Derivatives, Or: How The Money Power Created The Greatest Depression

Anthony Migchels — Real Currencies.com June 15, 2014

Depressions and the boom/bust cycle are wholly artificial phenomena. In earlier days, Bankers created deflations simply by calling in loans. Nowadays things are a little more complicated, but crashing the money supply is still the main thing. Derivatives are today’s preferred method.
Let us first reestablish that recessions and depressions are caused by deflation. Here’s the graph showing the money supplyover the last few years, courtesy of Shadowstats

annual money supply

Let us analyze a little what this graph shows. M3 is the main issue here. This is because it is the widest definition of the money supply, including long term deposits and several other forms of liquidity, including some derivatives. M3 is most telling about what is happening in the shadow banking system.
In the first place, M3 is first shown in red, then in blue. This is because Greenspan ended Fed reporting of M3 in 2006. An unbelievable scandal, off handedly done away with as a cost cutting measure.
Committee to Save the WorldHowever, we can clearly see the malicious intent here, because Greenspan was just hiding what he knew what was already starting: a massive inflation, followed by a legendary crash in M3.
As said, M3 is the widest definition of money and directly related to this is that the main deflation after 2008 happened in the shadow banking sector, non-banking lenders, like hedgefunds. It was the implosion of the derivatives that caused M3 to tank in the way it did.
In 2008, we see that M1 starts to peak when M3 crashes: this is the Fed printing money: they were buying up busted derivatives, in effect replacing derivatives with ‘real’ (freshly printed) dollars and bailing out the busted loansharks.
This is also where the rumor of hyperinflation stems from: the Austrians were only looking at M1, endlessly showing the peaking balance sheet of the Fed (M1).
Austrian Economics in general of course is always fearmongering about hyperinflation while promoting deflation. As a result, many reasonable people these days will say, ‘well, declining prices you know….’. But deflation means money is becoming worth more and this is nice for those who have a lot of it: the ultra rich in particular. During deflation wages decline too and this is not so good for those working for a living, being most of us. Much worse: debts become worth more in real terms, which is obviously disastrous with everybody drowning in debt.
And the deflation is simply the reason the economy is in shambles. The contracting money supply causes a collapse of demand in the economy.
In this particular instance, the Money Power created the depression with the derivative trade: first blowing a huge housing bubble with them, and then busting them. Next, the shadow banking industry collapsed. As a result, the housing bubble was starved from easy credit and imploded. The Fed bailed out all the banks and billionaires with their hedgefunds, no harm done there, but Mainstreet is now saddled with a huge debt, millions of homes underwater. Nobody is bailing them out. On the contrary, it’s Wall Street that is buying up all the homes for pennies on the dollar. QE funds this, as it does the ridiculous NYSE record breaking bull run.
Meanwhile, the economy is a mess, ongoing depression and it does not look like the Money Power is done with us quite yet.

How they do it

Continues…

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