Fed Pushes U.S. Economy into an Inflationary Death Spiral

The Market Oracle ^ | NOVEMBER 8, 2010 | Michael_Pento

[RobinMasters]

It seems the Fed has given up on the idea that the country can build a viable and stable economy through the conventional means. Instead, our central bank has resorted to once again growing GDP and increasing employment by the creation of asset bubbles. This is a dangerous game that no one, least of all the Fed, knows how to play.

We learned this past Wednesday that the FOMC decided to increase its purchases of longer-dated Treasuries by $600 billion within the next eight months. That means the Fed is on course to fund about 75% of our annual deficit! Such figures are the stock in trade of banana republics. While most of the rest of the world is fighting inflation and strengthening their currencies, we are doing everything in our power to end the dollar's status as the world's reserve.

Canada, China, India, Brazil, and Australia have all recently taken steps to raise interest rates and/or curtail bank lending. Compare that to the US, which has left interest rates at near-zero for almost two years. While other central bankers are tamping down expansionary rhetoric, Fed Chairman Bernanke is on record saying that he will do everything in his power to push up inflation (which he considers too low) and dilute the dollar. Foreign central banks and other investors may soon reconsider their plans to park cash in dollar-denominated assets. In fact, there has been a series of angry statements from top economic policymakers in Beijing, Berlin, Moscow, and Sao Paolo that show rising discontent with Washington.

[RobinMasters]

[RobinMasters]

This is honestly the first time in my life that I have been intensely worried about the financial future of this nation.

[Paladin2]

Carter is assured of a higher ranking now.

[BenLurkin]

Insanity. Somebody needs to stop both Hussein and Bernanke posthaste!

[Jim Noble]

It seems the Fed has given up on the idea that the country can build a viable and stable economy through the conventional means

They gave up the conventional means a long, long time ago.

[Red Badger]

[ClearCase_guy]

You are correct. It occurs to me that in the last 10 years or so, we have been presented object lessons in financial chicanery -- Enron, Worldcom, Bernie Madoff. Front page news, trials, convictions -- clearly, bad practices were followed and many people paid a heavy price.

There's really no question that what the Fed is doing (and has done for a long time) is not very different. This game ends the way it always ends. There will be no way to avoid it: there will be much pain.

[taxtruth]

America will default unless the fed is ended.

[Blue Turtle]

What to do with savings? Take it out, leave it in? This is alarming.

[Uncle Miltie]

Build your own inflation resistant portfolio out of:

Foreign Stocks (Unhedged)
Foreign Bonds (Unhedged)
Gold
Gold Mining Stocks
Oil Stocks
REITs
TIPS
Fortune 500 Companies (which have a huge business outside of America, which when translated from strong local currencies back to the weak USD, tend to do better)
Fixed rate 30 year mortgage; go get one now

Things to avoid include:
Treasuries
Munis
Any U.S. Dollar denominated bond
U.S. Dollar denominated bank accounts or money market funds

[Jim Noble]

This game ends the way it always ends. There will be no way to avoid it: there will be much pain

But there will be much less pain if nature is allowed to take its course. Then, the dollar will collapse, all dollar-denominated accounts will be erased, Congress will define a new unit of legal tender, and we'll be up and running in a year.

All these attempts to preserve money center banks and bad mortgages are making the situation much worse.

Burn, baby, burn.

[21twelve]

self ping. Thanks for the list to look into.

[agere_contra]

You nailed it.

I would only add uranium and silver mining stocks.

[RobRoy]

>>What to do with savings? Take it out, leave it in? <<

My brother (an investment counselor) once told me that if you took $2,000 at some specific date in the early 20th century (I forget the date) and split it into two bags, one of which you converted to silver dollars (and buried in a hole in the ground) and the other you invested in the stock market, and then, in the 1990’s, pulled the bag of silver out of the ground, it would be worth more than the stocks.

The dollar has lost around 95% of its value in the last hundred years. I would not put any of my savings in “savings”. It would be in silver, gold, stocks, bonds or some other commodities, but not cash. At least, not dollars. And with most other first world countries attempting to increase the value of their currencies, converting your dollars to one of those would be, maybe, just as good.

The important thing seems to be that the LAST thing you want your investment capital to be in is US dollars.

[ClearCase_guy]

I agree. A collapse of the system sounds bad, and everyone want to avoid it -- but they are making it worse by trying to avoid the unavoidable. I said this in 2008: TARP was a mistake, because the system deserved to crash. We really could have been in a full recovery by now, if we had done nothing. Instead, we've had a deep, painful recession for two years and we are now looking at even bigger trouble. That's what "avoidance" gets you.

Burn, baby, burn -- indeed.

[politicket]

Let me ask all of you inflation worriers a question.

Why are you so concerned that the Fed is giving $600 billion of currency to the international banks in exchange for longer term US Treasury securities?

Do you really think that this action will drive rampant inflation?

If that's the case, then why hasn't the $1+ TRILLION of cash sitting in the excess reserves accounts of those same international banks caused even MORE inflation already?

What happens if the international banks take the $600 billion and just add it to their stash of existing excess reserves?

In other words, people are making a lot of proclamations without understanding or knowing what they're even talking about.

Let's deal with reality.

[sickoflibs]

RE :”We learned this past Wednesday that the FOMC decided to increase its purchases of longer-dated Treasuries by $600 billion within the next eight months. That means the Fed is on course to fund about 75% of our annual deficit! Such figures are the stock in trade of banana republics. While most of the rest of the world is fighting inflation and strengthening their currencies, we are doing everything in our power to end the dollar's status as the world's reserve. “

What is nice is this has all the elements of another perfect storm. Dems will have trouble blaming their way out of this one when everyone is talking about it now. I even heard a liberal on Jesse Jackson's 'Up Front' weekly show Saturday complaining how this will hurt the working poor.

I still remember 2005-2006 Chuckie Schumer in front of gas station being filmed complaining about the high gas prices and the greedy oil companies and how voters are suffering. Republicans were in a corner because it was Greenspan printing money when Bush was in the WH. This time we will make sure everyone knows what Obama is doing.

When will the MSM ask obama about this?

[NavyCanDo]

Has me asking the question, “What if Glenn Beck is Right?”

If he is, we as a country will not long endure, and how we go, so goes the globe. And the only course would be a One-World currency. See where I’m going here?

[Pessimist]

“This game ends the way it always ends.”

Bingo!

With the winners reaping a fortune and heading on to the next big thing, and everyone else picking up the pieces.

[Pessimist]

I think the difference - and the point you’re missing - is that this is the fed monetizing the debt: essentially printing the money to lend to the gvt.

This creation of dollars out of thin air devalues every single other dollar out there.

Someone else actually lending you the money does not.