Quantitative Easing By Fed Is Predictably Failing

by Trace Mayer, J.D. on June 30, 2009

Reading time: 6 – 10 minutes

The Federal Reserve has embarked on a perilous journey of quantitative easing. On 18 March 2009 I predicted the Federal Reserve Will Fail With Quantitative Easing.

In the June 2009 Special Issue from Sprott Asset Management the billionaire Eric Sprott declared, “The Federal Reserve’s policy of Quantitative Easing is failing. The US budget is ludicrous, spending is out of control, spending promises are out of control, the world knows it – and we know it.” The policy of Global Quantitative Easing is going to result in significant additional turmoil and destruction of wealth.

BUDGET DEFICIT

The Obama administration is robbing other people’s wealth and spending it like a starving laughing hyena scavenging the rotting pelt of an almost deceased diseased wildebeest. As Mr. Sprott observes the projected deficit is $1.845T and must come from foreign and international holders, mutual funds, state and local governments, the Federal Reserve or other investors.

There have been plenty of public comments by various officials about avoiding the FRN$ as Resurgent Russia Is Discharging Dollars and Brazil Is Bucking The Buck. China would rather have physical gold bullion such as the entire International Monetary Fund hoard.

Mr. Sprott concludes his analysis with “We have concluded that the majority of traditional buyers of US debt will be unable to increase their purchases this year”.

As I wrote about 9 June 2009 in Current Dollar Currency Controls “There is not enough real capital, private liquidity, to sponge up all the bonds the incontinent government is selling; 10-20x per month more than a few years ago.”

So who or what holds all these government liabilities that are spewing into the cesspool that constitutes the modern financial markets?

Well, 42% of US debt is with ‘Intergovernmental Holdings’. As Mr. Sprott teases out, “The debt holdings are held in accounts for the various trust funds the US manages for its future obligations – the largest of which are set aside for Social Security and Medicare.”

MASSIVE INFLATION

Inflation, under the traditional definition in the Austrian school, is an increase in the currency supply. The adjusted monetary base has exploded.

Some economists, either ignorantly or worse the deliberate psycho-sociopathic court economists like Paul Krugman and Greg Mankiw, assert that inflation is increased prices. But just as wet streets are not rain so likewise rising prices are a consequence of inflation but not inflation.

Argentina, a country fraught with political risk, is politically manic depressive like California. The Argentine economy continues evaporating like the dusty farmland of Salta and crime is escalating. In the recent June elections Argentine President Cristina Fernandez de Kirchner lost significant political capital. Her party’s legislative advantage disappeared and they retain only 36 of 72 Senate seats and her husband, former Argentine President Nestor Kirchner, lost his parliamentary seat. This vexed country is a likely template for America’s future.

Like a snake striking a clueless mouse so likewise a currency crisis crumbles the businesses and fortunes of the unprepared with blistering speed. Not only has there been massive inflation but political risk in the United States, such as the new policy of preventative detention, is increasing and evaporating Treasuries.

There are few safe havens to consider and many begin to wonder how to buy gold or how to buy silver. But perhaps the best investment is a 72 hour kit and three month supply of food; eat what you store and store what you eat. Food is a great investment, not subject to counter-party risk, a natural hedge against inflation or hyperinflation and in most cases not subject to capital gains taxes or exchange controls.

PROMISE BREAKING

The United States has made too many promises and will be unable to perform. Like a lame geriatric ward hosting a sprint race the United States is delusion about its own abilities and capacity to produce wealth. The Federal government is a giant wealth vaporizing machine and for the safety of its citizens and the world its destructive force needs to be capped by the Constitution and its pieces traded off by the 10th Amendment.

This can be started by asking what is a dollar? Another step would be to begin using digital commodity currencies, like GoldMoney, as an alternative to the current financial system with their destiny as an eventual substitute. There can still be regeneration instead of repression.

But like a beautiful tapestry of freedom, peace and prosperity that hides a cement wall; the derivative illusion that has fooled the American people for four decades with their current standard of living is being viciously ripped away revealing the dark, dank cell of tyrannous government.

The irony is the politicians are taking actions not to live themselves but to ensure their human livestock dies. The livestock is rapidly realizing this is not the hope and change they were looking for and the young should learn how to vanish.

This massive real estate and stock market crash was foreseen and written about in 2004 by Robert Kiyosaki in Prophecy. While his book made startling predictions on a massive scale I think they were still too small.

CONCLUSION

The massive budget deficit is causing the United States’ balance sheet to hemorrage cash. To fill the gap they must issue an immense amount of debt. The private market cannot sop it all up so inflation has exploded along with the policy of global quantitative easing. America’s wealth generating capacity is being rapidly destroyed as millions of Americans lose their jobs and civil liberties. The self-feeding cycle of budget deficit, declining dollar, job losses, budget deficit, etc. is accelerating.

This is neither an ordinary recession nor a generational depression. This is The Great Credit Contraction and it has only begun.

Disclosure: Long physical gold and silver with no position the problematic GLD or SLV ETFs or Treasuries.