The Biggest Bank Heist in History …

Hey There Income Hunters,

People like you and me — the rare breed known as Income Hunters — have a deep need to see that numbers add up.

We’re responsible people, after all!

That craving for common sense makes it really difficult to wrap our heads around the Fed printing $5.5 trillion dollars out thin air to stimulate the economy and drive inflation — with nothing to show for it!

Quickly, before we go any further, I need to clarify something …

Most people think inflation is too much money chasing too few goods.

That’s not it.

Yes, increasing money supply is a component …

However, what actually triggers inflation is an increased velocity of transactions in the economy

Velocity — the number of times a unit of currency is exchanged — is THE critical component of inflation.

A quick example of how velocity works … 

  • Say you hit the over in the NFC Championship Game on Sunday and you take a friend (me!) out to dinner. (I live in Tampa now, so Go Bucs!)
  • You give the waiter a nice tip, because you’re flush. So, instead of walking home he takes an Uber and tips the driver…
  • Then the driver stops on his way home for Taco Bell

That small sample translates into a velocity ratio of 3 … which sounds nice, but would actually be a 60-year low on a macro level — which has averaged 7.5 over the last six decades.

But three is about where we’re at currently …

And dropping!

Why??

Where Did the Velocity Go?

NEWSFLASH: Trillions in Fed cash flow has been TRAPPED in the banking system.

Without velocity, the Fed could print a quadrillion dollars via quantitative easing (QE) and it wouldn’t make its way into the economy…

In fact, all QE has done is widen the wealth gap and inflate stock, bond and real estate prices.

I like to call the Fed, the banks and the government the “Wall Street Banking Casino” — the only problem is that it’s not open to the public and the money stays in the casino.

Not cool, man!

Here’s how it works …

  • Every dollar the Fed prints must be borrowed back …
  • That’s the Treasury’s job.
  • The Treasury issues US Treasury Bonds to the public and the banks buy a good chunk at the auction …
  • Then, when the Fed conducts QE, they credit the banks’ accounts at the Fed and purchase bonds that the banks hold in inventory. 

Where the System Is Broken

Here’s where we run into a real problem:

The banks are not required to make loans to Main Street, which would stimulate the economy, increase velocity and drive inflation.

They’re instead free to use the money for market making (i.e., buying stocks and bonds).

So, the banks are in the middle of every transaction, making a fortune on their trading activity.

The Bermuda Triangle of American Banking

Now, this is what I think could happen as soon as this year…

Janet Yellen could convince Congress that they need to amend the Federal Reserve Act of 1913 for this specific reason:

  • Enable the Fed to buy Treasury Bonds directly from the Treasury — and CUT OUT the banks
  • Enable the Fed to write checks to pay the obligations of the Treasury …
  • The Fed then could write checks directly into the economy, which could be spent immediately … 

This would be a merger of the Fed’s and Treasuries Balance sheet and that would increase inflation and make the banking system somewhat irrelevant.

Speaking Crypto-cally 

The next step would be digital dollars …

That’s right, a Fed crypto currency.

Citizens would open an account at the Fed, and through a single Fed server all transactions would flow through the Fed.

It would certainly be a more efficient approach — but it would also give the Fed a tremendous amount of control.

Still, something has to be done … it may be inevitable.

The chart below, just out yesterday, shows how bad it has gotten.

Wall Street is now SIX TIMES the size of Main Street.

The little guy never had it so rough.

Bring it Home

The bottom line is that major change is coming and it is important to think outside the box … because when monetary systems transform into something different — which they always do — it changes how the markets trade as well.

Keep a very close eye on how this develops over the coming year and in the meantime …

Live and Trade with Passion My Friends,

Griff

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