An Economic Godzilla Has Been Let Loose!

Geithner and Bernake Create a Nuclear Blast to the Economy

While the DOW has a rally April 3 day during this bear market, and Fed Chair Bernanke makes a few encouraging self serving market comments, meanwhile unemployment has dropped to a 25 year low, it appears the printing of bank notes by the Fed in a effort to stave off more bank failures may be working.

Not a snowballs chance in hell, as the Fed is causing an imaginary scenario of economic stability while in the back rooms it trades trillions in banknotes for portfolios of toxic debt.  What good is it to replace bad loans with banknotes printed out of thin air, giving the perception that there is a smooth transition underway, where defaults are monetized without a ripple of understanding of what is holding up the bank’s balance sheet?

At this point the Fed is buying up worthless debt debasing its own reserves and at the same time Treasury Secretary Geithner is creating a private-public partnership to acquire what’s left of bank assets on the auction block, since there have been no buyers, it is time again for the taxpayers to pony up, so Geithner’s banker buddies can make a bundle in cash.  We’ll have to see if Senator Dodd has another amendment worked up his sleeve for his fat cat contributor buddy’s so that private investors can keep the billions they make off the public’s money.

This duel effort to liquefy the banking system will cause the currency to inflate which may give bondholders a reason to panic over the hyperinflation that lies ahead.  Perhaps the Gueithner Public-Private Investment Program (PPIP) will include some recourse language keeping banks on the hook to make up the bad debt  payments once they are purchased by the government and again default.  Geithner’s  PPIP will cause the repackaging and sale of toxic assets under a new name,  but fearful holders of this toxic long term debt,  as it nears expiration or as the economy worsens could exercise their option to dump it once the holding term runs out.  This next dump will cause a second wave of toxic debt on the market, which could cause the dollar to deflate and the economy to fall further into depression.

The world is awash in credit and debt, because the amount of credit dwarfs the GNP of world economies, debt investors like China, Russia, India and the like always have the option to sell their T-bills and bonds in large quantities.  The creditors of the USA  are in the cat birds seat, and are as a result in control of American dollar values, interest  rates and credit quality.  This means that foreign governments, NOT THE FED, are in charge of deflation and inflation and the economy of the United States.

It is as if Godzilla has been raised from this economic nuclear disaster and he will only behave when he is given what he is hungry for, quality American assets no more toxic crap, or certain international UN or G-20 votes to control the Sovereignty of America for the first time in its history.

Thank you Comrade President.