<There is no creation of money.>
Not technically, but in sort of a defacto sense, as these credit backed assets show up as collateral to create even more "assets", and so on. IMO this is very hot leveraged defacto "money/asset" creation, with the potential (indeed likelihood) for evaporation (through default, quality downgrades, higher interest rates).
Austrie's post 12974 is critical to this question,
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as it implicates the potential for a term and process not mentioned much nowadays, disintermediation. The trade de jour is to borrow short term, and loan long term, and pocket the spread. Disintermediation of course occurs when short term borrowing costs rise, and the fixed long term assets (15-30 year mortgages for instance) can't be raised to offset it. Apparently the market mentality is that the Fed "has abolished" negative yield curves? Well, we will see (snicker, snicker). The 12974 post is important to contemplate as it gives clues as to who the bagholders will be in a massive disintermediation. And yes, despite all the Wall Street spin about swaps, derivatives, etc, there WILL be bagholders.
Kevin Phillips has a terrific new book out that describes what he calls "neo-merchantilism" which gives these special privileges (asset or defacto money creation) to large financial institutions, who in turn abuse them. There is quite a history of this already, so nothing new, except for the extent of it today.
amazon.com |
