By Craig R. Smith, Chairman, Swiss America
Last week our Fed Chairman admitted he is willing to sacrifice the U.S. dollar in order to "save the economy".
Fed Chairman Ben Bernanke called for maintaining accommodation, saying, "highly accommodative monetary policy for the foreseeable future is what's needed in the U.S. economy," reports Bloomberg.
The officials at the Federal Reserve have already said they won't consider raising interest rates until the official unemployment rate falls to 6.5 percent and the official consumer inflation price index rises near the 2.5 percent target rate.
The stock market cheered the news of even more money creation, while the U.S. dollar fell sharply.
Wall Street wants the Fed to keep spiking the punchbowl to achieve ever new highs.
Bernanke, who held the deciding vote in a 50/50 split between Fed policymakers, seems hellbent on proving that his "Helicopter Ben" QE strategy can work. Even if it means "damning the dollar" and the financial future of every American who holds their savings in US Dollars. Keep in mind, the Treasury no longer has the legal authority to guarantee assets held in money market funds as it did during the 2008 panic. Bernanke reminded us of this last May.
Interest rates have already jumped up a full percent since the Fed hinted at removing the stimulus. This is not what the Fed wants to see, especially after holding rates down for over five years.
This highly accommodative move means a continuation of the $85 billion in monthly purchases of US government bonds and mortgage-backed securities.
So what happens to the value of bonds and mortgage-backed securities when interest rates rise? It falls, taking with it the value shown on the Fed balance sheet.
This decision to sacrifice the value of the dollar in order to "save" the economy is the most dangerous and reckless policy any central bank can follow, based on thousands of years of political and economic history.
Wiemar, Germany tried this back in 1921 only to have the currency collapse under the weight of hyper-inflation. The Roman, Spanish and British empires also declined when the money system was compromised and debased.
In contrast, during China's "Confucian" Era (500 B.C) and for hundreds of years after, the Chinese maintained a stable money system based on morally strong yet decentralized rule.
As I point out in my most recent book, The Great Debasement we are following a path of currency destruction that has consistently failed every single time. But we expect a different result – the definition of insanity!
America has historically held to the very highest principles of economic freedom and liberty guaranteed by the U.S. Constitution and inspired by our Founders' deep respect for an economic foundation of gold and silver money. Today that foundation has been replaced with debt-based, valueless paper.
The biggest challenge to Bernanke's strategy is the Obama Administration itself and its unwillingness to live within a budget or stop deficit spending while forcing job-killing healthcare reform and keeping U.S borders porous enough for illegals (and terrorists) to migrate. Couple these policies with ordering the NSA to snoop on U.S. citizens' private affairs and what's created is a recipe for the complete erosion of confidence. The confidence so essential for sound financial markets.
No wonder two out of three Americans distrust government today! What's amazing is that 1/3 still have confidence. I suppose it's easy to be confident when a government assistance check arrives each month.
The further expansion of BIG government insures the public confidence in our leadership, and in our currency, is about jump out of a plane and go into free fall without a parachute.
The time has come to finally understand what Ben Bernanke has up his sleeve is absolutely nothing, except waning public confidence in his failed Keynesian economic strategy, which will lead us to a failed dollar.
I suggest owning a golden parachute before the next 'Great Withdrawal' hits America.