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Affluent Investor | June 25, 2017

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The Fed, Jobs Bank for the Ruling Class

Money Tunnel

I really can understand why Americans increasingly feel that the system is rigged — to a large degree, it is. I don’t mean the system of free-market capitalism; freedom is non-rig-able, at least in the long run. It takes power to rig the system, and one of the great powers that the federal government has, through the Federal Reserve Bank, is the power to create money from thin air. What an enormous advantage, which makes our ruling class almost god-like. In fact, the word fiat (as in ‘fiat money’) comes from the Vulgate — the Latin Translation of the Bible attributed to Saint Jerome. In the beginning God ‘fiat lux‘; ‘let there be light’. In other words, fiat means ‘let there be’. It’s how God created the various elements of the world in the Vulgate. It’s how our self-appointed gods create the various elements of our monetary and financial system. But there’s a big difference between the two; our gods are not omniscient, nor even very wise, and what they have created cannot really honestly be called ‘good’.

What they’ve created is a very wealthy and powerful dependency class of people who work in and around our nation’s capital. Most of us know that this applies to federal government bureaucrats, but there is a small army which works for Government sponsored entities such as Fannie Mae, away from the disclosure requirements and salary limits associated with official government employments. It’s a place where loyal friends of the regime can be sent to make the big bucks as a reward for faithful service. Barney Frank’s boyfriend worked there developing and expanding sub-prime mortgages, and Rahm Emmanuel collected handsome fees there after loyal service to Clinton. And it isn’t just Dems… For example, a former McCain senior staff member has done quite well consulting for GSEs.

But what keeps it all going? Not the market. It’s the fiat money machine. That’s what we learned this week from a Wall Street Journal Report.

“It’s good to have the Federal Reserve as a friend.

Fannie Mae FNMA -2.20% and Freddie Mac FMCC -2.65% put in strong financial performances last year. But national accounts data released this week suggest these were largely built on the Fed’s purchases of the securities backed by the two mortgage giants. And while this may have helped them achieve record profits, it’s also a warning about what might happen as the Fed’s role fades.

Last year, the supply of mortgage bonds backed by Fannie and Freddie rose $134 billion, to $4.4 trillion. Bonds backed by Ginnie Mae, which is wholly government owned, increased $113 billion.

Investors simply didn’t have the appetite to swallow that $247 billion. In fact, the private sector moved sharply in the opposite direction, cutting $316.4 billion from its exposure to securities issued or backed by Fannie, Freddie, Ginnie and other government-sponsored entities. Households, nonprofits and corporations shrank their portfolios by $137.1 billion. Foreign banks and investors sold $98.3 billion.”

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Jerry Bowyer is a Forbes contributor, contributing editor of AffluentInvestor.com, and Senior Fellow in Business Economics at The Center for Cultural Leadership.

Jerry has compiled an impressive record as a leading thinker in finance and economics. He worked as an auditor and a tax consultant with Arthur Anderson, as Vice President of the Beechwood Company which is the family office associated with Federated Investors, and has consulted in various privatization efforts for Allegheny County, Pennsylvania. He founded the influential economic think tank, the Allegheny Institute, and has lectured extensively at universities, businesses and civic groups.

Jerry has been a member of three investment committees, among which is Benchmark Financial, Pittsburgh’s largest financial services firm. Jerry had been a regular commentator on Fox Business News and Fox News. He was formerly a CNBC Contributor, has guest-hosted “The Kudlow Report”, and has written for CNBC.com, National Review Online, and The Wall Street Journal, as well as many other publications. He is the author of The Bush Boom and more recently The Free Market Capitalist’s Survival Guide, published by HarperCollins. Jerry is the President of Bowyer Research.

Jerry consulted extensively with the Bush White House on matters pertaining to the recent economic crisis. He has been quoted in the New York Times, The Wall Street Journal, Forbes Magazine, The International Herald Tribune and various local newspapers. He has been a contributing editor of National Review Online, The New York Sun and Townhall Magazine. Jerry has hosted daily radio and TV programs and was one of the founding members of WQED’s On-Q Friday Roundtable. He has guest-hosted the Bill Bennett radio program as well as radio programs in Chicago, Dallas and Los Angeles.

Jerry is the former host of WorldView, a nationally syndicated Sunday-morning political talk show created on the model of Meet The Press. On WorldView, Jerry interviewed distinguished guests including the Vice President, Treasury Secretary, HUD Secretary, former Secretary of Sate Condoleezza Rice, former Presidential Advisor Carl Rove, former Attorney General Edwin Meese and publisher Steve Forbes.

Jerry has taught social ethics at Ottawa Theological Hall, public policy at Saint Vincent’s College, and guest lectured at Carnegie Mellon’s graduate Heinz School of Public Policy. In 1997 Jerry gave the commencement address at his alma mater, Robert Morris University. He was the youngest speaker in the history of the school, and the school received more requests for transcripts of Jerry’s speech than at any other time in its 120-year history.

Jerry lives in Pennsylvania with his wife, Susan, and the youngest five of their seven children.

 

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