50 MILLION Mark Note, Weimar Republic, 1923 (Wikimedia Commons)
Posted on 11/04/2010 7:58:39 PM PDT by luv2ndamend
Well, it’s official, Ben Bernanke has officially gone “all in” regarding currency devaluation in the name of pumping the stock market. I have to admit, even though I knew this was going to happen, I’m still in shock. After all, it’s not every day that you see a superpower collapse and lose its reserve currency status courtesy of a deranged mad man.
Regardless of your feelings on the matter, these are the cards the Fed has dealt us, so rather than devote space to critiquing our insane and corrupt Fed Chairman, I thought it better to devote today’s article to detailing what is to come as a result of the Fed’s policies.
1) QE 1 Failed, so Will QE 2= The Fed Doesn’t Have a Clue
This is the most obvious, but most commentators seem to be missing it. We were all sold on QE 1 as being an emergency measure meant to keep the financial world afloat. Now we find out that the Fed considers this formerly emergency measure to be one of its normal tools (it’s not yet been a year since QE 1 ended and we’ve already got QE lite and QE 2).
In plain terms, the Fed’s decision to implement QE 2 proves not only that QE 1 FAILED but that the Fed doesn’t really have a clue on how to fix the financial system. Bernanke is literally making it up as he goes, which is truly horrifying if you consider the implications of this.
In light of this, you can bet that the Financial Crisis is nowhere near over. QE 1 failed. QE 2 will fails as well.
Moreover, you can bet that additional, GREATER systemic risks will be playing out in the next year. The problems that caused the 2008 disaster are still out there. The only difference between now and back then is that we’re running out of band-aids to cover them up.
2) Currency intervention, trade wars, and volatility will become the norm
Currencies are relative, meaning their values move relative to each other (you can’t have the Euro, Yen AND Dollar go to ZERO at the same time). In light of this, the Fed has officially challenged the major currencies’ central banks to a game of “devaluation chicken.” Expect to see most world central banks, especially the Bank of Japan, European Central Bank, and China’s central bank engage in similar practices of their own. All of these guys have a choice, devalue or kill exports. They’ve all proven to choose the former time and again.
Expect to see trade wars break out in a major way as this game progresses. We’ve already had a hint of this with China’s decision to cut rare earth elements exports. However, this is just the tip of the iceberg. Things are going to be getting very messy going forward. Expect to see capital controls, tariffs, and outright trade wars break out. As a result, prices of various goods will skyrocket (remember the rice scare in 2008?). Which brings me to the final point…
3) Inflation is coming sooner rather than later
The cost of just about everything is going to be going up… a LOT. In fact it already has. Most commodity prices are up double digits in the last year. This is just the beginning. Combine currency devaluation with trade wars and you’ve got a recipe for MASSIVE spikes in the price of goods.
In plain terms, the cost of living in the US will be going up sharply in the coming months. Oil is already at $86 a barrel. Food costs are rising. In fact, virtually everything but housing prices has risen in the last year. Forget future inflation, inflation is coming NOW. We’ve already seen the Dollar lost 15% of its value in the last six months.
What will this do to a middle class whose savings have already been eviscerated by two stock Crashes, no private job growth, and a 37% decline in the US Dollar in the last ten years?
Also, what will this do to corporate profits? Companies will either try to pass their increased costs off on consumers (good luck with that) OR will eat the costs themselves. Either way profit margins will shrink. I’m guessing the “stocks are cheap” crowd didn’t bother considering whether those future earnings projections were illusory.
The simplest forecast from this would be a portfolio emphasizing commodities particularly precious metals and agriculture: the former will be the largest beneficiary of ongoing currency debasement while the latter is one of the few areas in the investment world where an argument for “value” can be made.
Stocks will also benefit from all of this in the near-term. But in the long-term look for pronounced weakness, particularly as trade wars and increased costs bite into profit margins.
Also, on a final note, it’s a good time to stockpile on food and other items that are sensitive to price increases. I suggest having 3 months worth of supplies on hand at all times. The worst thing that can happen is everything turns out fine and you eat the food anyway.
Good Investing!
Graham Summers
Bernanke needs to be a lamp post decoration.
This needs to stop.... Right f*cking NOW!!!!!
>> What will this do to a middle class whose savings have already been eviscerated
Oh, it’ll positively SCREW those who play by the rules, borrow carefully and wisely, save their money, and live within their means.
It’ll REWARD (for a while) speculators, debtors, the profligate, and most of all, it’ll spare the government of paying proper interest on the unfathomable wads of money they borrow and waste.
Bernanke is a criminal.
bttt
Some of the comments over there:
by Vampyroteuthis ...
on Thu, 11/04/2010 - 21:07
#701706
Helicopter Ben is not a “madman”, he is just unleashing his weapons upon the world. Who are we kidding? Here are the results of the money drop.
1) China is going to have more inflation from commodities surging and the dollar peg. Whatever wealth is there will soon be eaten away.
2) Countries on the verge of default will be pushed closer. They are now priced out of exports to the US and China will undercut them. Europe and Japan are in this boat. Europe most likely will force a PIIGS country to default and leave the Eurozone. The Euro crashes and the dollar spikes.
3) Someone has to keep rolling over the excessive US gov’t debt. Who want to roll over $100 billion+ a month?
4) Wall Street got what they wanted, free money. If everyone is on one side of the trade though it will go the opposite. In this case, market crash wiping out the smaller investors at expense of the big boys.
Never underestimate the enemy.
QE 2 is to delay the inevitable. At least in their minds. They need time to blame the collapse on the Republicans.
“the Fed doesn’t really have a clue on how to fix the financial system.”
INCORRECT:
The Fed knows EXACTLY how to fix the financial system, but too many rich Democrats in New York and D.C. will go bust if they do it.
And it will refute 50 years of Democrat vote-buying policies.
Reading Material for insomniacs...
This does seem like one hell of a setup!
50 MILLION Mark Note, Weimar Republic, 1923 (Wikimedia Commons)
Is that going to be change from buying a gallon of milk?
Behold the quadruple whammy:
Obama attacks energy companies - driving prices up - which increases the price of everything.
Obamacare increases the cost of doing business for everyone, drives out insurance companies, increasing unemployment, hindering employment..
Real estate market goes from bad to worse...inflation will reduce the number of people who will qualify for loans to actually buy. (Hard to buy a house and/or pay mortgage without a job..)
Fiscal policy creates wave of inflation, pushing the shrinking number of people with jobs, most struggling to survive payday to payday, to fail. Think about it - prices go up, pay does not (when was the last time you got a respectable raise?), foreclosures go up, unemployment increases, babies starve..
Methinks, barring a Tea Party takeover, we’re skrewed..
Where is Congress? Why are the Republicans not calling for hearings? Drag Bernanke there and let Bachmann, Paul and whoever else grill him and expose him for what he is. Make a spectacle!
Where are the opinion shows, especially FOX? For crying out loud, Shepard Smith of all people has expressed more concern over this in his snarky newscast comments. I’m thrilled about the Republican victories on Tuesday, but enough already. This is the destruction of the middle class!
It looks like Bernanke will be reporting to a subcommittee chaired by Ron Paul. That should be interesting.
The Fed better be stopped! This is evil!
ping
THR TWO DEMONS (BUFFERFLY BEN AND NOBAMA) FROM HELL DID WAIT UNTIL THE DAY AFTER THE ELECTONS TO START SCREWING THOSE WHO HAVE FOLLOWED THE RULES IN LIFE IN REGARDS TO WORKING, SAVING, AFFORDING WHAT WE BUY AND PAYING OUR BILLS....NOW WE GET SCREWED AGAIN WITH PISS POOR INTEREST RATES AND TRYING TO BE FORCE BACK INTO THE RISKY EQUITY GAME THAT TOOK HALVE THE WEALTH IN 2008
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