The premise that we have some sort of "independent" monetary authority is a bad joke. There's absolutely nothing independent about The Fed, Congress and the Administration at all - just as there wasn't during the time when Burns was Fed President. What we have is a Federal Reserve that has joined hands with Congress and the Administration, both present and previous, in an intentional act of debasement to finance profligate deficit spending.
We're headed for a "monetary accident" at breakneck speed: consumer spending and debt is ultimately dependent on job and income growth. But there has been no income growth in real household terms for ten years. The remaining margin between income and consumption was consumed in the years between 2003-2007 with borrowing, much of it through home equity extraction. That credit capacity has been exhausted and is no longer available. Corporate "growth" created from the chimera of productivity growth (read: work harder, get paid less, or get fired and we move your job to China or India) has pretty-much reached its zenith as well. What's left is government spending but continued amounts of injection of liquidity from The Fed will require ever-lower primary credit rates to remain in equilibrium, yet shoving people out the risk curve creates parabolic-style moves that have always ended in a crash on a historical basis.
In order to pull back to the point that the 13 week bill will rise to just a simple 0.25% rate - a tiny positive interest rate - The Fed would have to sell off the entire $600 billion it QE2d immediately. A spike in credit revulsion on US bonds, even a tiny one that shoved rates higher by that small of an amount without said selloff of The Fed balance sheet, could easily result in a thirty percent jump in the CPI. Since there is no way to couple that back into wages this would not produce the sort of "inflationary spiral" that gold and silver buyers fear - it would instead result in the utter destruction of the lower two quintiles of the American public and the near-immediate loss of civil and political order along with effective economic collapse.
Remember this well folks: If it happens it is Bernanke's direct responsibility and he, along with the rest of the FOMC and the Administration along with Congress must be held to account.
The warning signs are up now as they were in the late spring and early summer of 2008. We're three years down the road but have fixed nothing, despite the cheerleading in the corporate and media sectors. The lack of fear as reflected in the VIX and complacency found in companies sporting P/Es arguing for five year growth rates of 30, 40, 50, 60 or percent compounded for that entire five year period - claims of total growth from 270% to more than 900% over that same five year period, are essentially identical to the sorts of forward "expectations" that were found in the latter half of 1999 and 2007.
"This time it's different" is a common swansong, but history records that in virtually every case if you listen to the harpies and follow them, instead of stuffing cotton in your ears you will wind up severely hurt or even broke.
Join us on our
Share this page with your friends
on your favorite social network: