The Road to Financial Perdition

26 Jan

The Road to Financial Perdition

“We’re in the throes of the greatest monetary inflation in U.S. history. Things have come home to roost – we just haven’t realized it yet. Fed liquidity is masking deep structural impairment, while Trillions necessary to stabilize a fragile Bubble Economy only push the runaway financial Bubble to more precarious extremes.”

Doug Noland, Credit Bubble Bulletin

We have pointed out more than once that the Federal Reserve has painted itself into a corner. 

It is much more dangerous than the metaphor suggests about some oaf not realizing that he has himself surrounded by wet paint.  

The Fed has taken on the role of the guarantor of the stock market and the net worth of billionaire cronies.  If it lets interest rates rise, it will tank the stock market at the same time rising rates will make servicing US debt virtually impossible.  But it cannot keep printing money to support stocks with low rates without eventually tanking the dollar.

It is apparent that the choices before the Fed are both unacceptable.  Most people have not realized it yet, but it is beginning to make knowledgeable people squirm.  

Hedge fund billionaire Paul Singer said in a recent interview that we are in for a big surprise on the inflation front.  

But let us be clear about the point he is making: rising inflation means cheaper dollars, dollars that will not buy as much of anything, be it groceries or gold.

Singer:

“I think there’s a really good chance, given the determination to spend trillions and trillions more on COVID relief, and stimulus, whatever you want to call it, to guarantee, quote, unquote, which is ridiculous, these super low interest rates for the next three years, and to keep verbally boxing themselves in. I think there is a really good chance of a tremendous surprise and a surprise in the relatively near future. What would that surprise be? Some combination of actual consumer price inflation bursting out and keeping on going. That would be a stunning development to central bankers.”

Let us state it differently.  The Fed is willing to do anything – anything – to keep a lid on interest rates.  In just the last six months the Fed has purchased $400 billion dollars’ worth of US treasury instruments – notes and bonds – with money in conjured out of thin air, in its desperate and not particularly successful attempt to keep interest rates down. 

It will print more to achieve its ends.  At the same time, the Fed is being forced to fund more and more of the US government’s debt.  Wall Street on Parade reports that at about this time last year, the Fed was the owner of 14.6 percent of all outstanding US treasury debt.

That was last year.  Now the Fed owns 22.6 percent of all US treasury debt.  

The Fed has painted itself into a corner.  If it insists that interest rates cannot rise, it must depreciate the dollar with money printing.  If it steps back from funding US debt, the Treasury will have to offer far higher interest rates to attract buyers.  And those higher rates will make it impossible to service the debt… without more money-printing.

What does all this mean?   It means that after decades of monetary mismanagement, the dollar is on the road to perdition.  It is a road of no return.  

It means that gold and silver are your safest alternatives for wealth protection and profit.

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