How to Transfer Wealth

I just picked a bank at random and retrieved these figures for 12/1/2009:

For savers: 12 month Certificate of Deposit: 1.25 % return
For borrowers: Credit Card Interest Charged: 19.99% ; 30 Year Home Mortgage: 4.875%
20 Year Home Equity Loan: 6.49%

So it would seem banks would be lending lots of money because the rate at which they pay versus the rate at which they charge is really big. They should be making tons of money!
But they are not lending because even though the spread is huge, there is a risk free way for them to make even more money.

STEP (1): The US Federal Reserve bank creates money out of thin air and makes it available to preferred banks at near 0% interest.

STEP (2): Preferred banks borrow money from the Fed at 0%.

STEP (3): The Preferred banks use this money to buy US Treasury certificates that yield more than 0%. Example: 10yr yield is greater than 4%.

STEP (4): US government pays the interest to the preferred banks using Taxpayer dollars.

WHY BANKS DON’T LEND:
So… if you were a bank, why would you ever lend any money to individuals when you can lend it to the US government who will in turn take money from its citizens to pay you back. All this accomplished by using money that doesn’t really exist which you borrowed at 0% interest.

WHY AN ASSET BUBBLE IS FORMING:
Shaving a couple of interest points from the US government can get boring after a while. So, why not take some of that money and start buying domestic and foreign stocks. After all, the money is free and you, plus other banks, will all start buying and pump up the stock market creating a “herd mentality”. Maybe even get your friends at the FED to buy index futures with additionally manufactured dollars to really accelerate the rise in the stock markets.

WHEN WILL FED INTEREST RATES RISE?:
Never. What has been created is a massive “carry trade” at an unprecedented scale that can never be unwound. Besides, in the old days the FED raised rates so banks, in turn, would raise rates to cool down the economy by making credit tighter. Credit is already tight at 0% so there is no need to raise rates because it would have no effect.

WON’T ALL THIS MONEY CREATION CAUSE INFLATION AND REQUIRE THE FED TO RAISE RATES?:

No. We are in a well hidden deflationary spiral. As more and more individuals have less and less money because it is being taken away from them or they are jobless, local prices will fall- eventually resulting in labor rate parity world wide.

When people can’t afford things the price naturally falls. This is why the US housing market is not done falling and won’t stop until median home prices begin to align with median incomes.

Imported goods will become more expensive and therefore appear inflated but that is just currency effect without change in real prices. However, imports will slow because no one can buy them- eventually resulting in global economies becoming regional. That is- local goods, produced locally and consumed locally.

And besides, the FED is not really creating money because the money is not being allowed to fully enter the economy. We are simply point shaving here and the preferred banks only have to pay back the principle (0% interest rate effect) or even if they default- who cares the money didn't really exist in the first place!