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What is the Real Effect of Borrowing and Printing Money – But Not Letting People Get to It?

09.02.2009 · Posted in Finance Articles

Seems like there is a river of money flowing and headed for the falls. Hundreds of billions for corporate welfare. Short term interest rates at record lows. Mortgage rates are still better than any time over the past 30 years.nnIt sure sounds like cash is everywhere. So why are so many individuals, businesses, and corporate giants going broke? And American home foreclosures just keep rising.nnThe money rain has been torrential but the banks built a dam and the level is rising dangerously. To be sure, there are some leaks here and there but the watchkeepers are sleeping through the alarms. When it finally breaks the overflow is going to be inflation that rivals developing nations. And it is going to go over a Niagara Falls into an abyss of future obligation.nnLook closely at the consequences of near 10 per cent unemployment (double that if you use the statistical methods prior to the Clinton administration) and you will see that they are breathtaking. Assets and cash flow are seriously deflated because the capitalist engine is nearly out of gas. Unemployment is nearly 10% and underemployment of skilled workers just trying to survive is higher than ever. President Carter’s economy and the Great Depression are the closest comparisons.nnEven governments are squeezed. California is issuing IOUs and other states are shutting down for longer and longer periods to ease the pressure. Being a government employee just does not provide the security it once did. nnIt seems that it does not matter where you put your money. Though the free fall of real estate appears to have braked, homebuyers are still having a tough time getting mortgage money. And the equities market is still a roller coaster ride that is just too thrilling for many investors.nnBond trader pros are saying that the Fed is printing money just to keep the interest rates low. This is a long-term policy that is guaranteed to keep the economy anemic if not on all out life support. Until recently the US could console itself in the knowledge that all the other major world players were doing the same thing. Some of them are showing signs of solid recovery now. The reason? They did not sign on to a stimulus policy, took their bumps and the markets are recovering.nnSo what do the bankers do? Well, it seems they have decided to keep the tax dollars given to crank up the economy and instead use them to buy other banks. Opportunity like that just does not come along very often for sure and when people don’t have jobs and assets are depreciating why not?nnSo the Fed is printing money, the government is madly borrowing, and all that cash is dammed up by the bankers. But they are going to eventually have to open the gates to avoid serious stagflation. When they do we will all be experience what, thus far, “developing” countries regularly see when their economies are grossly mismanaged – very high, if not hyper, inflation. Grab a paddle and try to stay above water.

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