Shadow Banking

September 25, 2012

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Why QE eternity became a necessity, and why its inflation component is only temporarily delayed (109)
The main piece that most current analysis misses, and which is vital to a comprehensive understanding of our current economic predicament is the role of shadow banking. Zero hedge has been on to this for some time and this article not only gives us an update but also makes some very useful points.
“One does not have to be a rocket scientist to have grasped by now that all the Fed does is self-defeating, what this analysis does do is provide a primer to all those Economy PhD’s who still fail to grasp how the modern economy works, specifically why so far the inflationary surge has been deferred. In short: the more the Fed actively relevers using conventional conduits that spur the threat of inflation, and the more that shadow conduits delever, the greater the risk that inflation will finally come to roost. Because that $3.9 trillion in incremental reserves that will be created to offset the ongoing shadow deleveraging will simply pump up various asset classes, until the hard asset spillover finally hits.” Read more

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