The banking sector is back in the news today and once again it’s in respect of alleged criminal activity. The New York attorney general’s office claimed that British bank, Barclays, has favoured predatory high-frequency traders in its dark pool activities giving these traders advantages over other investors.
“So what“ I hear you say, they’ll pay what seems to be a large fine, pass it onto clients and life moves on. Maybe, but regulators are introducing jail-time for fraud perpetrators now (that the horse has bolted.)
Of more interest, perhaps, is the role of Central Bankers within this regulatory and financial stability regime and in particular whether they are as corrupt as the banks under their charge?
We commented a little earlier this year, entitled An Honest Central Banker? which included a statement by Dallas Fed President, Richard Fisher, “the program of bond-buying has lasted too long, and there are signs it is now distorting financial markets and encouraging risk-taking, the stimulus is stoking asset-price bubbles that ‘may result in tears’ for investors acting on bad incentives. ‘There are increasing signs quantitative easing has overstayed its welcome: Market distortions and acting on bad incentives are becoming more pervasive.”
Distortion appears to have turned into Deception, according to Dr. Paul Craig Roberts, a former Assistant Secretary of the Treasury for Economic Policy and associate editor of the Wall Street Journal and his colleague, Dave Kranzler, in their article, “The Great Deceiver – The Federal Reserve.”
It would appear that between November 2013 and February 2014 tiny Belgium, with a GDP of $US480BN, purchased $141.2BN of US Treasury bonds, compared with a monthly average of just $US2BN over the previous two years. Furthermore, Belgium’s holdings of US Treasury securities has increased by $US201BN over five months from $180BN at the end of October to $381BN at the end of March, making it the third largest foreign holder after China and Japan. Dr PCR & Co query where Belgium got the money from, as it doesn’t have a budget surplus nor did it print the money required, as being a member of the Euro-Zone it cannot increase the money supply.
So where did the money come from?
The article’s conclusion is “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,” not quite the “official monthly tapering” alluded to by the Fed.
As to why would the Fed do this, the authors’ deduce that it was to replace a very large holding dumped by a country or countries but didn’t want anyone to notice. This makes sense to us as for the past year or two the only serious buyer of US Treasury debt has been the Federal Reserve. In fact they are the market.
And, despite the ongoing myth, believed by the many, that Central Banks’, including the Fed, control interest rates (that matter to most people that is,) one look at the 10-year Treasury yield tells otherwise. The 10-year yield, which affects mortgage costs, pension annuities and a lot more besides, has doubled since its 200-year low of mid-2012, before retracing a typical 38.2% Fibonacci correction, as shown above.
The Fed has lost control of interest rates, if they really had any control in the first place, with the market set to drive those rates far, far higher than they are currently at.
But that’s an aside. IF the Fed and/or any other entity are caught manipulating the markets or laundering money, they should face jail-time like everyone else.