Federal Reserve’s Bullish Bitcoin Policies
The Federal Reserve in the USA has one of the most powerful tools from saving the world economy from collapsing. It is so called lender of last resort. There are various outcomes to the tactics that the Federal Reserve uses, although the main tactic is to manipulate the supply of money by controlling interest rates.
When there is a crisis of liquidity, the Federal Reserve will lower interest rates so that borrowing money becomes much more affordable, which therefore creates more liquidity in the market.
However, to avoid a crisis of inflation after so much money has been printed, the Federal Reserve will then increased the cost of borrowing by raising rates. This therefore this incentivizes the velocity of the money that flows out of control into the economy. This is done in the hopes that the so-called deflationary death spiral can be avoided.
The current chairman of the Federal Reserve, Jerome Powell, has been using these tactics to keep the economy going during this global coronavirus pandemic. In the year 2020, Jerome Powell used the federal reserve’s printers to create what is now about 40% of all of the United states dollars in the world economy.
However, with massive inflation expected for 2022, the Fed has no other choice but to dry up the world economy. In June of 2021, Jerome Powell shifted monetary policy with a 0.05% rise into interest rates. This is 0.05% rise applied to the interest on excess reserves as well as the interest rate on reverse repossession contracts.
This particular article is all about how exactly these technical monetary instruments work and how the Federal Reserve operates. The end goal here is to take a closer look at exactly what Jerome Powell and his Federal Reserve policies mean for the future of Bitcoin and cryptocurrencies in general.
The Inner Workings of the Federal Reserve
What is important note is that the Federal Reserve is ultimately accountable to its shareholders, or in other words, its member banks. This system of investment and banking is exactly what mandates the world monetary policy. Some of the most important players here include Goldman Sachs, the Bank of America, Wells Fargo, Morgan Stanley and more.
These are extremely important because they generally buy the excess supply of U.S. Treasury paper, or in other words the reserves, which are auctioned off by the Treasury Department in order to keep the economy going and to increase funding.
These primary banks are shareholders generally buy around up to 50% of all issued treasuries and then sell them to the Federal Reserve in exchange for cash right away. This is exactly how treasuries, the United states debt, is monetized. This is in stark contrast to other banks, in other foreign countries, that only usually by up to 30% of the three years issuance of the new supplies of treasuries, with the other 20% being left to the private sector.
The bottom line here is that when Ben’s control the flow of money, it’s the Federal Reserve that controls the well being of the entire world economy by using the United states dollar as a cornerstone. Let’s take a quick look at some of the federal reserve’s most common practices that help to control the supply of money throughout the world.
The Federal Reserve’s Fund Rate
The most important tool used by the Federal Reserve that helps to manage the economy is known as the federal funds rate. In other words, this is what it costs to borrow money from the Federal Reserve. The Federal Reserve is the lender of last resort, which theoretically means that it can print more or less unlimited amounts of elastic money.
This can theoretically cover any amount of time in the markets. The fact of the matter is that if various banks lend out bark much money and then can’t pay each other back to meet the required reserve rates, the Federal Reserve can then bail them all back a much cheaper cost, with much lower interest rates. If a bank needs $20 billion by 6:00 PM tonight to cover its various obligations, then it can borrow that money from the Federal Reserve for an extremely low rate.
Moreover, the amount of money that the Federal Reserve can print to help prevent imbalances from the occurring is virtually unlimited, that is unless the US people confidence in the Federal Reserve System breaks down. You must have people ask where the money comes from, things just keep on going.
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The Bailout Bag
If you can remember, the Lehman Brothers had a massive crisis in 2008. Ben Bernanke, Who was at the time the Federal Reserve Chairman, created two extremely important monetary programs. One of these programs was the interest on excess reserves.
The other was the reverse repo policy. Both of these policies were used to remove liquidity from the market center greatly tightened. In order to sterilize all of the QE money from the Federal Reserve that it created during the bailouts during the Great Recession, banks continued tightening for years.
This is exactly why there was no hyperinflation during the Great Recession. The banks had not been incentivized to tighten up liquidity, all the money would have been followed the extremely limited supply of goods in the economy.
What is interesting to note about the IOER is that any excess reserves in the banking system would be held by the Federal Reserve and earn interest in the mean time. This therefore greatly reduces liquidity because banks simply don’t have the excess money to create loans for people.
In the past, banks never used this IO ER because the is the Federal Reserve paid below the going rate that was offered in the market, so nobody actually used this facility because rates were zero bound. after the Lehman Brothers crisis, this IOER was raised to 25 points.
Banks then quickly put over $2.8 trillion into the Federal Reserve to earn a quarter point of interest. The simple reality is that if the IOER is much higher than what banks can make overnight on the market, then they will put their reserves into the Federal Reserve.
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A repurchase agreement is yet another Federal Reserve tool that is used to tighten liquidity in the market. This is quite a desperate measure, but it’s also a desperate time. This is much like the tightening during the Great Recession, although the repossession contracts usually take place on a much shorter time frame.
For those of you who don’t know, a repossession contract is an agreement made by banks and the Federal Reserve which is to temporarily by a security, which is collateral, with the express intent of returning it with a very small return or a higher price, which in this case is interest.
When it comes to a liquidity crisis, if a bank is short on cash, it can tap into the Federal Reserve and request a securitized loan. The Federal Reserve will then give this bank cash in exchange for a security from the bank. The cash can help a banks lending power and also provides it with liquidity within the economy, which then eases market tension and uncertainty.
When the loan finally comes to term, the bank and the Federal Reserve will then swap cash for assets, with the bank paying the interest that is owed. There is also such a thing as a reverse repossession contract. This is when the federal reserves provide securities to a bank in exchange for money. This movement of money into Federal Reserve accounts helps to tighten up liquidity and dries up the market.
In 2021, Jerome Powell raised both the verse repossession rates in the IOER by five points. This is a process of sterilizing the markets to avoid massive inflation and over inflation period at the same time, Jerome Powell also created a defensive monetary strategy that would remove money from the global economy to put off symmetric stress on the European governments.
By the middle of June in 2021, over 250 billion U.S. dollars were removed from the market. This ultimately caused the euro to crash. Something that the European Central Bank can do that the Federal Reserve cannot do, is do intentionally go bankrupt by destroying the euro with negative interest rates. The supposed plan of the European Central Bank is to dry up the banking industry and to wreak their sovereign bond market.
This is what some would call Europe Trojan horse to help gain control over the flow of money in the world, and it’s all about undercutting the federal reserves banking cartel. It’s all about the European union’s ultimate goal to destroy the United states is ability to taper money printing. This is done through astronomical build back better programs, and would cost America trillions of dollars.
By design, this is meant to ensure that the Federal Reserve has no other option than to monetize spending and to use negative interest rates for Americans, just like Europe has done. This would therefore create a much stronger euro and a weaker United States dollar, he would therefore help Europe prevent implosion due to not being able to pay back its debts. That said Jerome Powell’s decisions helped prevent this from happening.
The CARES Act was passed, and this means that now non financial corporates and corporates can access the federal window that was originally exclusive to the banking cartel. However, since coronavirus started, the IOER was zero, and this repossession window was only available to the primary dealers of the Federal Reserve.
However, they are now being cut out of the economic transmission system. Jerome Powell is tightening United States is monetary policy in order to protect United States banking cartel and the dominance of the US dollar. The Federal Reserve also expects to increase interest rates, which will only serve to destroy the euro even more and to strengthen the dollar even more. It will also help reallocate money into better investments.
Just before the new year, the Federal Reserve indicated that it was willing to aggressively taper 3 interest rate hikes in 2022. This, in the grand scheme of things, will then help to create capital flight from Europe back into the USA. Jerome Powell’s economic policies are being implemented across the world by using foreign repossession facilities.
At the same time, the strength of the greenback of the European banks is increasing through the exchange of extra euros for dollars that they came out park with the Federal Reserve. Near the end of 2021, nearly $2 trillion went into the federal reserve’s repossession facility, which is the highest one day cash injection that has happened to this day. The fact of the matter is that many European governments were offering negative yields on excess euros, but the Federal Reserve was offering a positive yield of 0.05%, which is of course very attractive.
While this relocation of capital occurs, there will be an inevitable correction as deflationary pressure set in. Much higher interest rates will stop asset price inflation from occurring. That will become more expensive due to a much stronger dollar. This will also disincentivize various individuals and businesses, to leverage themselves as much as possible. Various array of assets such as treasuries, equities, and real estate, will be repriced as hard tangible assets such as oil, gold, and more. However, the money gained through tangible assets will be absolutely nothing compared to the appreciation that Bitcoin and cryptocurrencies will see.
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Bitcoin and the Trojan Horse
It is no secret that Jerome Powell has a much more sound monetary policy that is all about fiscal responsibility. The fact of the matter is that bold drone power it is so called shareholders maybe spurred on to maintain their economic superiority by using Bitcoin as a legitimate asset, one that will then help to ensure the power and strength of the United states dollar.
When there are times of economic uncertainty, the whole world decreases liquidity because they don’t know what the federal reserve’s monetary policy will look like. However, the fact that Jerome Powell is implementing extremely hawkish policies are strong signs that the Federal Reserve needs to once again regain the trust of the market.
Increasing overall interest rates tends to be the only way to do so. This is unfortunately a merit if that dominates the market. This can be seen during the 1970s, when interest rates were greatly raised to help combat over inflation, and to help maintain the strength of the United states dollar. This is exactly what is happening to Jerome Powell, and he’s going to use all of the monetary tools in his power to help protect his strength of the United states dollar.
It is also no secret that there is a 21 million supply cap on Bitcoin. Bitcoin’s value proposition could greatly outpace that of gold, particularly during times of economic sense certainty. Bitcoin therefore has the potential to become a safe haven for money. Money tends to go where it is treated the best, and seeing as treasuries are currently yielding negative returns, parking money with the Federal Reserve is a liability for everybody.
The result here is that nations will sell off their US treasuries. moreover, America’s credit worthiness is greatly decreasing. the world is no longer overly certain in America creditworthiness. People are realizing that there is a great moral dilemma between Federal Reserve bailouts and banks. This therefore means that people are going to look for new methods of securing collateral. People are going to replace the US treasury’s with Bitcoin as collateral. Bitcoin suffers from accessing the note so called counterparty risk, which means that it is a great form of capital can be leveraged by the commercial banking industry.
Banks will start offering financial Bitcoin reserves to their customers so that they can stay relevant and compete until their services are no longer needed. What may also happen as capital is reallocated is that Bitcoin could become the new form of collateral, and this could create a hybrid Bitcoin and dollar standard. With that being said, history often repeats itself, and Federal Reserve central planning has often failed. It is for this reason that a dollar backed by Bitcoin is ephemeral. The Federal Reserve is obviously going to cave into its temptations to debase the money supply, but this is an experiment that will fail inevitably.
At this point, the dependence on national money and central banks will have all but evaporated. The bottom line here is that the monetary policies of Jerome Powell that are strengthening the dollar will actually have been the ultimate speculative attack on the dollar. But it all comes down to is that easing into a Bitcoin standard will have to happen gradually.
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What the future holds is yet to be seen, but what is certain is that the policies instituted by Jerome Powell and his Federal Reserve are going to be bullish for Bitcoin.
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