WE MAY BE TRAPPED IN "ZIRP WORLD": A 2008 Gamble May Have Changed America Forever
ZIRP Has Given America "Financial Diabetes," Say Experts
2.18.15 - In 2008 America faced the worst financial crisis since the Great Depression. One major bank had failed and others were at risk of collapse.
To save our economy, the Federal Reserve gambled by going pedal to the metal with its accelerator, slamming bank interest rates all the way to Zero. This Zero Rate Interest Policy (ZIRP) made money virtually free for our biggest banks.
This wild new policy was supposed to save these banks and start them lending again.
However, as monetary expert Craig R. Smith and veteran think tank futurist Lowell Ponte write in their new White Paper The ZIRPing of America: The Federal Reserve's Zero Interest Rate Policy (ZIRP) Is Hazardous to Our Economic Health, this caused crazy unintended consequences.
"Imagine those episodes of 'Star Trek' where the Starship Enterprise escapes danger by going into warp drive, only to find itself in a whole different galaxy where the old familiar laws of economics and star charts that point the way home no longer work," write Smith and Ponte.
ZIRP, which has continued for the past 7 years, made the biggest "Too Big To Fail" megabanks 30 percent bigger than before. It got them lending again, but because of new rules against making "risky" loans, most of this money has gone to the biggest corporations and to government....not to ordinary Americans with upside-down mortgages.
"ZIRP was supposed to stimulate economic growth, but instead it frightened businesses out of expanding or hiring because of fear that it would create a tidal wave of inflation. It became an anti-stimulus policy," says Craig R. Smith.
"Banks could get easy money without customers having bank deposits, so the interest rate banks paid depositors has fallen close to zero," says Lowell Ponte.
"Together the Federal Reserve and Federal Government are shafting bank savers with deliberate 'financial repression,' a policy of holding the interest rate savers are paid below the rate at which inflation is eating up the value of their account," says Ponte.
LESS THAN ZERO
"Even crazier," says Ponte, "is that in Europe - and coming here soon - banks are starting to charge 'negative interest rates.' This means that savers have to pay the bank for the honor of putting their money at risk in an account there."
In their fifth and latest book, Don't Bank On It! The Unsafe World of 21st Century Banking, Smith and Ponte warn of 20 major risks bank depositors now face.
These risks include new laws that, in effect, give banks and the government de facto ownership of your bank account. Another risk is that the Federal Deposit Insurance Corporation (FDIC) has only enough reserve to protect $1 out of every $14 in bank accounts it claims to insure.
Smith and Ponte explore the danger of computer hackers stealing your bank account. In February 2015, a study by computer security firm Kaspersky Lab found that clever hacks have recently stolen as much as $1Billion or more from 100 different banks.
"Bank accounts used to be safe and pay reasonable interest as an incentive for saving," say Smith and Ponte. "But today bank accounts come with 20 big risks and very little reward. It no longer makes sense to keep much in a bank account, especially when safer and more rewarding alternatives exist."
The Federal Reserve acknowledges that its ZIRP emergency policy of 2008 is today doing more harm than good - and is wrecking the economy for those who depend on interest: bank savers, retirement funds, insurance companies and more.
Since ZIRP began, worldwide debt has grown by $57 Trillion to an astounding $200 Trillion. ZIRP fed this easy-money diabetic financial obesity, but any attempt to cure ZIRP's ills by raising interest rates will make such debt even more impossible to pay off.
What Smith and Ponte explore in The ZIRPing of America is how all this easy money has given our biggest companies and government "financial diabetes." They may be unable to return to an America of traditional 3%-6% rates for borrowing money.
THE ZIRP TRAP
If the Fed tries to end ZIRP by raising interest rates beginning in June, this could soon cost taxpayers an extra $1 Trillion or more each year in interest for the huge debt our bloated government built up over the past seven years when interest rates were zero.
"ZIRP World has become a Trap that will be hard to escape," says Smith.
The warp drive the Fed used during the 2008 financial crisis might have permanently changed our economy. This could be why growth and hiring remain anemic, and our once-robust economy remains weak.
The one supposedly-bright spot of our economy is the stock market, soaring to the edge of 18,000. This is an illusion, a mirage, warn Smith and Ponte.
ZIRP and $7.5 Trillion mostly printed out of thin air by the Fed and Treasury have turned Wall Street into a casino flush with easy money. Companies run on borrowed cash while creating deceptively high stock values by buying back their own shares.
One recent study calculates that ZIRP, the QE (Quantitative Easing) policy it produced, and bookkeeping gimmicks have overvalued today's stocks by at least 86 percent.
Stock values have also been pushed up by ZIRP and the Fed forcing reluctant savers out of their bank accounts and other traditional "safe" havens in a desperate effort to get more return and yield for their money.
"Former savers are being herded into the risky stock market," says Ponte. "In today's stock market, you are the sheep, the livestock being sheared or worse."
"If interest rates go up," warns Ponte, "don't be surprised to see the artificially inflated stock market go a long, long way down."
To schedule an interview with Craig R. Smith or Lowell Ponte, contact: Bronwin Barilla at 800-950-2428 or email bkbarilla@dontbankonitbook.com.
BREACH OF TRUST: Why President Barack Obama Wants to Close "The Trust Fund Loophole"
2.3.15 - BREACH OF TRUST is the new White Paper by Craig R. Smith, monetary expert and Chairman of Swiss America Trading Corporation, and Lowell Ponte, a former think tank futurist and co-author, with Smith, of five books about finance, economics and monetary policy.
Millions of Americans have read their books and learned from their media interviews. Mr. Smith is an expert frequently interviewed by Fox's Neil Cavuto and other major business journalists.
BREACH OF TRUST investigates President Obama's plans that the White House quietly announced on January 17 to "close the trust fund loophole." Mr. Smith and Ponte look at how President Obama slapped aside the rights of secured bondholders in the GM and Chrysler bankruptcies in order to give $26 Billion that should have been theirs to his union crony political contributors instead.
They examine at how Mr. Obama was planning to tax what were supposed to be tax-exempt "529" college savings accounts.
Is anything safe when those who are supposed to enforce the law are instead breaking it?
Can successful middle class families trust their trusts to safely transfer a lifetime of savings and property to their children?
Or is the greed of spendaholic and ideological class-warfare politicians now overwhelming the rule of law in the United States, so that families need to find safer havens to protect their children's inheritance?
Find out by reading BREACH OF TRUST today.
For media interviews, contact: Bronwin Barilla at 800-950-2428 or email bkbarilla@dontbankonitbook.com
BREAKING THE BANK: Authors Warn Dismantling JPMorgan Chase Won't Prevent Financial Meltdown
1.7.15 - Would America's economy be safer if today's "Too Big To Fail" banks like JPMorgan Chase were broken up into smaller companies?
Not according to Craig R. Smith and Lowell Ponte, authors of Don't Bank On It! The Unsafe World of 21st Century Banking and a new White Paper After the G-20: A Follow-Up: Did Your Dollars in the Bank Just Become Dollars at Risk? [4]
"To halt the collapse of 'Too Big To Fail' banks during the 2008-2009 financial crisis, taxpayers and the Federal Reserve bailed out the biggest U.S. and foreign banks by arranging an astonishing $16.115 Trillion in loans - more than the entire annual Gross Domestic Product of the United States," Smith and Ponte document. [1]
CNN/Money reports JPMorgan Chase - which today is America's biggest bank by assets - received $25 Billion from the U.S. Treasury's Capital Purchase Program, and $391 Billion in "Total Transactional Amounts" from various sources facilitated by the Federal Reserve, as bailouts. [2]
On January 5, 2015, analysts at rival bank Goldman Sachs released their study showing that if JPMorgan Chase were today broken up into smaller companies, these would be worth as much as $25 Billion more than its market value today as one big bank, reports The Wall Street Journal [3]
The main reason for this, according to Goldman analyst Richard Ramsden and his colleagues, is emerging government regulation designed to make the biggest banks less profitable...and supposedly less risky.
Until these new rules were announced, the biggest five banks - which among them hold roughly half of all American bank deposits - were so huge that the bankruptcy of any one of them might trigger a collapse of the U.S. economy.
This made them what the government called "Too Big To Fail," which reassured investors and lenders that in a crisis the government's taxpayers and Federal Reserve would have to bail these banks out, as happened in 2008-2009. This gave giant banks such as JPMorgan the ability to borrow money more cheaply than smaller competitors.
According to Smith and Ponte, "Governments have been scrambling to prevent future bank bailouts. On November 16, 2014, President Barack Obama at the G-20 meeting of world financial powers in Brisbane, Australia, embraced the new doctrine of 'bail-ins' for the United States."
"In a bank 'bail-in,' the government could seize the bank deposits of customers to pay bank shortfalls. In effect, in a bail-in your bank deposits are treated as the property of the bank, not the depositor," say the authors of Don't Bank On It!
This bail-in doctrine was first used in the seizure of banks in the Mediterranean island nation Cyprus in March 2013. Months earlier it had been embraced in a joint December 2012 memo of understanding between the Bank of England and the U.S. Federal Deposit Insurance Corporation, which "insures" more than $7 Trillion in American bank accounts.
"The trouble is," say Smith and Ponte, "the FDIC has only enough assets and vague commitments from the Federal Reserve and U.S. Treasury to reimburse in a crisis at most 1 out of every $14 it now insures. The FDIC is thus propping up our fractional-reserve banking system with what we have called "fractional-reserve insurance."
"New government regulations are making life more troublesome and uncertain for banks. New regulations have even prompted some of the biggest banks to tell certain depositors to take their cash elsewhere because for these banks such deposits can create more problems than profits," according to The Wall Street Journal. [5]
Mr. Smith and Ponte explain, "The bail-in idea is intended to protect taxpayers and government money, but in reality it does not necessarily get taxpayers off the hook. The potential for bank losses is so immense it can easily exceed all of the bank's deposits."
Consider the nominal exposure our largest banks have to derivatives, conjured contracts that derive their value from other things.
JPMorgan's total exposure to derivatives has in recent months declined - from around $70 Trillion to around $65.3 Trillion...close to the annual Gross Domestic Product of our entire planet. This small decline does not change the stark reality of risk discussed in Don't Bank On It!:
"Just 9 major banks on which the world economy depends have derivative exposure of more than $290 Trillion in a global $693 Trillion derivatives market! Listen for a moment and you can hear this time bomb - called by Warren Buffett a "Financial Weapon of Mass Destruction" - ticking. If this explodes, neither the Fed nor the FDIC could put your bank or deposits back together again. The paper dollar would be ashes to ashes, dust to dust." [6]
The Dodd-Frank law prohibited the placing of such derivatives into banks insured by the FDIC. But during the lame duck session of Congress that followed the 2014 election, this provision of Dodd-Frank was quietly repealed.
As critics noted, the language repealing this was suspiciously similar in wording to earlier draft legislation by Citigroup. And this other megabank has just surpassed JPMorgan as the American bank with the largest total exposure to derivatives.
"Citi now has total derivative exposure of $70.3 Trillion, which has just been transferred into to a Citi-owned bank insured by FDIC. Taxpayers are very much on the hook for this, and may be at greater risk from a meltdown of derivatives than ever before," reports Zero Hedge. [7]
In their new White Paper Smith and Ponte explain further, "Under the G-20 bailout protocols embraced by President Obama, the priority of protection for certain derivatives to which a bank is exposed is higher than it is for customer deposits. In a major financial crisis, the FDIC might be directed to cover derivatives before other obligations such as customer bank accounts." [8]
As documented in Don't Bank On It!, today's politicians have come to see our largest banks and the accounts in them as their personal ATM machines
JPMorgan Chase has in recent months agreed to pay the government more than $15 Billion in fees, fines and penalties for purposed wrongdoing...mostly for helping rescue other banks as the government requested it do during the 2008-2009 financial crisis.
"In JPMorgan, as in other major banks similarly squeezed for billions, almost no bank executives have been tried or sent to prison. Those bankers who go along and pay billions get along," say Smith and Ponte.
Today's politicians seem more eager to shake down our biggest banks than to break them up. Like the power to tax, today's political power to regulate involves the power to destroy.
The authors conclude; "We should be seeking ways to break up the monopoly power of Too Big To Jail government and return much of that power to the People. People need to understand that today there are far better and safer ways than bank accounts to secure their nest egg."
For a media copy of Don't Bank On It! or to schedule an interview with Craig R. Smith or Lowell Ponte, contact: Bronwin Barilla at 800-950-2428 or email bkbarilla@dontbankonitbook.com.
