Best of the Week
Most Popular
1. 2019 From A Fourth Turning Perspective - James_Quinn
2.Beware the Young Stocks Bear Market! - Zeal_LLC
3.Safe Havens are Surging. What this Means for Stocks 2019 - Troy_Bombardia
4.Most Popular Financial Markets Analysis of 2018 - Trump and BrExit Chaos Dominate - Nadeem_Walayat
5.January 2019 Financial Markets Analysis and Forecasts - Nadeem_Walayat
6.Silver Price Trend Analysis 2019 - Nadeem_Walayat
7.Why 90% of Traders Lose - Nadeem_Walayat
8.What to do With Your Money in a Stocks Bear Market - Stephen_McBride
9.Stock Market What to Expect in the First 3~5 Months of 2019 - Chris_Vermeulen
10.China, Global Economy has Tipped over: The Surging Dollar and the Rallying Yen - FXCOT
Last 7 days
Stock Market VIX Volaility Analysis - 19th Mar 19
FREE Access to Stock and Finanacial Markets Trading Analysis Worth $1229! - 19th Mar 19
US Stock Markets Price Anomaly Setup Continues - 19th Mar 19
Gold Price Confirmation of the Warning - 18th Mar 19
Split Stock Market Warning - 18th Mar 19
Stock Market Trend Analysis 2019 - Video - 18th Mar 19
Best Precious Metals Investment and Trades for 2019 - 18th Mar 19
Hurdles for Gold Stocks - 18th Mar 19
Pento: Coming QE & Low Rates Will Be ‘Rocket Fuel for Gold’ - 18th Mar 19
"This is for Tommy Robinson" Shouts Knife Wielding White Supremacist Terrorist in London - 18th Mar 19
This Is How You Create the Biggest Credit Bubble in History - 17th Mar 19
Crude Oil Bulls - For Whom the Bell Tolls - 17th Mar 19
Gold Mining Stocks Fundamentals - 17th Mar 19
Why Buy a Land Rover - Range Rover vs Huge Tree Branch Falling on its Roof - 17th Mar 19
UKIP Urged to Change Name to BNP 2.0 So BrExit Party Can Fight a 2nd EU Referendum - 17th Mar 19
Tommy Robinson Looks Set to Become New UKIP Leader - 16th Mar 19
Gold Final Warning: Here Are the Stunning Implications of Plunging Gold Price - 16th Mar 19
Towards the End of a Stocks Bull Market, Short term Timing Becomes Difficult - 16th Mar 19
UKIP Brexit Facebook Groups Reveling in the New Zealand Terror Attacks Blaming Muslim Victims - 16th Mar 19
Gold – US Dollar vs US Dollar Index - 16th Mar 19
Islamophobic Hate Preachers Tommy Robinson and Katie Hopkins have Killed UKIP and Brexit - 16th Mar 19
Countdown to The Precious Metals Gold and Silver Breakout Rally - 15th Mar 19
Shale Oil Splutters: Brent on Track for $70 Target $100 in 2020 - 15th Mar 19
Setting up a Business Just Got Easier - 15th Mar 19
Stock Market Elliott Wave Analysis Trend Forercast - Video - 15th Mar 19
Gold Warning - Here Are the Stunning Implications of Plunging Gold Price - Part 1 - 15th Mar 19
UK Weather SHOCK - Trees Dropping Branches onto Cars in Stormy Winds - Sheffield - 15th Mar 19
Best Time to Trade Forex - 15th Mar 19
Why the Green New Deal Will Send Uranium Price Through the Roof - 14th Mar 19
S&P 500's New Medium-Term High, but Will Stock Market Uptrend Continue? - 14th Mar 19
US Conservatism - 14th Mar 19
Gold in the Age of High-speed Electronic Trading - 14th Mar 19
Britain's Demographic Time Bomb Has Gone Off! - 14th Mar 19
Why Walmart Will Crush Amazon - 14th Mar 19
2019 Economic Predictions - 14th Mar 19
Tax Avoidance Bills Sent to Thousands of Workers - 14th Mar 19
The Exponential Stocks Bull Market Explained - Video - 13th Mar 19
TSP Recession Indicator - Criss-Cross, Flip-Flop and Remembering 1966 - 13th Mar 19
Stock Investors Beware The Signs Of Recession / Deflation - 13th Mar 19
Is the Stock Market Still in a Bear Market? - 13th Mar 19
Stock Market Trend Analysis 2019 - 13th Mar 19
Gold Up-to-Date' COT Report: A Maddening Déjà Vu - 12th Mar 19
Save Fintech? Ban Short Selling. It's Not That Simple - 12th Mar 19
Palladium Blowup Could Expose Scam of Gold & Silver Futures - 12th Mar 19
Next Recession: Concentrating Future Losses & Bringing Them Forward In Time As Profits - 12th Mar 19
The Shift of the Philippine Peso Regime - 12th Mar 19
Theresa May BrExit Back Stab Deal Counting Down to Resignation, Tory Leadership Election - 12th Mar 19
Phase 1 of Stock Market Correction - 11th Mar 19
Long Awaited Stock Market Pullback has Finally Arrived - 11th Mar 19
US Presidential Cycle and the Stock Market - Video - 11th Mar 19
Stock Market Elliott Wave Analysis Trend Forercast - 11th Mar 19
Chinese Economic Data Shakes the Global Stock Markets - 11th Mar 19
The Fed Is Playing a Dangerous Game - 11th Mar 19
The Stock Market Has Called the Fed’s Bluff, What’s Next? - 11th Mar 19
Turkey Holiday Bazaar Extreme Jewelry Price Haggling - Fethiye Market - 11th Mar 19

Market Oracle FREE Newsletter

Stock and Finanacial Markets Trading Analysis Worth

Bernanke Running Amuck, Trashing History And Threatening America's Future

Interest-Rates / US Debt Mar 22, 2010 - 12:37 PM GMT

By: Martin_D_Weiss

Interest-Rates

Best Financial Markets Analysis ArticleFed Chairman Bernanke is running amuck, and for the first time since the birth of the U.S. dollar, our government is egregiously abusing its power to print money.

Specifically, from September 10, 2008 to March 10 of this year, he has increased the nation’s monetary base from $850 billion to $2.1 trillion — an irresponsible, irrational and insane increase of 2.5 times in just 18 months.


Fourth Quarter Credit Market Squeeze

It is, by far, the greatest monetary expansion in U.S. history. And you must not underestimate its sweeping historical significance.

How the Fed Is Trashing History And Threatening Our Nation’s Future

Precisely 217 years and 50 weeks ago, Treasury Secretary Alexander Hamilton established the dollar as America’s national currency when Congress passed the Coinage Act of 1792.

Since that memorable date, the United States has suffered through one pandemic, two great depressions, 11 major wars, and 44 recessions.

Four U.S. presidents have been assassinated while in office.

Hundreds of thousands of businesses have gone bankrupt; tens of millions of Americans have lost their jobs.

In the wake of these disasters, there were, to be sure, monetary and fiscal excesses. But never did the U.S. government resort to extreme abuses of its money-printing power! Never did it make that unforgivable blunder!

Until now.

Now, all those years of suffering and sacrifice — all that history of leadership and discipline — have been trashed. All for the sake of perpetuating America’s addiction to spending, borrowing, and the wildest speculations of all time.

Louder Voices of Protest

I am not the only one who has shouted this warning from the rooftops. Others, more prominent than I, have also raised their voices in protest …

Tomas Hoenig

Thomas Hoenig — president of the Federal Reserve Bank of Kansas City and the lone dissenter in last week’s meeting of the Fed’s Open Market Committee — is among the most prominent.

He sees three possible pathways for our nation’s fiscal and monetary policy:

Path #1 — Monetize. The government runs massive deficits and borrows without restraint. At the same time, the Federal Reserve monetizes the debt — finances it by running the nation’s printing presses. This is the path of least resistance for politicians … and of greatest danger to the nation.

Yet, unfortunately, as evidenced by the explosion in the monetary base illustrated above, it’s also the speedway down which the Fed is now racing.

Path #2 — Policy stalemate. As in path #1, the government runs massive deficits and borrows without restraint. But the Federal Reserve refuses to finance it. Instead, the Fed lets the natural supply and demand for debt drive interest rates higher.

Soon, the government finds it is too expensive — or nearly impossible — to borrow. And ultimately, Washington has no choice but to slash spending despite any near-term consequences.

This is what’s happening to many governments around the world right now — not only in Greece, but also in California, Arizona, New Jersey, Massachusetts, plus scores of other state and local governments across the USA. In the final analysis, Washington cannot avoid a similar day of reckoning.

Path #3 — Fiscal discipline. The government takes strong pro-active steps to reduce the deficit. This is, of course, extremely tough politically in the absence of a massive fiscal and financial crisis. But unless pursued promptly and aggressively, the government winds up forced to do it anyhow — albeit with more urgency and greater trauma for the country and its people.

Hoenig explains the choices this way:

“When I was named president of the Federal Reserve Bank of Kansas City in 1991, my 85-year old neighbor gave me a 500,000 mark German note. He had been in Germany during its hyperinflation, and told me that in 1921, the note would have bought a house. In 1923, it would not even buy a loaf of bread. He said, ‘I want you to have this note as a reminder. Your duty is to protect the value of the currency.’ That note is framed and hanging in my office.

“Someone recently wrote that I evoked ‘hyperinflation’ for effect. Many say it could never happen here in the U.S. To them I ask, ‘Would anyone have believed three years ago that the Federal Reserve would have $1.25 trillion in mortgage-backed securities on its books today?’ Not likely. So I ask your indulgence in reminding all that the unthinkable becomes possible when the economy is under severe stress.

“If German hyperinflation seems an unrealistic example from the distant past, then let’s come forward in time. Many have noted that in the 1960s, the Federal Reserve’s willingness to accommodate fiscal demands and help finance spending on the Great Society and the Vietnam War contributed to a period of accelerating price increases.

“Although the Federal Reserve was a reluctant participant, it accepted the view that monetary policy should work in the same direction as the Congress and the administration’s goals and help finance at least part of their spending programs. Monetary policy accommodation during this period contributed to an increase in inflation from roughly 1½ percent in 1965 to almost 6 percent in 1970. It also helped set the stage for the Great Inflation of the 1970s as inflation expectations gradually became unanchored …

“Walter Bagehot’s famous dictum about banks holds equally true for governments — once their soundness is questioned, it’s too late. At that moment, governments and their citizens are forced to make sizeable, painful fiscal adjustments.”

David Walker

David Walker — former head of the U.S. Government Accountability Office (GAO) and president of the Peter G. Peterson Foundation — fears a Greece-like Armageddon for the U.S. by 2012.

One of his main arguments: The nation’s fiscal disaster, no matter how horrible it may be based on the official numbers, is actually far worse than advertised.

His own words:

“The Greeks engaged in a variety of creative accounting practices, and there were a lot of big and bad surprises that caused this situation to arise. The U.S. has [also] been engaged in a lot of creative accounting for years with regard to the Social Security trust funds …

“[And] now, we’ve got major creative accounting going on with government-sponsored entities — Fannie Mae and Freddie Mac. We own a super-majority of them, but we’re not consolidating them into the financial statements. We don’t consolidate the Federal Reserve into the financial statements [either].

“The bottom line is: We’re not Greece. But we could end with the same problems down the road if we don’t get spending under control and start dealing with our structure deficits soon.”

How soon? Walker points to 2012.

“My view,” he says, “is that, if you look at total debt to GDP, we’re already over 85 percent. We’re going to be at 100 percent within two years.

“What’s even more troubling is that we have to go to foreign lenders to finance our debt. Fifty percent of our public debts are held by foreign lenders, and … the Fed has been buying our debt at record rates to hold down interest rates.”

Irving Weiss

My father, J. Irving Weiss — founder of our Sound Dollar Committee — had probably the greatest impact of all on the public awareness of these dangers.

The big difference: That was a half century ago.

In 1959, he launched a national, grassroots campaign that prompted an estimated 11 million Americans to demand an end to federal deficits. And he helped President Eisenhower pass the last truly balanced budget — without creative accounting — in our nation’s history.

Unfortunately, however, despite valiant attempts to repeat that success, no national movement of this magnitude or impact has emerged since.

In the New York Times and Wall Street Journal ads that launched our Sound Dollar Committee’s campaign in 1959, Dad warned about the future dangers:

“Inflation is a narcotic. It soothes and exhilarates while doing its deadly work.

“Already it has reduced our dollar to half of its purchasing power. It is the killer rampant in our midst, threatening to destroy us as it has other countries whose rulers thought they could have a little bit of controlled spending and inflation; a little cheapening of their money. THEN IT WAS TOO LATE.

“Deficit spending [and inflation] are the twin poisons which are undermining your future. Some people say we need deficit spending by our governments for prosperity and growth. But they forget that the means can destroy the end.”

Back in those days, like today, inflation was not perceived to be an imminent threat. But those who ignored it later lived to regret their complacency.

And like today, Dad was certainly not the only one raising his voice in protest. Also widely quoted in the Sound Dollar Committee’s campaign were his associates, supporters, and other contemporaries, including:

Bernard Baruch

Bernard Baruch — advisor to U.S. presidents Woodrow Wilson, Franklin D. Roosevelt, and several others — who wrote: “Inflation flows from the selfish struggle for social advantage among pressure groups. Each seeks tax cuts or wage raises for itself while urging the others to make the sacrifice and with little regard for the national interest.”

Lyndon B. Johnson

Lyndon B. Johnson— while still U.S. Senator and not yet presiding over the greatest fiscal disaster of that era — who said: “We all know that the end of such a spending spree would be fiscal insolvency.”

William M. Martin, Jr.

William M. Martin, Jr. — then chairman of the Federal Reserve — who declared: “No greater tragedy, short of war, could befall the free world than to have our country surrender to the easy delusion that a little inflation, year after year, is either inevitable or tolerable. For that way lies ultimate economic chaos.”

Senator J.W. Fulbright

Senator J.W. Fulbright— who, thanks to our Sound Dollar Committee campaign, shifted his vote to “yes” in favor of Eisenhower’s balanced budget — said: “Excessive inflation in the long run destroys the will to work and the will to save, which are the foundations of our economic system. Inflation is a deadly enemy of a free capitalistic system.”

What You Can Do

First, stay alert to different kinds of inflation.

Even if consumer price inflation does not rear its ugly head, there are other forms of the disease that can do equal damage to the dollar and the country — the monetary inflation I have told you about today … asset inflation, which creates dangerous bubbles … plus inflation based on wild speculation that ultimately ends in financial meltdowns.

Second, find out as much as you can about the dangers and possible solutions. A great place to start: David Walker’s new book, Comeback America: Turning the Country Around and Restoring Fiscal Responsibility.

Third, stand by for more information on our Sound Dollar Committee. We are getting ready to launch new efforts, and I’ll let you know just as soon as it’s time to start taking action.

Good luck and God bless!

Martin

Weiss and Weiss Research analysts offering the latest investing news and financial insights for the stock market, including tips and advice on investing in gold, energy and oil. Dr. Weiss is a leader in the fields of investing, interest rates, financial safety and economic forecasting. To view archives or subscribe, visit http://www.moneyandmarkets.com.


© 2005-2019 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Comments

Geoffrey
23 Mar 10, 05:19
Spending Cuts affect market how?

So when the governments are forced to cut spending regardless of the consequences, what will happen in the markets?

This article suggests that the spending cuts are guaranteed. Can I get a second opinion on this please?

Thanks.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in

6 Critical Money Making Rules