(LifeSiteNews) –– With three banks dissolving in a matter of days, it is nice to hear from the President of the United States that there is nothing to worry about. A crisis which has seen the collapse of Silvergate Bank, Signature Bank and the 16th largest bank in the U.S., Silicon Valley Bank, is a matter over which the president will not be questioned.
Joe Biden, whose image is now being jokingly used in Russia to advertise dementia care, responded to reporters asking about the curious case of the melting banks by doddering out of the room.
The Leader of the Free world recited a litany of economic success stories from the transcranial device which permits him to repeat the script of his handlers to the press, then left. It was all good news from Joe.
What then from Janet Yellen? The U.S. Treasury Secretary and former head of the Federal Reserve disclaimed any bailouts whilst bailing out the depositors.
Her claim that there will be no bailout refers to the interventions of 2008, which saw failing banks supported with money printed by the Federal Reserve. What has happened is that the depositors – people who put the money in the banks – are indeed being bailed out. The banks themselves are not. This distinction allows for the good news that there will be no more bailouts.
The man in charge and the woman in charge of the banks are acting as if everything is fine. This is obviously a sign that there is something seriously wrong. What is that wrong and where does it come from? Here is a brief guide to the sin of usury and its role in this, and in every other, economic crisis.
What is inflation?
The dollar today is worth about 0.03 cents compared to that of 1913, the year in which the Federal Reserve was created. This means $100 then is equivalent to $3021.92 in today’s money. This is the result of inflation, which is another word for the devaluation of the value of currency.
Inflation and the creation of the Federal Reserve
The rate of inflation since 1913 averages out at 3.14 percent per year. Before the creation of the Federal Reserve, it was 0.4 percent. Though high inflation did occur in the period between the founding of the USA and the creation of the Federal Reserve, it was followed by long periods of deflation, which brought prices back to normal or even lower.
The post-Federal Reserve period sees no such corrections, with falling inflation remaining positive overall. This means that inflation is always “going up” and never corrects completely as it used to.
Why is inflation now permanent?
“The leading cause of high inflation is the willingness of central banks to finance government deficits by printing money.”
This is the purpose of central banking. Nominally independent, they print money for the government to spend. Government debt is also used to make money. Treasury bonds are issued on the market. Backed by the promise of the central bank to guarantee their value, they are effectively shares in government borrowing. They are issued with a shelf life. Treasury bills mature in a year, notes in 2-10 years, and bonds over 30 years.
This is all very well as long as other nations have confidence in your debt. Japan, which held $1 trillion in U.S. debt last October, shocked the markets with a change in policy earlier this year. It bought a lot of debt when it was priced to benefit their strategy of controlling price inflation and lending conditions at home.
The mechanism for accomplishing that depended on one of a bond’s most fundamental attributes: its price and yield move in opposite directions. The lifetime value of a bond is fixed on the day it’s issued, so if you pay more for it, your returns — the yield — go down. If you pay less, they go up.
What has this got to do with you? The Japanese hold more foreign debt than anyone else, and what they do affects the rate at which your currency loses value — and the interest rates you can expect to see used to stabilize this.
Financial institutions base their interest rates, whether on a bank loan or a corporate bond, in part on the expected yields from government bonds. Reducing the market’s role in determining the prices of those bonds, the Bank of Japan figured it would better control lending conditions.
The notes market has posted its biggest drop since 2008, with the money going into bonds. This means the immediate future is uncertain.
Yields have only fallen by such a huge amount during some of the largest crises in U.S. stock market history, including the Black Monday crash of 1987, the 9/11 terrorist attacks in 2001, and Lehman Brothers’ collapse at the height of the 2008 crisis.
Nothing to see here then, and no need for any questions.
China and US debt
China is also divesting itself of U.S. debt. Until last summer, it held over a trillion dollars of it – more than Japan. The explanation for its divestment in U.S. notes – whilst retaining its longer term bonds – is that rising interest rates in the U.S. made them a poor investment. The move to bonds and out of notes is a sign that investors believe the Federal Reserve will not continue with interest rate rises intended to combat inflation.
Meanwhile, China’s economy is described as an “Oasis of calm” amid the fallout over the sudden collapse of three U.S. banks.
Interest rates
The reason interest rates matter is because they determine the price of money. When they are low, money is cheap to borrow, but returns a dividend on cash savings. No one has any cash anymore. They have debt. Inflation “rots” debt – it is good for anyone with significant borrowings (such as governments) as you borrow money at a fixed price, and will repay that sum back in the future when it is worth much less.
This is the reason that currency devaluation – or inflation – is a good thing if you happen to have huge debts, like America, whose debt is in excess of $31 trillion.
Hidden losses throughout the banking system
Reports have emerged that major banks are concealing losses of around $620 billion. These “unrealized losses” result from a dramatic loss in the value of some assets. Which assets might they be, then – and why the loss in value?
The stage was set for potential catastrophe when U.S. banks massively bought Treasuries [bills and notes] and bonds while interest rates were low. When President Biden’s raging inflation kicked in, rising interest rates caused those bonds to decline in value, turning balance sheets on their heads.
Interest rates were raised to stifle soaring inflation. The result was a dramatic loss in the value of assets held by banks – assets which in part guarantee their solvency.
Where did this problem come from?
The Federal Reserve, which will block you for tweeting this meme at them:
As the meme suggests, the Fed did indeed make the money printer go “brrrr” to bail out the banks in 2008, and bailouts reward people for doing bad things.
Imagine a casino which pays back every loser. This removes risk from high-stakes gambling.
They also flood the world with the money you have printed, causing the money to lose value quickly. Or, “inflation.”
All this spells trouble – and that is before we even get to the derivatives market.
The magic of usury
Lending money at interest can seem like an abstract sin. The existence of derivatives – which are just bets on the future value of debts – will disabuse you of this notion.
The total derivatives market is estimated to be one quadrillion dollars, or one thousand trillion dollars.
The world’s debt is bought again and again in the notional form of gambling chips. 1,000,000,000,000,000 of them. The United States derivatives market is estimated at around four hundred trillion dollars.
The fluctuations described above have an effect on these “complex financial instruments,” because interest rates, inflation and money printing all affect the risk and reward of gambling on the future value of debt.
The world economy is a pyramid scheme built on the lending of money at interest. This is managed by central banks, who must find some means to keep the money printer going “brrr” without melting down the economy.
Will more banks collapse?
Probably.
When will it all fall down?
The Federal Reserve can continue to print money indefinitely to service government debt – and to bail out people who make bad decisions – but it cannot expect other nations to continue to guarantee its value. The current debt to value ratio is 420 percent – meaning every dollar underwrites 420 more in borrowing.
The United States is no longer in control of the global economy and a parallel system to the petrodollar looks likely to emerge in BRICS (Brazil, Russia, India, China and South Africa). This means the ability of the U.S. to stabilize its own currency and service its own debts will be curtailed. The measure of raising interest rates to fix a problem caused by money printing – and disastrous economic sanctions – is proving counterproductive.
Confidence in the dollar and its debt is declining. I would not write it off just yet, but bear in mind that the cheerfully named “Dr. Doom” Nouriel Roubini – who predicted the 2008 crisis – has warned “that the recent collapse of Silicon Valley Bank (SVB) poses a risk of ‘global contagion.'”
Dr. Doom thinks this will be limited to smaller banks. He claims the larger ones will be fine – for now. What should concern us all is not collapse, but the “perfect storm of high interest rates and inflation” that is stagflation.