Saturday, April 16, 2011

The American Financial Experiment

It was another business as usual week for the stock market this past week.

The US stock market seems to be the only market in the world can never go down. As soon as the Dow Jones dips its toe into negative territory, buyers "magically" appear.

This price action all seems to be part of a grand 'experiment' going on right now in the US financial system.

The experiment is being conducted jointly by politicians and their cohorts at the Federal Reserve. It looks to be aimed at finding out at how stupid the American public really is when it comes to financial matters.

The policy is simple. Print up as much money as you can.

The purpose for the money? Twofold.

First, it allows the Federal Reserve to buy up most of the US Treasuries being issued by the US government. This allows the US not to worry about its exploding debt which foreigners are now reluctant to buy.

Second, the money flows into the stock market and other financial assets. This allows Goldman Sachs and others to continue to enrich themselves by continuing to gamble in the markets using high leverage. Gee, I thought that was what caused the global financial crisis!

Since there is no such thing as a free lunch, someone must be paying the price for this. Yes, someone is - average everyday Americans.

They are paying with a currency - the dollar - that is worth less and less with each passing day.

Here is the key relationship people need to become aware of...since the financial crisis began, the Fed's monetary base (the amount of money it has printed) has tripled.

And since then, the price of oil has tripled.The price of gold has tripled. The price of many other commodities has also tripled.

Gee, isn't that a coincidence? That is just what the Fed wants you to think. Ben Bernanke is using the Curly defense from The Three Stooges - "I'm just a victim of circumstances!"

He claims he has nothing to do with rising commodity prices. He claims that his policy of deliberate money printing and trashing the dollar in order to push up stocks has had no effect on these prices.

Hogwash! He and the Washington politicians just think the American people are too dumb to catch on.

They believe that if the Dow Jones is pushed to say 25,000, people won't notice that a loaf of bread is $25 and gasoline is $50 a gallon.

And maybe they are right. Very few people seem to have caught on so far.


  1. I cannot imagine what the united states will look like in just five years if china and all the countries and all investors the world over shun the dollar. Interest rates would rise and the federal reserve would be forced to buy bonds notes and bills from the treasury to fund the government and pay interest on all of the governments bills notes and bonds. When the buyers for united states debt obligations disappears the whole system will come crashing down. This is the type of thing that peter shiff has been warning everyone about when the ability of the united states to pay its debts becomes clearly in doubt all the buyers for united states debt securities disappears overnight.

  2. The financial experiment has gone really wrong.