Dollar Devaluing as Cost of Bad Bank Loans: Who Pays?

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“The central fact is that there is huge bill waiting to be paid for the losses created by Bank misbehavior. That bill is coming due every month in installments that amount to a devaluation of the dollar, raising prices for all Americans, endangering the dollar’s position as a reserve currency, thus further putting the country and taxpayers at risk of higher taxes and higher expenses, and requiring homeowners, who were deceived no less than the investors by Wall Street to shoulder the bulk of the housing implosion.”

“The fact remains that the values used to justify the loans were wrong, intentionally inflated in order to justify the fees that Wall Street took and bonuses they paid themselves. The balance of the credit derivative market leaves us the choice of either letting the mega banks fail based upon the real values as they currently exist or continuing the pretense which requires the homeowner, the taxpayers, the businesses, and the government budgets and pension funds to accept most of the loss.”

Editor’s Comment and Analysis: While we were sleeping, the Federal reserve, whom virtually nobody understands, is gradually inflating the quantity of dollars as though the economy was booming. But it isn’t booming. So the inflation is simply a gimmick to allow the TBTF banks to continue their existence as though they had any value to the economy as a whole. They don’t have any added value. Not any more.

The reason for all this activity in a realm beyond the understanding of ordinary citizens (whose votes might well be effected by these policies — if they knew what was happening) — is the fact that credit derivatives — cash equivalent proprietary currency — now equals 12 times the amount of public currency.

Although used as private currency they are all legally convertible into public fiat money. True the synthetic derivatives are “nominal” in value collectively because they largely cancel each other out when the net bets on one side are deducted from the net bets on the other side (credit default swaps in particular); but there is always a difference that is currently estimated at around $30 trillion, which is 60% of all public fiat currency.

That means there is a demand for currency, created in the last 30 years, for more money than exists in the world. Just as the Banks falsely inflated real estate values to sell bogus mortgage bonds to investors and sell bogus exotic loan products to homeowners, they now have created a false demand on the dollar. Thus a false inflation in the supply of dollars is required to support what is a unique problem for the mega banks — supporting the credit derivative infrastructure — at the expense of the rest of us.

The inflation is false because the derivative Market is largely based on false asset values —- particularly in real estate. The decision has thus been made that although the credit products were defective in almost every conceivable way, we should all pay the price and the banks who created these defective, fraudulent securities and loans should essentially pay nothing. And that policy is based on a game of chicken — the banks say they are too big to fail, or else the system will come tumbling down if we call their bluff. The rest of us disagree in varying degrees. Simon Johnson and other economists of world repute believe that the only answer to our political and economic gridlock is to break up the large banks into discrete parts that can be managed without jurisdictional challenges caused by cross-border business activities.

This means breaking the bank oligopoly much the way Teddy Roosevelt did when he went after the Trusts 100 years ago. While their are several signs that Obama might do that in a second term where he was not politically vulnerable, it is by no means assured that he will do so.

In the meanwhile, the dollar is getting devalued on a daily basis to support a system in which homeowners are losing homes to satisfy debts that have already been paid in full many times over. Since so much of the credit derivative Market stems from the bad, defective credit deals foisted upon homeowners and sold to investors, the answer to our economic problems keeps coming back to two basic facts: the housing market  is the key to economic recovery and the banking industry’s death grip on American politics must be broken.

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The Fed’s EXPLICIT Goal Is to Devalue the Dollar by 33% … and NEGATIVE Yield Bonds Are Coming

The Federal Reserve’s explicit goal is to devalue the dollar by 33%.

As Forbes’ Charles Kadlec notes:

The Federal Reserve Open Market Committee (FOMC) has made it official: After its latest two day meeting, it announced its goal to devalue the dollar by 33% over the next 20 years. The debauch of the dollar will be even greater if the Fed exceeds its goal of a 2 percent per year increase in the price level.

***

The Fed has announced a course of action that will steal — there is no better word for it — nearly 10 percent of the value of American’s hard earned savings over the next 4 years.

While that is stunning, it is actually par for the course for the Fed:

Here’s a chart of the trade weighted US Dollar from 1973-2009.

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