Bernanke’s Road to Serfdom

The events in the Middle East are not helpful to anyone. Yes, the governments are oppressive, at least in our eyes. But sometimes the devil you know is preferable to the unknown devil that follows. Those who believe these countries deserve “democracy” don’t understand the difference between democracy and liberty. Our founders truly feared democracy, knowing that it would destroy a country.

A case can be made that our Federal Reserve is responsible for these uprisings. Quantitative easing does not know borders. Flooding our country with money effectively floods much of the world with money, causing rising prices on food and other commodities.

Democracy as a motivator of these movements is a romantic way to view them. Food deprivation or starvation is more realistic. When the poor spend most of their meager incomes on food and food prices escalate, they are unable to shift funds away from discretionary spending to buy food. They have no discretionary spending. They must do something and if all they can do is protest and riot, that is what they will do.

While these motivations are understandable, they provide the opportunity for more devious forces to take advantage. In  The Road to Serfdom Friedrich Hayek included a chapter on why the worst rise to the top. We will witness this chapter play out in the countries suffering duress.

Our exported inflation is not limited to food prices. Oil and other commodities have been soaring as well.  Ironically, a form of roundabout “justice” may result.  As the most highly developed economy, the US is the most dependent upon oil and energy. It has been estimated that each $1.00 increase in oil prices is the equivalent of a $95 Billion tax increase on consumers. Based on the frightening charts below, a large portion of our stimulus program has been “taxed” away in the form of higher energy prices.

Fed Chairman Ben Bernanke shows no willingness to stop his enabling of the drunken sailors we politely call politicians. Continuation of current policies will cause inflation and oil prices to go exponential. Our GDP may soon appear as an upside down image of the oil price chart. The seeds that Bernanke sowed that are disrupting economies and lives around the world may very well cause the collapse of the US economy.

Things are beginning to get ugly in many places around the world. These did not begin as political problems but will be viewed as such. Political solutions will be tried. Will we have more wars? Will the world enter an economic dark ages? Will cities in the US begin to “go Cairo?”

These are questions that become more relevant the longer we continue our destructive economic policies.

Let’s try a small energy crisis

Answers will follow, but not in time to save your investments. Be careful out there ….

Posted: February 23, 2011 by hpx83 in Energy scarcityMarkets & Investment

It seems that we may get a small teaser of what is to come. Libyan oil output has, for now, been cut in half. The price of Brent Crude had this to say :

Brent Crude Oil (Weekly)Brent Crude Oil (Weekly)

Notice the parabolic tendency at the end there. Yeah, if this spreads to Saudi Arabia, who knows – we might see a spike above $200. $300? Heaven is the limit for such a scenario. The problem is that it only takes a short time at these levels before the economic damage starts becoming bad. And as business and people start discounting higher fuel prices in the future, we are going to go straight back into recession, as the whole “we need to recalculate our consumption patterns” thing go into full speed. And all the printing presses in the world cannot save the Bernank and his faux recovery then.

Meanwhile, somewhere in currency land, we have a very large, very drunk idiot who is very close to falling off a cliff.

Combine this with the strange crash moves yesterday in the agricultural commodities, and it gets really scary. What is happening? Where are we going? Who is to blame?

Stupid US dollar (Weekly)Stupid US dollar (Weekly)

3 Comments

  1. I just read an interesting article today concerning the Fed’s policies. Particularly, it addressed why we haven’t as of yet seen any serious degree of hyperinflation. Keeping in mind this article was written in June of last year, it stated that buried within the fine print of the Emergency Economic Stabilization Act of 2008 (Section 128) was evidence that the Fed is actually paying banks not to lend money. That is, they are paying banks interest on their “excess” reserves. An excerpt:

    “But as of October 9, 2008, the Fed began paying interest on all reserves, required and “excess” alike. And not just nominal interest, but interest at a rate which is higher than the “Fed Funds Rate” (the rate banks pay to each other for overnight loans), and even higher than current short-term Treasury yields. At a stroke the Fed eliminated for banks interest-rate risk, principal risk, counterparty risk, and even the capital cost of maintaining an extremely high degree of liquidity. The “cost” to banks of non-lending was driven down substantially.”

    For this reason, the TARP money has not yet entered circulation and therefore inflation has not yet become a problem. I have no doubt that if this is true, our troubles will begin shortly after a “recovery” begins – when banks begin loaning in substantial amounts again. The article can be found at Project World Awareness and is entitled “Money supply, the stimulus & where is the inflation?” Here is the URL: http://www.projectworldawareness.com/2010/06/money-supply-the-stimulus-where-is-the-inflation/. I find this particularly interesting. What do you think?

    Keep up the Good Work!

    1. This is one important reason and done to preclude an expansion of lending. It is difficult to determine its effectiveness because at least two other factors are in play — there is no demand for lending (at least by credit-worthy borrowers) and the Fed has driven interest rates so low on ST Treasuries that that is not an attractive alternative.
      Both of these factors will eventually change. When they do, the Fed will need to withdraw the excess funds. But, they have no way of doing that. The garbage they bought (and overpaid for) cannot be sold for anywhere near what they paid. Hence, it is impossible for them to withdraw these funds, at least in any manner contemplated when they implemented the program(s).

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