Bernanke electrocutes the dollar
Federal Reserve Chairman Ben Bernanke announced his expected second “quantitative easing” (QE2) on Nov. 3. At the click of an electronic mouse, the Fed created a further $600 billion to purchase U.S Treasury debt.
Combined with financing costs and the reinvestment of maturing mortgages held by the Fed under QE1, the first “easing,” the total infusion will be almost $1 trillion.
The following day, Bernanke claimed that the purpose of his move was to create a “wealth effect,” which should feed consumer demand. But Bernanke already knew that QE1 had failed. Indeed, with low interest rates, it had been the primary cause behind this year’s 30 percent decline in the U.S. dollar’s value.
Far from being an incentive to spend, this dollar decline represented a 30 percent tax on all holders of U.S. dollars. So, what else motivated Bernanke to implement a second “easing”â¢ Further, how will it affect American consumers?
Many overlook that most of the currencies in the dollar index basket are themselves falling. Measured against the real money of precious metals, discounted somewhat for buyer speculation, the dollar has fallen by 30 percent this year.
What Bernanke failed to disclose was that his 30 percent devaluation of the dollar had extinguished $4.02 trillion from the value of the U.S. Treasury’s $13.4 trillion debt. In addition, his devaluation reduced the value of the government’s remaining obligations of $189 trillion by a staggering $56.7 trillion.
While hardly a recipe for real growth and cheating all Americans, the devaluation should help consumers reduce their huge real estate debts, thereby aiding the banks.
Bernanke also ignored the monumental social and monetary problems that his debauched generational debt-skipping would cause future generations.
Furthermore, Bernanke, who assisted the recent G-20 finance ministers’ agreement not to engage in competitive devaluations, is now seen as the most competitive of all engineers of devaluation. This has irritated and enraged countries such as Brazil, Russia, India and China. At the full G-20 meeting this weekend, this apparent deceit likely will lead to rancor and further support for China’s calls for the U.S. dollar to be dislodged from its privileged status as the international reserve currency.
If any such G-20 move were successful, it would cause the dollar to plummet. Most real assets including commodities, precious metals and even certain share prices would rise substantially in dollar terms.
Doubtless, debasement of the U.S. dollar will help greatly the exports and profits of major U.S. corporations over the short term. However, history evidences that, over the longer term, a devalued currency creates trade deficits.
If TARP and QE1 are any indication, it is clear that most of the QE2 money will flow to maintain large governmental and financial institutions like Citi that help support securities markets and to large corporations like GM. The result will be that redundant management styles and failed core ethics of old rust companies, banks and government will remain, stifling their replacements and individual Americans of cash.
In short, Bernanke is financing the prevention of the vitally needed restructuring of the American economy.
In addition, much of the QE2 money is likely to flow abroad where it is treated better in growth economies such as Brazil, China, India and Australia, which have raised interest rates.
If QE2 promises such little benefit, many will wonder why Bernanke adopted it. Some opine that his goal is to bring down the current U.S. dollar-based edifice to have it replaced by a new global currency managed by the International Monetary Fund.
However, the U.S. administration likely fears above all else not terrorism but insurrection by an increasingly disgruntled populace. By flooding the nation with synthetic paper currency, it hopes markets will rise in dollar terms and that U.S. consumers will be kept in the dark and quiet.
But the Internet may have changed things decisively. The tea party movement reflects the climate of the nation with people now more aware of the truth and prepared to act. Bernanke must be desperate.
What to doâ¢ Wise allocations of savings might follow the money flows to selected real assets like key commodities, precious metals, selected hard currencies, emerging markets and even to certain small companies with game-changing products. Then, individuals might protect their savings from a dollar on death row.