Posts Tagged ‘Bernanke’

Another Downgrade on the Horizon?

Sunday, October 23rd, 2011

Worse This Time?

Leave it to Bank of America/Merrill Lynch to publish their fears of another credit-rating downgrade for the US government.  On Saturday, I brought you the story of how this very company is shifting some of its European derivatives over to its depository arms so that they will be insured under FDIC.  It’s a stunning development that an analyst for this very institution to  tell us they expect another credit downgrade, tells us something about how they believe that will work out for the American tax-payer that will now be on the hook for trillions. They don’t think it’s going to turn out well, I can assure you, but you can expect all sorts of hand-wringing excuses when the meltdown occurs.

In his dire analysis, Ethan Harris writes:

“We expect a moderate slowdown in the beginning of next year, as two small policy shocks—another debt downgrade and fiscal tightening—hit the economy. The “not-so-super” Deficit Commission is very unlikely to come up with a credible deficit-reduction plan. The committee is more divided than the overall Congress. Since the fall-back plan is sharp cuts in discretionary spending, the whole point of the Committee is to put taxes and entitlements on the table. However, all the Republican members have signed the Norquist “no taxes” pledge and with taxes off the table it is hard to imagine the liberal Democrats on the Committee agreeing to significant entitlement cuts. The credit rating agencies have strongly suggested that further rating cuts are likely if Congress does not come up with a credible long-run plan. Hence, we expect at least one credit downgrade in late November or early December when the super Committee crashes.”

Of course, part of the problem is that everybody is waiting for the other shoe to drop.  Europe stands on the verge of a complete meltdown, and our Federal Reserve has gotten us so deeply tied to the success or failure of Europe at this point that if Europe goes down, we will likely fall down too.  Several outlets are reporting that a number of European banks are on the brink, and that this will trigger a sell-off and panic unlike anything we’ve seen in a long time.

At the same time Germany’s Angela Merkel is chastising Italy over its debt of 120% of GDP, I wonder if she’d do us a favor and look at the US, which isn’t far off from that ratio itself, and tell Obama a thing or two while she’s at it.  Merkel is among those who are urging further austerity measures, and she’s right. The trouble is that leftists never tire of pitching their best Keynesian plans at these sorts of problems, pretending that if only they can borrow and print a little more liquidity, the problem will solve itself.  Naturally, that’s nonsense, and while everybody knows it, the spenders will never, ever admit it.

Ladies and gentlemen, we stand on the precipice and wonder why this is happening, but anybody who has ever learned the hard lessons of running on credit must begin to see the simple truth of the matter:  You cannot consume more than you produce on an indefinite basis.  This entire fiasco is the result of runaway governments spending our future into oblivion.  While we’re at it, we must also rein in the Federal Reserve as the policies now in force are merely multiplying the trouble.  One year ago, as they began to plan out QE2(Quantitative Easing, Round 2,) Sarah Palin warned the world.  She was mocked by Krugman, the purveyor of Alien Attacks and other nonsense dressed up as economics, while she was being berated for her stance by a host of others, but in the end, who has been right?  We mustn’t permit ourselves to suffer under this comfortable illusion any longer: There is no alternative but to dramatically slash government spending.  We must do it now, or there may be no tomorrow.

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Stealing America Blind – How to Steal Money by Printing It (or: Sarah Palin Warned Us)

Friday, June 24th, 2011

You may remember candidate Obama telling Joe the Plumber that he wanted to spread the wealth around. President Obama, in concert with the Democrats and Ben Bernanke have been quite busy.

To understand what’s been done, and how, we need to first understand a bit about how money is created. In a simplified model, the Federal Reserve loans money into existence. The Federal Reserve loans the US Government money and the bonds thereby created are sold on the open market to buyers. These bonds are traded globally, and this is why and how the Japanese and more recently, the Chinese, have come to hold so much US debt. Of course, you can buy bonds too. So can banks. It’s seen as an investment, but with interest rates maintained artificially low, the desirability of the bonds on the market slips dramatically.

We no longer base our money on an objective store of value. Many people reference the end of the Bretton Woods agreement under Nixon, but the truth is that we really came off any reliable, meaningful gold standard under Franklin Roosevelt. Roosevelt arbitrarily set the value of the dollar vs. gold by picking random numbers from within a range, pulling numbers out of a hat, drawing cards, or whatever else he dreamed up at the time. (See: “The Roosevelt Myth” by John T. Flynn)

The Bretton Woods agreement merely formalized the process in 1946, but it continued the basic FDR policy: You, as a person subject to the jurisdiction of the United States, could not redeem your dollars for gold. A foreign bank or government could. By1971, your treasury was emptied and Nixon was forced to announce that we could no longer even redeem dollars held by foreigners with gold. For the period between 1933 and 1971, we functioned on a fake gold standard that was propped up by functioning like a gold standard internationally, but domestically, as pure fiat currency. In short, here at home, what we had was monopoly money, but it looked and spent normally because in the international markets and exchanges, where somebody would quickly notice and complain, the money was backed by gold, until the gold ran out. Most of the gold formerly held by the United States was long gone, to pay foreigners when they presented dollars obtained in trade for redemption. It is literally gone. Only a relative token of that gold survives.

So what gives your money value, if not gold? The answer is simple: It is the confidence of the bond-holders in the debtor’s promise to pay. Imagine you purchase a home. If you were borrowing the money, you would of necessity need to find a bank willing to lend it to you. If they saw you had no job, no business, and no assets, you were a poor credit risk, and you’d not get the mortgage. Mortgage companies trade mortgages, just like bond-traders trade bonds. Debts are basically investments based on the value of the interest due. The investor is betting that inflation will not surpass his earned interest on the mortgage, and therefore, will profit slightly as the mortgage is paid in full. Mortgages with higher interest rates can be better investments, but traditionally, they implied more risk because people tend to get mortgage rates based at least in part on their credit-worthiness.

The value of the US dollar is determined in much the same way. The currency is backed in part by the assets of the people who owe money, and in part by the confidence bond markets have in the probability that as the bonds mature, they will be paid in full, with the expected interest.

Now that we know all of this, and with my apologies to all who already did, let’s get on to the meat of this. Barack Obama, the Congress, and the Federal Reserve have been stealing you blind. Over the last three years, the Fed has lent more money into existence than in all the time since WWII. The Federal Government has been the borrower of record, with the total debt incurred by the Congress and President Obama in that period exceeding four-and-a-half trillion dollars. That’s $4,500,000,000,000.00. It’s a lot of cash. The problem is, the economy in no way produced nearly that amount of additional wealth in that period. The effect is simple: Each and every dollar, the new ones and all the ones that existed beforehand, fell in value. This is engineered inflation, or what the Federal Reserve has taken to calling “Quantitative Easing,” which is a fancy way of saying that they’re digitizing or printing more monopoly-money dollars that will go into circulation with the rest of the dollars, and thereby devalue them all.

Last November, Governor Sarah Palin warned about this practice, telling all who would listen that this would drive inflation, and that it would cause food and energy prices to rise dramatically, and thus stifle the economic recovery until it would be stillborn. We are now reaping that harvest, just as she suggested, and while President Obama releases three days worth of oil from the Strategic Petroleum Reserves to try to hide it, the fact is that the economy is in free-fall. Obama and his crowd planned all of this, because they wanted to commit the largest theft in history. Barack Obama is, himself, an economic buffoon. The man doesn’t know a demand curve from an equilibrium price. His advisors, all of them, are following a script laid out for them by a man who knows how to destroy currency and steal the wealth of nations. He is considered an ‘economic terrorist’ in much of the Pacific rim. I speak of none other than George Soros.

Now, we could delve into the why and how, but it’s much more important, I think, to show you a simplified illustration of how this is being done. I’ve created a few charts here to help illustrate how this works. I’ve simplified it so as to promote understanding, but I am going to explain what you’re looking at, and when you’re done, you can draw your own rational conclusions.

In the first chart, we are starting at day zero. On this day, a dollar is worth a dollar. There are a total of 400 in circulation, and they are distributed as shown. I assume that on day zero, a gallon of gasoline costs $2, and a loaf of ordinary bread costs $1. This is the baseline. You may wonder who is Person 1 , Person 2, Person 3, and Person 4. For the sake of argument, however, we’ll get back to that. Also notice the purchasing power. Notice how many loaves and gallons each person can buy. Take a look at day zero(You can click the image for a slightly larger version:)

Now remembering that there are $400 in total, let’s imagine the Government borrows another $200 from the Federal Reserve, and the Fed must borrow it by issuing bonds. Now there’s a total of $600 in the economy. The Government takes the newly printed/digitized dollars and distributes them, $50 each, to all four persons. There is no new value in the economy. The money’s value has dropped by 50%. Expressed another way, the money is now worth only 2/3s of what it was worth on day zero. Let’s call this day one, and take a look:

As you look at the chart above, you immediately notice that the distribution of wealth has changed. Person 1 and Person 2 have both picked up their share of the wealth. Person 3 has lost a little, and Person 4 has gotten clobbered. Notice that we didn’t ‘tax’ a soul. We merely printed more money into existence, and distributed it differently. Now notice what has happened to the purchasing power of our four persons. Also note that the cost of the gallon and the loaf has risen accordingly. We’re not finished, however. We’re going to come back around and do it again:

Now look at the results. We’ll call this day two, or if your prefer, we can use Federal Reserve Chairman Bernanke’s term, “Quantitative Easing 2.” Notice what has happened. We’ve shifted a good deal of wealth to Person 1, a little bit to Person 2, stolen just a bit from Person 3, and taken Person 4 to the cleaners.

Notice that the price of a loaf and a gallon have doubled. This is because you now have twice as much money in circulation, and no additional material value. Here’s what you need to know, however. Person 1 can be a welfare or other entitlement recipient, or a foreign citizen in a foreign land to whom we’ve gifted money. Person 2 can be a low-skilled, low-wage worker, just below the median income for a family. He’s struggling, and barely getting by. Person 3 is solidly middle class. He either works in a higher-skilled field, or is even self-employed, like Joe the Plumber. He probably barely notices the effect, at first. Person 4 is everybody above that. This is the person that creates almost all the jobs in a free market economy. How do you now expect him to do that?

As Tammy Bruce reminds us, Sarah Palin warned us that this would be the result. Those of us who actually know anything about economics(as opposed to the LameStreamMedia) knew that she was right when she said it. Time has born her thesis. Where was Mitt Romney? He said it was ‘necessary.’ Where were the rest of the Republicans? They were all joining Paul Krugman and Barack Obama in laughing up their sleeves at Mrs. Palin. Most importantly, however, where were you, and what did you believe? Or were you making Thanksgiving plans while they carried out another round of theft?

This is the policy of “spreading the wealth around” that Barack Hussein Obama promised. He’s delivered, but he’s not finished quite yet. Now that he’s thoroughly clobbered the wealth creators by devaluing the dollar, he’s next going to take the rest via taxes, if the Republicans fail to stop him and his cronies in the Senate. If they do, it won’t matter, because he’ll soon announce, through his stooge, Ben Bernanke, perhaps yet another round of Quantitative Easing. They’ll call it “QE3,” and all you will need to know is that another round of theft is underway. It may have worked too well already. Remember when Rush Limbaugh was criticized for saying he hoped Obama would fail? This is what he hoped would fail. It hasn’t. Your wealth and your life are under assault. There is only one answer to this, and it is to send Barack Obama back to Chicago, with the rest of the thugs, and I know just the lady to do it!