The Fed Conjurs Up $600 Billion

In an effort to support sagging interest in US Treasuries, the Federal Reserve has resorted to what they call "quantitative easing" which is a fancy way of saying creating new money out of thin air.

What they are effectively doing is monetizing the losses by both the banking sector and the federal government, by which I mean stealing wealth from every person who holds US dollars to pay for boneheaded mistakes at the highest levels of power.

The Fed has couched this new money magic in a false effort to, well, I don't know what bullshit they're spinning this time. Increase demand, increase lending, reduce interest rates, support the stock market, stimulate the economy. Whatever, don't believe them. This is yet more trickery to hide the fact that America is in a deep, deep hole.

It's as if the Chilean miners were given massive doses of hallucinogenic drugs to help them forget that they were buried thousands of feet below ground. Unfortunately, the drugs eventually wear off, and you're still 2,300 feet underground.

On the news of fresh, new money, stocks jumped, as did gold and silver. The new money shocked the stock market up sharply, and the loss of faith in the dollar pushed more investors into already inflated gold and silver.

Those in the know can see right through the Fed's trickery and are making out like bandits. Everybody else is getting royally screwed, but probably don't even know it.

The Fed is playing roulette with the wealth of an entire nation. The fact that so few people are outraged is proof that Americans are woefully uninformed about their own monetary system.

Or, as Henry Ford once said, "It is well enough that people of the nation do not understand our banking and monetary system, for if they did, I believe there would be a revolution before tomorrow morning."

Value of the Dollar

I posted something similar before, but this graph goes even further back in time, showing what happens to the value of a currency when it is no longer backed by a tangible asset. It isn't pretty.

Betting Against the Greenback II

India is also hedging against the US dollar, and has moved 2.3 percent of its reserve holdings into gold. This $6.7 billion deal to buy 200 metric ton signaled bullion markets yesterday, which have pushed the price of gold to $1084.50.

Central banks, after many years of selling gold reserves, have reversed course and are rapidly driving up the price of gold with large purchases.

If you're looking to speculate on gold, China and the IMF are still likely to make large purchases of their own. Also, gold still provides a safe investment in uncertain times.

Betting Against the Greenback

Amid crushing federal deficits, zero-interest financial bailouts, and a struggling US economy, it is hard to find something to smile about, unless your Warren Buffet.

Warren Buffett has made what he calls an “all-in wager on the future of the United States”, spending $US26 billion on the rest of Burlington Northern Santa Fe railroad.

...

Burlington Northern is a proxy for the competitiveness of the US economy, since its main business is hauling coal and grain to the coast for export.

The latest Institute for Supply Management survey for the US, out yesterday, showed that the lower dollar is already helping: the manufacturing sector grew in October for the third consecutive month and at the fastest pace since 2006.

Buffet's strategy is two-fold: as the dollar falls, he protects his wealth by staying invested in inherently valuable assets. A wise move, but the really clever part is that the profits of Burlington Northern are tied directly to American manufacturing and export growth.

As the dollar gets weaker, Buffet's new acquisition does more business.

A shrewd move indeed.

The Gold Standard 2.0

For the longest time, I have disagreed with Ron Paul's call to return to the gold standard. I thought, how can this possibly work? In order for our economy to grow we must have a growing money supply, right?

Maybe. But it's impossible to accurately measure and predict economic growth, so we can't grow the money supply at exactly the same pace. So to be on the safe side we print a little extra each year, which decreases the purchasing power of each dollar already out there, and we call it inflation.

In a gold system, as the economy grows, instead of regular inflation we would have regular deflation, as the purchasing power of our gold steadily increases.

A cursory Google News search turned up some interesting analysis:

Now, a small amount of gold can go a long ways - global trade in 1913 was huge, and not matched until the mid-1990s. (I know that may seem hard to believe, but things fell a long ways down due to WWI and then the Great Depression). It was based on a 90-day instrument called a Real Bill, backed by gold held in the Bank of England. This Bills could be used to borrow against, and traded multiple times. A merchant in England contracted for cotton in the US to be shipped to a plant in China to be manufactured and shipped back to a store in London. The same, single Bill would be used at each step and often got traded or ‘discounted’ over 20 times. It all got cleared within 90 days and everyone paid off their debt - the many swaps down the chain simply paid off each other. (If you play with the math you can see it works.) As long as the balance of trade of the Bank of England was even, no net gold went in or out; it simply got shuffled in the vault from one bin to another. A small pile of gold could support a huge and growing trade system.

...

[Real Bills] were an emergent property of capitalism, arising early-on in the Italian city states, and hence were a very resilient system. Yet they died during WWI and have been largely lost to economic history. Instead we have commercial paper and other short-term instruments to finance trade, and are beholden to the whims and fancies of the banking sector.

The gold standard has been used for thousands of years. This recent fiat business is a scam perpetrated by governments trying to avoid their debts, and we're all paying for it.

Consider This

Because of inflation the dollar is worth less than 4 cents compared to 1913, the year the Federal Reserve was created.

See the value of the dollar change over 200 years.