What Are Banks Doing with Their Depositors' Money?
February 26, 2010 – There have been numerous reports about the sharp decline in bank lending since the beginning of the financial crisis. The Wall Street Journal, for example, on Wednesday reported in an article entitled “Lending Falls at Epic Pace” that last year’s decline in lending is the biggest since 1942.

So if the banks are not making loans, what are they doing with depositor money?

Well, they are still lending, but not to businesses and consumers. They are lending to the federal government.

Banks don’t lend directly to the federal government of course, but buying US government paper accomplishes the same thing in the end. Depositor money is sent to the federal government, ether directly when banks purchase newly issued government paper or indirectly when they purchase US government paper from others, who in turn have used their dollars to purchase this paper.




In the past, we have been able to count on foreigners to buy up our public debt. But, wise to our game, foreigners have been buying less and less of our debt, and more and more gold. As a result, only the banks are left as a source of funding for our bankrupt government.

On wonders how long before this avenue of funding is exhausted as well, our bluff is called, and gold goes parabolic, making those who own it wealthy beyond belief.