It Takes Inflation to Make a Bubble

October 15th, 2012 → 5:32 pm @ // No Comments

Welcome to the World of Too-Big-To-Fail-Bailouts, Ballooning Sovereign Debt Bubbles,
and the Big Bang Theory of Fiat Currency

The Debt Bubble had burst, and suddenly the US Taxpayer was
going to have to pony-up and bail out the banks. The public was told
that it was their fault for living so far beyond their means and buying
things they could not afford. They were informed that it was poor
performance by borrowers that had been the cause of the dilemma.
They were told that it was going to be the-end-of-the-world-as-we know-
it scenario, if the financial institutions were not propped up, since
they were so crucial to the economy, that they were too big to fail.
What convincing rhetoric that was. No one had heard the likes of it
before. It sounded so grave and so important that it had to be true. In
addition, what was being asked for was so enormous, that it really had
the ring of actually being the conceivable size of the price tag to fix it all,
when everything goes wrong at the same time.

That was just the first round. It was announced shortly thereafter
that the situation was worse than had been suspected. It was broadcast
how the delicate markets had been so hard hit that there had been a
spillover effect in other sectors of the economy and how a feared crash
of the U.S. economy was shaking the economic confidence of markets
worldwide. In other words, the public was told that this was again
about to become the financial apocalypse.

More banks needed rescue, both at home and abroad. It was not
just banks that needed rescue, but businesses, and government, and the
Federal Reserve System, known as “the lender of last resort,” was just
the entity to do it. There would of course be the usual exchange of
securities plus the customary payment of interest as allowed by law.
Still that wasn’t enough. The search for the guilty found no one in
particular to pin the whole mess on. The discount mortgage
underwriters and big banks, which being sure of governmental
guarantee of insured deposits, made untold billions and billions of
dollars in shaky loans and caused the whole solvency crisis in the first
place, went un-prosecuted for fear of speeding up the pace of economic
implosion. Even when convictions of wrongdoing were obtained against
some of the most flagrant violators, the fines levied were infinitesimal
compared to the profits made and were paid off as simply part of the
cost of doing business. Giant financial corporations would
simultaneously offer bundled investment products like Mortgage-
Backed Securities, but would sell Credit Default Swaps which would pay
off upon the default of the same paper and hedge their earnings by
betting on both sides. Anything the big banks wanted to do seemed to
be the new way of things.

The paralyzed, or in large part, uncomprehending U.S. public
witnessed the nationalization of industry, including the takeover of
General Motors, now disparagingly referred to as Government Motors.
Contractual agreements between labor unions and management were
abrogated in favor of government bailout and nationalization.
American consumers were given the opportunity to turn in their old,
already-paid-for family car and get a healthy rebate in the form of the
“Cash for Clunkers” program, provided of course, that they helped to
fuel the economy through purchase of a shiny new ride with special
subprime financing for new vehicle buyers.

First-time home buyers were handed healthy Home Buyer Tax
Credits as incentive to invest in a piece of the American Dream. The
debt-strapped public was offered stimulus-package-backed ways to
avoid foreclosure and modify upside-down mortgages, in the form of
several rounds of government backed mortgage re-finance plans.
Including but not restricted to programs such as, HAMP, HARP,
Mortgage Write-down, Delayed Foreclosures, Government Support,
“Operation Twist,” Zero Interest Rate Policy (ZIRP), and even
“Fraudclosure” settlements, the “recovery” has been built on the
teetering stack of taxpayer-funded bailouts, tax credits and incentives.
The final tallies of the debt shortfalls that all of these patch programs
have attempted to treat are still not all in and may not be understood
for years.

We now have the benefit of hindsight to be able to see the futility
of all of these solutions that have been offered to boost the lagging
economy. No amount of stimulus money or bail-out even begins to
address the underlying cancer of debt. The crisis is a solvency crisis, and
part of insolvency is not having the ready capital, or liquidity, to make
purchases with. It has been ruffled-feather-`smoothing euphemism to
refer to it as a liquidity crisis.

Taking the easy liquidity path of Quantitative Easing, the Federal
Reserve is printing money like it’s going out of style. That’s because it
is. The Fed is not alone, as the major economic powers of the world
embodied as the eight largest central banks (the Federal Reserve, Bank
of England, the ECB, Japan, China, Swiss National Bank, Banque de
France, and Germany’s Bundesbank) speed along together on the road
to currency debasement as they all attempt to out-print each other. At
the same time the central bank purchases of commodity gold and silver
are accelerating unseen by the public eye.

The socialization of debts and privatization of profits can be
attributed to the prevalence of government absorption of private
financial industry losses, ease of borrowing from the Central Bank, and
the lack of regulation limiting conflict of interest, like the cross-over
between commercial and investment banking after the repeal of Glass-
Steagall. The part lawmakers have to share in the blame cannot be
understated, but may at least be understood since the most powerful
lobbyists in Washington are in the financial sector, and have paid
hundreds of millions to Congress and the Obama Administration.
In a Huffington Post article, Dan Froomkin writes,
“All this money makes Obama’s top financial advisors veritable
poster boys for the Wall Street culture that the president in his
speeches has publicly decried as a “house of cards” and a “Ponzi
scheme” in which “a relatively few do spectacularly well while the
middle class loses ground…I’m not doubting the smarts of Obama’s
financial team — but I do feel that the vast majority of people who take
the kind of money we’re talking about here can’t help but be warped by
it, and that in choosing to cash in, they essentially disqualified
themselves from public service.”

Lobbyist money has long played a definitive role in the influence
banks exert over legislation and have historically paid despicable sums
to congressional financial committee members. There is a discernible
tendency for favoritism in congress toward certain monopolistic
corporations and sectors, particularly the financial sector. The most
blatant collusion between government and private corporate interest is
the special conditions enjoyed by the private central bank, the Federal
Reserve System, as is evidenced by the Fed’s fattened coffers. The
recent increase in Federal Reserve assets will be welcomed by the
shareholders who receive the statutorily mandated six percent in

The Fed, along with all of the western central banks, has enlarged its
assets through debt making before, during, and since the onset of the
debt crisis. The vast amount that has gone to bail-outs has helped
balloon the National Debt to dizzying new heights with loans from the
Fed. In a world of socialized losses, the debt been dumped on the

Desperate to maintain trade advantage, the central banks of the world
are all locked in a death-race with the Fed as it rapidly approaches the
brink of the abyss. It is as if while knowing that the present course
cannot end up anywhere other than directly off of the cliff, none of
them have a choice. To cut government spending and the subsequent
ballooning of their respective national debts would gain the unwelcome
attention of the masses who would suffer in the subsequent
deflationary depression. Such high visibility would heave open for
inspection the flagging curtain which is now barely veiling the
mechanism whereby the central banks have exponentially increased
their assets up to this point. Heads would roll, so that’s not going to

It is logical to assume that they have another plan. The first stage of
the plan is to keep things the way they are as long as possible. There is
still copious profit being made which must continue to be made as long
as possible. There is also a reckoning to be avoided for as long as
possible. It is entirely in the favor of the central banks and surrounding
corporations to keep the truth under wraps as long as possible They are
not showing any signs of flinching yet and are holding their course at full
speed. Things are still working out well at the top and in what has
become a global game of musical chairs, the central banks will continue
on their present course until the last minute when the music stops and
all players rush for the remaining seats provided by commodity money

Following a return to the commodity-backed currency, those who
had been able to print unlimited “assets” in the free-for-all pure fiat
money-fest world will return to the next best thing. They will seek to be
able to dictate commodity money prices as they harness and control
sufficient commodity money resources so that they can increase or
decrease its supply as desired. The central banks operate as though
they expect that they will always maintain their enshrined positions at
the top of the financial food chain. They maintain the appearance that
the crisis is over, that everything is fine, that they are in charge, and that
it will always be so. The truth could not be more opposite. The
aggregate truth is that the crises are not over; they are just beginning.
Nothing is fine while private central banks are in control. The truth is
that they only thought they were in control, and it’s all in a state of

Like a technically defeated but not vanquished chess king that
repeatedly escapes being in check by defiantly moving one more space
and postponing the inevitable checkmate, the un-surrendered western
empire is inevitably closer to being cornered. The game is almost over.
The game is power and money. The power must go where the money
goes…and the money is flowing east. The West has debt in the East.
The bill is disproportionately large and getting larger and the payment
of the bill is due. The debtor owes more than can be repaid even if
everything was handed over to the creditor. The debtor has more of
everything, uses more of everything, wants more of everything, and
owes more than anyone. There is an imbalance.

Any imbalance will seek equilibrium. It may never actually be
found, as perfect equilibrium is only possible in theory. A pendulum
may never rest at perfect equilibrium as long as any force, no matter
how imperceptibly small acts upon it, but it will always seek to do so. If
imbalanced forces have temporarily overcome its tendency to center
itself, and have held a pendulum to one side, it will never cease in its
potential to swing to the other side. As soon as it escapes what is
holding it, the pendulum must swing.

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