The FED chose to solve the problem of too much debt by creating even more debt by taking the unprecedented action of buying it’s own debt under euphemisms like “quantitative easing” and “debt monetization” and also covert buying to artificially force negative real return rates of interest. Through this course of action, the FED so far has been able to turn what would have been a rapid deflationary collapse into a decaying inflationary depression which is euphemistically called “a recession that is now over”. Words: 955
In further edited excerpts from the original article* Craig Harris (www.earthblognews.com) goes on to say:
1. If the FED doesn’t buy enough of their own debt, then interest rates on the long end would rise and the risk becomes a deflationary collapse into insolvency for the FED and it’s banking system.
2. If interest rates remain effectively at zero on the short end and artificially suppressed by quantitative easing on the long end, then the real estate market can recover and the banks can regain solvency.
3. If interest rates rise as the free markets would argue for however, then the real estate market sinks even further, the US dollar rises, and greater insolvency of the banks follows. The higher interest rates go, the thinner the knife edge gets and the FED would quickly find itself staring into another October 2008 collapse kind of situation.
4. On the other hand, if by buying enough of their own debt they can keep short and long term interest rates down, then the free money percolates through the banking system, puts pressure on the dollar, lifts commodity and real estate prices and pulls out of the collapse via inflating away the debt so long as they can avoid run away hyperinflation in the process. This is the path we have traveled throughout 2009.
The key point is that the FED has had the option of doing two things:
1. Creating even more debt in order to save itself and the banking system, or
2. Doing nothing and watch themselves collapse into a mass of failure, loss of power and control, insolvency and domino style bankruptcy and default.
They have chosen the expected course, which is to increase the debt and print money, which is the way they save themselves and their banking system.
In short, given a choice between saving the people and saving themselves after a collapse, they have taken the expected course which is to attempt to save themselves. What else would you expect? If they had wanted to save the people they would have taken the peoples’ bailout money and handed it to them in the form of a check. Instead they handed it to the banks.
Although they have been somewhat successful in reducing the insolvency of the banking system, they have effectively created a giant wealth transfer mechanism whereby all the money that disappeared in the collapse was re-created out of thin air and given to the banks and Wall Street. I think of it as a sort of shell game. The money disappeared from Mom and Pop’s 401k and re appeared on the balance sheets of the banks via freshly created new money (debt). As a result, we have something still called “free market capitalism” which is not free market capitalism at all.
We have emerged from this crisis with a sort of financial oligarchy where a few entities who control all the wealth and power also control politics and media. Understanding this will help to understand issues like “healthcare reform” which will involve you paying more and getting less, with the primary beneficiaries being the oligarchies who control health care and insurance.
The one major point I have to make at this time is that throughout 2009, there was no action taken that put the average citizen in a better position, but instead during the course of the year there was a gigantic wealth transfer from the citizens to the banking system, effectively orchestrated by the so called “people’s representatives” who are in fact, all owned by the banking system and Wall Street with half a dozen or so oligarchies and lobbyists in a public display of fraud, malfeasance and corruption that sets a new historical precedent.
I have been and remain of the opinion that the ultimate “solution” to this crisis will be for the entities who now control the wealth and power to accumulate even more wealth and power via a global central bank and global currency which now for the first time in public has been discussed on and off throughout 2009 and described as the New World Order by such luminaries as Henry Kissinger.
Looking out beyond 2010, I see a new global reserve currency emerging and a global central bank which will effectively also be a global governing authority where the heads of state effectively report to the group of central bankers and their anonymous shareholders who effectively control the money, power and politicians on a global scale.
When the global currency is introduced, only then do I expect a sort of collapse of the US dollar versus this global currency. In this way, the world can carry on while the former global reserve currency called the US dollar will be free to depreciate to a level where solvency is regained and the now unpayable US debt is inflated away to the point where it can be repaid in depreciated dollars.
US citizens will experience a continued decay as the US becomes to resemble more and more, a third world country. Detroit is already there.
– The above article consists of reformatted edited excerpts from the original for the sake of brevity, clarity and to ensure a fast and easy read. The author’s views and conclusions are unaltered.
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