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Monday, November 1, 2010

Dollar Carry Trade

For a long time, Japan's central bank kept interest rates at zero. This led to the "yen carry trade". The banksters were borrowing yen at 0%, and buying gold or other currencies. With free money and high yen inflation, this was a very lucrative trade.

These profits weren't free. Everyone in Japan paid the cost via higher inflation. Speculators made huge profits while the rest of Japan was stuck in a recession/depression. Speculators made a lot of money from the yen carry trade, while Japan's economy was stuck in a recession/depression for more than a decade.

Japan's banks were technically insolvent. They had bad loans they refused to write down. Instead of publicly admitting losses, loans were kept on the bank's books at the face amount. By keeping interest rates at 0%, this was an extended hidden bailout of the banks.

The banks couldn't admit they were insolvent. By having an extended period of 0% interest rates, the banks were able to earn their way back to solvency.

However, this encourages financial speculating/gambling, rather than real economic growth. With biased inflation measures like the CPI, inflation is misreported as economic growth.

This is exactly what is happening in the USA. The Federal Reserve is keeping the Fed Funds Rate at 0%-0.25%. The banksters borrow dollars at 0%, and buy longer-term Treasuries, stocks, gold, bonds, etc. At 0%, it's free money. No matter what they buy, it's practically a guaranteed profit.

The US banks are technically insolvent. With 0% interest rates, the banks can earn their way back to solvency. It's a hidden bank bailout.

From Ben Bernanke's point of view, it costs him nothing to print money. Why not print new money and loan/give it to your friends? This isn't free. Productive workers pay the cost via inflation. You lose your savings. The value of a paycheck is eroded.

Inflation robs retired people. They lose the value of their savings, pension, or Social Security check.

Inflation does benefit debtors, who can repay their loans with devalued money. However, salary increases aren't keeping pace with true inflation.

Inflation penalizes responsible people. Inflation steals your savings. Inflation helps irresponsible people. Inflation means that debts can be repaid with devalued money. Loan payments go into the bankster's profits.

Even if you have no debts, the banksters rob you. Your savings are stolen via inflation. If you have no savings, then you risk losing everything in the next recession/depression.

The value of your paycheck is eroded by inflation. True inflation is 20%-30% or more. How many people got a 20% annual raise?

This is the problem with the US economy. Productive behavior is not rewarded and usually penalized. Parasitic behavior is rewarded. It's the virtuous positive feedback cycle of complete economic collapse.

The banksters are making a ton of money via the "dollar carry trade". They are borrowing dollars at 0%-0.25%, and buying/lending. With free money and high inflation, they are practically guaranteed to profit via borrowing and high leverage.

Insolvent banks will earn their way back to solvency. Everyone else will pay the cost via inflation. The Federal Reserve literally is one huge money laundering operation. In comparison, other anti-money laundering laws are a total farce.


Anonymous said...

To quote Max Keiser - "The chump the works in a factory is yesterday's news".

Anonymous said...

steamroller observes:

FSK - You succinctly stated in one of your fine blogs some time ago, a profound axiom which said: WHEN YOU PUNISH THE PRODUCTIVE SECTOR - WHILE REWARDING THE PARASITE SECTOR....WHICH ONE WILL FLOURISH?
This was so simply elegant that even a parasite could understand.

FSK said...

If you're a psychopath, no logical argument will convince you.

The USA definitely is experiencing a "corruption bubble".

Anonymous said...

steamroller says:

FSK, you are the revealing identifier of these trolls that will not accept reason and logic. My take is even more condemning: For those who understand-no explanation is necessary. For those who don't-no explanation is possible.

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