Let's review a little bit to refresh how we got to this point and why this is all so bad. The USA's job in the global economic network is to consume. We're not allowed to produce anything, just buy, buy, buy. It was China, Japan and the other major economies of the world's job to produce all the crap we needed to buy. This whole system was funded via the purchase of US treasuries by the producer nations which supplied the consumer nation with the cash they needed to purchase said led laden crap, which thru purchasing the consumer returned the
Now, very briefly, Bretton Woods, the removal of the gold standard and deregulation allowed the Fed to print an unlimited amount of dollars which greatly expanded the ability of the global ponzi. This also allowed debt to really begin to pile up around the globe. Hey, the more money the better the system will work right?
OK, now what happens when you have a crisis and the producer nations stop purchasing treasuries? Well you are left with a massive hole in your system. If the money does not flow into treasuries then we lose our ability to fund consumption and the system collapses. This is what happened in 2009 and 2010 when the producer nations became net sellers of treasuries. That would be a double negative on the system as not only is money no longer flowing in to fund the consumption machine, the consumer nation now has to start funding redemptions of treasuries as well.
What is the consumer nation to do? Lions and tigers and bears oh my! They print. They begin to print dollars at a massive rate, and they begin to buy treasuries to fund the system. China and Japan used to be the largest debt holders of the US. We owed them trillions. Well, since the financial crisis began and the ponzi broke the the Fed had to take over the role of lead purchaser of treasuries, WE the USA have surpassed all other nations in holding our own debt.
So why did the Fed decide to ease again yesterday? This makes no sense right? Why not address the problems instead of just printing more? Several reasons exist for that. First, the banking system would collapse and since the Fed is the lead bank (well the BIS is the bank of all banks controlling everything) they can't let their system fail now can they? Second, The US is in terrible economic shape because of the Fed's past policies which allowed deregulation and low interest rate policies to create the real estate bubble. Third, the Fed's policy to solve the global debt crisis was (in all its Keynesian glory) to print more money and this is failing, so they need to print even more money. Fourth, the Bernank wants the current administration to remain in power because they are VERY bank friendly and he want's to keep his job.
Another reason they had to print is that the US is out of money AGAIN. The Obummer administration runs on the "but there are still checks in the checkbook" mentality (like a true socialist would). Trillions dollar deficits are the new normal now. Let's review, the US takes in $2 trillion in income. It spends $3 trillion annually. The US has over $16 trillion in debt and growing. The US has over $120 trillion in unfunded liabilities. Add to that we are the largest holder of our own debt and maybe now you will begin to see the truly dire situation our country is in. There is only one out and the will be default in conjunction with losing world reserve currency status.
At a time when we absolutely MUST STOP SPENDING and every program must be cut across the board the Fed decides to continue the same policies that got us into this trouble in the first place which is only digging the hole we're in even deeper. Extend and pretend while the MSM shoots the entitled sheeple full of hopium. This is truly one massive nightmare.
Another reason the Fed had to print is that the EU collapse is coming sooner than later. This is the world's largest economy folks. The PIIGS are going down. Did we get any resolution from the ECB that really solved anything int he EU? Nope. Once again they failed. The Fed had to print in order to give our markets confidence while the EU crumbles. Call it yet another Bernanke backstop.
You see they had to print. There was no other option. Why stop the party when we're all gonna crash anyway? Shit, if we're going down you may as well do it in style, and that's why the Bernank eased again and will continue to till the party ends.
No charts today in protest of more easing and the manipulated markets (there will be some in the comments below). As for my top calling thoughts, I'm still right there. Duck and cover is coming. When you see the bright flash, hit the floor. This party will end soon and the crash will be tremendous and the hangover will last for decades.
GL and GB!