Friday, March 27, 2009

South Park: How the Financial System Really Works

Sunday, March 22, 2009

Dollar Devalued Yet Again

Check out this post. Here's a summary (emphasis mine):
On Wednesday, right around the time the US markets were winding down, the Dollar was deliberately devalued. Everyone in the world watched it happen, except for Americans, who were outraged or offended by some manufactured distraction, as usual. The Federal Open Market Committee {FOMC] published an historic press release. Here's an excerpt:

"Job losses, declining equity and housing wealth, and tight credit conditions have weighed on consumer sentiment and spending. Weaker sales prospects and difficulties in obtaining credit have led businesses to cut back on inventories and fixed investment. U.S. exports have slumped as a number of major trading partners have also fallen into recession...."

So what does that mean?...

It means the Federal Reserve is now printing its own money. It's a defacto devaluation of the U.S. Dollar, with a promise of more to come. The Federal Reserve is going to buy everything in America that's not nailed down, throwing another $1,150,000,000,000 lifeline at markets...

President Obama may have no other choice than to take this route as foreign investors grow wary about the capability of the USA to service its debts. We will see less participation in Treasury auctions, since sovereign wealth funds will likely decide that domestic investment is probably a better idea that depreciating Treasuries. For the time being gold investments will look like a safer place to hold wealth, along with oil, silver, and certain other commodities.

Maybe Ben Bernanke will be able to do what no central banker has ever done before: put in just the right amount of inflation... not too much, not too little.

[How successful will Bernanke be at 'quantitative easing'?] In the past, they tended to overdo it.

There are not many examples. France, England and America in the 18th century. Practically no examples we know of in the 19th century (they'd learned their lesson!). And in the 20th century - only marginal countries... or countries with nothing left to lose... engaged in 'quantitative easing.' Germany did it in the 1920s, because her war reparations burden was greater than she could sustain. Argentina did it in the 1980s, because it owed too much money to too many foreigners. And Zimbabwe did it in 2003-2009, for reasons of its own.

There are not many examples because the consequences of over-doing it are so horrible, central bankers have generally not done it at all. Quantitative easing was always a possibility... but it was always a last resort... like blowing up the powder and spiking the guns; it was something you did when you knew you'd lost the battle already.

While all this was happening, the American people were off gnashing their teeth over the relatively miniscule AIG bonuses. And then Obama went on Jay Leno, which had to be discussed, and then he spoke to Iran, which was a big deal. And then there's Limbaugh and Beck to bash. Plus, the Special Olympics. And so it went.
Want more? How about this post over at Seeking Alpha which probably should have been titled "The United States of America is Now a Banana Republic".

Anyway, I think it's pretty clear that the U.S. government doesn't need our money. I mean, if the Fed can manufacture money, any amount, at will, out of "thin air", whenever it feels like it, then the Federal government doesn't need nor deserve our hard-earned tax dollars. We might as well keep it for ourselves (to buy gold, as kindling for a fire, you know, for stuff of real value).
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