All of this is just theater for show, because Washington knows that there is a growing contingent of people who are realizing that something rotten is going on with our government.
Nobody says it better than a friend of mine. I think he predicts it to the T:
"In 2007, the housing market collapsed, bringing down the house of cards of the subprime market. Because of securitization and derivatives, this caused an enormous black hole on the books of the top financial institutions. What to do?
One option was for the gov't to buy the bad mortgages from the banks-- this was the original intent of TARP, but the purchases just couldn't be made quickly enough to stop the collapse. What to do? After much back and forth about whether to create a "good bank" and "bad bank", etc the decision was made-- just fill the hole with money. At Morgan Stanley, we were suddenly a bank holding company with access to the Fed printing press. According to the recent GAO audit, $16 TRILLION in loans were made by the Fed to various financial institutions. An amazing number. But that much money would surely hyperinflate the dollar and collapse the global reserve currency, right? What to do?
So read this article closely-- they shut down interbank lending. The Fed pays interest on "excess reserves" making it more lucrative to keep the trillions locked away rather than loaning them out. This is what shut down the credit markets. It's like the economy swallowed a balloon of heroin but it's not hitting the bloodstream. This saves us from immediate hyperinflation, but at what cost? The interbank lending market dies on the vine, so only those banks with political pull.. i mean Fed access... have liquidity. Small banks died throughout 2009. I watched a whole bunch of them get seized by the FDIC, which then recapitalized them with TARP money and set them back on their feet-- with a new board of Goldman Sachs cronies to replace the original owners. Those banks that weren't worth stealing just went toes up... and the result was no business loans, limited access to capital, contraction in the real economy, and high unemployment.
So, so far, the decision to plug the black hole of derivatives and save the TBTF banks has had the unintended consequence of creating a deflationary depression in order to avoid a hyperinflation. They CHOSE 9% unemployment as a better alternative to fiscal collapse or letting the banks fail. But now we're coming up on an election year and-- liquidity still being tight-- the economy is not robust enough for Obama's re-election prospects.
They need to increase the velocity of money now-- what to do?
They tried direct monetary stimulus, they tried giveaway programs like Cash for Clunkers, they've turned this knob and tweaked that dial. Now they're revisiting the "Excess Reserves" issue. And, I believe, they are already loosening those trillions into the system. I think they've already poked a hole in the heroin balloon and we're just not high yet. Next year, we'll see a sudden drop in the unemployment rate, an increase in bank lending, a flood of liquidity. Just in time for Obama to declare that his policies have brought wealth to everyone. The nominal values of stocks will go up, wages will increase-- and price inflation will follow.
But price inflation will not stop, and the other benefits will be temporary. By 2013, when Obamacare kicks in, the debt ceiling is up for another review, etc, the amount of money chasing goods will increase exponentially. Because of fractional reserve lending, what began as a surge of liquidity will become multiplied as banks lend and re-lend the same dollars. $1 trillion will become $9 trillion in one generation of re-gifting. At this point the country panics, we see a massive surge in gold and commodities, the commodity exchanges break down and the paper markets for commodities collapse. The Dow skyrockets, but the nominal values don't really mean anything. You can't get cash out of the bank because physical currency becomes scarce and people stop accepting debit cards and electronic payments. Savings are trapped in institutions-- they absorb them, say tough luck to depositors-- who are then paid by the FDIC which gets the cash via more money printing from the Fed.
At this point you want a gun, a dog, and a year's worth of food.
The crisis will last as long as people are not storming the capital with guns. They will have people in a desperate condition, and desperate people will make bad choices. This is the period when the transfer of hard assets will take place. When currency markets are in upheaval, people won't work, they won't get paid, when they are paid it won't retain purchasing power. Markets will shut down. Food will become scarce. Hungry people will be willing to part with assets-- homes, gold, pianos, cars, furs, diamonds, paintings, commercial real estate, Action Comics #1-- you name it. During the period of desperation the hard assets will move to those who have liquidity. Like, say, the Fed and those with first access to the printing press before each dollar loses purchasing power.
At the end, the people revolt. But before that happens the IMF will zoom in for us as it has for Greece and Spain and Italy et al. It will have the new global currency to replace the dollar as the international reserve. It will be based on commodities, or gold, or maybe the IMF will just absorb the Fed and they'll start a new system of fiat money printing. But the crisis will be over, and a New World Order-- to coin a phrase-- will emerge that is much more globalist in nature-- with a socialist central power unaccountable to individual nations much as the Eurozone's leaders are unanswerable to the the people of the individual countries.
Now-- one question for all of us should this come to pass-- is it deliberate murder, negligent homicide, or suicide? The end result is the same."
) but I do like The Onion.
