The Unseen Hand: Fed Policy and Inflation

There was quite a rally this week in the US stock market. On the last day of November, the DJIA rose over 480 points in one of the 7 largest gains in Dow history.

The “reason” for this gain seemed to be an overnight agreement by the European Central banks to ease the strains on European banks by easing credit in unison. Coincidentally, China reduced its reserve rate, freeing up more capital from the East.

Because Europe is in such a funk, money markets in the US and other dollar denominated markets had reduced lending to European banks by 50 to 70 percent recently.

So those “stress tested” European banks were all faltering on the brink and something had to be done.

Enter the unseen hand of Federal Reserve Policy, your tax dollars, inflation, and the destruction of the American dollar’s international value at work. The Feds low key status in this announcement is a ruse, this was an internationally coordinated, US led, emergency bailout of the European banks.

The joint offer of cut-rate currency swap lines by the central banks of the US, Britain, Japan, Canada, Switzerland and the ECB preserves the polite fiction that this was to “ease strains in financial markets and thereby mitigate the effects of such strains on the supply of credit”, but this was a Fed action to provide cheap dollar funding and head off a lethal crunch in Europe.  More

What does it mean to Americans…?

• Many European Banks are broke
• Some European Countries are broke
• The European Central Bank (ECB) is paralyzed because members won’t agree
• The ECB can’t get the viable (Germany) countries to pay for the sins of the spendthrift (Greece, Italy, Ireland, Spain, and soon France) countries
• There is no political will for some European countries to continue to bail out other countries
• All of the politicians want someone else to pay for their spending
• The US is already broke and things will deteriorate over the next few years (bank failures, rioting, further decrease in the value of the dollar, destruction of our standard of living)

What is the solution?

• The European Sovereigns are in trouble
• The European Banks are in trouble
• The ECB is paralyzed
• The ECB is hoping the IMF will bail it out
• The IMF is almost broke and needs the US and China to bail it out
• Since Europe’s combined economies are as large as the US, there is no one left to bailout Europe except the US and China

Because everyone plays in dollars, the US can only support Europe by more printing causing dollar devaluation and inflation

• More debt everywhere
• No increase in lending
• Worldwide inflation
• Destruction of the value of the dollar

What’s beyond that?

• More borrowing, bailouts, stagnation, political turmoil, and pain
• Bank defaults and finally, Sovereign debt defaults
• The proposal for a non-dollar dependent “world” currency

All brought to you by the US Federal Reserve.