Thursday, June 2, 2011

The Discount Window

The Discount Window is the Federal Reserve's overnight lending facility.  All loans issued by the Fed must be repaid in the morning.  It is the last loan a bank would take, because it shows weakness.  A bank would rather take a high percent loan from another Major than go to the Discount Window.

When a bank is closing its book at the end of trading, it must have its assets meet its liabilities.  If not, the assets and reserves need to be made up.  They do go to other Majors, but if they are turned down, they go to the Window.  This usually does not happen because other banks can charge high interest and it is very profitable.  So when we find out that the amount of loans issued from the Window are high, we know that banks are turning each other down.  This would happen if they do not think the bank asking for the loan can meet the requirements, meaning that they would not have the collateral to pay them back.

There is also another aspect at play:  what if banks are purposely turning down other banks so to force the Fed's hand into continuing quantitative easing?  Bernanke's policy can not handle another crisis, and if a crisis occurred his gig would be up.  If there is another major crisis, it shows Keynesian and Bernanke policy has failed.  This will turn not only finance but economics on its head.  All the textbooks taught at major Universities will be shredded.

There is currently no popular alternative to economic policy.  There is no plan B for Bernanke.  Plan B is Ron Paul heading, and then ending, the Fed.  This alternative is Von Mises, which is to say, there is no alternative.

So the water has boiled over, and a bank will either fail, or quantitative easing will add liquidity into the market.  It matters not which bank has a liquidity problem, because it could be any of them.  Goldman Sachs takes both sides of every trade, and makes money fleecing clients.  If they have no liquidity, which could very well be the case if they were ever only on the wrong side of a trade, their book could be all liability, and no asset.  JPM has been shorting silver, an asset that has doubled year over year, and this could have caused major damage to their book.  They also have more derivatives than the world over, and if these imploded their book would be burnt.  Wells Fargo and Bank of America have massive exposure to real estate, and real estate is one of the worst performing assets there is.  Both of those banks may be proven insolvent because of this.  Citigroup has loaned out credit to millions of near bankrupt Americans, and will likely never be paid back these loans.

So now the banks have their guns drawn on the Fed.  They need QE to go on, or a hostage gets shot.  The system can not handle this.  The Treasurie is already looting public pensions to pay for debt creation, so as to not breach the ceiling.  Politicians, democrats and republicans both, are calling for austerity, and they can not do any more bailouts without increasing the debt ceiling.  Other funds such as social security have run trillions of dollars in the red and can not provide the finance to save the system.  Every mobster in the room has their gun drawn on each other, and there is no way out without a shoot out.  Whoever shoots first may make it outside, but only into the cold of a late spring night.

At the same time, if Bernanke continues QE, it shows that none of the systemic problems that started the depression have been solved.  That will create a loss of faith in the system.  It will also mean that the debt ceiling would need to be raised, unless the Treasurie plans on stealing all of the public pension funds, and if they do, it will be the greatest theft in history and will start an American rebellion against the Treasurie and the current economic system.

There are no ways into safety now.  This is it.  Now the system moves into the final stage of what has been amassing.  Now the end of finance, and with it the false economic paradigm that has dictated world policy, comes to an end.

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