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Tuesday, January 19, 2010

Bank Tax Fnord

This story is pretty funny. After receiving trillions of dollars of direct and indirect bailouts, the banksters are about to pay themselves huge bonuses for 2009.

In outrage over this excess, President Obama is proposing a tax on banks. Do you see the joke?

The role that banks play in the US economy is that of tax collectors. They banks collect taxes via their State-granted perk of printing/lending new money. Negative real interest rates are a State subsidy to the banksters.

The banksters' profits come from the inflation tax. This tax is collected by banks. Placing a tax on tax collectors is obviously silly.

The proposed 0.15 per cent tax would last at least 10 years and generate about $90 billion over the decade, according to administration estimates.
The proposal is for a 0.15% tax on banks with liabilities over $50B. This is pointless for several reasons:
  1. The cost will just be passed on to customers as higher prices. Instead of getting a mortgage for 5%, you'll get a mortgage for 5.2%.
  2. Banks profit from borrowing at the Fed Funds Rate (currently 0%-0.25%) and lending at 5% or more. A tax of 0.15% is only a tiny slice of this spread. If this tax is imposed, the spread will just get 0.15% wider.
If you use violence to steal, and then give back some via a tax, that doesn't make it morally acceptable. Via this tax, the banksters are giving a very tiny slice of their stolen booty back to the government.

A pro-State troll says "HAHAHA!! Obama is sticking it to those greedy bankers!" The reality is that the banksters themselves probably lobbied for the tax. Overall, this tax is negligible and only will last for a few years. This tax is a great marketing campaign, providing the illusion that the banksters were punished for their excesses. If this tax really restricted the ability of the banksters to steal, then they would have lobbied against it.

At my wage slave job, someone showed me a chart and said "It looks like a bubble is forming in government-backed bonds."

The average person does/should not invest in government bonds. Anyone can buy Treasury debt. Other Federal government debt has similar yields, but is not sold to the general public.

As an individual, you would be a fool to invest in government bonds. With an unleveraged investment, you'll get ripped off by inflation.

When the banksters buy government bonds, they use leverage of 30x-100x or more. They borrow at the Fed Funds Rate, currently 0%-0.25%, and buy longer-term debt yielding 2%-4%. The spread times the leverage ratio is pure economic rent, pure illicit interest arbitrage. Only the banksters may perform this lucrative trade, because only they may borrow at the Fed Funds Rate.

That's how the banksters profited so quickly even thought the economy is lousy. They used the TARP money to speculate in government bonds. This trade was so profitable that they were able to rapidly repay the TARP money plus have huge profits.

The people who benefit from government debt ar the banksters. It is not China's insiders who profit. They have an unleveraged long investment in US Treasury debt. They are getting ripped off by inflation just like the average person who would invest in Treasury debt.

Where do these bank profits come from? There are two sources. First, there is inflation. Second, there is the part of the Federal government's budget for "interest payments on the national debt".

The only way I can get money is by actually working for it. State thugs take this money/wealth via taxes. Then, they spend some of it on "interest payments on the national debt". Does this wealth vanish into thin air? No, it winds up in the pockets of the banksters. When banksters want money, they just print new money and spend/lend it. This magic money-printing power enables the banksters to directly or indirectly control nearly all economic activity.

Comedians/communists/economists say "an upward sloping yield curve occurs naturally in a free market". This is false. The yield curve shape is controlled by the Federal Reserve and the State.

All new money created is demand money, lent out by the Federal Reserve overnight at the Fed Funds Rate. There's an artificial surplus of demand money. This creates the upward-sloping yield curve. This helps banks to profit by borrowing at the Fed Funds Rate and buying longer-dated government bonds.

Why should banks lend to individuals and small businesses when they can lend free Federal Reserve money back to the government for a sure profit? That's why the banksters were able to repay TARP so quickly, even though everyone else is still suffering from the recession.

This government bond trade was so lucrative that the banksters made huge profits without any risk or work at all. Just like in the latter half of the Great Depression, the banksters are making huge profits via inflation, while the productive sector of the economy is struggling.

Even before 1913, with a gold standard, there was an upward-sloping yield curve. That's because a fractional reserve bank fraudulently increases the supply of demand money. This fraud was backed by the State.

The proposed bank tax is an evil fnord. It is designed to distract attention from the real issue, which is the fact that the US financial system is one big scam.

1 comment:

dionysusal said...

You tell 'em FSK! We've all been bamboozled.

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