Fed's only option here is to debase US$, risking death
I am constantly fascinated by how almost every single action taken by the Fed since 1994 has been destructive
it often provides some measure of relief on an immediate basis
but after the initial medicine wears off, the result is much worse
by diverting the bubble into Real Estate and Mortgage Bonds, the Fed has created the blueprint for a US Depression
all it takes is for those bubbles to deflate
I expect the Real Estate (hard asset impostor) to deflate first, since the Fed will assist the continued levitation of mortgage finance
but it can do little to support buyer interest, nor prevent layoffs
Shostak is on my Genius List
he has harped on the theme of a POOL OF REAL FUNDING for a long time
I regard it as an extension of the Gresham Law
"bad money pushes out good money"
in this case
"bad newly printed fiat money pushes out less bad backed credit funds"
I expect world collective sympathy to support the USDollar
it will steadily remain based in confidence, longstanding belief in the viability of our capitalist system, responsible responsiveness, blah blah blah
then move toward self-interest in supporting the economy which is their engine, the home of their export customers, keep the giant supermall alive
finally, self-preservation will lead to abandonment
nothing will matter except getting money out of the USA
I anticipate three factors to mark the final step:
1. US economy falls into recession
2. US economy begins to realize price inflation
3. US federal deficits become monstrous (domestic + war)
the Fed will make a very large error of judgment
THEY WILL EXPECT FOREIGNERS NEVER TO TURN THEIR BACKS ON USA, thus continuing to hold TBonds as losses mount
they will expect them to continue to finance our TrezBonds
this will be their critical error
the error will become evident when the Fed kicks into 3rd gear their fabled high-tech printing press
the USA has seriously abused its privilege as world currency
what is the limit?
we are soon to witness just that, the limit
/ jim |
