QE2/IOR/ Inflation
I am about to commit a serious heresy through oversimplification, but here goes.
The media is not talking about this at all. It’s funny because the 1 trillion bank bailout was front page news. I never heard of IOR until I looked into QE2. Of course, all the bankers are laughing all the way to the bank, their bank. Imagine a failed banking system due to their own bad judgment on some pretty bad loan risks on derivatives and loaning money to people who no intention or way to pay it. The world was in a mess financially. FR steps in to stimulate the economy. They bail out the banks and insurance companies to the tune of 1 trillion dollars inflating our currency beyond belief to stimulate the economy. But the FR has a bad problem; bank reserves are low. They invent IOR to solve that problem. Only no one realized how well they solved it. Would any banker, let alone anyone else with half a brain loan out their reserves if they were getting a ¼ point to keep their reserves locked away? Not on your life would you get a banker to make risky loans in a bad economy when they can make ¼ point on keeping the money in a vault. Meanwhile QE2 program starts up with a 600 Billion buyback of the treasuries to stimulate the economy without removing the IOR program. QE2 is on its way to 2 trillion dollars on major inflation to our currency over the next 1-½ years. If the FR is successful, it will own more of its treasuries than China at the end of the program. But the goal is to stimulate the economy by having the banks lend the money out to America. With IOR in place, this makes not sense because there is no motivation on the bankers’ part but to let the money sit in the vault and earn a safe rate for sitting there. If the bankers do lend the money out, they are more likely to lend it overseas where labor is cheap and they can get a decent rate of return for their dollar than to lend it inside America where labor is sky high. So at the end of the exercise, inflation is ratcheting up in America at a record pace, the dollar is worth nothing globally, and unemployment is still at 10% minimum, but the banks are rich from double dipping and that is what matters, evidently.
The media is not talking about this at all. It’s funny because the 1 trillion bank bailout was front page news. I never heard of IOR until I looked into QE2. Of course, all the bankers are laughing all the way to the bank, their bank. Imagine a failed banking system due to their own bad judgment on some pretty bad loan risks on derivatives and loaning money to people who no intention or way to pay it. The world was in a mess financially. FR steps in to stimulate the economy. They bail out the banks and insurance companies to the tune of 1 trillion dollars inflating our currency beyond belief to stimulate the economy. But the FR has a bad problem; bank reserves are low. They invent IOR to solve that problem. Only no one realized how well they solved it. Would any banker, let alone anyone else with half a brain loan out their reserves if they were getting a ¼ point to keep their reserves locked away? Not on your life would you get a banker to make risky loans in a bad economy when they can make ¼ point on keeping the money in a vault. Meanwhile QE2 program starts up with a 600 Billion buyback of the treasuries to stimulate the economy without removing the IOR program. QE2 is on its way to 2 trillion dollars on major inflation to our currency over the next 1-½ years. If the FR is successful, it will own more of its treasuries than China at the end of the program. But the goal is to stimulate the economy by having the banks lend the money out to America. With IOR in place, this makes not sense because there is no motivation on the bankers’ part but to let the money sit in the vault and earn a safe rate for sitting there. If the bankers do lend the money out, they are more likely to lend it overseas where labor is cheap and they can get a decent rate of return for their dollar than to lend it inside America where labor is sky high. So at the end of the exercise, inflation is ratcheting up in America at a record pace, the dollar is worth nothing globally, and unemployment is still at 10% minimum, but the banks are rich from double dipping and that is what matters, evidently.
posted by Mike Liesveld @ 3:32 PM
0 Comments:
Post a Comment
<< Home