The Long Crisis

Posts Tagged ‘fiat currency’

On Wednesday of this week the Bernanke Fed announced a wild ass plan to save the world from depression . It appears to me that Helicopter Ben and the Fed have gone into a full press panic mode and hit the printing press button big time.

The numbers were so big they were hard to follow. Computer money must be easy to create but I doubt if it will be so easy to control.

$300 billion, was the number Bloomberg reported. $1 trillion, opined the New York Times. $1.2 trillion, was the number tossed out by the Washington Post.

As it it turns out all of these numbers are correct. The Fed stated that it was going to buy $300 billion of U.S. Treasury bonds…and more of other securities – notably bonds from Fannie Mae and Freddie Mac.

Maybe Ben Bernanke will be able to do what no central banker has ever been able to successfully do in the history of the world. Bernanke actually thinks that he can create fiat money to first put the brakes to deflation and then to reflate by just the right amount. A Goldilocks solution. Not too much, not too little. Damn! Ben thinks he is so clever. What a fellow.

In the past, central bankers always tended to overdo it. There are not many examples to examine. There is a reason for this as the results were always horrible. In the 18th century France, England and America gave ‘quantitative easing’ a go. There are practically no examples in the 19th century as for awhile the bankers seemed to have learned their money creation lessons. In the 20th century only desperate marginal countries, countries in truly impossible situations, engaged in ‘quantitative easing’.

Germany tried it in the 1920s, because her war reparations burden was greater than she could sustain. The end result was a hyperinflation that lead to the rise of Hitler and WW Two. Argentina did it in the 1980s, because she owed too much money to too many foreigners and could only pay the debt off by at first printing worthless money and then when that didn’t work defaulting on its’ sovereign debt. Argentina manged to destroy its middle class in the process.

The most recent entry into economic madness, was and is Zimbabwe. They did it in 2003-2009 with results so terrible that a formerly prosperous nation has been destroyed with inflation so high it won’t even compute into understandable numbers. The preferred currencies in Zimbabwe now are cigarettes and beer. And now the US has decided to play the same currency debasing game. Bernanke must not be a very good history student.

There are not many examples because the consequences of over doing it are so horrible, so destructive to an economy, that central bankers generally have been afraid to do it. Quantitative easing was always a possibility, a weapon in the central banker’s arsenal, but it was always a last resort…kind of a Dr. Strangelove thing like riding the nuclear weapon right into the target and maybe missing that target by just a tad and blowing up a division or two of friendly forces. It was something you did when you knew you’d lost the battle already but were stupid enough to think that you could pull off a miracle.

When the news from the Fed hit the wires stunned forex traders quickly regrouped and hit the dollar sell button. The dollar fell against the Euro by the greatest amount since the birth of Euro trading in 1999. Gold buyers had trouble finding sellers. Gold rocketed by about $60 an oz. almost all at once, and finished the week $80 higher. Crude oil and all commodities immediately soared. The outlook is for more of the same. The great inflation has started in the commodity markets.

Poor Ben Bernanke and President Obama. Both inherited a mess from Alan Greenspan and President Bush and both are earnestly and actively trying to fix the problems and save the US from depression. However, by being so active, and being over confident that they can control events in the financial markets and the real economy, they are making matters worse. Much worse.

With ‘quantitative easing’ now out in the open the stage is set for some very unpleasant fallout. China, the largest lender to the US, was already nervous about the 1.4 trillion or so in dollar holdings in their treasury. Russia, the UN, and other nations, have been calling for the end to the US dollar as the world’s reserve currency. Now with the Fed’s announcements worried thoughts will likely be put into action.

The fallout to the US economy and overall standard of living in the US will be disastrous. We are on the path to self destruction. Not that the United States will disappear. But the prospect of third world conditions being realized, with a weak currency that is no longer wanted, and competing for oil and other commodities in dollar terms when the dollar is worth little, is high.

As inflation follows deflation look for yet another panic at the Bernanke Fed. But then it will be too late. A default on the mountain of US debt or even worse a war against the world will set the United States back a hundred years. Panic will be a common condition in Washington and across the nation.

Even if you doubt the outcome of the Fed’s actions will not be as grim as set forth above you should be buying some gold as well as survival supplies. Just in case. We can now be assured by the Fed’s quantitative easing actions that we will have a long crisis.

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Famous investment gurus Warren Buffet, Jim Rogers, and Marc Faber all have gone on record over the past few months to say that the U.S. government would start buying its own debt… which would stoke inflation down the road. Today was the start of that dangerous attempt to boost the fast dying economy.

The Federal Reserve announced today that it would buy $300 billion of long-term Treasuries to keep interest rates low and help along the economic recovery. Of course, it is only fiat money. No real work or toil will create the money it takes to buy the debt. The money will be created at the stroke of a computer key. Short-term, it will boost a lot of asset classes but long term, the move is going to be a massive disaster… so get ready. Own gold, real assets, and bet on higher rates not all that far down the road.

The Federal Reserve’s move was one of several actions taken Wednesday aimed at making it less expensive to borrow money. The Fed signaled that it will boost the size of its balance sheet to more than $4 trillion. Today’s moves double the amount of money the central bank has poured into the economy to try to stimulate economic activity. “The Fed has upped the ante on its policy actions, and in a big way,” said Richard Moody, chief economist at Forward Capital LLC in Austin, Texas.

Has the great panic started? It would certainly seem so.

The gold market exploded on the Fed action news and the gloomy nature of the FOMC report,with the spot price advancing by more than $60 an oz. Look for gold above $1,000 an oz. again by the end of next week. The dollar plunged against major currencies. This is the signal that the dollar doom and gloom traders have been waiting for. During the period of deflation which we are presently in the Fed is sowing the seeds for hyperinflation.

The Fed, especially Chairman Ben Bernanke, are foolish to think that they can fine tune the trillions of dollars in cash that they are unleashing. Never in the history of the world has a central bank been able to control events once the printing presses were turned on at flank speed. It appears to be a doomsday scenario for the already fatally flawed US dollar.

The government, lead by the Federal Reserve bank, is on its’ way to creating the worse of all worlds. Russia and the UN are already calling for an end to the dollars reign as a reserve currency. China, our largest lender, for the first time stated publicity that they are nervous about their dollar holdings.

The dollar’s fall from grace as a reserve currency will hit Americans hard and further reduce living standards. America will not be able to spend beyond its means and then borrow to cover deficits nearly as easily, if at all.

If you live in America hard times they are a coming. By far the worse is yet to come. I see nothing on the horizon that will mitigate the long crisis.

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