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Between December 2007 And July 2010, The Fed Parcelled Out $Us 16.1 Trillion In Emergency Loans

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The Last Remission

According to the official figures put out by the US government, the economic “recovery” in the US celebrated its second anniversary on June 30, 2011. The “fuel” burned in this “recovery” is immense. Mr Obama’s presidency has ushered in the era of $US 1 TRILLION plus annual deficits riding on top of 0.00 percent controlling interest rates from the Fed. It has also ushered in the era in which almost nothing istraded on the paper markets which is not - explicitly or implicitly - guaranteed by the government.

The fuel to keep the global financial system functioning does not stop at the borders of the US. The “Dodd-Frank Wall Street Reform and Consumer Protection Act” has just produced the first ever “audit” of the US central bank. It reveals that in the period between December 2007 and July 2010, the Fed parcelled out $US 16.1 TRILLION in emergency loans to financial entities all over the world. Almost half of this - a total of $US 7.75 TRILLION - was loaned to four US banks. They were Citigroup, Morgan Stanley, Merrill Lynch and the Bank of America. In July 2010 (the cut off date for this “audit”), total US stock market capitalisation was $US 15 TRILLION. The Fed provided about half of that.

This inflationary explosion is unprecedented in any era. It represents the biggest ever effort to rescue a debt-based system from the ravages caused by its own debt issuing excesses. It has, at best, provided a “remission” for global paper markets. The cost has been devastating for REAL economies everywhere.

A cancer patient who goes under the knife gets the malignant disease physically removed. If all traces of the malignancy are removed, the patient will recover. If all goes well, the recovery will be permanent with no “remissions”. A life-threatening malignancy is NOT fought or cured by doing everything possible to increase its power and potency. Yet that is what financial authorities in the US and everywhere else have been doing in regard to the life blood of their economies. As this stark fact becomes ever clearer, Washington DC and Wall Street stand helpless before the fact that they can only cure the economy at the cost of killing the financial system which is feeding on it. It’s that simple.

Ludwig von Mises describes the endgame brought on by reckless expansion of credit: "There is no means of avoiding the final collapse of a boom brought about by credit (debt) expansion. The alternative is only whether the crisis should come sooner as the result of a voluntary abandonment of further credit (debt) expansion, or later as a final and total catastrophe of the currency system involved."

Still I'm sure this time it will be different. I mean surely they've learnt from the past?

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The Von Mises quote is timeless, eloquent and powerful. Here's another favourite of mine, from 2001. Only the 'bugs will know who wrote this:

"My friend, debt is the essence of fiat. As debt defaults, fiat is destroyed. This is where all these deflationists get their direction. Not seeing that hyperinflation is the process of saving debt at all costs, even buying it outright for cash. Deflation is impossible in today's dollar terms because policy will allow the printing of cash, if necessary, to cover every last bit of debt and dumping it on your front lawn! Worthless dollars, of course, but no deflation in dollar terms!"

If you're inclined to find out who wrote it, then prepare to go down the rabbit hole for a second time.

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However, the current situation is rather complicated. The economic system has gone critical – it has reached point from where there is no turning back. The worst part is that the system cannot self-organise. “Normal” business organisation typically means that if you are doing business and make wrong decisions in a particular economic environment, then you should also suffer the consequences. In other words – if a bank has made bad loans, then we should let it fail. Failure is part of capitalism. Individuals and businesses that have deposited their money in this bank and, therefore, made a wrong decision, should also lose their money. Simple and logical, this is what capitalism is all about.

Unfortunately, governments and central banks do not want to accept that. They think that trying to feed a dead horse will bring it back to life. And if it won’t revive, then it has to be fed even more. They can vividly remember that when the horse was running strong, it had a good appetite. So the endless bailout packages are not going to revive the economy. Unfortunately, the system can no longer recover through normal pain – the Schumpeterian “creative destruction”. Instead, the result there will be a long period of excruciating suffering – a systemic implosion.

More at the link.

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I'm increasingly inclined to believe that this is what they will do - they will print more and more to settle debts thereby increasing the amount of base money.

But rather than letting inflation fly to the moon, they may also let rates rise to constrain the credit creation process. This is not how the authorities currently envisage things.

So effectively, we end up back at a more normal proportion of money being base (as opposed to just 3%) and interest rates back to more 'normal' levels.

I don't think this will be considered a 'plan' as such...the 'plan' will be created in hindsight from what they do.

Haha - I like the last sentence.

I wonder how base rates can rise while QE remains. The CBs state that QE came about because policy had nowhere to go once the base rate hit 0.5. How do they reverse that and pervert the logic without frightening the asset markets?

Say there is a commitment to raise the rate over time - ordinarily the stock markets would decline while currency rises, both of which run counter to the intention of QE.

I suppose you reckon they have enough authority to strike a balance. A pure gamble on their part.

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I'm surprised this extraordinary news item didn't get more attention. 16 trillion dollars, out of THIN AIR.

Are we that desensitized? Do people really believe a crisis of this magnitude is manageable? 16 TRILLION!

Ohhh no does that mean that house prices wont crash because theyre injecting cash out of think air to prop the market up ...

like they didn in 2008 ???

Its not fair... Im waiting for house prices to crash in this same out of thin air money


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Ohhh no does that mean that house prices wont crash because theyre injecting cash out of think air to prop the market up ...

like they didn in 2008 ???

Its not fair... Im waiting for house prices to crash in this same out of thin air money


Quite a few of us on this forum came to this conclusion quite a while ago.

I was a massive bear back in 2006/7, to the extent that I STRed. Eventually my wife nagged me to buying back in as she was tired of renting, and fortunately we picked up a very large house for a considerable price drop in 2009. Since then on paper at least, and from the fact that a neighbour has sold at a 2007 peak price this year, I get the impression the valuation in the SE are round where they were in 2007.

So they are still massively overvalued, but in real terms they are lower. The way this will play out is through inflation, houses will stay relatively static, but everything else will go up. Eventually wages will need to rise, as people start refusing to work unless higher salaries are paid.

Although in terms of the financial disaster this is like the 1930s, the monetary authorities learnt from that one out, so infact this will be more like the 1970s. Expect a period of strikes etc, and then pencil in a new boom for sometime around 2016. Of course it won't be a real boom, just one fuelled by cheap debt and excess borrowing.

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  • 444 Brexit, House prices and Summer 2020

    1. 1. Including the effects Brexit, where do you think average UK house prices will be relative to now in June 2020?

      • down 5% +
      • down 2.5%
      • Even
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      • up 5%

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