far into the future and that the present low economic returns are due to not fundingareas with potentially better returns. Some economists say that spending oninfrastructure and education provides the best returns. However, with economistssuch as Nobel Laureate Paul Krugman and numerous others predicting hugecontinuing deficits for years ahead, and with a Japan-like slump in economic activity,the odds are likely that any new borrowed dollar will continue to provide only poorreturns for years to come.A further, major reason for the coming debt scarcity will be the tremendouslyimpaired financial condition of the banks. The values assigned to many bank assetsare fictional according to numerous experts. QE2 is about many things but one of them is aimed at delaying the potential for implosion of the banking system. In2009, the Financial Accounting Standards Board (FASB) caved in to government andbanking industry lobbyists to allow many bank assets to be ‘marked to fantasy’ andnot ‘marked to market.’ This viewpoint is best expressed by highly respected Associate Professor WilliamBlack (and formerly a senior regulator who nailed the banks during the savings andloan debacle) and Professor L. Randall Wray, who wrote an article on October 22 inThe Huffington Post, entitled, “Foreclose on the Foreclosure Fraudsters, Part 1: PutBank of America in Receivership.” They wrote that, “FASB's new rules allowed thebanks (and the Fed, which has taken over a trillion dollars in toxic mortgages aswholly inadequate collateral) to refuse to recognize hundreds of billions of dollars of losses. This accounting scam produces enormous fictional ‘income’ and ‘capital’ atthe banks.” However, the Federal Reserve may be realizing that it might not have been such agood idea to buy some of these ‘toxic’ securities. Bloomberg reported on October 19that, “citing alleged failures by Countrywide to service loans properly… PacificInvestment Management Co., BlackRock Inc. and the Federal Reserve Bank of NewYork are seeking to force Bank of America Corp. to repurchase soured mortgagespackaged into $47 billion of bonds by its Countrywide Financial Corp. unit, peoplefamiliar with the matter said.” Also, on November 2, CNBC reported that Citigroup could be liable for huge amountsof toxic security buy-backs as well. “If all four mortgage acquisition channels turnout to be equally as defective… Citi's liability for repurchases could soar to about$100 billion dollars at a 60 per cent defect rate - and to around $133 billion dollarsat an 80 per cent defect rate.” Clearly, such numbers are staggering. These, as well as many other banks andfinancial entities, could collapse. Politically, in the present circumstances, it would bedifficult for the US government to provide massive new funds to support the financialsystem. Therefore, it will be up to the Fed to decide what to do.If the Fed prints ever increasing amounts of new money to try to moderate thefinancial collapse, hyperinflation could be the result. If it does not print massiveamounts of new money, a deflationary depression could be born.In high inflationary or hyperinflationary conditions, few will want to lend as they getpaid back in dollars that are declining very rapidly in value. In a deflationary episode,lending is reduced due to huge loan losses. Therefore, during either, and/or aftersuch events, debt scarcity will be in full force.