STAFF NEWS & ANALYSIS
The Real Reason Fed Stress Tests Aren’t Credible
By Daily Bell Staff - June 23, 2016

Why the Fed’s Stress Tests Aren’t Credible … For the sixth year in a row, the U.S. Federal Reserve is conducting stress tests to see whether the country’s largest banks can withstand a severe crisis. If only the results, to be announced this week and next, were more useful.  -Bloomberg

Federal Reserve stress tests for banks are a fantasy.

They don’t address contagion, for one thing. Contagion makes everything much worse.

The Fed is now going to upgrade its stress test analysis.

Here:

More advanced network analysis, such as that used by the Bank of Canada, can do a better job of addressing contagion effects. And to its credit, the Fed plans to increase the amount of capital required for the largest banks to pass the tests.

To its credit? Not really.

It used to be that banks created solvency by acquiring gold and silver. These days banks are considered solvent depending on their fiat “reserves.”

But the reserves are just debt-based paper money printed by the Fed.

The Fed can print as much fiat as it wants. If you are a big commercial bank, the Fed provides you access to lots of fiat.

And if you are in any trouble, the Fed will print more.

During the crisis of 2008, Ben Bernanke supposedly printed $16 trillion and sent it around the world as short-term loans.

Most supposedly were not paid back. This is one of the reasons that the Fed does not want an audit.

The Fed can print as much money as it wants because the dollar is the world’s reserve currency. Countries are forced to hold dollars to buy oil.

So pretending that that banks can be endangered because they don’t have enough reserves is silly.

The Fed is engaged in propaganda here. It is promoting an elite dominant social theme.

Fed officials want you to take the idea of “money” seriously.

They want you to take the idea of a bank collapse seriously.

But the Fed can print as much money as it wants. It can avert almost any crisis (though price inflation may be a problem later on).

Anyway, they don’t want you to know this.

You need to believe that banking is a difficult business. But it’s not.

It’s a foolproof business so long as the Fed owns a monopoly printing press.

In fact, banking is not really a business anymore for the bigger, “commercial” banks. These banks are basically capital redistribution centers for the Fed.

Of course, those who are partial to central banking want you to believe that commercial banks hold most of the money creation power. But they don’t.

The Fed can choke off money at will by raising rates. The Fed is the hub at the center of the wheel.

The monetary system is based on propaganda not reality. But the Fed and the large banks don’t want you to know that.

They want you to continue to think that banking is a business and that banks need to be well run and aware of “risks.”

These stress tests are part of that determination to delude you.

Those with “first access” to Fed funds have all the money they want. And that includes the US’s biggest commercial banks.

The real reason stress tests aren’t credible is because they don’t matter.

Conclusion: Don’t fall for this propaganda. You may be in danger of going broke, but the nation’s big banks are not. Not now and not in the future. Not until the dollar ceases to be the world’s reserve currency, anyway.

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  • esqualido

    The big thing to bear in mind is that the Too-Big-To-Fail Banks of 2008, which have only become bigger since, are the actual owners of the Fed, a private corporation. To think that the Fed is going to conduct, much less act upon, a so-called stress test strains credulity. The organization is fundamentally corrupt, as well: constantly massaging interest rate expectations, through any number of public statements by Fed officials who clearly left the impression that at least two hikes would have already taken place, providing an opportunity to front-run trades on their own (one of the largest trading desks in the world) is nothing but a recipe for mischief. In a normal world, a functioning Treasury Department (Google Gallatin to see how one is ethically run) is all that is required, and interest rates are not “set”, they are, like commodities a product of supply and demand.

  • Bruce C.

    There is actually one shred of credibility – or maybe reason to care – in so called bank stress tests and that is this: IF there is a physical bank run (aka “a contagion”) then only the first 10% or so of bank depositors will get their cash. The others will not because it will be gone and it could take literally 10 to 20 years for the Fed/Treasury/Mint to “print” (i.e., physically create) even just another one or two trillion dollars of new bills to satisfy demand. THAT would be a huge and unprecedented deal (and one that would be fascinating to witness – but maybe only if you got YOUR cash and/or you’ve got gold/silver – hint, hint.)

    Here is an article that explains the gory details:

    http://www.zerohedge.com/news/2016-02-27/global-run-physical-cash-has-begun-why-it-pays-panic-first

    • Oh, come on Bruce. Once the Fed identified those who had lost money it could make electronic deposits into their accounts overnight. Why would they need physical dollars?

      • Bruce C.

        I guess you’re right. A bank run will never happen again, thanks to the Fed.

        NOT!

        It’s a an interesting set of factors but the sheer human population numbers and amount of fiat on deposit in the banking system is at odds with the physical capability of producing physical cash in lieu of electronic digits within a “reasonable” time frame (i.e., not very long given today’s expectations) if even a not so sudden and intense upsurge in cash demand takes place.

        I’m not sure what you mean by “those who lost money” because I’m talking about those who simply want their money, for whatever of many possible reasons.

        A bank run (on physical cash) could occur for any number of reasons, many of which might be considered “quite irrational”.

        Let’s not forget the admonition from one of my first “bosses”: “There is no one more ingenious than an idiot.” I don’t mean to scare you but what are the odds that there is more than one idiot in the world? And then the probabilities go exponential.

        Even the most rational might…

        -want to hoard cash if bank checking/savings keep getting nickel-dimed because of negative interest rates. (I just got debited about $15 for a monthly “account assessment fee”);

        – get a better deal on precious metals with cash, which means they need cash;

        – get a better deal on just about everything because of various transactional costs using digital fiat;

        – “you all” acknowledge an underground economy – so what if it continues to expand?

        – people get wind of the myth/fact (you make the call) of their retirement savings getting confiscated;

        – because of problems with financial fraud people start to use cash more than credit/debit, or establishments start to offer discounts for cash vs use of credit/debit. (A grocery I go to now requires ID every time I use a credit card. I may start to use cash to avoid that “insult”.)

        – if the anti-gun craziness continues people will react by getting more guns AND CASH, basically wanting to secede from the system.

        – I’m sure there are many more possibilities, and if bank runs ever do happen again they will probably be for reasons I haven’t even imagined.

        Again, the difference in numbers is what matters. A relatively small change in demand can make a big existential difference. The banking system expects no more than about 5% of depositors to “cash out” at any given time. However, that’s an old time banking model because it’s not considering the current size of the money base in terms of the system’s capability of matching it physically. A trillion dollars isn’t what it used to be and yet the physical means of producing that as physical FRNs has not kept pace with “QE”.

        Also consider this: People wonder why gold/silver will ever be so valuable but they always ask that within the context of “normalcy.” However, if the current standard electronic systems go down (BTW why hasn’t there been more talk of EMPs lately?) then the only money around will be extant fiat cash and physical gold/silver. Okay, maybe not the only, but the primo, and I bet gold/silver will trump (no pun intended) physical FRNs by a lot in short order.

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