Bernanke, QE and the Decline of the Dollar
[Note: This is a brief essay I wrote to myself in mid-September, about my concerns of America's ability to maintain its economic dominance. Currently, I am more optimistic than I was before about our ability to maintain the empire, though I am not so optimistic about the U.S. dollar.]
The Federal Reserve chairman Ben Bernanke has just announced a third round of quantitative easing (QE) that will be open-ended and that will be directed toward mortgage-backed securities, in an effort to artificially prop up the real estate market and give Americans a greater sense of wealth, so that they will spend and bring the economy out of the doldrums. QE is just a fancy term for printing money out of thin air to prop up securities. This will not work because the real estate bubble that burst was brought by artificially cheap money from the Federal Reserve, due to very low interest rates in the previous decade. A sane policy would allow the market to correct itself, the people and nation to deleverage (lower debt) and would allow a rebuilding in a more authentic manner. Similarly, the Europeans (via the European Central Bank) have decided to print money to artificially prop up the bonds of the periphery nations, and have decided to “sterilize” the money — that is, to shift it around so that it does not affect perceptions of the money supply — though savvy investors are not fooled by such maneuvers.
Currently, a majority of Treasuries (more than 60 percent) are purchased by the Federal Reserve and U.S. government, which means there is little real market demand for these promises as investments. Similarly, the bond market in Europe is artificially propped up via ECB injections of cash into the banks, which must continue the paper charade lest they get swallowed into the abyss via free-market interest rates.
The money supply in the U.S. continues to grow at a parabolic pace, and with open-ended QE, meaning QE that will not stop until certain metrics are achieved in the economy, however improbable, it will continue in this pattern. This will mean higher gas and food prices, and ultimately higher prices generally as gas prices impact the whole economy. The media will deny that such price increases are the result of Federal Reserve actions, and will likely blame increased demand despite a global recession, or perhaps the scheming of OPEC. Logically, the more money you print the less each unit of that currency is worth. Yes, with a recessionary credit contraction there are deflationary pressures, but with a sharply increasing money supply that is diverted to commodities and stocks, there will be obvious inflationary pressures in pockets of the economy.
In the end, Bernanke’s paper puppets — the Wall Street charlatans and the commoners who break loyalties over Federal Reserve notes, as well as higher-level media presstitutes — will drown in his tsunami of worthless paper. Real, tangible assets will maintain and perhaps increase in value, though it may be too late before many decent people realize real assets from fake Federal Reserve notes. Hopefully, the Federal Reserve will finally be discredited once this occurs. And hopefully, people will realize what is really valuable in life once the greenback sinks.