The Weak Dollar and the Too-Big-to-Fails

Former chief IMF economist Simon Johnson points out that the U.S. is intentionally weakening the dollar in order to bail out the too-big-to-fails:

To bail out our banks, we need cheap money, and this implies some inflation. To finance our current account deficit, investors need to think they are buying inexpensive assets from us. Everything points to a cheaper dollar...

Short-term rates (controlled by the Fed) will stay low, while long-term rates (market-determined and affected by trust in our Treasury and Fed to keep the value of dollar strong) will rise as people fear their dollar investments will be debased. There is no doubt that both the Fed and the Bank of England know what is happening. The spread between short- and long-term rates (known as the “yield curve”) will rise, and banks will benefit; would-be home buyers and people with overdrafts or outstanding credit card balances pay more, while savers get little.

This is how the public pays for the past losses of our financial system.

We don’t have to do this again and again. We could start by changing our financial system from the roots. We need to credibly remove the promise to bail out our large banks each time they fail. This means forcing them to hold more capital, dividing them up so they are smaller, and then letting them fail when they make poor gambles.

The Treasury’s past and current close connections to Goldman Sachs, Citigroup and other major investment banks illustrate how our own doom machine functions. We need to break up these “banks” so they are small enough to fail, and also ensure that no bank, regardless of its connections, is able to demand that the Fed and the Treasury support its solvency in the future to prevent financial collapse.

Break 'em up

.

Comments

[Jason Rines (iThinkBig)]

Why no mention of a new monetary lending model based on other far more successful lending models in history and tied into modern innovation such as the Internet?

Ever hear of Peer-to-Peer lending? The Chinese have and are implementing it while their Chinese Central Bankers nod and smile at Geithner and Clinton and chuckle within. You cannot pour new wine into an old wineskin. The Chinese know this proverb well.

Washington, become Americans again and return to the concepts of truth and justice that made this country the best on earth .

You may find yourself on the very poor end of the trade participating in what your up to with your NYC business partners. The people have solutions and ways for less volatile retirement instead of far less palatable outcomes that will result from the current plan.

We're here to help but the final variables are now locking in place for only one outcome and it is extraordinarily negative, for all. Let's opt for a plan B. It is indeed a very small world these days.

2009 Nov 13 10:21 PM

[MarkitWacha]

Yes, a break up would be the right thing to do, but the lobbyists will pay up so that it won't happen.

Internet banks will eventually drive out the brick and mortar banks, I hope. Look at the difference in efficiency. It's a logical progression, and deserves some tax credit or some of the stimulus, instead of sending the money down the drain where the fat cats are at BofA / Chase / <insert bank name here>

Time for more meritocracy. Citadel made the cover of Bloomberg magazine. I hope they DO give Goldman Sachs a run for it.

2009 Nov 14 06:09 PM