Banks and financial institutions that just yesterday were screaming that they were somehow "duped" into lending at outrageously low interest rates, are now once again willingly lending to many of the same players at rates, that not only do not compensate them for taking on the actual risk, but which are also in many cases even below the inflation level? Yes, you heard m correctly- the banks are that dumb!? Do they really believe that this artificial inter bank lending interest rate of 2% or "prime rate" of 5% is here to stay? How long could this really go on? Are we going to be in the same "credit crisis" boat 12 months from now when the rates are virtually guaranteed to be higher?

What does really change when you let the exact "same client X" refinance a loan he/she could not afford yesterday to a new, artificially lower "affordable" rate today? Remember, "client X's " income did not get any higher; the value of the underlying collateral did not go up and the only reason this whole "transaction" was made possible, was the fact that Fed "artificially" reduced rates to a level that was now temporarily affordable? So ok, what's wrong, you ask?

Let's fast forward 12 months from now- Fed Funds rate and with it Bank's cost of funds are now 2-3% higher, but this temporarily affordable "client J's" asset is now sitting firmly on the bank's balance sheet (no more selling it off in a "CDO") and still paying an "artificially low" interest rate that could now very well be even lower than what it actually costs the bank to fund it...?

How is that for a business model? So what's the solution- surely once again lower interest rates? Not so fast- how much lower could you really go- it's already below the inflation level...

In my opinion, if nation's economy can not function normally at a "growth neutral" Fed Funds rate of roughly 5-6% (real GDP 2-3% growth plus inflation 2-3%), than this economy is full of excesses that have to be worked out. Restoring some common sense and destroying the "low rate entitlement" of the financial services industry would go a long way towards making US economy safer, stronger and more balanced.

We simply can not continue to assign blame for the "asset bubbles" like "high oil prices" and "real estate mania" to everyone in the world instead of trying to look back into our own backyard. High food and oil prices are a not a direct result of "growing demand" from place like India and China, but rather simply a spillover effect of the completely incompetent monetary policy. Remember, inflation "always and everywhere is purely a monetary phenomenon"- I personally learned this first hand, when as a child I had to learn to quickly add up prices of my basic groceries first in single digits, than in thousands and finally in millions. May be now it's time for Ben Bernanke as well to actually make a trip to the past and learn that printing money is rarely a preferred solution...

But until that happens, as a rational "capitalist" I should probably go get another mortgage, borrow heavily against all of my assets and safely "diversify" into a few of these 20/1 leverage "all-or-nothing bets" on the continued "inflation driven bull market" for the next several quarters or so. Even if few of these bets "blow up", I am sure that some poor retiree from Indiana, will unwillingly help me out, with his/her negative "real" investment returns from a money market fund more than offsetting the excess returns I will earn on my money...

Please feel free to send me your comments at skepticalcapitalist@gmail.com, Vad