German insurer Allianz SE put its Dresdner Bank AG unit up for sale in 2008 as subprime-mortgage losses mounted.
By the time Frankfurt-based Commerzbank AG agreed to buy Dresdner on Aug. 31, 2008, for 9.8 billion euros ($14.4 billion), Dresdner was borrowing $11 billion from the U.S. Federal Reserve.
After the deal closed in January 2009 at a renegotiated price of 5.1 billion euros, Frankfurt-based Dresdner kept drawing from the Fed. The last of its loans from the U.S. central bank were repaid on July 16, 2009, more than six months after the Commerzbank deal closed.
Peak amount of debt on 7/02/2008: $18.4B
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The U.S. Federal Reserve was providing bail-out funds, through various credit facilities, to banking operations all over the globe during the height of the financial crisis.
Many of these banks created their own systemic toxicities, precipitating the financial crisis in the process – and U.S. taxpayers bailed them out.
The Leviticus 25 Plan provides the mechanism for a Citizens Credit Facility – to grant the same direct access to liquidity extensions that the Fed provided to scores of domestic and foreign financial institutions during the great financial crisis of 2007-2010.
The Leviticus 25 Plan will reignite the economy, re-incentivize work, reduce the heavy and unhealthy load dependence on government by the citizenry, provide for massive debt reduction at the family level, $583 billion annual Federal budget surpluses (2023-2027). And restore economic liberty in America.
The Leviticus 25 Plan – An Economic Acceleration Plan for America
Our U.S. Congress has, as a practical matter, completely jettisoned fiscal discipline in their budgeting process.
The Government Accountability Office (GAO) stated in their March 23, 2021 report, The Nation’s Fiscal Health: “The unsustainable fiscal path strains the federal budget and contributes to growing debt. According to CBO, high and rising federal debt increases the likelihood of a fiscal crisis and could lead to a large drop in the value of the dollar or to a loss of confidence in the government’s ability or commitment to repay its debt in full.”
To accommodate the ongoing failure of our U.S. Congress to address this debt crisis, The Federal Reserve has had no choice but to ‘create’ new money, primarily to purchase large amounts of Treasury and Agency debt…..
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Felder Report: “Is It ‘Monetization’ Yet, Dr. Bernanke?”
Eleven years ago, shortly after the onset of QE 2, Ben Bernanke gave us his definition for “monetization” of the debt, telling Congress (hat tip, Grant’s):
Monetization would require a permanent increase in the money supply to pay the government’s bills through money creation.
What we’re doing here is a temporary measure which will be reversed, so that at the end of this process, the money supply will be normalized, the Fed’s balance sheet will be normalized and there will be no permanent increase, either in money outstanding or in the Fed’s balance sheet.
At the time, The Fed’s balance sheet was approaching $2.5 trillion.
Today, it stands at nearly $9 trillion, more than triple the figure from a decade ago.
And so it only seems fair to ask, ‘Is it monetization yet, Dr. Ben?’
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The Leviticus 25 Plan is the one and only plan that is ‘primed up’ and ready to launch.
The Leviticus 25 Plan will provide a dynamic ‘recharge’ to the U.S. economy and restore economic liberty in America – and work get America’s budget deficits back under control and protect the long-term viability of the U.S. Dollar.
The Leviticus 25 Plan will generate $583 billion federal budget surpluses for the initial 5 years of activation (2023-2027), and completely pay for itself over the next 10-15 years.
The Leviticus 25 Plan is a dynamic economic initiative providing direct liquidity benefits for American families, while at the same time scaling back the role of government in managing and controlling the affairs of citizens. It is a comprehensive plan with long-term economic and social benefits for citizens and government.
The inspiration for this plan is based upon Biblical principles set forth in the Book of Leviticus, principles tendering direct economic liberties to the people.
The Leviticus 25 Plan – An Economic Acceleration Plan for America 2023
After more than 12-years of the most unprecedented monetary policy program in U.S. history, the Fed realizes there are significant risks in the financial system. The behavioral biases of individuals remain the most serious risk facing the Fed.
With the Fed now reversing monetary accommodation, the question is how long before something breaks.
In the short term, the economy and the markets (due to the current momentum) can DEFYthe laws of financial gravity as interest rates rise. However, as interest rates increase, they act as a “brake” on economic activity. Such is because higher rates NEGATIVELY impact a highly levered economy:
Higher borrowing costs lead to lower profit margins.
The massive derivatives and credit markets get negatively impacted.
Variable rate interest payments on credit cards and home equity lines of credit increase, reducing consumption.
Rising defaults on debt service will negatively impact banks which are still not as well capitalized as most believe.
Many corporate share buyback plans and dividend payments are done through the use of cheap debt.
Corporate capital expenditures are dependent on low borrowing costs.
The deficit/GDP ratio will soar as borrowing costs rise sharply.
The debt problem exposes the Fed’s risk and why they continue to look for excuses NOT to hike rates. (Like “full employment” even though jobless claims are at record lows.)However, given economic stability was not achieved in the last decade, it is doubtful the withdrawal of monetary accommodation will be “risk-free.”
The evidence is quite clear that surging debt and deficits inhibit organic growth, and the massive debt levels are sensitive to increases in interest rates.
With exceptionally high market valuations, Fed rate hikes historically led to events that devastated investors. Those events created the Fed’s repetitive cycle of monetary policy.
Monetary policy drags forward future consumption leaving a void in the future.
Since monetary policy does not create self-sustaining economic growth, ever-larger amounts of liquidity are needed to maintain the same level of activity.
The filling of the “gap” between fundamentals and reality leads to economic contraction.
Job losses rise, wealth effect diminishes, and real wealth reduces.
The middle class shrinks further.
Central banks act to provide more liquidity to offset recessionary drag and restart economic growth by dragging forward future consumption.
Wash, Rinse, Repeat.
Conclusion
“Financial markets’ sensitivity to monetary policy has never been higher. The Fed’s balance sheet doubled since the end of the last financial crisis and is now 40% of gross domestic product. By buying massive amounts of bonds, the Fed lowered rates and used asset prices, like stocks, as the primary tool for monetary policy. That’s through the so-called wealth effect, or the tendency for consumers (two-thirds of GDP) to spend more as their assets grow.” – Joe LaVorgna
Therein lies the problem…. If the Fed tightens, the existing debt pile becomes more expensive to service, and stocks fall, hampering consumer confidence and economic growth.
On the other hand, if the Fed doesn’t tighten, debt across households, companies, and the government will continue to grow, making it more challenging for the Fed to act in the future
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Exactly. The Fed cannot raise rates, in any meaningful way, with the U.S. economy surrounded by mountains of debt. According to the NY Fed, Household Debt climbed over the $15 trillion mark in Q3 2021. Corporate debt in 2020 rose to $11 trillion, according to Federal Reserve data.
The National Debt just hit $30 trillion. State and Local debt stands at $3.2 trillion.
The solution: America needs a dynamic new ‘debt elimination plan.’
There is just such a plan – loaded up and ready to launch. It will eliminate massive amounts of ‘ground level’ debt in America, usher in a long-term economic growth cycle, strengthen free market dynamics, and restore economic liberty.
It will generate $583 billion Federal budget surpluses during each of its first five years of activation – and pay for itself over a 10-15 year period.
The Leviticus 25 Plan is a dynamic economic initiative providing direct liquidity benefits for American families, while at the same time scaling back the role of government in managing and controlling the affairs of citizens. It is a comprehensive plan with long-term economic and social benefits for citizens and government.
The inspiration for this plan is based upon Biblical principles set forth in the Book of Leviticus, principles tendering direct economic liberties to the people.
The Leviticus 25 Plan – An Economic Acceleration Plan for America
