Dark Skinny

Here is a fairly simple description of how - by the wondrous banking mechanism known as “Fractional Reserve Lending” - $700 Billion(The Paulson Plan) turns into $70 Trillion by a simple wave of the Fed’s magic wand.

Fractional Reserve Lending(FRL) is used by all banks these days - but usually with strict discretion. This is how banks make so much money. However, The US Treasury and particularly The Fed and its printing presses continually over-uses this banking mechanism to the extreme. The Fed can do this because they keep the interest rates low artificially. It’s quite simple and works like this - Say China wants to buy $1 million of US debt in the form of Bonds, T-Bills etc. So the Treasury issues the T-Bills via the Fed. The Fed gets the Chinese payment and is then allowed by US banking law - and the mechanism of fractional reserve lending -  to generate 9 X $1 million out of thin air via the use of their over-worked printing presses. The money generated from the T-Bills and T-Notes is supposed to be used to pay back the massive US Fiscal Debt. Nope, doesn’t happen. Instead the now $10 million is lent out at artificially low rates to all the US banks and financial institutions - and when these banks get their share, they can also multiply it a further ten times using the same FRL mechanism - for personal and business loans to the public at much higher lending rates.

So now let’s now talk about the $700 billion Bail-Out. The minute The Fed gets that $700 Billion, it then - with staunch help from their printing presses and their magic wand (FRL) - gets multiplied by 10 and becomes $7 Trillion. Ah, but then when the Fed gives out this money as a low interest “loan”, the receiving financial institutions can also multiply this by 10 again using FRL - so the final Bail-Out will suddenly become $70 Trillion dollars. Hey Presto !! Easy credit isn’t dead is it ?

To give you an idea of how big the $70 Trillion is - The current unmanageable US fiscal debt is only about $60 Trillion now.

Oh…and The Fed charges the government about 2.2 cents on the dollar to produce these greenbacks - so The Fed makes a clear profit (since The Fed itself pays not one cent in govt  tax) off the government and therefore the taxpayer of about $13.9 Billion dollars for creating all these federal notes off the taxpayers own money !! It’s almost laughable isn’t it ? Almost.

And so what will the effect be through the inevitable inflation on the ordinary Mainstreet citizen when the US markets and economy is suddenly flooded with $70 trillion ? Yet another huge “inflation tax” on its people ? And Wall Street is saved ?

It’s a Mainstreet massacre.

I quit.