Is The Federal Reserve Creating a New Financial Crisis?

Is it the Federal Reserve governors' and analysts' intellectual ineptitude or the act of conniving for economic malaises that causes them to continue using methodologies and mechanical tools of monetary policy that are obsolete for helping to fix the American economy? Flawed logic continually exposes itself as they use the historically errant Large Scale Asset Purchases program for fixing the economy while publicizing overly optimistic prognoses for real GDP and inflation, which go so above and beyond the well-researched conclusive statistical numbers calculated at the end of each year. Debts have reached to such outrageous levels and this stimulus program has devalued the dollar so much that the Federal Reserve has been rendered incapable of desirably affecting aggregate supply and demand as well as being incapable of implementing the remedies necessary for correcting the disorders. The aggregate demand curve refuses to be shifted in the desired direction by Large Scale Asset Purchases, leaving aggregate price levels, real GDP and nominal GDP remaining stagnant.

According to an October report from the Casey Research Institute, as a result of the Federal Reserve’s practices, a counterproductive and regressive trend shall continue-----this being the attenuation in the circulatory speed of money or the number of times a specific unit of money is spent on new domestic goods and services during a particular period of time. This is formally known as the velocity of currency circulation. As public and private debt levels slowly reduced the dynamics in monetary policy, the final consequence involved having the velocity of currency circulation reach its pinnacle in 1997 and then begin on its downward slope.

The aggregate demand curve represents planned outlays for nominal GDP or the raw GDP figures of year-to-year comparisons without the inflation numbers being factored in. Nominal GDP is equal to the velocity of currency circulation multiplied by the money stock (the total amount of assets, liquid instruments and currency available to an economy’s people during a particular time period). Irving Fisher’s equation of exchange helps to express this: MV=PT. M is the money stock. V is the velocity of currency circulation. P is the price for commodities. T is the size of transactions and the production turnout of goods and services. 

Last year the Federal Reserve attempted to foretell a 2.7% enlargement in real GDP for 2013. Their extrapolations have apparently “missed the mark” by 50% when compared to the documents of academic researchers and the conclusive statistical numbers calculated at the end of each year. Federal Reserve analysts seem to be bedazzled by the “so-called wealth effect” to such an extent that they believe increasing stock prices will escalate consumer spending. The Casey Research Institute seems to believe that statistics betoken consumer spending as fluctuating between being slightly responsive and entirely unresponsive to the ebb and flows of wealth in the market. Consumer spending had abruptly declined from 5% during the first quarter of 2011 to 2.9% despite having ongoing speedy enlargements in stock and home prices for the past three years. 

The ratio of the combined public and private debt to GDP had increased from 152% in 1980 to an awe-striking 296% in the second quarter of 2011 and thenceforth to 273.3% in the first quarter of 2013. The American economy has agonized with ongoing deficits while trying to manufacture goods and services sufficient for fulfilling its current debt obligations without borrowing more money and creating future debt obligations to be its means for giving what it owes. Economic prosperity becomes hampered when the public and private debt to GDP ratio surpasses 260%, according to the literature of academic researchers written throughout the past three years. During each year between 1870 and the 1990s, real GDP expanded by 3.7% in the United States. After the year 2000 when the debt to GDP ratio surpassed 260%, expansion had slumped to 1.8% each year. Real median household income or the average number calculated from the total aggregate income of the country has abated by 4.3%, reaching its lowest point since 1995. 

The Casey Research Institution believes the money multiplier is on an epoch-making and hell-raising descending drift that has never been seen before.

The M2 money stock (ordinary green pieces of paper in circulation and deposited monies held by consumers in commercial banks) is divided into the monetary base (currency issued by the Federal Reserve coupled with commercial bank reserves held on deposit in the Federal Reserve) for determining the money multiplier. The money multiplier is the bridge between the monetary base and the M2 money stock. It is the instrument used for gauging the greatest amount of commercial bank money that can be generated or the total amount of loans that can be distributed in ratio with central bank money or money held on reserve by commercial banks. 

According to Wikipedia.com and the Federal Reserve’s tablecharts, the monetary base is worth $3.5 trillion and the Casey Research Institute says the M2 money stock was worth $10.8 trillion in September of this year. It is said that 3.1 is the level of the money multiplier. The money multiplier stood at 9.3 during the year 2008 which was precursory to the Federal Reserve’s mammoth augmentation of the monetary base which supposedly indicates that each $1 of the monetary base gave support to each $9.30 of the M2 money stock. The money multiplier’s level of 3.1 is the lowest it has been since the inception of the Federal Reserve in 1913. In the 4th quarter of the year 1949, the money multiplier fell to 4.5, but never fell below this number until 2008. 

Economic prosperity and growth will be disappointing for the last few months of this year with a high probability of not surpassing 1%. This is more disappointing than the weak 1.6% growth rate that has existed throughout the entire year thus far.

Are Loan Recipients Being Forced to Pay What They Owe? 

Why has the money multiplier dropped to an unprecedented level of 3.1 in recent years even though the Federal Reserve has implemented 3 sessions of quantitative easing and is continuing its $85 billion-a-month bond buying program as was reported in the Tribune Review, which has now led up to meting out more than $2 trillion of stimulus funds into the economy since the financial collapse of 2008? Should we have not seen the money multiplier lessen in precariousness and substantially increase in recent years? Where has the money gone? Has it disappeared or has 81.5% of the money been premeditatedly held in reserves by private banks at the Federal Reserve, allowing excess reserves to inordinately accumulate from $831 billion in August of 2008 to $1.863 trillion on June 14, 2013 after excess reserves were maintained nearly at 0% since 1959? Robert Auerbach tried to sound the alarm in a HuffingtonPost article published during June of this year.  It can be read here. 

Does this signify that private banks are greatly restraining their lending practices and denying anyone who requests for a loan? Private banks must be incentivized to accumulate and retain excess reserves if the central bank makes interest payments to the private banks for doing so. If interest rates on income earning assets enlarge (especially on bank loans to businesses and consumers), the payments of interest the Federal Reserve owes to private banks for the retention and accumulation of excess reserves will enlarge also. Perhaps this is what private banks want. At 1% interest, banks could annually receive $18.6 billion. At 3% interest, banks could annually receive $55.9 billion. At 5% interest, banks could annually receive $93.2 billion. Consumers will receive no interest payments and stockholders will receive big bonus money from the government as a result of the fraudulence. 

What if the banking system is blindsiding people and businesses with a now-continuing 4-year long period of “calling in” loans and forcing its debtors to remit what they owe irrespective of whether or not they are able or ready to remit what they owe? Surely, the poverty level and the chasm between low- and high-income earners has increased as the private banks repossess or confiscate people’s homes, cars and other properties that were pledged as collateral. 

One question is unanswered as of now: How do we entirely explain why they kept a near 0% of excess reserves for such a protracted period of time before allowing the excess reserves to rise inordinately? Why have we so abruptly shifted into a contractionary period in recent years? 

To be continued.......

More Power Can Be Given to Corporations With Obama in Office

President Obama is breaking the promise he made to his devoted followers as he traveled around the country prior to his first instatement and his reinstatement. He is giving more power to corporations.

President Obama and British Prime Minister David Cameron have expressed their desires for undertaking a new free trade agreement between the United States and the European Union in which they believe is vital to our “broader transatlantic economic relationship” with Britain.

As of now, a protocol of the World Trade Organization only allows corporations to deceive sovereign nations into believing the corporations’ rights are being encroached upon and thereby necessitate a case be adjudicated amongst the private judicial bodies of the WTO. However, it seems as though the superintendence of appeals for regulatory laws will be transferred to the private judicial bodies of the World Bank. Multinational corporations’ legal power shall soon be upgraded with the forthcoming implementation of the “investor-state dispute resolution” which has been included in United States diplomacy with other nations since the signing of the North American Free Trade Agreement (NAFTA) of 1994.

Human rights activists have expressed perturbation and concerns about the legalization of this free trade instrument possibly equipping corporations with the ability to juxtapose the regulatory policies of a number of governments across the globe and litigate against those upholding the strictest laws. These human rights activists fear the possibility of multinational corporations becoming paralleled with sovereign countries and nation-states in the hierarchy of political and legal authority. This investor-state dispute resolution, meant for foisting upon us the next phase in fulfilling the global corporatocracy, would warrant a corporation to petition an international tribunal to review a regulatory law and have a case wherein the verdict will be made in favor of the corporation purposefully for exempting it from the law and punishing any country or government who contravenes the verdict of the international tribunal or the corporation’s presupposed rights, purportedly causing their profits and revenue to decrease. The United States can be made subject to such punishment. 

While domestically headquartered multinational American corporations will be restrained by many laws and regulations, overseas headquartered multinational corporations in service on American soil will be allowed to bring any regulatory laws before any international tribunal, have the arbiter(s) therein transcend American laws and rule in favor of the foreign plaintiff(s) to punish the defendant(s).

The international tribunals would be run by people of the private sector alternating between arbiter and the attorney fighting for the plaintiff or the defendant depending on who the snollygosters think would best fulfill their contracts and needs after fighting for, representing and judging the litigants. Who becomes the winner or loser of these private court cases shall make no reduction in the enslavement of the peons being you and I. The winner and loser will only determine which slavemaster of ours will exercise more authority than the other slavemaster. 

The same business lobbying group that solicited for Congress to legislate extensions of the Bush-era tax cuts for America's plutocrats is the same group that has, for many years now, been fomenting the establishment of new free trade pacts as well as addendums to be made with the Trans-Pacific Partnership agreement that was signed into law by Barack Obama and won overwhelmingly strong bipartisan support. 

What is the True Purpose of the War in Syria?

What if the impending United States-led raid on Syria is not meant to be a response to the chemical weapons attack? What if the chemical weapons attack is a ruse for commencing a needless war? In 2009, the Turkish Prime Minister, Recep Tayyip Erdogan, in cahoots with prime ministers of four other countries, masterminded a stratagem for dwindling Russia’s large amount of customers and wide base of control in the European oil market. Qatar wanted to construct a natural gasoline pipeline, beginning in the Gulf and stretching out into Turkey, and with the Nabucco pipeline project, diversify natural gasoline purveyors and shipment itineraries amongst Europe with the exclusion of Russia. Two different options were proposed for the directions in which the pipeline would go. Option one included the point of origin being in Qatar and extending through Saudi Arabia, Kuwait, Iraq and Turkey; whereas, the second option included Saudi Arabia, Jordan, Syria and Turkey. Coincidentally enough, the hegemonic orchestrators behind this impending war are bringing these countries onto the battlefield with Syria being the focal point.

Since the Nabucco pipeline project failed miserably, everyone’s focus has shifted since 2009. Vladamir Putin is still quite angry about the stratagem that was planned against his country in 2009 and is striving to oppose the United States and Qatar that have accoutered the Syrian insurgents with 3 billion dollars worth of paraphernalia for toppling Assad’s regime so Qatar can afterwards install a new tyrant who will allow Qatar to build a pipeline that will sell much gasoline to Europe and expand their earnings with the exclusion of Russia. Vladamir Putin’s country derives crucial and vast earnings from Assad and his oil reserves. Without Assad in power, Vladimir Putin’s country cannot flourish as much.

Why else does the United States government want to begin war with Syria? The British news outlet known as the Guardian discussed the American government’s current deliberation for assailment against Syria as originating from the American government’s desire for warring against “Iranian influence across the Middle East,” a desire that birthed itself long prior to the current chemical weapons crisis.

The Bush administration’s CIA-directed promulgation of false information against Iran during May of 2007 also included maneuvering CIA-directed attacks against Syria. Under the guidance of the United States, Saudi Arabia dispatched funds and logistical aid for prostrating Bashar Al-Assad’s regime and having him capitulate to Israel’s demands. The United States had stealthily given political and financial assistance to the Muslim Brotherhood via the Saudi Arabian government.

For the past number of years, a former NATO Secretary and Supreme Commander, named Wesley Clark, has been sharing his story about a memorandum he discovered being sent from the Office of the US Secretary of Defense a few weeks after the September 11th terrorist attacks detailing how America would invade and undermine Iraq, Syria, Lebanon, Libya, Somalia, Sudan and Iran within the next five years.  Clark proclaims all of this is being orchestrated for the purpose of seizing control over the oil and gasoline resources in these countries. According to Clark, $150 billion is annually spent on wars waged for the procurement of oil. Half of the $600 billion defense budget is spent on the establishment of troops in areas where access to oil and gasoline supplies must be protected.

It appears as though our government officials’ avidity for war and hope for Bashar Al-Assad to be intransigent and refuse to relent can be realized or inferred about from what Russia Today reported more than a week ago. A number of press reports have discussed the Syrian government expressing a desire for ceding their stockpile of chemical weapons to the community of "international control", but John Kerry and the State Department are disbelieving this and are saying Bashar Al-Assad would never behave so complaisantly. Ten days ago, John Kerry publicly shared his desired ultimatum for Syria to surrender their weapons or be attacked, but then later the State Department “stressed that Kerry was making a rhetorical argument about the one-week deadline and unlikelihood of Assad turning over Syria's chemical weapons stockpile.”

                               Israel in the Driver’s Seat

Aside from our politicians, who else wants America to begin war with Syria? Could it be the foreign countries we are allied with?

The interviewee of this video, Michael Scheuer, is a historian and former CIA sleuth who, for three years, spearheaded the military intelligence and surveillance unit following after Osama Bin Laden’s footsteps from the CIA’s counter terrorism center. In this video he discusses America’s impending intervention in Syria being fundamentally intended for augmenting the geopolitical power of the foreign governments who have a stranglehold on the United States government.

All Islamic forces that America brands as foes are currently colliding with explosive force and the intent of murdering each other, and while doing so, this internecine inter-factional warfare will be used to bolster the leverage of the world's imperialists and private bankers who are employing ideals of perverted internationalism and cosmopolitanism for structuring and building their New World Order from the chaos. Barack Obama’s deferment of America’s military onslaught against Syria and his choice to solicit Congress for approval first is purposed for giving ample time to the Israeli lobbyists of our country to travel from coast to coast and negotiate with congressional officials to vote in support of our pseudo-humanitarian president and our crypto-hegemony in foreign lands. The wiles for luring American congressional officials into machination with the Israeli lobbyists include campaign contribution venality and threats of using the Zionist-endorsed, Israeli-owned mainstream media to sway public opinion against the insubordinate politicians so they may be divested of their political careers.

America is seeking to wage war against Syria with the hope of Iran hastening to Syria’s defense so America will be given a pretext for warring with Iran. When John McCain speaks of America facing a national security predicament and being in need of retaliating, the predicament is not pertaining to American soil, but rather is pertaining to Israeli soil. Any concern we have for Israel being catastrophically affected will prompt the United States into warring for Israel’s defense at a moment’s notice. America’s allegiance to Israel is so unwavering that our nation can be either bribed or coerced into supporting and warring for Israel with whatever level of immediacy Israel demands.

The Saudi Arabian government officials who have significant investments in our debts and properties have been negotiating with U.S.-affiliated munitions corporations to acquire more vessels and defense materials. The lobbyists of the Saudi Arabian-syndicated and U.S.-affiliated munitions corporations are wheedling and intimidating American congressional officials into becoming auxiliary executors of their bloodthirsty imperialism as well.

                The World’s Banking Elites in the Driver’s Seat

Who else wants America to go to war with Syria? Could it be the usurious loan-issuers of the privatized fiat monetary system who are enslaving countries with the war-loans they give? Is the current Syrian crisis traceable to the United States Treasury and Wall Street-instigated $700 trillion derivatives scandal of the 1990s; a time during when banking deregulations and the derivatives market accreted worldwide with the Financial Services Agreement of the international free-trade agreements superintended by the World Trade Organization being a facilitator? It was used for prying open the markets of all nations to become permeable to toxic assets and derivatives being sold to them by Citibank, JP Morgan and every other high-ranking Wall Street bank. Whatever nation the United States saw as being seducible, it preyed upon and strived to have every barrier removed for consolidating commercial and investment banking so depositor’s funds could be accessible for on-the-market trades and derivatives gambling.  The abolition of the Glass Steagall Act made this possible. The United States began negotiating with countries that were non-members of the World Trade Organization and beleaguering the nations that resisted membership, most notably Islamic nations such as Iran, Libya, Iraq and Syria, that have banks functioning under the state to apportion credit and funds amongst the public to circulate synchronistically with the flow of economic needs, labor and production of the people instead of having central banks being lorded over by oligarchs of private finance to whom the people slavishly owe usury-polluted payments.

The Capetian Dynasty, the French Monarchy and Alexis de Tocqueville's Ideas on American Democracy

In Alex de Tocqueville’s book called Democracy in America, his written perspective about the monarchal history in France begins with discussing a period 700 years prior to his generation during which he thought France’s lands and arrondissement were partitioned amongst kings, queens, noblemen and noblewomen and their royal descendants in the government. Tocqueville believed all people within all categories of serfdom, lordship, poverty, and opulence had opportunities for attaining officialdom in government via the church after the prelacy began attaining power and increasing. Serfs could become priests and ascend beyond the heads of kings.

As we read more into Tocqueville’s words, he tells us that civil laws became a desideratum amongst the people as the social affairs amongst men turned intricate with each step of the society’s advancements. The administrative heads of law departments detached themselves from their assignments in their separate tribunals to undertake responsibilities in the monarch’s court alongside the feudal barons.

Furthermore, from Tocqueville's viewppint, the statuses of the haut monde or elite classes during the 11th Century had no price and could not be bought, but became procurable in the 13th Century. 1270 was the year when privileges and eminence of the upper classes became conferrable to people of low ranks and the elite allowed equality in government. Sometimes commoners or proletariats were given political prestige and clout as a means of helping noblemen oppose their crowned authorities or thwart their royal competitors. Most often, the people of lower ranks were granted access to government power by the king for the purpose of the king to exploit them as tools to stifle the aristocracy. Each king varied from his predecessor. Some endorsed Democracy scrupulously and others unscrupulously. Tocqueville defined them as always having been “the most active and the most constant of levellers.” It seems as though Tocqueville likened the French kings to the people of the Leveller movement during the English Civil War who were the Democratic pamphleteers and malcontents rebelling against the French monarchy in defense of religious tolerance, wider enfranchisement, and more sovereignty amongst the peoples. Unfortunately, the Levellers were not wholehearted votaries of liberty, freedom and equality considering they did not support the ballot being extended to women, servants and people depending on charity. Tocqueville explains that everyone of whatever title subordinated to the throne was equalized in the extent to which they were placed under royal dominion during the rule of Louis XI (1423-1483) and Louis XIV (1638-1715) whereas Louis XV (1710-1774) reduced his kingdom until it became nil.

Tocqueville in his book expresses approval for how commercial art, luxury, fashion, commerce, literature, and intellectualism radically changed people's values and equalized people of poverty with people of wealth while lands began to be purchased without fiefdom. Science and wealth endowed the people with a unique strength, wealth, and power. A printing press and a post office delivered literature to the doorsteps of the vassals and to the gates of the castles. After the serfs gained liberty and freedom to bear arms, enterprises apportioned weaponry amongst the serfs and enabled them to squelch the noblemen during the Crusades and English wars. Tocqueville believed France transformed with a “twofold revolution” at the end of every half of a century. He thought this was occurring all throughout Christendom.

The Flowofhistory.com website says, for a certain length of time during the Capetian dynasty, most of the population pledged allegiance to the principle of their society being governed in similar fashion to the Universal Empire or the Pentarchy which involved the masters or Patriarchs of the Roman Empire’s five foremost bishop cathedrals in Rome, Constantinople, Alexandria, Antioch and Jerusalem exercising global government over all of Christendom. The king of each monarchy was consecrated as god’s emissary with the Church’s holy ointment being dabbed on the king’s forehead. Though people had some difficulty ascertaining if it be the Church or the king who was truly transmundane and had control over society, the people still had a predisposition to slavishness enough to revere the king as god’s tool for administering justice throughout the lands by evicting, expatriating, convicting, comminating, and demoting whosoever deserved it. This was advantageous for kings in harnessing recalcitrant noblemen. Applaudingly, at the end of the Middle Ages the people stole the future from the Church and Empire as the people coalesced into territorial units that drew their political legitimacy from their status as sovereign entities. They were nation-states at this point with France being distinguishable above all.

Elective monarchies in France were interrupted by the Capetian dynasty (937-1328), a time when fathers always had their sons rule alongside them to be readily available for facilely transitioning to the throne after their fathers’ demise. Three kings were the underpinning upon which the Capetian dynasty derived their strength for remaining on the throne. Primogeniture, or the law mandating the firstborn son to inherit the family’s estate, in this case the throne, was their means of power maintenance and keeping one ruler as the main determinant of the outcome in everything. The unchanging re-deliverances of male scions prevented the need for finding someone outside of the family to be the successor when a king died.

During the agricultural revolution of the Middle Ages with the creation of towns, the French kings often rivaled with their subordinate counts and dukes. The kings had control over the lands being cleared for moving the peoples into the towns where their new homes would be. Thereupon, the king acquired the townsmen’s sympathies enough that they decided to form a militia under him for his protection and donate to him money for buying mercenaries as the paramount defense against the lower noblemen. Mercenaries were less unwieldy than feudal armies. The pact between the king and the townsmen helped the king to keep the lower noblemen underneath his heel.

Though the Capetian dynasty had many hallowed arbiters and a substantial clench on the throne, for more than a century (987-1108) they faced many obstacles challenging their rise to and retention of power. The many autonomous feudal states of France were combined into five superior feudal states named Flanders, Normandy, Toulouse, Aquitane, and Burgundy with the king’s domain, the Ile de France, stationed around Paris in the year 1100. The vassals were often mutinous against their king. At one time, the king was even taken captive by a vassal and then later rescued by his militia of Paris. Seven kings, three of which being Louis VI, Philip II, and Louis IX who were the most adroit in governing, played a major role in aggrandizing the French monarchy and the Capetian dynasty all across France beginning with Louis VI’s reign in 1108.

Louis VI controlled noblemen by adjudicating the crimes that the vassals accused their noblemen of. After the noblemen’s disregarded the demands for appearing in court, the king would expropriate the noblemen’s lands, force the noblemen from their lands, burn their castles, liberate their vassals, and excommunicate the noblemen, leaving them with no support. Although, the noblemen could then later rebuild their castles and restore their power, which thereby necessitated annual intrusions upon the former noblemen trying regain their power.

How Banks Are Robbing People Through Interest Rates

The book known as Principles of Money Banking and Financial Markets written by Lawrence Ritter and William Silber has an interesting approach in discussing Monetarism, the Classical Interest Theory and most equivocal of all, interest rates. Classical economics teaches that the conservation or saving of any amount of funds along with investing are functions of interest rates. Peoples’ amount of spending and businesses’ amount of investing moves along with interest rates as they fluctuate. As people become more induced to restrain their spending as interest rates increase, more funds become conserved. Investments are placed into capital goods (buildings, equipment, land, and other things used in producing) for the sake of furnishing the paraphernalia necessary for producing goods and services in the future that will reap monetary gains exceeding the cost of whatever capital was acquired during the time of investing. A particular paragraph in the book states this: “A lower rate of interest will induce entrepreneurs to invest in projects of lower expected profitability, because the cost of borrowing funds is less.”

If I am a business enterpriser, why would lower interest rates at any time compel me to invest in projects harvesting lesser monetary earnings when my primary goal in business is always to harvest as much monetary earnings as I possibly can? The only effects interest rates have on my capital are what and how much goods and services they attract my customers to buy from me. Moreover, it is while interest rates are lower when consumers buy more than they do retain in their pockets or bank accounts. So, if I am to receive more funds from consumers in having them buy more of my goods and services, why would I invest in projects harvesting lesser monetary earnings? I cannot be investing in projects harvesting lesser monetary earnings if consumers are more prompted to purchase my goods and services because of lower interest rates. Secondly, the effects interest rates have on my capital and means of production, or rather, what determines the type of capital and means of production I will acquire is the price I will incur upon myself or what I must pay on interest through investing in whatever capital and means of production needed.

The book goes on to further explain: on the supply of funds curve (people’s savings) and a demand for funds curve (business enterprisers’ demand for investment), very seldom do the savings and investment lines decussate with interest rates at equilibrium in the center spot on the plot diagram or graph. At this point, during the time of total savings and investments being equal, when all borrowers are free to borrow and all lenders are free to lend, the condition is always fugacious. When interest rates are beneath equilibrium, business enterprisers desire to receive more funds than what savers are free to yield or consumers are able to buy and competition drives prices or interest rates higher. When interest rates are above equilibrium savers desire to yield more funds or consumers desire to spend more than what business enterprisers desire to invest and competition drives prices or interest rates lower.

The words above make it seem as though consumers and businesses as well as the climate of the economy arbitrarily cause interest rates to fluctuate, but this should be called into question when central banks, one known in America as being the Federal Reserve, in servitude to their most affluent private stockholders of their nation’s most mammoth commercial banks, play a major role as controllers of the dial on interest rates. The Federal Reserve changes the interest rate policy based on the behavior and financial activities of consumers, savers and investors to help balance the economy, supposedly, according to conventional thought. The Federal Reserve since its very nascence has been portrayed as an institution with the sole intent of being an intervening stabilizer and giver of restitution when the economy turns parlous. Nothing can be further from the truth. The Libor Scandal, being one of many situations, helps to corroborate this. The world’s greatest megabanks are controllers of the dial on interest rates as well, which will be revealed very soon. But for now…..

The Current Brewing Scandal

In July of 2012, the New York Federal Reserve disclosed a document dating back to the year 2007 revealing their utter awareness about the banks’ legerdemain in reporting their borrowing costs while situating Libor.  Documents express that memorandums were exchanged, as can be seen with this memorandum that was sent by then-New York Fed President, Timothy Geithner, to the Governor of the Bank of England, Mervyn King, concerning recommendations on how to restructure Libor. Meetings and phone calls were made between Federal Reserve officials and bankers that included “Market Group analysts engaged with market participants” for “identifying the nature and location of rapidly mutating financial stress.” Briefing notes were dispatched from Federal Reserve officials to U.S. Treasury Department officials and circulated amongst other U.S. agencies. Many recommendations for reform were made, but there is no documentation evincing that any of the recommendations were initiated or enforced to take effect. In late October of 2008, a few months following Geithner’s memorandum to King, a Barclay’s representative communicated to a New York Fed official that Libor’s numbers were still “absolute rubbish.” The Federal Reserve displayed counterfeit intentions for thwarting the banks’ collusion and fulfillment of their objectives.

Mervyn King, the Governor of the Bank of England, knew just as well as anyone else about the scandal since 2008 considering he spoke at the British Parliament at the end of 2008 saying "It is in many ways the rate at which banks do not lend to each other. .. It is not a rate at which anyone is actually borrowing."

In April of this year, the mainstream media outlet, Rollingstones.com, conceded to the truth about the world’s hugest megabanks manipulating prices and interest rates. The article succinctly and simply discusses the Libor Scandal as quintessentially exemplifying how corrupt banking institutions and practices are exploited paramountly for the goals of our aristocrats and oligarchs to be achieved. According to Rollingstones.com, the Libor Scandal may soon have a “twin brother” involving ICAP, an electronic broker established in London that services aid after trade risks are taken and is the world’s most enormous transactor for financial institutions involving interest rates, interest rate swaps, credit, credit derivatives, foreign exchange, intellectual property and equity derivatives. Scrutinizers suspect ICAP’s activities with 15 of the world’s foremost megabanks include the ISDAfix, another leading benchmark or supposed standard of excellence, much like Libor, unto which annual rates for global transaction swapping are compared, measured, and judged. It is a screen service displaying the average mid-market swap rates for six vast monetary currencies fixed at certain maturities on a daily basis.

The Libor Scandal

The Libor (London InterBank Offered Rate) contains an assortment of derivatives valued in total at $350 trillion and is shepherded by the British Bankers' Association (BBA) who receive the final submitted interest rate reports from 20 of the world’s biggest banks at 11 o’clock each morning. Wikipedia.com tells us the Libor represents one aggregate interest rate averaged by the computations made via the interest rate data presented by major banks in London. Knowledge.Wharton.edu tells us there are computations in 10 different currencies for 15 loan terms each varying from overnight to 12 months. The rules of the game oblige banks to put forward the actual interest rates they are paying, or are expecting to pay, in recompense for what they borrowed from other banks. The Libor is purposed for being the total appraisal of the financial system and its state of health. If commercial banks, those membered with their nation's central bank, feel hopeful about the status of the financial system, they will submit a low number. If these commercial banks are unhopeful about and discontent with the status of the financial system, they will submit a higher interest rate number.

It is jaw-dropping to know that Libor is a standard of excellence in theory only, upon which the world’s 20 biggest banks assess their borrowing possibilities without complete accuracy and verification of their assessments leading them in the direction of making decisions that are wise and the least venturesome. Instead of representing what they truly will owe in the future, the Libor represents what banks expect to owe or repay in their borrowing and lending transactions amongst each other on a daily basis.

 Linked to the Libor was a sequence of extortionate dealings along with a subsequent inspection of the matter that commenced after information was leaked about banks fraudulently inflating or deflating their rates to illegitimately generate revenue from trades and speciously upgrade their creditworthiness. During the process the BBA removes the top 25 percent and bottom 25 percent of market data relating to securities and commodities, calculating the average afterwards. If a bank submits data in the bottom quarter when its real rate is in the top quarter, the rate of another bank has the possibility for ascending into one of the middle quarters. Low rates meant for being expunged instead become used in the calculations.  In June 2012, leaked information concerning multitudinal illicit negotiations that were made by Barclays Bank unveiled a momentous conspiracy between other commercial banks such as the Royal Bank of Scotland, HSBC, Deutsche Bank, JP Morgan Bank,  Citibank and many more to defraud other participants financially inferior to them in the market using the interest rate submissions.

Since Libor is used in United States derivatives, any manipulation executed in Libor is an infraction upon American financial markets, American property and American law. As a consequence of adjustable-rate mortgages, student loans, automobile loans and a wide array of other multifarious financial products being appraised according to Libor, the contortion of the submitted interest rate numbers used to gauge the rates of all the derivatives therein emanates a wave of malfunction all throughout the financial markets of the globe, impinging consumers and investors of all types. As a result of this scandal, the banks have caused people to pay the wrong interest rates on a number of financial products too many to enumerate.


Interest Rate-Swaps

An interest rate swap is a derivatives mechanism that is eminently liquid and attractive. It is used between two counterparties (i.e. legal entities, unincorporated entities or a conflation of entities subjected to the financial risk) who have contracted to trade one stream of interest payment for another. Swaps always consist of an exchange between a fixed-rate and a floating rate with a notional principal amount, defined as being the initial total amount of an asset or bond possessed by someone.

Interest rate swaps are ordinarily used in hedging and speculating. Hedging involves having an investment status purposed to compensate for possible losses that a separate accompanying investment may become liable or subject to. Hedging accommodates in retrenching any considerable losses affecting an individual or institution. It comprises of financial instruments such as stocks, exchange-trade funds, insurance, forward contracts, and other derivative products. Speculating involves participating in financial transactions fraught with danger in hopes of profiting from short or medium term vacillations in the market value of an exchangeable good or financial instrument instead of profiting from the fundamental financial facets of the instrument such as capital gains, interest or dividends. Speculators are commonplace within stocks, bonds, commodity futures, currencies, fine art, collectibles, real estate, and derivatives.

Interest rate swap transactions require each counterparty involved to pay a fixed or floating rate denoted in specific banknotes to the other counterparty. The fixed-rate or floating rate is multiplied by a notional principal amount and a factor of accumulation prearranged by a befitting day count convention.

The day count convention appraises how interest accumulates over time for a mélange of investments, including bonds, notes, loans, mortgages, medium-term notes, swaps, and forward rate agreements (FRAs). This estimates the number of days between two coupon payments, which, when pertaining to bonds, are intervallic payments of interest that the bondholder collects between the date of the bond’s issuance and its date of maturity. The day count convention gives a reckoning in regard to the total sum in need of being remitted on its due date and also the accumulated interest for dates between remittances. The day count is also used to measure periods of time when a cash stream’s interest is deducted to or denominated in its present value. When a security such as a bond is dealt between the deadlines by when interest payments must be fulfilled, the seller is qualified for receiving some portion of the coupon amount.

The present value is the subsequent monetary sum that has been discounted to mirror its current value as if it existed today. The present value is constantly smaller than or equivalent with the subsequent value for the reason of money having the prospect of accruing interest, a attribute known as the time value of money that is a notion at the core of finance theory. This is the worth of money calculated at a certain quantity of gained interest or inflation accumulated throughout a period of time. The criterion proposes that a particular quantity of money today differs in its buying power from the same quantity of money in subsequence. The prospect of accruing interest on a sum of money and inflation raising prices, whereby altering the worth of the money, is the reason for the existence of this principle.

In returning to discussing the operations of interest rate swaps, counterparties do not regularly trade the notional principal sum when both legs of the switch are in the same currency. Instead, the notional principal amount is used only for appraising the volume of cash streams to be swapped. It is normally switched in the beginning and at the finish of the interest rate swap when the legs of the switch are in different currencies.