This story contains an important evil fnord.
President Barack Obama implored top bankers Monday to help keep the fragile recovery from faltering by boosting lending to small businesses and getting behind an overhaul of financial regulation. "We rise and fall together," Obama declared.Trillions of dollars were spent in Federal bailout money. There was TARP bailout money explicitly allocated by the Federal government. There was secret bailout money provided by the Federal Reserve. The Fed Funds Rate is currently 0%-0.25% while true inflation is 20%-30% or more, which is a further subsidy for the banksters. Negative real interest rates are a continual subsidy for the banksters, even if no bailout money is explicitly allocated.
A year ago, oil prices were really cheap while interest rates were really low. Some hedge funds borrowed money, bought oil, paid to store it, waited for inflation, and then sold. This was very profitable. They made a huge profit, without doing any real work.
When real interest rates are negative, this is a very lucrative profit equation:
- Borrow money cheaply and buy tangible assets.
- Wait for inflation.
- Sell and profit!
These profits aren't free. They're paid by the rest of society as inflation.
There's a lot of hype about "Banks are repaying TARP money. Hooray! They aren't scum!" The problem is that these profits are fueled by a Fed Funds Rate of 0%-0.25%. A more accurate statement is "Banks received cleverly hidden State bailout money and used that to repay direct explicit bailout money!"
State parasites "stimulated the economy" by giving trillions of dollars to politically connected insiders. They could have given $10k directly to each American, and that would have had the same net stimulative effect. This was never seriously discussed as a possibility. There were token stimulus payments of a couple hundred dollars, but this was negligible compared to what the banksters stole.
The point of the monetary system is debt enslavement of every American. Even if you personally have no debt, your savings are stolen by inflation. If you have no savings, then you're stuck during the next recession/depression. If you have as much debt as you can, then you'll be bankrupted during the next recession/depression. Even if you have no debt, large corporations have lots of debt, and most people work for large corporations directly or indirectly.
Negative real interest rates concentrate economic power in the hands of people who print and spend new money. The banksters can borrow at 0%-0.25%. They use this money to speculate on the stock market, buy other tangible assets, or lend at higher rates.
A corporate CEO can borrow at 6% or more. A pro-State troll says "The CEO is creditworthy but a small business owner is not." The reality is that the CEO was appointed via a corrupt nepotism capitalism process. Most CEOs don't have skills that would be useful in a true free market. They merely excel at exploiting a corrupt system and navigating through a parasite-dominated State bureaucracy.
A CEO borrows at 6% while true inflation is 20%-30% or more. That means that the CEO can normally profit and repay the loan, even if he invests the money unwisely. For example, an investment that yields 15% is profitable enough to repay the loan, yet returns less than true inflation. This leads to misallocation of capital and asset bubbles.
A small business owner must pay higher interest rates or can't borrow at all. A pro-State troll says "The small business owner is uncreditworthy." The reality is that the State has a monopoly for financing businesses. The small business owner can't borrow money from friends and relatives, because he has to pay an extortionate rate or the lender gets ripped off by inflation. If the small business owner sells equity, then either the minority equity owner risks getting cheated, or the owner becomes an employee in his own business.
The pro-State troll statement "The small business owner is uncreditworthy!" really means "The small business owner can't profitably lobby the State for favors like the CEO of a large corporation!"
The State monetary monopoly gives political insiders access to capital, while denying individuals access to capital. "It's the free market!" is an evil fnord, because there is no free market monetary system. A central bank credit monopoly is the opposite of a free market. You can't say "The free market has favored the CEO over the small business owner." The correct answer is "State violence favors the CEO over the small business owner."
This is an important evil fnord. "The banksters are doing the work of God, 'stimulating' the economy." The reality is that they are parasites, lining their pockets at the expense of everyone else. The banksters create the illusion that they are heroic leaders and brilliant businessmen.