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Author Topic: Dollar slowly collapsing  (Read 5042 times)
neotrino
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October 01, 2012, 12:45:45 PM
 #1


Last Thursday, Federal Reserve Chairman Ben Bernanke confirmed the worst: The economy is heading into the toilet. America’s job engine is stalled. Debt loads are unsustainable. Consumers are tapped out. The big banks are insolvent. The private sector can no longer support the public sector. And oh, the government is broke.

Okay, he didn’t say those exact words—markets would have collapsed if he told the truth—but his actions indicated how he really felt.

His official announcement said the economy is on the mend, it is just experiencing a few headwinds from Europe, and the Fed just wants to help create jobs a little quicker. He then went on to unleash a quantitative easing program (QE3) so potentially massive in scope that it could dwarf QE1, QE2, Operation Twist, and all the money-printing schemes the Fed has carried out so far combined!

If you really want to know what is going on in the economy, ignore what the Fed says and watch what it does.

So what is the Fed doing? Bernanke’s announcement says the Fed will now spend a whopping $40 billion per month—$480 billion per year—purchasing mortgage-backed securities from the big Wall Street banks.

He says this is an effort to push down mortgage rates and get more people buying and building houses, and thus create jobs. If this is the best the Fed has to offer, America is in big trouble. Mortgage rates are already at historic lows, and people are not buying houses. Pushing record low rates a few fractions of a percent lower won’t do much. What is more likely to happen is that the big banks will finally have an opportunity to unload all their garbage subprime-mortgage-backed securities at the expense of taxpayers. This is probably the real unspoken motive.

But if that part of the Federal Reserve’s announcement wasn’t shocking enough, what it said next should blow your socks off. The Fed said it was writing itself a blank check for how much it could spend until the labor market improved “substantially.” It gave itself no predefined limit on how long, or on how much it could spend under this new QE3 program. It is completely open ended. It can go on forever.

The Fed also indicated that if this did not prove enough to stimulate the job market, there were other policy weapons the Fed could unveil. For starters, it will keep the interest rate it charges banks to borrow money at zero percent until at least 2015.

Remember: This new QE3 program is in addition to the current $45 billion per month the Fed is using to purchase U.S. treasury bonds—and keep the federal government paying its bills. In the past, the Federal Reserve has only lent money to the federal government short term, but now it is going to use this $45 billion per month to lend to the government “longer term.”

For those not versed in the intricacies of Federal Reserve machinations, remember that the Fed has no money of its own. Any money it spends, it does via a printing press, or its electronic equivalent, which it uses to create dollars out of thin air.

But there is no such thing as a free lunch. Economists always forget the other side of the equation. You don’t just create $40 billion, throw it at the banks, and get magical economic growth. The failure of QE1 and QE2 should have illustrated that by now. If creating growth was so easy, why stop at only $40 billion per month? Why not $400 billion?

The problem is that when the Fed “creates” money out of thin air, it cheapens the value of all preexisting dollars.

So while dollar money supply totals may grow by $40 billion per month, and while gross domestic product may increase, it is phony growth—because the dollars are worth less. Yes, people are spending more, but they are getting less.

Printing money to buy things is “Zimbabwe policy.” We all know what happened to Zimbabwe when it tried this. Eventually it cost Zimbabweans billions of dollars to buy a banana. This is where the QE road leads.

It is happening already. Within just a few hours of Bernanke’s statement, the dollar had lost over half a percent in value. On Friday it lost more than half a percent again.

In two days, the dollar lost more than a percent of its value. And that was due to just the announcement. The dollar printing has barely started.

The Federal Reserve’s QE policy will drive the dollar “through the floor,” says Peter Schiff, ceo of Euro Pacific Capital.

“This is a disastrous monetary policy; it’s kamikaze monetary policy,” Schiff told cnbc. “The dollar … is going to be in free fall at some point … ultimately there’s going to be a currency crisis.”

Schiff is absolutely right. When America’s central bank announces that it is going to create unlimited amounts of new money to fix the economy, you need to realize that America is in serious trouble.

The truth is that America is addicted to quantitative easing. It can no longer function without it. The federal government can’t cover its bills without money printing. The banking sector would collapse without money printing. The mortgage market would no longer function without various forms of quantitative easing. And now Bernanke says the job market may not recover without QE.

America needs to prepare for massive economic upheaval. America’s top banker has signaled that it is quantitative easing or sudden death for the economy. There is no choice. If the money printing stops, America stops. But that means the dollar is going to get killed. QE will destroy the dollar, and America’s standard of living.

Tough times are coming. ▪



http://www.thetrumpet.com/article/9875.4.0.0/economy/qe3-dollar-killer
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October 01, 2012, 03:36:29 PM
 #2

Or maybe he's trying to soften the deflation.  Nothing kills a consumerist economy like falling prices.

https://www.bitcoin.org/bitcoin.pdf
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October 01, 2012, 06:46:13 PM
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Or maybe he's trying to soften the deflation.  Nothing kills a consumerist economy like falling prices.

This is only true for dept based currency, as the dollar and all other fiat currencies.  

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October 01, 2012, 06:50:24 PM
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Or maybe he's trying to soften the deflation.  Nothing kills a consumerist economy like falling prices.

This is only true for dept based currency, as the dollar and all other fiat currencies.  

This only applies to reality...

https://www.bitcoin.org/bitcoin.pdf
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October 01, 2012, 06:53:13 PM
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Or maybe he's trying to soften the deflation.  Nothing kills a consumerist economy like falling prices.

This is only true for dept based currency, as the dollar and all other fiat currencies.  

This only applies to reality...

Not for gold or bitcoin  Wink

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October 01, 2012, 06:55:59 PM
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Or maybe he's trying to soften the deflation.  Nothing kills a consumerist economy like falling prices.

This is only true for dept based currency, as the dollar and all other fiat currencies.  

This only applies to reality...

Not for gold or bitcoin  Wink

Unfortunately neither gold or bitcoin matter much for the prices consumers in the US see.

https://www.bitcoin.org/bitcoin.pdf
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October 01, 2012, 06:57:49 PM
 #7

Unfortunately neither gold or bitcoin matter much for the prices consumers in the US see.

Of course, but hopefully this will change in a couple of years...

BrimStone
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October 01, 2012, 07:10:35 PM
 #8

The Federal Government is overspending by such a wide margin the only solution they have at this point is to devalue the dollar so the cost of borrowing does not collapse the welfare spending mountain.

The problem is so bad with excess federal spending that the only solutions we have at this point would be to cut spending across the board by 50%, raise taxes on every single person by 25%, confiscate wealth from the people in any way possible, or just default on the federal debt.

If we default on the federal debt the main group which will be crushed would be...The Federal Reserve.  The Fed has been putting so much federal debt on to its books that any change in the system at this point would really pound them.  If Ron Paul really wanted to "End the Fed", this would kill two birds with one stone.

1) Allow the Fed to buy U.S. debt back from foreign investors and don't sell any more debt outside the Fed.
2) Announce a new currency which will be backed with a basket of items such as Oil, Gold, Silver, Platinum, Lithium, etc...
3) Give everyone 1 year to exchange the old dollar with the new currency
4)  The Fed would take the loss from the currency devaluation and the federal debt.  This would end the Fed.

5) We start over.

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October 01, 2012, 07:13:05 PM
 #9

The Federal Government is overspending by such a wide margin the only solution they have at this point is to devalue the dollar so the cost of borrowing does not collapse the welfare spending mountain.

The problem is so bad with excess federal spending that the only solutions we have at this point would be to cut spending across the board by 50%, raise taxes on every single person by 25%, confiscate wealth from the people in any way possible, or just default on the federal debt.

If we default on the federal debt the main group which will be crushed would be...The Federal Reserve.  The Fed has been putting so much federal debt on to its books that any change in the system at this point would really pound them.  If Ron Paul really wanted to "End the Fed", this would kill two birds with one stone.

1) Allow the Fed to buy U.S. debt back from foreign investors and don't sell any more debt outside the Fed.
2) Announce a new currency which will be backed with a basket of items such as Oil, Gold, Silver, Platinum, Lithium, etc...
3) Give everyone 1 year to exchange the old dollar with the new currency
4)  The Fed would take the loss from the currency devaluation and the federal debt.  This would end the Fed.

5) We start over.

Good luck with that.

We can't audit the Fed, so we can't prove they are insolvent.  They can continue to trade as if they are solvent and nobody can prove they don't have the funds to back up their positions.

https://www.bitcoin.org/bitcoin.pdf
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October 01, 2012, 07:19:36 PM
 #10

Good luck with that.

We can't audit the Fed, so we can't prove they are insolvent.  They can continue to trade as if they are solvent and nobody can prove they don't have the funds to back up their positions.

That is the most frustrating part of this.  We have an organization which even Congress cannot touch buying up debt of all types as fast as they can.  What is the end game of all that?  Is the Fed just going to hold MBS on their books until it all unwinds?  How about that 30 year Federal debt?  Are we going to have devalued currency for 30 more years?

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Severian
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October 01, 2012, 07:27:39 PM
 #11

They can continue to trade as if they are solvent and nobody can prove they don't have the funds to back up their positions.

They also have the US military/policing power backing up their position. You can foist any amount of crappy currency or ideas on anyone if you have a big enough army.
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October 01, 2012, 10:16:10 PM
 #12

the dollar has one sketchy beast
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October 02, 2012, 05:03:34 PM
 #13

All fiat currencies that can be printed in infinity eventually go to Zero, there is a long list of currencies in that graveyard.

neotrino
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October 02, 2012, 11:40:23 PM
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All fiat currencies that can be printed in infinity eventually go to Zero, there is a long list of currencies in that graveyard.

Agreed.

The real question is how much until it happens? How much months until a million dollar is worth a loaf of bread?
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October 02, 2012, 11:54:04 PM
 #15

The Fed Plays All Its Cards

The Fed Plays All Its Cards

October 2, 2012

There never really could be much doubt that the current experiment in competitive global currency debasement would end in anything less than a total war. There was always a chance that one or more of the principal players would snap out of it, change course and save their citizenry from a never ending cycle of devaluation. But developments since September 13, when the U.S. Federal Reserve finally laid all its cards on the table and went "all in" on permanent quantitative easing, indicate that the brainwashing is widely established and will be difficult to break. The vast majority of the world's leading central bankers seem content to walk in lock step down the path of money creation as a means to economic salvation. Never mind that the path will prevent real growth and may ultimately lead off a cliff. The herd is moving. And if it can't be turned, the only thing that one can do is attempt to get out of its way.

The details of the Fed's new plan (which I christened Operation Screw in last week's commentary) are not nearly as important as the philosophy it reveals. The Federal Reserve has already unleashed two huge waves of quantitative easing (purchases of either government securities or mortgage-backed securities) in order to stimulate consumer spending and ignite business activity. But the economy has not responded as hoped. GDP growth has languished below trend, the unemployment rate has stayed north of 8%, and the labor participation rate has fallen to all-time lows. In the meantime, America's fiscal position has grown significantly worse with government debt climbing to unimaginable territory. Despite the lack of results, the conclusion at the Federal Reserve is that the programs were too small and too incremental to be effective. They have determined that something larger, and potentially permanent, would be more likely to do the trick.    

However, in making its new plan public, the Fed made a startling admission. At his press conference, Ben Bernanke backed away from previous assertions that printed money would be effective in directly pushing up business activity. Instead he explained how the new stimulus would be focused directly at the housing market through purchases of mortgage backed securities. He made clear that this strategy is intended to spark a surge in home prices that will in turn pull up the broader economy.  Such a belief requires a dangerous amnesia to the events of the last decade. Despite the calamity that followed the bursting of our last housing bubble, economists feel this to be a wise strategy, proving that a poor memory is a prerequisite for the profession.    

But now that the Fed is thus committed, the focus has shifted to foreign capitals. Not surprisingly, the dollar came under immediate pressure as soon as the plan was announced. In the 24 hours following the announcement, the Greenback was down 2.2% against the euro, 1.6% against the Australian Dollar, and 1.1% against the Canadian Dollar. A week after the Fed's move, the Mexican Peso had appreciated 2.7% against the US dollar. Many currency watchers noted that more dollar declines would be likely if foreign central banks failed to match the Fed in their commitments to print money. On cue, the foreign bankers responded.    

It is seen as gospel in our current "through the looking glass" economic world that a weak currency is something to be desired and a strong currency is something to be disdained. Weak currencies are supposed to offer advantages to exporters and are seen as an easy way to boost GDP. In reality, weak currencies simply create the illusion of growth while eroding real purchasing power. Strong currencies confer greater wealth and potency to an economy. But in today's world,no central banker is prepared to stand idly by while their currency appreciates. As a result, foreign central banks are rolling out their own heavy artillery to combat the Fed.    

Perhaps anticipating the Fed's actions, on September 6th the European Central Bank announced its own plan of unlimited buying of debt of troubled EU nations (however, the plan did come with important concessions to the German point of view - see John Browne's  commentary). On September 17th, the Brazilian central bank auctioned $2.17 billion of reverse swap contracts to help push down the Brazilian Real. The next day, Peru and Turkey cut rates more than expected. On September 19th, the Bank of Japan increased its asset purchase program from 70 trillion yen to 80 trillion and extended the program by six months. It's clear we are seeing a central banking domino effect that is not likely to end in the foreseeable future.    

Although the Fed is directing its fire towards the housing market, the needle they are actually hoping to move is not home prices, but the unemployment rate.  Until that rate falls to the desired levels (some at the Fed have suggested 5.5%), then we can be fairly certain that these injections will continue. This will place permanent pressure on banks around the world to follow suit.    

All of this simultaneous money creation will likely be a boon for nominal stock and real estate prices. But in real terms such gains will likely not keep pace with dollar depreciation. Inflation pushes up prices for just about everything, so stocks and real estate are not likely to prove to be exceptions.   Even bond prices can rise in the short term, but their real values are the most vulnerable to decline.   In fact, even nominal bond prices will ultimately fall, as inflation eventually sends interest rates climbing. But prices for hard assets, precious metals, commodities, and even those few remaining relatively hard currencies should be on the leading edge of the upward trend in prices.

While I believe the Fed's plan will be a disaster for the economy, the silver lining is that it provides investors with a road map. As the policy of the Fed is to debase the currency, those holding dollar based assets may seek alternatives in hard assets and in the currencies of the few remaining countries whose bankers have not drunken so freely from the Keynesian Kool-Aid. We believe that such opportunities do exist. Some broad ideas are outlined in the latest edition of my Global Investor Newsletter, which became available for download this week. I encourage those looking for ways to distance their wealth from the policies of Ben Bernanke to start their search today.


TL;DR => Worldwide inflation is coming. Expect a rise on the prices of goods and precious metals (and BTCitcoin of course  Wink )
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October 02, 2012, 11:54:54 PM
 #16

Old news is old, because:

All fiat currencies that can be printed in infinity eventually go to Zero, there is a long list of currencies in that graveyard.

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October 02, 2012, 11:58:15 PM
 #17

Why is it when shit hits the fan ppl still race to the dollar? That aint goin to change in our lifetimes.
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October 03, 2012, 12:10:58 AM
 #18

Or maybe he's trying to soften the deflation.  Nothing kills a consumerist economy like falling prices.

This is only true for dept based currency, as the dollar and all other fiat currencies.  

This only applies to reality...

Not for gold or bitcoin  Wink

Unfortunately neither gold or bitcoin matter much for the prices consumers in the US see.

speak for yourself

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October 03, 2012, 12:11:29 AM
 #19

Why is it when shit hits the fan ppl still race to the dollar?
Because the fiscal disasters in other large economies are even worse.
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October 03, 2012, 12:34:17 AM
 #20

http://science.slashdot.org/story/12/10/02/2246242/super-bacteria-create-gold

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