American Ecconomic Crash – NOW?
Robert
Romano 11-10-2010
The
global revolt against U.S. dollar devaluation continues. Now China
is calling for the G20 to have a role in Federal Reserve policy. So
is Russia. Adding to the escalation,
While
the Fed and Obama prattle on about targeting unemployment and trying to restore
economic growth, the whole world sees the Fed's decision to print $600 billion
to buy treasuries for what it is: Papering over the debt.
Interestingly,
in the Reuters report, they quote Herbert Kaufman, professor emeritus of the
Except
it was not a hypothetical. They have downgraded us, because they
understand that printing hundreds of billions of monopoly money is nothing more
than the "pretended payment" of debt Adam Smith warned against in The
Wealth of Nations.
This
is getting bad. If tough decisions are not made to balance the budget,
pay down the debt, and stabilize the dollar, we are likely in just a few years
to lose our status as the world's global reserve currency. Our creditors
are getting ready to pull the plug. They are reaching the tipping point.
What
is the tipping point? Nobody knows for certain.But
the numbers speak for themselves. The Chinese hold $868 billion of treasuries.
The Fed will print about $600 billion every year for the next three years to
buy treasuries, increasing its own balance sheet from $2.34 trillion to $4.14
trillion if all other things remain constant. That will increase the Fed's
treasuries holdings to $2.6 trillion.
That's
a 76 percent increase in the Fed's balance sheet, which when you factor in
leveraging and the central bank's lending capacity throughout the banking
system, could in theory result in about a 38 percent depreciation of the
dollar. But it could be worse, when you consider that the Fed's purchases will
constitute a 214 percent increase in the central bank's treasuries holdings.
So,
if you're China, you either 1) hold onto your assets (and keep buying) and eat
the 38 percent loss; 2) slow down purchases and still take a 38 percent loss;
3) stop purchases and accept the 38 percent loss on remaining assets; or 4)
stop buying and actively dump the assets as fast as possible for whatever you
can get because the dollar depreciation will actually be much larger than 38
percent.
The
tipping point is fear. It is panic. It is when the Chinese and others believe
they will get less money in return for holding the assets than by selling them
for whatever the market will fetch.
The
dynamic where countries keep pouring money into
That
is the dollar run.
It'll
be like a tsunami once it gets going — fast and merciless. Keep your eyes
on this. Both our monetary and fiscal authorities are playing with
fire. They are assuming that the current monetary system with the dollar
being the world's peg will not change, when everything changes. We're
staring a global currency crisis right in the eyes.
In
today's Liberty
Action Report, Fred Upton has not earned a promotion, a tree falls in
the woods, the death tax is about to rise from the grave, and Republicans must
heed voters' concerns to avoid extinction. Plus, Sarah Palin makes the
case for a stable dollar.
Please
send your letters to the editor to Robert@getliberty.org. We
publish all points of view! Today, Sanna Huebschmann of Wisconsin writes to our action
alert to incoming members of Congress and returning
members to urge them to tie any increases in the national debt ceiling to
sharp spending reductions:
"Why are we advocating raising the debt limit, AT ALL?"
Great question.
Ideally,
ALG supports freezing the debt ceiling at about $15 trillion (to account for
the $1.3 trillion or so budget deficit Pelosi and Reid are handing off to the
new majority), and then balancing the budget from here on in and paying down
the debt. We advocated for that position here:
http://blog.getliberty.org/default.asp?display=2649
And
here:
blog.getliberty.org/default.asp?Display=2728
But
even that contemplates raising the ceiling by another $700 billion or so from
its current $14.3 trillion level. What we're saying with the action alert is
that the least Republicans can do is tie any future increases in
the debt ceiling to gargantuan spending cuts.
Ultimately,
we'd like to prevent the nation from ever defaulting. But that's the trajectory
we're on. If the dollar loses its status as the global reserve currency, we
will not be able to meet our obligations. And if we continue destroying the
value of the dollar, we will certainly lose that status. So, step one is to
stop devaluing the dollar. And that has to mean balancing the budget and paying
down the debt.
How
far along we get will largely be up to House Republicans.
For
Robert
Romano
Senior Editor of ALG News
www.getliberty.org
"We want a stable
dollar"
By
Sarah Palin
I'm
deeply concerned about the Federal Reserve's plans to buy up anywhere from $600
billion to as much as $1 trillion of government securities. The technical term
for it is "quantitative easing." It means our government is pumping
money into the banking system by buying up treasury bonds. And where, you may
ask, are we getting the money to pay for all this? We're printing it out of
thin air.
The
Fed hopes doing this may buy us a little temporary economic growth by supplying
banks with extra cash which they could then lend out to businesses. But it's
far from certain this will even work. After all, the problem isn't that banks
don't have enough cash on hand – it's that they don't want to lend it out,
because they don't trust the current economic climate.
And
if it doesn't work, what do we do then? Print even more money? What's the end
game here? Where will all this money printing on an unprecedented scale take
us? Do we have any guarantees that QE2 won't be followed by QE3, 4, and 5,
until eventually – inevitably – no one will want to buy our debt anymore? What
happens if the Fed becomes not just the buyer of last resort, but the buyer of
only resort?
All
this pump priming will come at a serious price. And I mean that literally:
everyone who ever goes out shopping for groceries knows that prices have risen
significantly over the past year or so. Pump priming would push them even
higher. And it's not just groceries. Oil recently hit a six month high, at more
than $87 a barrel. The weak dollar – a direct result of the Fed's decision to
dump more dollars onto the market – is pushing oil prices upwards. That's like
an extra tax on earnings. And the worst part of it: because the Obama White
House refuses to open up our offshore and onshore oil reserves for exploration,
most of that money will go directly to foreign regimes who don't have America's
best interests at heart.
We
shouldn't be playing around with inflation. It's not for nothing Reagan called
it "as violent as a mugger, as frightening as an armed robber, and as
deadly as a hit man." The Fed's pump priming addiction has got our small
businesses running scared, and our allies worried. The German finance minister
called the Fed's proposals "clueless." When Germany, a country that
knows a thing or two about the dangers of inflation, warns us to think again,
maybe it's time for Chairman Bernanke to cease and desist. We don't want
temporary, artificial economic growth bought at the expense of permanently
higher inflation which will erode the value of our incomes and our savings. We
want a stable dollar combined with real economic reform. It's the only way we
can get our economy back on the right track.
Second Chance or Last Chance?
By
David Bozeman
Senator-elect
Marco Rubio, in one of the most rousing speeches on election night (is anyone
really inspired by calls for bi-partisanship and compromise?) declared that the
Republican Party was given a second chance to do what it had promised
before. Last chance may be closer to the truth.
Indeed,
the sweep of 2010 is wider than has been reported.
Right-wing
pundits and intellectuals will generally speak the truth as they see it, but
will Republican leaders in
The
notion that we are a centrist nation, that presidents
of both parties must abandon their bases and appeal to moderates belies the
fact that it is usually Democrats who win big by moving to the center.
Bill Clinton, despite impeachment, left office on a high note after reading the
writing on the wall in the '94 midterms.
How
many Democrats this year won without mentioning stimulus packages or health
care reform? Congressman Mike McIntyre won re-election to
To
the Class of 2010, stay your course. Do not mold your convictions to the
leftist/mainstream media standards of civility and expectations of
"bipartisanship". You will routinely be called extremists and
bigots on the editorial and even the news pages. But stand your ground.
It is not enough to answer your critics, turn the loaded questions back on
them. Make them show the compassion and justice in economic policies that
transfer trillions of dollars out of main street and inner city
2010
has offered a golden opportunity to not just act on popular will but to mold
it, to connect with and educate the voters. And to the policy wonks and
foot soldiers, take it to the blue states, to the minority communities and to
college campuses. Set the agenda, never ceding education, social security
reform and other "failed" issues to the liberals. And again to
the incoming class, you will not win every election or legislative battle, but
if you stick with the people, they will stick with you.
Now
is not the time to coast on merely reflecting public opinion, get out there and
shape it! And never forget, you were not elected to get
along with freedom's enemies (of either party), you were elected to defeat
them. Your adherence to your campaign promises could well determine the
future of the conservative movement and solidify freedom's last bastion for the
rest of the 21st Century.
David Bozeman, former Libertarian Party Chairman, is a