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Stealth Monetization in the U.S.A.

Take a step back, and you get the picture: The Too Big To Fail banks are the sewer system by which the Federal Reserve supplies money to the Federal government for all its deficit spending. This is stealth monetization. It’s not even particularly stealthy, actually—it’s happening right out in the open. It’s just that nobody is pointing it out—or perhaps because it is an obscure, complicated system, nobody has realized what it actually is. But it’s monetization, pure and simple. The Fed is printing up all the money the Federal government wants and needs. To put it more bluntly—and disturbingly—the pedophile is in the room with Dakota Fanning. One of the pernicious effects of this stealth monetization is the dis-incentive it gives banks to lend money to small- and medium-sized businesses. Everyone—including the Fed—is complaining that the banks aren’t lending to businesses. But I don’t know why they’re complaining—it makes perfect sense. See, the TBTF banks get money for free from the Fed, and then they turn around and lend it to the Federal government by way of buying Treasury bonds. Treasury bonds are paying absurdly low yields, because they’ve been bid up so high by all those freshly minted dollars that the Fed printed up. But to the TBTF banks, it doesn’t matter how low the Treasury yields are—it’s still guaranteed profits. Lending money to the Federal government is totally safe. But a loan to a small- or medium-sized business? It’s a risk—and a risk for only a slightly higher profit. The business might miss a payment, or even go broke. Plus it’s a hassle, to lend to a busines—all that administrivia! The paperwork, the loan applications, the due dilligence—blah-blah-blah-blah! “Screw it,” say the TBTF banks. “Let’s just buy Treasuries.”

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