Sjeltur

A new chapter has begun in the history of the US Federal Reserve. The story of the Fed reads more and more like a fairy tale, because from now on it’s Christmas every day!

The Fed is going to create $800 billion out of thin air, magically. The money will be used in a attempt to boost the economy and financial system. About $600 billion will be used to buy bad mortgages and mortgage-backed securities, another $200 billion for consumer loans, like credit card debt and auto loans.

Remember the Bush administration had to win the congressional approval of the $700 billion bailout not too long ago? Back then it was about already existing money, to be borrowed from abroad. This time the Fed uses its power, without approval it can create money and throw it at the financial system. The Fed just cranks up the printing press, or in these modern times, it creates the money through a few key strokes on a computer.

Creating money at will whenever you want, that’s truly Christmas every day. But will this fairy tale have a happy ending? The Fed’s balance sheet is already exploding. When the crisis surfaced in August 2007, the balance sheet stood at $850 billion, last week it was $2.2 trillion! The Fed hopes the money creation will give an inflationary impulse to counter the deflationary forces that plague the economy.

This is very dangerous. The Fed can control money creation, but not the economy. Sooner or later the money pumped into the financial system will find its way to the real economy. Then it depends on the level of deflation what the effect of the money creation will be. The Fed is gambling there will be a balance between deflation and the inflationary impulse. History shows that money creation on a massive scale is a bad idea, the Fed and the US government know this, but in their desperation to save the financial system and the economy they will try anything. Because they also know the existence of the Fed is at stake if they fail, possibly the existence of the federal government if the economy implodes completely and the population takes matters into their own hands.

It’s highly likely the massive money creation will backfire on an equally massive scale. Hyper-inflation was already a risk, now it seems it will be almost unavoidable in the future. If your wealth is stored in US dollars, the last chance to transfer that wealth into something that will survive a currency collapse is approaching rapidly.

Time is running out, unless you believe it can be Christmas every day…