves sure know how to oHOWLma
    At the news which can make me oGROWLma;
    I’ll never throw in the oTOWELma
    If we can get rid of oBOWELma !

    [Google "Madam Nancy Pelosi's Brothel District," "Michelle Obama's Allah-day" and "Obama Fulfilling the Bible."]

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