Everything I have read from the guys that read rothbard is that the only political option that is palatable is to let the dollar fall - they are not going to save the dollar at the cost of everything else. Debasement is the future.
sfgroup.org
At some point, the markets will pick up on what money growth actually means for present and future inflation, and realize the Fed is getting "way behind the curve" in raising interest rates. When this occurs, we will position for a big "Humpty Dumpty" fall in the dollar. (he must be reading Russ - humpty dumpty - hehe)
bankdersysrisk.blogspot.com
Further on the theme above a period of hyperinflation would occur as the Fed tries to save us from a collapsing housing market and softer consumer demand. The Fed adds more and more liquidity to the system to stave off a sharp economic decline. By not publishing Repos (RPs) as noticed in their bulletin above the Fed again is hiding what they do on a day to day basis. This will make it difficult for both currency traders and equity traders to know what the Fed is up to.
The conclusion is that the Federal Reserve will be hiding a debasement of the US$.
.....The final answer is, even though a housing crash may be initially deflationary, it will lead to massive inflation of the dollar as the government tries to save the banking system.
Will this work, can this save the housing crash, and more importantly, the banking system?
In short, No.
Why the hell not.
Banking has changed in the last 20 years. Our banking system no longer is the only major entity that is creating “leveraged money”. With advent of modern derivatives, lenders have been able to take mortgages and turn them into bonds called mortgage backed securities (MBS). These MBS’s are sold on the international market. Many countries use these MBS’s as core assets for their banks.
American also has a negative trade balance. This means that when we buy goods from other countries, we receive these goods and they receive dollars. They have so many dollars that if they were to trade these away to other countries the value of these dollars would devalue.
This is not that bad, however, the US dollar is also the world’s reserve currency. This means that many countries use this currency as a hedge against fluxuations in their own currencies. If the dollar devalues, than their core assets devalue, this can lead to a banking crisis in their own countries.
In order to prevent this situation from happening, these countries buy US debt in the form of our sovereign debt, corporate bonds, and MBS’s. This causes these countries to obtain even more assets that are terms of the US dollar.
If the US monetizes this much debt as to save the banking system from the housing debt, then the US dollar shall devalue. This will cause all financial instruments based on the US dollar to devalue. Therefore other countries banks to go into crisis as their core assets devalue.
Why the hell should we care anyway? Screw those losers.
When lending institution goes into crisis they must get rid of assets in order to maintain their fractional reserve. This means that they must shed corporate bonds, stocks, and other assets. They are also likely to not honor their debt with other banks throwing these banks into crisis.
Hedge funds, which borrow billions from banks, leverage their investments 20 to 30 to one. Even small changes can destroy these investment institutions. This will cause the hedge funds to become insolvent and bankrupt.
Now, since the US has saved the housing crash by monetizing the debt, it has now gone back into crisis as other outstanding debt is not honored due to global insolvency.
Remember, the US is not the only country with a housing bubble, most of the G-8 countries also have housing bubbles. All of these bad debts just boomerang back at you through the equities and derivatives markets. There is just no way to avoid it.
There comes a point where too much money is at risk. At that point, due to the mechanics of the fractional reserve system, there is no way to save the banking system. If the banking system goes the currency goes.
Chromatic Dispersion |
