on the $us and her debt.

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    It is in THIS situation that the Fed has now chosen to bring to the fore, once again, the "deflation beast". Their reason for doing so is simple. The Bush Administration is deficit spending to an extent never before matched in US history. The Treasury cannot raise the money needed by "normal" methods because it has been bumping its head against its debt limit of $US 6.4 TRILLION since February 20. This being the case, the Fed has no alternative but to (in Mr Bernanke's words - see above): "cooperate with the fiscal authorities.. The Fed is shovelling money into the commercial banks to allow them to "buy" the debt paper which the Treasury must sell, but which it can't sell by "normal" means because of the debt limit.
    Next week, the US Senate considers raising the debt limit. It MUST act before it stands in "recess" next Friday (May 23). If it does not, the Treasury will stand in DEFAULT on ALL its debt, no matter what the Fed chooses to do.
    The present situation is utterly extraordinary. No sane, or even insane, economist of the past two or three centuries could have dreamed it up as a possible scenario to be studied. The US Dollar is plummeting, right along with Treasury yields. The prices of SOME goods which the US imports, and SOME "consumer durables" is falling, while the prices for housing and services of all descriptions is SOARING. The US stock of money is blowing out (textbook INFLATION) while REAL economic activity (read manufacturing) is hitting lows unseen since WWII.
    What we have is something which has never been seen before in economic history. We have a global liquidity crisis in a GLOBAL FIAT MONEY SYSTEM. Liquidity crises are anything but new, there have been dozens affecting individual nations or groups of nations over the last decade. Japan has had one for more than a decade. A global fiat money system is not new, it just "celebrated" its thirtieth birthday (global currencies "floated" in March 1973). But the present combination of events - a liquidity crisis affecting the nation whose currency supports the global fiat money system - IS new.
    The US is pumping UP its money supply at the same time as it is forcing DOWN its interest rates. It is creating a situation in which holding its currency is an "all risk - no reward" proposition. It's fiscal and monetary bureaucrats and its government actually profess to believe that a currency treated in such a manner can not only remain viable, but will remain acceptable globally as the world's "RESERVE CURRENCY". We have news for them - IT CAN'T AND IT WON'T!
    In the face of this, Gold cannot help but rise, and it is indeed rising in US Dollar terms. But so far, the rise is in no way keeping pace with the path of destruction which the US Dollar is following, desperately aided and abetted by both the Treasury and the Fed. To profess "concern" with the prospect of falling prices, as the Fed is now doing, is preposterous. What the Fed is REALLY concerned about is that the credit-creating profligacy of the past decade is about to turn and savage its author.
    The great fear now is what will happen when the Treasury DOES get a new debt limit and can legally go back to its "normal" methods of selling its debt paper. At that point, the UPWARD pressure on US market rates will be let loose. And at that point, the task of keeping the $US Gold price "under control" will prove impossible. THAT is what the Fed is trying to distract the markets from by yelling about the dangers of "deflation".

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