The Fed’s Monetary Policies and Washington’s Powerplays Have Fueled The Great Distortion

[Inside Wall Street with Nomi Prins]( Welcome to Inside Wall Street with Nomi Prins! It’s the only daily newsletter featuring the insights of renowned author and former Wall Street insider, Nomi Prins. Every day, Nomi shines a light on a massive wealth transfer she calls The Great Distortion. That’s the true cause of the permanent disconnect she sees between the markets and the real economy. And she shares ways you can come out ahead, if you know where the money is flowing. You’ll find all Nomi’s Inside Wall Street issues [here](. If you have questions or comments, send Nomi a note anytime [here]( or at feedback@rogueeconomics.com. The Fed’s Monetary Policies and Washington’s Powerplays Have Fueled The Great Distortion By Nomi Prins, Editor, Inside Wall Street with Nomi Prins Welcome to our Friday mailbag edition! Every week, we receive some great questions from your fellow readers on our recently published essays. And every Friday, I answer as many as I can. So let’s dive right in… starting with this question from Baku about how the Federal Reserve’s quantitative easing (QE), i.e. money fabrication works… Hi Nomi, thank you for your insightful Inside Wall Street articles. I also follow and value your Distortion Report. I am somewhat confused about if the Fed is printing money or creating bank reserves while it does quantitative easing (QE). What is the difference between the two? And how do they affect the monetary influence over the economy? And now, the Fed is starting quantitative tightening (QT). I am confused about how it destroys the money, credit, or bank reserves, and how it affects the monetary influence over the economy. I am sure many are, like me, confused about this and would sincerely appreciate your in-depth explanation on the matter. – Baku P. Hi Baku, thank you for writing in with this query. As you mention, I’m sure other readers may be wondering about this, too. I also commend you for thinking of your fellow readers. I love our Inside Wall Street community and dialogue! So, to answer your question… Officially, the Federal Reserve doesn’t print actual money. That’s the job of the Bureau of Engraving and Printing. And the U.S. Mint is responsible for manufacturing coins. But the Fed does electronically create money. It does this through an electronic accounting game with the banks. The Federal Reserve system operates under the notion that banks deposit reserve money or securities for safekeeping at the Fed. This is, in theory, to cover any problems they might have. Generally, these reserves take the form of U.S. Treasury securities – or bonds. The Fed buys bonds from banks to add to its reserves. This is the process of quantitative easing (QE). It allows the Fed to raise the value of the reserve a bank keeps with it electronically. It simply adds the amount it agreed to pay the bank for its bonds to the bank’s account balance at the Fed. It would be like you having the ability to increase your bank account level with just a few keystrokes on your computer, without actually lodging any money to your account. The Fed has done this by increasing its balance sheet by about $8 trillion since the financial crisis of 2008. It has now reached nearly $9 trillion. Recommended Link [You Were Warned…]( [image]( Months ago, Jeff Clark warned everyone: DO NOT buy Tesla, Apple, Bitcoin, or Amazon. Since then, what’s happened? - Apple is down -12% - Tesla is down -18% - Amazon is down -26% - Bitcoin is down -34% Instead of getting caught up buying overpriced tech stocks for devastating negative returns… [Jeff’s joined the ranks of the top 1% of wealthy Americans… by IGNORING 99% of the entire stock market.]( Trading only ONE stock, over and over again. [Using this one stock through the crashes of 2000, 2008, and 2020 to deliver gains like 390%]( and more – time and time again. Today he will reveal the ticker symbol and name of the stock, 100% FREE. [Click Here To Discover The Secret.]( -- Now to answer your question about how this impacts monetary policy… Monetary policy is the control of the quantity of money available in an economy. Buying securities is a form of easing monetary policy. So, this electronically created money flows from the Fed to the banks’ accounts in return for Treasury bonds the banks were holding. The banks can use that money to lend to customers, to speculate, to lend to hedge funds or private equity funds, or for other such practices. As this money is lent through these channels, especially to the big hedge funds or private equity funds, it funnels into places where it seeks to make higher returns, like the stock market. This explains why the S&P 500, for example, is up more than 220% since the Fed’s first QE program in 2008. [Featured: The media is right about one thing – we are about to witness a huge economic crisis…]( Quantitative tightening (QT) is the opposite of QE. Selling securities is a form of tightening monetary policy. The Fed is supposed to sell the bonds it bought during its QE program back to the banks. This has the effect of contracting the money supply, or flow, through the economy. But this doesn’t happen in practice. Right now, the Fed is just letting the bonds it has on its books “roll off” when they mature. So the banks don’t have to buy them back. The Fed knows that selling its assets too quickly would hurt the markets too much. And [the markets are its ultimate master]( as I’ve written before. It’s also important to keep in mind that, though the Fed has announced QT, it still has provided trillions of dollars of cheap, fabricated money to the banking system over the last 14 years. And these dollars remain in play for Wall Street and the markets. And [as I’ve been saying]( it’s only a matter of time before the Fed changes tack and walks back its hawkish stance. I hope I’ve given you some clarity on how it all works, Baku. Thanks again for writing in. Recommended Link [Record gas prices… runaway inflation… Where's it all going?]( [image]( An inevitable energy crisis is unfolding and investors MUST prepare! [Here are the steps you should take.]( -- Next, Peter is concerned about a potential outcome of political game-playing… Hi Nomi, I’m a late-blooming fan of yours and read your reports virtually daily. With respect to your reports on the Chinese challenge to the dollar, one of my biggest concerns occurred when Trump was president. It was during a fall season. Congress was vigorously debating the upcoming budget and several Republican Senators voiced thoughts about letting the U.S. dollar obligations default. They were used largely as a scare technique to try to move Democrats on selected issues. But the mere mention of same caused big ripples in the British/European Union markets and got a lot of international leaders’ attention and comments – particularly in the international press. My concern was (and still is) that neither Trump nor the Republican leadership fully realized the seriousness of their threats. And, if seriously angered, the same folks could well default the dollar just to prove their power. I realize this is thin ice to skate on. But I’m wondering if you might have some thoughtful comments to contribute, even if you had to clothe them in extremely careful language. – Peter N. Hi Peter, thank you so much for your email. You bring up a very interesting point about the regular debate in Congress with regards to paying on U.S. dollar-denominated debt (or Treasury bonds). It tends to be conflated with conversations about the budget. That’s because increasing the U.S. budget and increasing the cap on U.S. debt occur around the same time. But every time raising the self-imposed debt ceiling (or debt cap) is brought up before Congress, the first reaction is to publicly advocate for voting against it. Mostly, but not always, this is a reaction from the Republican party, as in the fall season you’re likely referring to. That’s typically followed by a media reaction that stokes fear that the U.S. will potentially default on its debt payments. [Featured: Expert: “Move your money before September 9th”]( In practice, this means the interest payments on Treasury bonds. Those payments occur more regularly – on a semi-annual basis for each Treasury bond outstanding. Then, there’s internal grumbling and horse-trading around Congress. And after that, the debt ceiling is voted on. And it’s always raised. That’s why the size of Treasury (or public) debt outstanding keeps increasing, as you can see in this chart. [Chart] It’s up 220% since the beginning of 2008. That was the year the Federal Reserve announced its first quantitative easing (QE) program. And as regular Inside Wall Street readers know, that was the beginning of The Great Distortion between the financial markets and the real economy. The banking system and markets sucked up all this cheap money and used it to buy financial assets. As a result, they have become permanently disconnected from the real economy. I understand your concern that the debt may be used in a political powerplay. But I don’t see any administration allowing the U.S. to default on its debt. In modern history, the U.S. has never defaulted on its debt. See, the same pattern of political game-playing I outlined above happens no matter who’s running the White House, or who has the majority in the House or Senate. It’s a prime example of political noise. And I don’t see that pattern changing. All political posturing aside, I just don’t see any party actively seeking to diminish global confidence in the U.S. dollar or the ability of the U.S. to pay the interest on its debt. Recommended Link [America’s decline in three phases]( [image]( Our way of life is about to change forever. In the last two years, we’ve seen a pandemic, inflation, shortages, and wars… But what comes next will make everything we’ve seen so far look tame in comparison. The final phase of a plan being enacted by the White House, along with America’s biggest companies and billionaires like Bill Gates, is about to be put into place. Phase one happened in early 2020, in the shadows of the pandemic… Phase two – the installation of the technology that makes it all possible – has been tested and proven… And now, Phase 3 is imminent – kicked off by an executive order from the White House a few weeks ago. And it could be finalized by September 9th. In other words, there’s not much time to prepare. [Go here to see what you need to do to prepare for a ‘New Normal’ in America’s financial system.]( -- Finally, reader Steven wonders if our politicians and monetary authorities have “rose colored” glasses when it comes to China’s quest to become a global economic leader… Hi Nomi, my question concerns the monetary system and your comments on the dollar. The last person who sees a bubble is the one who is in it. I have to giggle when our politicians/monetary authorities accuse China of currency debasement and government control while wearing “rose colored” glasses. There have been monetary changes throughout history, and it appears the eastern hemisphere has grown tired of U.S. financial chicanery. China has moved forward on several financial fronts to promote financial destiny. It appears all it wants is to have a form of stable currency. I’m not sure if it wants to be the world reserve currency, but it wants some form of value to its currency. And that is why it has encouraged citizens to own gold. Do we have “rose colored” glasses? – Steven S. Hi Steven, thank you for your email. I share your giggle about the U.S. accusing China of currency debasement. Or government/central bank direction of monetary policy. In China, there’s more of a direct positioning of fabricated (QE) money into various sectors of the economy than there is in the U.S. But beyond that, both superpowers are interested in having a strong currency for trade purposes. In addition, the topic of the U.S. competing with China comes up in every presidential election and throughout U.S. foreign policy decisions. And this stance of being competitive with China rings true for parties and senior officials on both sides of the political aisle. But I definitely am not wearing “rose colored” glasses. The reality is that China would very much like to be the world’s reserve currency. It has taken steps to get closer to that goal, especially since the financial crisis of 2008. I wrote about this in my 2018 book Collusion. I recently sent you some excerpts from that book about China’s efforts in that regard. (You catch up [here]( and [here]( And it’s a topic I will be returning to in my upcoming book, Permanent Distortion, due out this fall. But as I’ve written before in these pages, [the U.S. dollar has a sizeable first-mover advantage as the world’s pre-eminent currency](. So I don’t see China succeeding in its plans, at least not in my lifetime. That said, China will continue to push its currency, as well as its military and political power, forward. And yes, that includes China stabilizing its own currency, [creating more trade alliances]( in which the Chinese yuan can be used, asserting itself from a military perspective on the global stage, and encouraging its citizens to buy gold. And it will likely gain ground against the U.S. and the U.S. dollar in the process. This is all part of the ebb and flow of global politics and economics. But [for the reasons I’ve outlined before]( I don’t believe the U.S. and the U.S. dollar are in immediate danger. And that’s it for this week’s mailbag. Thanks to everyone who wrote in. And if I didn’t get to your question this week, look out for my response in a future Friday mailbag edition. I do my best to respond to as many of your questions and comments as I can. Just remember, I can’t give personal investment advice. And if there are any other topics you’d like me to write about, I’d love to hear from you. You can write me at [feedback@rogueeconomics.com](mailto:feedback@rogueeconomics.com?subject=Inside Wall Street reader feedback). In the meantime, happy investing… and have a fantastic Fourth of July weekend! Regards, [signature] Nomi Prins Editor, Inside Wall Street with Nomi Prins --------------------------------------------------------------- Like what you’re reading? Send your thoughts to [feedback@rogueeconomics.com](mailto:feedback@rogueeconomics.com?subject=RE: The Cozy Power Relationships That Drive The Great Distortion). --------------------------------------------------------------- IN CASE YOU MISSED IT… [Host baffled by simple ‘penny’ question]( It seems like a simple question: A 50¢ roll of pennies? Or two dollars? If you’re like most Americans, you’d be tempted to pick the dollar bills. In fact, that’s what one host did live and on camera. But according to famed economist, Nomi Prins, that decision might be a mistake. Why? She’s recorded a shocking interview that reveals a phenomenon she calls America’s ‘Great Distortion’, which makes this decision more difficult than it seems. [Go here to see why – and what it means for your money in the days ahead.]( [image]( Get Instant Access Click to read these free reports and automatically sign up for daily research. [The Trader’s Guide to Technical Analysis]( [The Gold Investor’s Guide]( [The Ultimate Guide to Taking Back Your Privacy]( [Rogue Economincs]( Rogue Economics 55 NE 5th Avenue, Delray Beach, FL 33483 [www.rogueeconomics.com]( [Tweet]( [TWITTER]( To ensure our emails continue reaching your inbox, please [add our email address]( to your address book. This editorial email containing advertisements was sent to {EMAIL} because you subscribed to this service. To stop receiving these emails, click [here](. Rogue Economics welcomes your feedback and questions. But please note: The law prohibits us from giving personalized advice. To contact Customer Service, call toll free Domestic/International: 1-800-681-1765, Mon–Fri, 9am–7pm ET, or email us [here](mailto:memberservices@rogueeconomics.com). © 2022 Rogue Economics. All rights reserved. Any reproduction, copying, or redistribution of our content, in whole or in part, is prohibited without written permission from Rogue Economics. [Privacy Policy]( | [Terms of Use](