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THE MIRACLE OF PPP (part 7)


Escrito 3 Jul 09

B) MECHANISM OF ISSUANCE & DISTRIBUTION CHANNELS OF FED

The above highly profitable Trading Program exists as a result of the United States FEDERAL RESERVE (FED) practice of securing short term to medium-term liquidity outside of customary On-Market channels. The FED BANK has registered a small number of high volume Traders to facilitate and maintain a secure, Private Placement Capital Market to fund its liquidity requirements. The FED Contracts with Europe´s most Credit worthy financial Institutions to trade large blocks of their Corporate Bank Paper, which are the distributed through the Federal Reserve´s Private Capital Market. In return, these European Banks receive leger entrey Federal Reserve Credits, that can be used as cash equivalent Assets. In this Trading, all issuance of Bank Paper and FED Credits are maintained Off-Market nd Off-Balance Sheet.

The Banks Benefit by using thte Credits to increase their " Fractional Lending" capabilities. Fractional Leding is standard in all comercial bank lending and simply means that over time, Banks are allowed to lend more money than they actually have as reserves on their Balance Sheets (Plase see the above paragraphs concerning Financial Multiplier, Technique of swelling Capital, Acceleration of Trades).

Federal Regulations in all Western Countries set the Ratios between Bank Assets and Loan outstanding. In most Countries the Ratio for Cash or Cash Equivalents (Liquid Assets) to Loans outstanding is 6 to 12 times Liquid Assets, i.e with USD.1 cash, they can give for loans USD.122; with USD.1´000´000, the loans outstanding can be USD.12´000´000. The FED Credit mechanism described above povides an Off-Market, relatively inexpensive, form to increase Liquid Assets, wihich then allow Banks to use a FED Credit as reserves and increase their lending capacity. That is the swollen capital in circulation regarding the initial small cash amount.

For example, if a Bank receives a FED Credit of USD.8´000´000. It can borrow from the FED discount desk 10 times this amount, i.e USD.80´000´000; and then lend it out to its customers at a 5% profit, i.e USD.4´000´000 by operation (Trade) . If we divide the profit USD.4´000´000 by the initial amount USD.8´000´000, the percent of profit will be 50% by operation. This operation can be repeated several times during a short period. The very High Yield is explained, not by the interest rate of each operation, but by the swollen Credits outstading and by the repetition several times of this swollen Capital during a short period. With 5 operations during a week for the swollen amount USD.80´000´000 from the initial FED Credit USD.8´000´000 and only with normal Interest Rate 5%, the Profit will be 500% weekly at total. This is not a miracle!

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