This article was first published in this blog on 16th October 2008.
It’s often been said that politicians can only solve a problem by throwing money at it. The same also applies to bankers and economists. The Credit Crunch is proving that.
What is happening is this. Leading banks in nearly all Western countries have lost billions on loans that have not been repaid and should not have been made in the first place. Now they demand a bailout from the government to prevent them from going under and taking everyone else with them. If only small businesses could do the same when they lose money on a deal.
The government agrees to bail them out by borrowing the necessary money from the Central Bank (e.g. Federal Reserve, Bank of England). But where does the Central Bank get the money from?
Simple. The money is created out of nothing. Let me explain. In September 2008 the Federal Reserve increased its balance sheet by almost as much as it had in the first 86 years of its existence (Agora Financial 3 Oct 2008). In around 2000 its “assets” amounted to around $700 billion. That figure increased by about $50 billion a year up until September 2008.
In September alone, the “Fed” increased its assets by a mind-boggling $600 billion. What that means is that it created $600 billion out of nothing and lent the “money” mostly to the US Government for it to be pumped into the economy via the banks that have just lent out too much promise-to-pay money already. And that was before the much-vaunted $700 billion bailout.
Now what is all this really going to do for the US economy? And the economies of other countries, come to that. Well, let’s take gold, for example. In July 2008, before the financial crisis became a disaster, the total value of all the gold in the world (above ground) was estimated at $4.2 trillion. With over a trillion dollars added to all the other trillions the price of gold, currently hovering under $1,000 an ounce, is set to take off dramatically.
And the same, of course, applies to just about anything else you can think of. It’s obvious, really. The more money you pump into the economy without an accompanying increase in the amount of goods and services circulating in that economy, the less it is worth in comparison, and therefore the higher the inflation.
Hence, hyper inflation is the price of the bailout of the toxic banking system.
Philip Gegan
Get YOUR free Guide to the financial madness, Promise To Pay, the classic written by Dr R. McNair Wilson, by visiting our main site at www.ancientbankingsecret.com.
