Fedflationary fabrications

These press conferences with Federal Reserve Chairman Dr. Bernanke are becoming more amusing as of late:

“We, the Federal Reserve, have spent 30 years building up credibility for low and stable inflation [..]” – Ben. S Bernanke

Really?  On what basis of calculating inflation can one say with a straight face that over the last 30 years inflation has been tame or for that matter stable?  Let’s take a look at the 30 year chart of the CRB index, which represents a broad view of commodities as priced in US dollars.

30 year CRB index chart showing high inflation and unstable prices

30 year CRB index

Clearly inflation is not under control.  However, if the above chart is not enough to make one skeptical of the Fed’s latest remarks, then here’s a 30 year chart of the US dollar index, the currency in which prices are set for all the items we purchase in the United States (and other countries using or pegged to the US dollar).

30 year US dollar index chart

30 year US dollar index

What one can gather from these charts is that we’re experiencing 30 years of a weakening dollar and extremely volatile commodities prices.  Our central bank has the audacity to tell us that inflation is under control, and that in essence one should ignore gas prices, food prices and the prices of other goods which have surged over the last few decades (because all of the official inflation statistics ignore said prices).

I’ve always been a skeptic of the Fed’s press releases and these conferences, but this statement alone is enough to make one’s head spin when put in to context with the charts above.  I believe instead that the Fed is claiming inflation is under control as a guise to give them the flexibility to perform more easing should the European contagion come home, or if our own sovereign debt issues begin to become more apparent to bond investors.

Without quantitative easing, twisting (and lots of shouting) our markets would likely have higher Treasury yields, lower equity prices — but people would be enjoying lower prices on food and energy.  With the labor market stagnating and the overall economic picture still quite dismal, one has to wonder whether the Fed’s dual mandate of encouraging employment and maintaining stable prices has been abandoned in favor of recklessly supporting the financial system at large, and more specifically US Treasury bond and equity prices.  It certainly seems to be the case when objective data is reviewed from a macroeconomic perspective.

It’s time to default on our debt to China

Let’s face it, China is not our friend. They never have been. Their government regularly engages in military and industrial espionage against our interests. Hacking in to thousands of American companies, government installations and harvesting sensitive information for their benefit are not the acts of an ally. Neither is attempting to harm our people, interests at home and abroad as well as our economy.

The Chinese government is anxious to usurp US influence by using the bonds they own (about $1 trillion worth) to undermine US interests. In the past they’ve used bond purchases as a way to keep rates artificially low so they can exploit the consumption-oriented nature of our debt-ridden economy and now they’re threatening to use these bond sales as a tool to manipulate our government’s policies.

For example, the US sells arms to Taiwan and China sells bonds to “punish” our government. The Chinese government also reneged on energy derivatives contracts on behalf of their state-owned energy companies because the bets simply didn’t go their way. Are we really going to tolerate this childish economic warfare and these dishonest business practices?

I’m sure most people have read about the well publicised hacking of Google, but that was just the tip of a massive iceberg. China’s government has hacked in to countless Fortune 500 firms to steal valuable trade secrets and other intellectual property. They also gained access to sensitive US government communications and intelligence information.

It’s time that we show the Chinese government that we are not their ally any more than they are our ally. This dispute has gone on far too long and it has resulted in an economic catastrophe. We are losing jobs, wealth and our sovereignty is being eroded. And for what? So we can have children’s toys tainted with poison and poor quality consumer products? Why should we put up with this nonsense from a country that has nothing but ill intentions for our government and more importantly for our people?

America didn’t dig itself in to this recession alone. We had help and there is plenty of blame go to around the world. We are supposed to believe that China is helping us out of this mess, but China’s interests are only within making their communist regime more powerful and domineering in world affairs. Do we really want to see this goal come to fruition? China is not a world leader. They are more of a string pulling, manipulative bully.

The Chinese government censors the Internet trying to prevent its citizenry from communicating with each other or finding out the truth about past events like Tiananmen Square and the repeated massacres of the Tibetan people. They also monitor forums, e-mails and chat lines in real-time attempting to squelch any civil unrest with brutal force and often times indefinite detention or worse.

How can we put our trust in to a country that has absolutely no freedom? If you dare speak out against the government they’ll throw you in prison and you have a good chance of being executed, having your organs harvested for sale or being forced in to slave labor.

Their propaganda machine portrays the Chinese government as godlike and faultless. Nothing could be farther from the truth. Their government is a one party autocracy with no accountability or checks and balances against the corruption that is prevalent amongst government officials.

It’s time to ask yourself, is it truly worth sacrificing everything we believe in and stand for just to have lower interest rates? I don’t think so. Let’s show the Chinese government we mean business and tell them their actions against our interests have violated international law, constitute acts of aggression, if not war and we will retaliate by invalidating the debt that they own. In addition, let’s stop supporting this war against America by refusing to purchase Chinese made products. We must derail the money train to Beijing before its too late.

Doubling down on debt

I’m afraid that there’s no easy way to stop the debt avalanche now that it has begun.  Trillions have been committed, tens of trillions more of entitlements and other debts stand to hit us during the years to come.  We’re entering a deep, protracted global recession and deficit spending on pork barrel legislation will not have any tangible stimulative effect.  Instead it creates the potential for a depression when US Treasury bonds suffer from a lack of confidence and the government is no longer able to borrow to pay the interest on its ever growing debt.

I’ve done everything I can, writing the media, my elected representatives and trying to stir the minds of those I know with economic discipline.  There is no quick fix for this crisis, it will be difficult for every single hard working American.  Mortgaging the next generation’s future to prop up the corrupt edifice of insolvent banks and bail out home buyers who never should have gambled is a terrible approach to the underlying problem.

Capitalism is not dead, but any company, individual or even government that cannot sustain itself must be allowed to fail.  That is one of the most important and fundamental underpinnings of American capitalism.  Socialism will not be an effective stick save.  It engenders an environment where the most innovative are allowed to fail in favor of those who cannot compete.

America is still a great country and our dollar is still the reserve currency of the world.  In order to keep our economy the global leader we cannot spiral out of control with debt, but instead must reign in spending on all fronts and embrace an era of thrift while we recover our bearings and wealth.

Federal Reserve mulls issuing its own debt

The US Federal Reserve, a private bank, is mulling issuing its own debt.  There are several problems with this, one of which is that if the debt is backed by nothing, no one will buy it. If it is backed by the full faith and credit of the US Government it needs Congressional approval.  Either way, the fundamental story is clear.  The Federal Reserve has overextended itself and finds its balance sheet loaded with worthless assets that it can not sell.  Karl Denninger has a nice rant about this on his blog that I recommend for your morning reading.