Thursday, March 19, 2009

Black Wednesday ... Printing Presses to Crank Up

To most people, yesterday March 18th wasn't all that different a day save for the hypocritical excoriations conducted by Representative Barney Frank and friends at the Capitol during the day long interrogations of AIG Ceo Edward Liddy and the news of the tragic death of Natasha Richardson, actress and daughter of Lynn Redgrave, and wife of actor, Lliam Neeson.

What mostly passed notice yesterday though was the Federal Reserve's decision to purchase about 300 Billion dollars worth of US Treasury Bonds (debt) and up to 750 Billion in mortgage backed securities.

In the preceding weeks, the Treasury Dept tried to sell more US debt to pay for the Obama economic and domestic programs by offering another round of about $40 billion worth of 30 year US Treasury bonds. Notably, the subscription failed with less than half of the amount being purchased because investors either, didn't believe the treasuries were a good investment, and, or because for the risk involved they didn't pay a high enough interest rate.

To pay a higher rate of interest would spur on inflation. Something the Fed is loathe to cause.

It was not a good sign for the confidence of investors in the future prospects of the US economy.

Now, in order to purchase our nation's debt, which is a direct consequence of an undisciplined President and Congress hell bent on profligate spending and unwilling to set realistic priorities - the Federal Reserve has decided to step in to buy US debt to help prop up our economy.

This is important because the only way the Fed can purchase debt is to increase the money supply and the only way to increase the money supply is to print more, new US currency - that is, dollars. Too many dollars and too much debt result in all dollars being worth less, or devaluation.

And cranking up the presses to print worthless dollars is a major problem because it too will spur on both eventual inflation and the devaluation of our dollars - including those in the savings, and checking accounts and payroll checks of every American - as well those dollars held by foreign governments as cash and in the value of the US treasury bonds (debt) they already hold.

Printing worthless money puts all of us on the edge of a terrible precipice - one that with alarming rapidity can cause our country and the rest of the world to fall into a devastating depression.

And the Fed is going to print 1 TRILLION new dollars !

This is precisely what the Chinese government expressed as their concern when they criticized Obama and Congress about his reckless spending programs and the potential to devalue their holdings in dollars, both as currency reserves and in US debt.

In their view the Congress, Pelosi and Obama are acting like drunken whores on a shopping spree with a credit card - a credit card that belongs to the Chinese. Reallistically how long will it be before the Chinese, in an act of self preservation and desperation, cancel that credit card ?

The rest of the world is very pissed off at the change in their economic fortunes because of all of the toxic debt and assets that were created here and subsequently packaged and marketed to them - they see us accountable for it. They intend to hold us accountable for it in due course.

That accountability is already taking form with discussions about replacing the US Dollar with another "world" currency - if and when that occurs - the US and its citizens will really be screwed.

Why weren't you listening Pelosi and Obama ? Over the past 2 months the Chinese have sent earlier warnings about their posture on it. And while there have been no public disclosures as yet, the Chinese have almost certainly beaten up Hank Paulson over this issue during his watch.

Obama is too concerned about pushing his Socialist agenda to give much thought to economic and other realties.

Pelosi on the other hand, famous for wasting tax dollars on jet travel, has a real problem with hearing, and comprehension. While she protests she supports real protection for US taxpayers and their money - she has a bug for the Chinese about their internal domestic human rights policies and treatment of Tibet, because the Chinese audaciously do not conform to her "San Francisco" values and beliefs.

At the G-20 summit Obama's pleas for European Union support of his economic plan was rebuffed by Germany, who basically said that his reckless spending was not the solution and more likely to cause greater economic harm to both the US and the rest of the world. Ow ! - that was a slap in the face, wasn't it Obama ?

Ironically, Communist China, moving quickly and massively in cutting taxes to improve its economy is acting more like a capitalist nation than the United States, which under the Obama/Pelosi's leadership has rejected tax cuts in favor of uncontrolled reckless spending.

The Federal Reserve purchases will bolster concern that inflation will accelerate as borrowing costs fall, said Jessica Hoversen, a foreign exchange analyst with MF Global Ltd. in Chicago.

“The Fed is basically financing our deficit by buying the debt issued by the Treasury,” she said. “If the Obama administration pushes through another stimulus package, the dollar is done.”

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