Federal Reserve sets stage for Weimar-style Hyperinflation

[FarLeftRage]

Federal Reserve sets stage for Weimar-style Hyperinflation


by F. William Engdahl

Global Research, December 15, 2008

The Federal Reserve has bluntly refused a request by a major US financial news service to disclose the recipients of more than $2 trillion of emergency loans from US taxpayers and to reveal the assets the central bank is accepting as collateral. Their lawyers resorted to the bizarre argument that they did so to protect 'trade secrets.' Is the secret that the US financial system is de facto bankrupt? The latest Fed move is further indication of the degree of panic and lack of clear strategy within the highest ranks of the US financial institutions. Unprecedented Federal Reserve expansion of the Monetary Base in recent weeks sets the stage for a future Weimar-style hyperinflation perhaps before 2010.

On November 7 Bloomberg filed suit under the US Freedom of Information Act (FOIA) requesting details about the terms of eleven new Federal Reserve lending programs created during the deepening financial crisis.

The Fed responded on December 8 claiming it's allowed to withhold internal memos as well as information about 'trade secrets' and 'commercial information.' The central bank did confirm that a records search found 231 pages of documents pertaining to the requests.

-snip-

Coming hyperinflation?

The total of such emergency Fed lending exceeded $2 trillion on Nov. 6. It had risen by an astonishing 138 percent, or $1.23 trillion, in the 12 weeks since Sept. 14, when central bank governors relaxed collateral standards to accept securities that weren't rated AAA. They did so knowing that on the following day a dramatic shock to the financial system would occur because they, in concert with the Bush Administration, had decided to let it occur.

-snip-

By the first week of December, that expansion of the monetary base had jumped to a staggering 76% rate in just 3 months. It has gone from $836 billion in December 2007 when the crisis appeared contained, to $1,479 billion in December 2008, an explosion of 76% year-on-year. Moreover, until September 2008, the month of the Lehman Brothers collapse, the Federal Reserve had held the expansion of the Monetary Base virtually flat. The 76% expansion has almost entirely taken place within the past three months, which implies an annualized expansion rate of more than 300%.

Despite this, banks do not lend further, meaning the US economy is in a depression free-fall of a scale not seen since the 1930's. Banks do not lend in large part because under Basle BIS lending rules, they must set aside 8% of their capital against the value of any new commercial loans. Yet the banks have no idea how much of the mortgage and other troubled securities they own are likely to default in the coming months, forcing them to raise huge new sums of capital to remain solvent. It's far 'safer' as they reason to pass on their toxic waste assets to the Fed in return for earning interest on the acquired Treasury paper they now hold. Bank lending is risky in a depression.

More at: http://www.globalresearch.ca/index.php?context=va&aid=11401

[depakid]

1. I wish I had a dollar for every time I've heard this over the past 10 years...

[Zynx]

2. And here we are on the verge of crippling deflation.

A 2% 10-year treasury bond is a sign of a lot of deflation.

[Odin2005]

3. Bull. Deflation is the problem.

The hyper-inflation scaremongering is a creation of Libertarian nuts that worship the economic Dark Ages that is the Gold Standard.

[Festivito]

4. Deflation until they buy everything they can, then inflation.

Just as Franklin predicted over 200 years ago, just as the shock doctrine updated recently.

Good luck all.

Clench your buttocks, we're in for a bumpy ride.

[Sex Pistol]

5. I don't know about hyperinflation, but many people predicted what is happening right now for years.

I believe they were referred to as "sticks in the mud."

[rhett o rick]

6. It has to happen. Someone has to pay the bill for the financiers that have leveraged themselves

and us into the hundreds of trillions. There are two ways to pay the bill, huge, huge taxes or hyper inflation. Some will say that hyper-inflation is just another method of taxing and I would agree.