Here’s something to think about before taking to your beds of a Sunday evening.

Despite running the world’s largest balance-of-payments deficit and largest domestic government budget deficit, America has the world’s lowest interest rates and easiest credit. The Federal Reserve has depressed the dollar’s exchange rate by providing nearly free credit to banks at only 0.25% interest.

As we’ve discussed many times before, the gap between 0.25% borrowed and then 2.5% invested in US Government Bonds is a nice fat 2.25% for the Big Banks – a real margin in absolute terms of 1200%…for doing nothing.

The Fed’s supposed policy objective in allowing this is to keep property prices from falling too far, minimise further local bank defaults, and lower the $ exchange rate to help US exports. Here we can be very precise in saying that precisely 0.000% (recurring) of these aims have been met.

But the megabanks’ balance sheets have been largely restored. And careful research shows that both the Fed Treasury and Reserve are stuffed with…..bankers who used to work  for megabanks.

Now although this is intrinsically dangerous, let’s extrapolate that trend forward to a time when – not too far into the future – the US deficit is so big (and its debt so astronomical) as a result of Bushist and  Obamist fiscal illiteracy, the spread between ZIRP stupidity and US Bond yields is (say) 5.5%. No megabank will ever have to lend to anyone again unless it expressly and quixotically decides it wants to. The Big Five banks in the US will effectively be the Government: bigger and richer because they have sucked all the tax monies out of the Fed, and able to dictate everything from what gets built and who gets welfare to which multinationals get to finance their acquisitions – and which media tycoons get to have news reports.

Ah but ah but, I hear you say, won’t all that get stymied by what the US currency is doing? To which my answer is, probably not. International currency speculation and investment is much, much bigger than the volume of commodity trade: the days when a currency reflected the manufacturing output and trading health of a nation are long gone – if you don’t believe me, look at the euro today.

All you’d have to do, as the ‘Bankerment’, is keep on telling the media (that you’ve chosen to broadcast on-message) how interest rates must remain low to stimulate the economy and help the US to recover as soon as possible. The Buck would fall more and more, but fewer and fewer Americans outside the Bankerment would travel abroad – only 19.7% of US adults even have a passport today. Thus nobody would really notice their lost spending power….and as the Bankerment had performed an ongoing 100% negative Federal headcount re-evaluation, everyone would’ve been given an enormous tax cut.

China would quickly find its exports to the US decimated because Americans could no longer afford Chinese goods. Also the US debt to China would get doubly smaller as a result of inflation and a massively reversed trade imbalance between the two countries. These factors – allied with the abolition of US welfare on account of all the recipients being dead from starvation – would augur in a Golden Age of cheap and innovative hitech American exports – plus a top-end sector selling ourageously luxurious consumer goods to the growing number of Chinese billionaires. And finally, emigration out of the US to the newly-rich South American nations would soak up the last of the unused labour force. For the first time since 1950, the United States of America would have full employment and the world’s biggest trade surplus at one and the same time.

Chinese politicians would, of course, make waves at international trade conferences about the Bankerment’s human rights record, and the outrageous downward-manipulation of the dollar’s real exchange rate. But the Bankerment Politburo housed in New York’s showpiece Blankfein Congressional Dome on Wall St could afford to smile (and ignore) such blatant sabre-rattling.