Government regulators have released the results of the so-called stress tests for major US financial institutions. The government said that 10 of the 19 major institutions need more capital - about $75 billion. The other institutions need nothing!

The "stress tests" used economic scenarios which were not very "stressful". The tests assumed a worse-case unemployment rate of just over 10%. The latest unemployment rate, announced just today, showed that the unemployment is already at nearly 9%. Also the "stress tests" completely ignored the nearly $2 trillion of housing-related assets that are rotting on banks' balance sheets.

The "stress tests" were basically a whitewash, meant only to assure the American public that all of their major financial institutions are solvent (some are, some aren't). More than anything, the "stress tests" revealed a complete lack of resolve on the part of the US government to deal with its banking crisis honestly.

Consequences of Government Actions

But that should not surprise anyone. The government has decided to stem the chronic debt problem by infusing the economy with even more debt. What makes it even worse is that the bulk of the government money, paid for by debt, continues to go towards bailouts and subsidies for those politically well-connected who have gambled irresponsibly and failed.

These government actions will continue to result in a lower standard of living for all Americans. The government has been following this policy for quite a while. Since 1971, the US Dollar has depreciated in value against gold by 247%. In other words, one Dollar now buys about the same amount of goods and services that 20 cents bought in 1971!

The government is actually stepping up its action to debase the US Dollar by having the Federal Reserve print up money out of thin air to purchase US Treasury securities (US debt). The Federal Reserve is doing this because the global demand for US Treasuries is receding while the supply of US debt being issued is rising rapidly.

This process is called "monetization" and normally has negative consequences - namely inflation. History buffs will recall the German Weimar Republic. They followed a policy of monetization which eventually led to the 1 trillion percent inflation rate in 1923!

The Weimar Republic monetized 50% of government expenditures. The current plan calls for the Fed to monetize 15% of US government expenditures. However, if the demand for Treasuries continues to decline from places such as China, that 15% will climb even higher. Either way, inflation seems backed into the cake.

Rose-Colored Glasses

Yet the stock market rally goes on as Wall Street celebrates the "positive" results from the bank stress tests. Think about the following:

People who no idea that there was anything wrong with the financial system two years ago, now say the problem has been fixed.

Who fixed it? The people who had no idea what was wrong with it, of course.

What did they fix it with? The same thing that caused the problem they didn't see in the first place - debt.

Who makes sure it won't break again? The people who didn't notice the wheels coming off the last time.

Gawd - where can I get a government job?

Please feel free to contact me directly with any comments or questions.