Thursday, June 4, 2009

Printing Money, Domestic Inflation WILL Rise.

No Sunshine and Lollipops in the U.S. Economic Future
June 4th, 2009 1:29 pm | by Mike Miller of Liberty Maven

If you’ve been following the actions of the Federal Reserve, the Treasury Secretary, and big spenders in government, it’s quite clear that our economic woes won’t be over any time soon. In fact, we’re potentially headed for a cataclysmic disaster (if that’s not repetitively redundant enough for you).

The Fed has lowered interested rates to effectively zero, and is now embarking on massive quantitative easing (a fancy euphemism for printing money) which could ultimately result in the destruction of the U.S. Dollar.

China is buying less and less of our bonds, and foreign governments are holding less and less dollars in favor of the Euro or other currencies, and there are even calls to have the dollar replaced as the world’s reserve currency.

US Treasury Secretary Timothy Geithner has gone to China to calm the fears. However, even before he arrived, a Chinese central bank spokesman gave Geithner the message that the US should not assume China will continue to finance Washington’s extravagant budgets. The governor of China’s central bank is calling for the abandonment of the dollar as reserve currency, using the International Monetary Fund’s Special Drawing Rights in its place.

The method by which the Fed “prints money” is by creating money out of thin air and then uses this money to buy our own Treasuries.

Washington’s financial irresponsibility has brought pressure on the dollar and the US bond market. Federal Reserve Chairman Bernanke thought he could push down interest rates on Treasuries by purchasing $300 billion of them. However, the result was to cause a sharp drop in Treasury prices and a rise in interest rates.

As monetization of federal debt goes forward, US interest rates will continue to rise, worsening the problems in the real estate sector. The dollar will continue to lose value, making it harder for the US to finance its budget and trade deficits. Domestic inflation will raise its ugly head despite high unemployment.

The incompetents who manage US economic policy have created a perfect storm.

Life for most Americans will become truly stressful.

No sunshine and lollipops here.

Read As the Dollar Falls off a Cliff… by Paul Craig Roberts in its entirety and subscribe to Liberty Maven.

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