In Trying to Stop the Inevitable Deleveraging Process, the Government is Only Making It Worse

From: George Washington’s Blog

The financial system is undergoing a period of deleveraging that cannot be stopped. For example:

• Barrons is running an editorial entitled “The Crash Must Come: Intervention can’t stop the business cycle”. ….

Instead of allowing an orderly deleveraging process, the government is actually trying to prop up the leverage.

For example, instead of requiring banks to deleverage, the government is reducing their cash reserve requirements so they can increase their leverage to loan money they don’t have through fractional reserve banking. See also this.

And – even after Greenspan confessed that derivatives were dangerous (and see this) – the government refuses to rescind them or take any other real actions to contain the nuclear fallout from such “weapons of mass destruction“. Instead, the government is trying to prop up the derivatives market by various means.

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