Stealth Monetization

derryb

Gonzola Strikes again. Excellent presentation and explanation of how the Fed is feeding Washington all the money it wants. Explains a lot of the demand for PMs.

Gonzola Lira

roadrunner

But in most cases—all cases, actually, regardless of what the tin-foil hat brigade might rant—fiat currency works like a charm. The proof of this is the last 40 years: All of the world’s major currencies have been fiat since at least 1970. The dollar has been fiat since 1973, and by certain definitions, fiat since 1933, or even 1913—and it’s still around. That’s been because of the Federal Reserve (the U.S.’s name for its central bank).

While I generally agree with the pts in this article I don't agree with that idea that fiat works as long as CB and Govt are kept separate. When has that ever been true in any case? It's basically saying as long as the US govt acts with austerity in all their budgetary and financial dealings that fiat is ok. Does anyone really believe that the US govt and FED have been separate since 1913 and that austerity has been in effect for more than 4 minutes in the past 40yrs? The last comment below the body of that article addresses the 40 yr reign of fiat. Historically, most fiat systems don't survive past 40 yrs. We're at 39 as of August. We were still paying out gold to Europe up untl 1971 so in effect we have not been on pure fiat any longer than 40 yrs regardless of what the author thinks. Gold was playing a key role up until 1971 and the US was shoveling it away in return for dollars. One only has to look at hard asset inflation before and after 1971 to realize something radically changed at that point.

There is at least a 3rd stealth leg of monetization not mentioned in the article and that is the buying of treasuries or other debt via overseas/hidden sources. One only has to look at the chart of the FED's foreign custodial account which is constantly growing at an increasing rate...an extra TRILLION in the past few years. Unless I'm mistaken this is debt. I also believe there is a 4th leg associated with otc derivatives as in many ways this stuff acts like cash/credit for the big banks to go out and create more loans. It's a stealth monetary system unto itself. At a nominal 30-1 leverage this is an $16 TRILLION money supply in the US along, and probably about $100 TRILLION world wide....effectively at least doubling or tripling the world's money/credit supply. The Treasury has also bumped M0 by $1.2 TRILL in the last 2 years. That money won't ever be removed but will eventually filter out.

US bank credit has been expanding since early this year

roadrunner

pmcollectour

<< <i> Historically, most fiat systems don't survive past 40 yrs. We're at 39 as of August.

roadrunner >>



And this is one of the most compelling reasons why a move into PM's now is a sound decision by anyone in the know.

pmcollectour

That’s how the American government’s massive deficit is sucking up all the available funds. Why bother lending to the private sector, when the Federal government is paying good interest on the Treasury bonds, and the Fed is lending an endless supply of money for free?

This is why private-sector businesses are not getting any loans, no matter how long the Fed keeps interest rates at rock-bottom levels—the Federal government is hoovering up all that money, leaving the private sector with nothing, not even lint.

goingbroke