Tuesday, April 19, 2011

The Suckers Bet.

Far too many Americans are confusing high inflation and hyperinflation. The most frequently sited example of hyperinflation is Weimar Germany. Most renditions of the story lay the blame for it on the Versailles treaty. Actually that was only one of the sources of Weimar Germany’s inflation problem. It started with German monetary policy during the war. Faced with the costs of the war they printed large quantities fiat currency. At the end of the war the further burden reparations exacerbated the already existing problem.

In short high inflation comes from bad governmental monetary policy in response to debt, regardless of the source. Hyperinflation comes when the public loses confidence in the national currency and acceleration rates grow exponentially.

Germany in the 1920’s is only the most extreme example. Look also at the hyperinflationary events in Chile and Argentina. Same story high debt addressed by excessive money printing followed by loss of confidence in the currency and then rapid acceleration rates.

The underlying source or causes of the debt are always the same, high government spending coupled with bad central banking policy that only profits the banks and saddles the public with the debt.

How is this any different from what we face today? Well it is, we have the added complication of a rigged game. Anyone who thinks that the Federal Reserve Bank is either independent or Federal is ignorant, delusional or both. The FED is a private bank owned by the very banks it purports to regulate. What a joke.

Look at the revolving door between Goldman Sachs, the Treasury Department and the FED Board; collusion of the first order. Look at the POMO process since the collapse in 2008. Before 2008 the FED bought between 10% and 15% of US Treasury offerings. Now post collapse through the POMO process the FED ends up holding 70% of US Treasury offerings because no one else wants anything to do with US debt paper, and in the process the primary dealers (the banks that own and control the FED) make a killing on every step of the process.

First the PDs (Goldman Sachs, JP Morgan, BofA etc. borrow money from the FED at essentially 0%. They then use these funds to buy US Treasury Bonds for which they receive a transaction fee from the Treasury Department. After holding these Bonds for as little as two weeks they then sell them back to the FED for 3% to 4% more than they paid for them, depending on the term of the Bonds. If this weren’t bad enough, the scam doesn’t end there. They then take their ill-gotten proceeds, the transaction fees and profits from the re-sale of the Bonds and park them back into their accounts at the FED as “excess reserves” where they are draw 4% interest on the deposit! Well now guess whose money funds these transaction fees, re-sale profits and deposit interest payments? Look in the mirror, its you, the US taxpayer.

If this doesn’t make you mad enough look at that 1/10 of 1% these same banks are paying you on your savings deposits, and then compare it to the $4,200,000,000,000 ($4.2 Billion) in taxpayer funds the primary dealers will pocket just from the QE2 program. All for doing nothing more than moving electronic digits from one ledger book to another and then back again. Oh and also keep in mind that BofA and these other PDs don’t pay a single dime in income tax on any of it!

Again far to many Americans want to defend this kind of criminal fraud for nothing more than partisan political reasons. The banks will thank them for it and laugh in their faces as they pay out their massive bonuses funded by the tax payers while they pay them that luxurious 1/10 of 1% on their savings and then charge them 1-1/2% for managing what ever they have left in their IRAs or 401Ks.

So yeah we should bitch at Congress for massive spending but we should also bitch at them for lining their coffers with campaign contributions paid out of the pocket change of these same banks, for which they return the favor by structuring the tax code that lets them get away with paying no taxes on this pernicious scam. The taxpayers are being played for suckers and are paying for the privilege. Sadly there are far to many people too blinded by this fools a errand of left vs. right to see the game, and they never will until its far too late, and hyperinflation destroys everything they have.

Before anyone claims I simply hate banks, let me just say that I hate the theft and fraud they perpetrate and the so-called regulators and politicians of both parties that let them get away with it, and I have nothing but contempt for fools who think they are out to do anything but enrich themselves with the taxpayer’s money. I have found that those who would defend them either work for a bank, which makes them nothing more than shills, or they don’t know any more about the functioning of currency than what they were told was true in high school. There’s an old saying; “a fool and his money are soon parted.” These are just the fools the banks and politicians are looking for. If they think the Congress “has its thumb on the FED” they are not just fools, they an idiots as well.

1 comment:

  1. Great post DW! You might consider explaining POMO for those who aren't familiar with the term.


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