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News Link • Economy - Economics USA

When the Dollar Rallies, the Market Will Crash

• Mike Whitney for LewRockwell.com

Interest rates. The Fed does not need slinky women in plunging necklines to peddle money. All it needs is low interest rates. When rates are pushed lower than the rate of inflation, the Fed provides a subsidy for borrowing. This is not as hard to grasp as it sounds. If I offered to give you $1.00 for very 90 cents you gave me in return, you would buy as many dollars from me as you could. The Fed operates the same way. It generates market activity by creating incentives for borrowing. Borrowing leads to speculation, and speculation leads to steadily rising asset prices. This is how the game is played. The Fed is not an unbiased observer of free market activity. The Fed drives the market. It fuels speculation and controls behavior by fixing interest rates.

When Lehman Bros flopped last year, markets went into freefall. A sharp correction turned into a full-blown panic. The bubble burst and trillions of dollars in credit vanished in a flash. Trading in exotic debt-instruments stopped overnight. A global sell-off ensued. Markets crashed. For a while, it looked like the whole system might collapse.

The Fed's emergency intervention pulled the system back from the brink, but the economy is still wracked with deflation. Billions in toxic waste now clog the Fed's balance sheet. The dollar has fallen like a stone.

 

2 Comments in Response to

Comment by Jet Lacey
Entered on:

Oyate, 

The fundamental idea I think you're missing is that many of us who consider ourselves to be of a free-market/Austrian/libertarian mindset have a real ally in those from the "far-yet-intelligent" left.  They realize that what is going on (read: Keynesian bullsh*t) is largely fascistic, but it is being done in the name of "wealth distribution" and "progressivism."  It's wealth distribution all right, but not in the direction that the "leftys" want it to go.

Mike Whitney, along with people like Stephen Lendman, Richard C. Cook, and Bob Chapman, writes frequently for GlobalResearch.ca.  It is a website that I consider fairly leftist, but in my estimation Global Research is also at the very forefront in the fight against the New World Order.  Not to mention, many of their articles are written in "scholarly" fashion, with the sources cited in numerical order.  

You know I feel where you're coming from Brother but I gotta disagree with you on this one.  I guess my ultimate point is this; their diagnosis of the problem is dead on correct, but I wholeheartedly disagree with them on the treatment modality.

http://www.globalresearch.ca/

 

Comment by Found Zero
Entered on:

Mike Whitney on Lew Rockwell? WTF? Whitney will NEVER fundamentally criticise the Fed because as an avowed socialist WHITNEY LOVES THE FED. He just wants his socialist buddies to be in charge of it then things will be fine in Whitney World.

Whitney is an attacker of Aurstrian economics and frankly, all of his best research is grabbed from 3 websites: Denninger, Mish and Asia Watch. Not a lot of original thinking there.

Who's minding the shop at Rockwell?


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