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BULLION

Monday, 20 February 2012

Instability in the Oil and Currency Markets: Petro-Dollars and the Oil Bourse

Over in Europe in December the ECB received a $1 trillion illegal loan from the Fed. 523 banks quickly borrowed $650 billion and late in February and they will borrow another $850 billion. Yes, they’ll borrow it all and then some, if available you might arbitrarily add 03% to the 1% cost to cover shortcomings of collateral. That isn’t all that bad because the average yield on senior unsecured bank debts are 4.3%. If invested that way that is a 3% return with little risk. They call this a license to steal. We the public don’t get these kinds of offers. That is $1.5 trillion and if fractionalized at 9 to 1 is more than $14 trillion. In a similar situation the Fed lent to Goldman Sachs, JPM and Morgan Stanley and they made $13 billion borrowing from the Fed, so you can see the tremendous profits that are going to be gleaned by European banks. We’d call this a subsidy or better yet a bailout.

The flip side of this lending, if only 5% reaches into the economies of the US, UK and Europe over the next 1-1/2 to 2 years, that represents business loans of $10 billion, at a minimum. This is super charged money and will affect these economies starting in the second or third quarter. That is why all these economies are going to do better than almost all analysts and economists had predicted. They do not understand the strength of this volume of money and credit in turning these economies around. The players all know of the inflationary implications but believe them to be preferential to deflationary depression. It is easy for the Fed to create money and credit, so they have chosen this way, the only way short of deflationary depression, to bail out the financial system over and over again. This infusion of money and credit will continue as inflation climbs. When hyperinflation of 30% to 50% becomes reality the game is over. The big question is how long will it take? We do not think anyone has that answer at this juncture, but we can assure you that with this kind of aggregate creation is certainly going to bring about hyperinflation...more

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