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SGM Precious Metals: FED Paying Banks Not to Lend to Public, Explains Weak Recovery
The FED boasts about controlling inflation through the bailouts & QE infinity, but its pretty easy when you forbid a single dollar from being lent to mainstreet. Soon enough this wave of inflation will wash over & change the landscape of the nation.
By: SGM Precious Metals & The Elemental Economist
In Oct. 2008, just as the last financial crisis was starting, Bernanke announced the Fed would start paying interest on the reserves that banks keep at the Fed, causing an explosion in the size of bank reserves. In 2008, US banks had less than 2 billion dollars of excess reserves parked at the Fed, today there is more than $1.8 trillion. In less than 5 yrs, the excess reserves has gotten nearly 1,000 times larger.
This explains why the crazy money printing by the Fed has not caused tremendous inflation yet as most of it has not yet gotten into the economy. The Fed has been paying banks not to lend it out. When this money comes into the economy, we could see an a massive tsunami of inflation.
The longer that the Fed continues to engage in QE & pay banks not to lend that money out to the rest of us, the larger that inflationary time bomb is going to become.
In a recent article for the Huffington Post, Professor Robert Auerbach of UT explained the nightmarish situation that we are facing…
One reason that the excess reserves grew to an extraordinary level is that in Oct. 2008, one month after the financial crisis when Lehman Brothers went bankrupt, the Bernanke Fed began paying interest on bank reserves. Although it has been 1/4 of 1% interest, this risk free rate was not low compared to the Fed’s policy of keeping short-term market rates near zero. The interest banks receive is incentive to hide the excess reserves rather than lend to the public in the risky environment of the major recession.
The Fed created a $1.863 trillion time bomb of excess reserves in the private banking system. If rates of interest on income earning assets (including bank loans to consumers & businesses) rise, the Fed will have to pay the banks more interest to hold their reserves.
So the Fed has painted itself into a corner. If the Fed keeps printing, they continue to grossly distort our financial system & the excess reserves time bomb just keeps getting bigger.
But even the suggestion that the Fed would begin to “taper” QE caused the financial markets to throw an epic temper tantrum in recent weeks. Interest rates immediately began to skyrocket & Fed officials did their best to try to settle everyone down.]
The establishment hides behind this fact & argues that the “gold bugs” are stupid for worrying about inflation & holding precious metals as an inflation hedge is foolish. I can assure you that this is not a stupid concern because the inflation threat is everything that it has been projected to be, with one huge exception. The fact covered above in that the inflation has been dammed up inside the FEDs bowels so far. But that inflation threat is far more dire as the gradual increase in the volume of inflationary dollars that would have caused consumer prices to gradually creep upwards has been kept at bay thus far. But when the next major shock to the economy manifests these banks who have been able to store trillions of inflationary dollars in interest bearing accounts in order to starve the economy of these funds will rush to dump them into the economy all at one time to absolve themselves of the consequence of holding them as they plummet in value. This will result in the public who has been starved for liquidity drowning in those inflationary dollars which will surely cause a panic to rid one’s self of these paper dollars as they rapidly lose purchasing power which will cause consumers to rush to exchange them for items of value before the fading demand renders them near useless.
Just because reality has been distorted for this long doesn't mean they are omnipotent & will be able to keep the free market forces at bay indefinitely. Other nations are not disillusioned about what the future holds when those TRILLIONS of hidden dollars get dumped onto the street & what harm it will cause to their national interests as they have seen this happen many times throughout history & it ALWAYS ends the same way. It ends with the absolute devastation of the nations wealth, inconceivable convulsions in the economy & the collapsing of personal wealth for those who are holding their entire life savings in the paper currency that has met its end & the derivative investment tools created by the bankers.
For that reason, other nations have begun to make preparations for the coming crisis when the USD begins its fall from grace. These preparations started quite covertly after the bank bailouts started but have become obnoxiously obvious in the past year as the nations are clearly seeing the signs of the great lie crumbling & the looming consequences rapidly approaching. Nations immediately began to quietly divest themselves of US Treasuries at a gradual pace which accelerated as they watched the FED gradually shift to more suicidal monetary policies as each prior attempt to artificially create a recovery failed to take hold. The most recent obvious signs of preparing for this are the massive purchases of gold by central banks & nations to the tune of HUNDREDS OF METRIC TONS.
The banks who are complicate in the FEDs '3 card monty hide the inflation game' are now rushing to cover the naked precious metals COMEX futures contract shorts they have used for 2 decades to suppress the appreciation of gold & silver. The COMEX market has been used for far too long to offset the buying demand & inflation adjustment of gold & silver through their ability to write naked selling contracts but these tools of corruption used to deprive gold & silver of their elevated value are quickly becoming a losing venture for the banks. For this reason the banks are abandoning the suppression game in hopes of reversing their empty vaults by acquiring the one asset that will rapidly appreciate when the dollar begins to fall from grace, physical gold & silver bullion. But first they must satisfy these naked contracts by purchasing the bullion needed to close the contracts which is why we have seen both gold & silver rally after dropping weeks ago.
As these desperate banks rush to cover their buts we will see the price of metals continue to trend upwards over time, but when the public begins to see the increased demand for gold & silver being led by those who have bashed these assets for decades it will make it clear that there is a rush for the exits & the hysteria will begin. Will you be the one who acquires it now & watches the hysteria come to you or will you be one of the confused herd of investors who waits for Jim Cramer to tell you to buy your life insurance policy to protect your life savings? Tick, tock.