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Bank Lending Plummets As Wall Street Strangles Economy

Articles & Blogs - US Commentary

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I (and many others) have warned that the desperate and reckless economic policies of the U.S. government (and their banker-overlords) would ultimately set off crippling inflation in the United States – and most likely hyperinflation.

Indeed, a source I often cite, JohnWilliams (of Shadowstats.com) now believes that U.S. hyperinflation could kick-in as early as this year. However, with phony U.S. inflation “statistics” pretending that there is no inflation in the U.S., many are asking “where is this inflation?” Confusing the issue further, a stubborn group of ideologues insist that there can't be inflation – because we are headed for a deflationary implosion.

My response to these somewhat contradictory positions would be to observe that a) there is already significant inflation in the U.S. economy; and b) the U.S. government/Wall Street alliance has hidden their inflationary policies through what can only be termed a “scorched-Earth” strategy.

Referring first to U.S. inflation, John Williams reported that inflation rose in the U.S. from 9.7% in December to 9.8% in January – a far cry from the fantasy-figures with which the U.S. government hopes to continue to deceive the world. However, those numbers should be rising much faster.

It is not just simple economics, but simple arithmetic that when you increase the supply of something at the fastest rate in history that the price must fall (and fall rapidly). This is true whether we are referring to the massive, over-supply of U.S. Treasuries, or the huge glut of greenbacks, themselves. When the “price” of U.S. dollars falls, this is the definition of inflation. A loaf of bread doesn't suddenly get more “valuable”, but rather the currency we use to buy that loaf of bread is becoming steadily more worthless.

The only reason why this has not already been translated to soaring price-inflation (i.e. double-digits or greater) is because the Oligarchs and the U.S. government have demonstrated that they are willing to sacrifice all the rest of the U.S. economy – solely to prevent the banksters from drowning in their own financial feces.

Here is how this “scorched-Earth” strategy is executed. The Federal Reserve prints up a massive quantity of new dollars, but gives 100% of that money to the Oligarchs. These Oligarchs, the same ones who promised to ramp-up their lending if they could just get a measly, $10 trillion in loans/hand-outs/guarantees have slashed lendingat the fastest rate in history.

So far, this year alone, U.S. bank-lending has fallen by over $100 billion – from the extremely depressed levels of 2008. Thus, not only is U.S. bank-lending falling at the fastest rate in history, but it is doing so from a level which was already far lower than bank-lending, before Wall Street destroyed the U.S. economy. Surprise, surprise, the Oligarchs are back-stabbing the U.S. economy – again.

This begs the question: where is all that money going? The answer is surprisingly simple, given the intentionally convoluted manner in which the Oligarchs conduct most of their “business”. The Fed gives the Oligarchs all of its freshly-printed, Bernanke-bills (at 0% interest). However, instead of lending any of the money (as they promised), the banksters deposit all of it into their own “savings account” at the Federal Reserve (where they get paid 1% interest on all the money they borrowed for free).

The Fed then uses these “deposits” to buy-up every U.S. bond in sight – to artificially depress interest rates, so that the Fed can continue to funnel trillions of dollars (at 0% interest) to the banksters, while also preventing the largest bubble in history from imploding (the U.S. Treasuries bubble) and allowing the Oligarchs to create a second housing-bubble (along with the U.S. government's, sub-prime, zero down-payment mortgages).

At this point, all these U.S. “bubbles” start to get confusing, so let me clarify the situation. The first U.S. housing-bubble was the largest asset-bubble in history – until Wall Street 'crashed' the global economy, and drove an entire world of frightened sheep into the delusional “safety” of U.S. bonds. It must be observed that the bond-market is unique when it comes to asset prices in that bonds have a theoretical limit on how high their price can go.

For those not familiar with the bond market, bond prices vary inversely to interest rates. Thus, if you start with a bond with a nominal interest rate of 5%, if people bid-up the price then the effective interest rate falls. In the case of U.S. Treasuries, the sheep were so panicked that they drove U.S. interest rates on U.S. Treasuries to 0%. This is exactly the same thing as saying that U.S. bond prices have been pushed up to their maximum theoretical price. Obviously, when something is at its maximum, theoretical price, this is the same thing as saying that this bubble has already been inflated to its absolute maximum. There is literally only one way this market can move: lower.

A wonderful “pie-chart” illustrates the massive over-supply of U.S. debt, perfectly. As you can see, the U.S. (with 5% of the world's population) is attempting to steal roughly 2/3 of global savings – in order to (temporarily) prop-up its hopelessly insolvent economy. Given that the U.S. hasn't paid back a penny of its borrowing in 50 years, and has no possible way to pay-back a penny of what it is scamming from deluded creditors today, it is impossible to characterize what the U.S. is attempting to do in debt-markets as anything other than “stealing”.

If that isn't heinous enough, the U.S. Oligarchs and the media propaganda-machine have been on a three-month campaign to sabotage the debt-markets of nations all over the world – for two purposes which can only be characterized as “pure evil”. The banksters are trying to 'crash' the debt-markets of Greece (and several other economies) so that the Oligarchs can make billions in windfall profits from their credit-default swap scams, while (hopefully) simultaneously frightening more sheep into loading up on U.S. bubble-Treasuries (see “U.S. Economic Terrorism the NEW Winning Trade”).

Thus, at the same time that the U.S. government is dumping more supply onto the market than at any time in history, U.S. bond prices were (and are) sitting at their absolute, maximum possible price. As I observed before, elementary arithmetic/economics tells us that when you increase supply then prices must fall. Yet, all we see are more and more bonds being dumped onto the market – while the Fed keeps those bonds propped-up at their maximum, possible price by “buying” (almost) all of them.

This means that there is no doubt whatsoever that the U.S. bond market is heading for a crash which will make the U.S. housing-collapse look like a tea-party. However, neither the Oligarchs, nor the Fed, nor their servants in the U.S. government care about what they are doing to the U.S. economy – all that matters is to prop-up their insolvent 'empire' as long as possible.

In that respect, the banksters aren't troubled in the slightest that by slashing their lending at the fastest rate in history they are more than negating any “stimulus” from the Obama spending-spree. They also aren't the least bit remorseful for creating a second U.S. bubble – to try to prevent trillions of dollars in “toxic assets” from imploding (the same, worthless financial products they have been hiding on their balance sheets since the first housing-bubble imploded).

Not only has the U.S. government created its own, new sub-prime sector (with U.S. taxpayers guaranteeing 100% of that debt, and U.S. Oligarchs standing behind 0%), but the Oligarchs have done their part in this bubble-blowing by holding millions of foreclosed properties off of the market – artificially reducing supply by at least 50%, and causing momentary stabilization in U.S. house prices.

It was never possible that the U.S. housing market could genuinely stabilize at these artificial prices – given that the entire U.S. housing market has to fall at least another 30%, just to deflate the original housing-bubble down to a price level where prices can be stabilized. Among the many reasons why another down-leg for the U.S. housing sector is assured (in addition to the previously-mentioned reasons) is that U.S. “option-ARM” mortgages – the category with the absolute-highest default-rates are now resetting in a massive, two-year spike.

This highest-default category is where most of these mortgage-resets will take place – meaning that millions more foreclosures, and a second down-leg for the U.S. housing sector was always guaranteed. However, by creating a second bubble in the midst of this crash, the Oligarchs have ensured that the next collapse of the U.S. housing market (coming in the next few weeks) will be much more devastating than the first crash.

I have said all along that it was never possible for the Oligarchs to funnel all this hyperinflationary money-printing into only their own, toxic “assets” - without setting off an inflationary explosion not just in the U.S. economy, but much of the world. Ultimately, the banksters are in the process of proving me right – since these desperation-measures fix nothing but do push the U.S. bubble-economy closer and closer to the brink...of what?

I will concede this to the deflationists: if the U.S. government/Oligarch alliance does not alter its current course, then the U.S. is headed for a deflationary implosion much worse than the debt-implosion of the former Soviet Union. However, in that scenario, the banksters' entire paper-empire goes to zero.

As I have demonstrated with as much clarity as I could muster, the actions and decisions of the Oligarchs, to date, demonstrate one obvious theme: they will do literally anything to delay their own (inevitable) destruction. Thus, even though hyperinflation (and the horrific, debt-implosion which always follows) is an even worse fate than simply allowing a debt-implosion to occur today, we can be certain that they have already chosen this course of action.

The most likely scenario for the future (as I see it) is as follows. The Oligarchs will continue with their current fraud-schemes for as long as possible – until the U.S. economy is (once again) only days away from total collapse. At that point (and naturally, without warning), the Fed will “open the floodgates”. It will either continue or (more likely) increase its hyperinflationary money-printing – but instead of it all being hoarded by the Oligarchs, they will funnel it into the economy at the maximum possible rate (i.e. by once again tearing-up their lending standards).

This will generate the “Mother of All Rallies” - as it will be reported by the U.S. propaganda-machine (and as it will initially seem to most Americans). Because the entire U.S. economy will be on the brink of collapse, no one will criticize the hyperinflationary policies, or the eradication (once again) of U.S. lending standards – there will simply be relief that total collapse has been (momentarily) averted.

This “relief” will not last. Despite the fact that the U.S. propaganda-machine will greatly increase the size of its lies relating to inflation, even the most-brainwashed zealot will not believe reports of “5% inflation” for the U.S. - when actual inflation is somewhere between 50% and 500%. At that point, the hyperinflation/debt-implosion nightmare will be “carved in stone”, and the final panic out of the U.S. dollar (and into precious metals) will begin.

Those who have been deluded into holding U.S. dollar “assets” still have one, last chance to rid themselves of this worthless paper – while it remains at fantasy-prices. Don't waste this final opportunity!

Comments (2)Add Comment
Jeff Nielson
written by Jeff Nielson, February 22, 2010
JsJ, you really can divide the world into those people who DO have a basic grasp of "numbers" - and those who do not. Sadly, the two groups aren't remotely close to 50/50 in size.

For those who DON'T, you may have to explain things over and over, for it to sink-in. My own Achilles' Heel is spatial perception - i.e. I'm one of those people who "can get lost in a phone-booth". You can give me very clear directions on how to get somewhere, or very clear instructions on how to put something together (lol), and you might as well be using a foreign language.

If you ever want to take another stab at explaining the basic concept of inflation, here is the clearest way I could describe it.

1) True "inflation" is simply an increase (any increase) in the money-supply, because you are literally inflating that supply.

2) The rise in prices (i.e. "price inflation") is the CONSEQUENCE of monetary inflation.

3) With the exception of goods which are in short supply, nothing can become "more valuable", whether we are talking about a loaf of bread or a bar of gold. Thus, rises in price mean that the "money" we use is getting LESS valuable, rather than any goods actually becoming "more valuable".

As a post-script, in the case of gold, we are talking about a good which IS becoming relatively more scarce - in addition to the effects of monetary inflation on its price.

Both the global economy AND the global population are perpetually growing at a faster rate than the supply of gold - where mine production has not been able to exceed 2% per year. I'll qualify that by saying that there was supposedly an upward "blip" in production this year.

However, with production flat or falling in EVERY major gold-producing nation except China (and with China hoarding all that gold) it is still reasonable to say that gold continues to become relatively more scarce.

In the case of silver, not only is production not keeping up with population growth or economic growth but vast quantities are being CONSUMED every year.

Thus even if you view silver purely as a "commodity" (which I do not), the upside for silver is assuredly going to be better than for gold, and very possibly nearly every other commodity.
written by JsJ, February 22, 2010
People I talk to occasionally laugh at me when I say gold could go to $6000 in a single year. Then I try to explain that it won't be gold coming up, it will be the $ going down. Some people just can't get their head around that. I guess it's nice and comfy to have your head in the warm, dry sand...

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