Welcome new reader!

Financial news I consider important, with my opinion, which is worth as much as you paid for it.
Please click HERE to read a synopsis of my view of the financial situation.

Thursday, August 27, 2009

Worlds Largest Ponzi Scheme - The FED & US Treasury

I ran across an EXCELLENT article I strongly recommend everyone who reads this blog to read in full. ChrisMartenson was a successful VP of a company with a good living, who turned away from his lifestyle to pursue a more independent, direct approach to life, which includes following the financial world.

The blog entry, "The Shell Game - How the Federal Reserve is Monetizing Debt" is a very detailed explaination of a very complicated ponzi scheme, the US financial system. For those with attention spans of 1 minute, I will reprint the article's conclusions below in italics. I find it interesting one of the reasons I like "natural resources" was to ensure value can be kept over the next 10 years.

UPDATE: For a more mainstream view of the economy, see Mish's blog entry Creative Destruction.

Conclusion

The Federal Reserve has effectively been monetizing far more US government debt than has openly been revealed, by cleverly enabling foreign central banks to swap their agency debt for Treasury debt. This is not a sign of strength and reveals a pattern of trading temporary relief for future difficulties.

This is very nearly the same path that Zimbabwe took, resulting in the complete abandonment of the Zimbabwe dollar as a unit of currency. The difference is in the complexity of the game being played, not the substance of the actions themselves.

When the full scope of this program is more widely recognized, ever more pressure will fall upon the dollar, as more and more private investors shun the dollar and all dollar-denominated instruments as stores of value and wealth. This will further burden the efforts of the various central banks around the world as they endeavor to meet the vast borrowing desires of the US government.

One possible result of the abandonment of these efforts is a wholesale flight out of the dollar and into other assets. To US residents, this will be experienced as rapidly rising import costs and increasing costs for all internationally-traded basic commodities, especially food items. For the rest of the world, the results will range from discomforting to disastrous, depending on their degree of dollar linkage.

Under these circumstances, "inflation vs. deflation" is not the right frame of reference for understanding the potential impacts. For example, it would be possible for most of the world to experience falling prices, even as the US experiences rapidly rising prices (and hikes in interest rates) as a consequence of a falling dollar. Is this inflation or deflation? Both, or neither? Instead, we might properly view it as a currency crisis, with prices along for the ride.

Further, all efforts to supplant private debt creation with public debts should be met with skepticism, because gigantic programs are no substitute for the collective decisions of tens of millions of individuals and cannot realistically meet millions of individual needs in a timely or appropriate manner.

The shell game that the Fed is currently playing does not change the basic equation: Money is being printed out of thin air so that it can be used to buy US government debt.

My advice is to keep these potential issues and insights in sharp focus, make what moves you can to diversify out of dollars, and be ready to move rapidly with the rest. This game is far from over.

No comments:

Post a Comment