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Bernanke is Between an Overheated Printing Press and a Hard Place

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Recent actions of the world’s central banks have sent a warning shot across the bow of the ship known as the Federal Reserve. Since July, 63 percent of all new cash going into foreign central banks has been euros and yen — not U.S. dollars. The greenbacks share of new cash, 37 percent, is far lower than its 66 percent share of 10 years ago. According to the International Monetary Fund, dollars currently make up about 62 percent of reserves at central banks. This is the lowest on record!

Additionally, the story has broken that the Persian Gulf states have met with leaders from China, Russia, Japan, and France to set-up payments for oil in currencies other than the dollar. Naturally, the story has been denied by several of the participants. But, from what I have experienced so far about Qatar living here for just the past 2 months, the Qatari government is very astute at acting in the nation’s best interest. They are not going to make bad investments (accepting debased dollars for oil) in the long run and interrupt their own economic growth just because the U.S wants them to. A source of mine on the ground here in Doha has also indicated that the Gulf Cooperation Council (Kuwait, Bahrain, Qatar, U.A.E., Oman, and Saudi Arabia) which plans to institute a common currency in 2010 is currently debating whether that currency should float or be pegged to another currency. Apparently, the leading favorite for pegging is the euro. If this were to happen, overnight the euro would also become the currency of choice for purchasers of oil. None of these indicators are good news for the dollar and its future as the world’s reserve currency.

It’s no secret how we got to this place. The U.S. has been on a spending binge ever since Richard Nixon took us off the last vestige of the Gold Standard in 1971. Throughout, the term of George W. Bush the welfare / warfare state accelerated federal spending, and interest rates were kept very low by the Fed. Once the bills came due and the financial crisis hit, the politicians, especially the current president, and the money oligarchs at the Fed knew only to spend more money and lower rates even further to combat the emergency. See, they either never considered that these actions of theirs got us into the mess in the first place or they realized that since we were in a messy fix they needed to help their benefactors on Wall Street and the best way to do that was to pursue the same policies, but label it “stimulus” or “quantitative easing” to fool the masses. Only time will tell whether their chicanery has worked.

One thing is for sure, Fed chairman Ben Bernanke is between an overheated printing press and a hard place. If he raises rates and siphons trillions out of the economy he will burst the current Fed induced stock market bubble. Housing values will sink even lower to reach supply/ demand equilibrium. Unemployment will accelerate even more given the higher cost of money for businesses. If he maintains the status quo, which seems likely given his cowardice in the face of political consequences, the dollar will be finished as the world’s reserve currency. He claims he has the tools and the know-how to siphon trillions of dollars out of the economy to prevent inflation once the recovery picks up. But, given the amount of money and credit the Fed has injected since the crisis began, and Washington’s thirst for huge deficits, Bernanke would need to be more than a mere mortal to accomplish that.

Many may ask, well, what would be so bad about the dollar losing world reserve currency status? For one thing, demand for dollars will evaporate. Foreigners will not need them to buy oil and other commodities. Consequently, the Fed will no longer be able to simply print new money to cover the future debts of Congress’ because no one will be interested in buying the Treasury bonds that support the monetization. Since demand for the dollar will be gone its value will drop precipitously and this will actually force our government to raise taxes and/or print money just to buy the necessities of a nuclear power and industrialized society – namely uranium and oil. In light of the amount of debt we already have and the future unfunded liabilities of Medicare and social security, the standard of living in the U.S. will be equivalent to Mexico’s. One huge benefit would be the death of the welfare/ warfare state because merely put, “you can’t get blood out of a stone.” But the loss of wealth will not be worth it.

In some ways the chairman of the Federal Reserve is the most powerful person in the world. He supplies the money the whole world uses to buy commodities. That distinction will soon come to an end. When it does Ben Bernanke will go down as the worst Fed chairman in history since the dollar collapsed because of his policies and on his watch. Congressmen Ron Paul R-Texas and Alan Grayson D-Florida are about to request that the Senate delay Bernanke’s confirmation hearing for another term as Fed chairman until he releases more information pertaining to the many bailouts of the Fed in the current crisis. Instead President Obama should withdraw Bernanke’s nomination altogether. It is possibly too late to stop the inevitable collapse of the dollar. Maybe Obama can find a competent hand to pick up the pieces when it happens?

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About Kenn Jacobine

  • http://www.republicofdave.com Dave Nalle

    It’s about time we start rethinking economics from the ground up. The whole concept of a “reserve currency” is increasingly meaningless except as a bookkeeping convenience. I think we’re beyond the point now where which currency is used to buy and pay for oil really matters the way it did when currency had real value. All it really represents now is a commitment on the part of the buyer and seller. It’s symbolic, even if it can be traded for real assets. It only retains value so long as people will continue to accept it for their labor and their assets. Once the entire world economy has become virtual rather than based on anything more substantial than a promise, what difference is there between one currency and another?

    Dave

  • Kenn Jacobine

    In a way reserve currency status is like the Gold Standard but not as effective. It prevents to a point debt accumulation and the reckless printing of fiat currency. We are seeing that right now – the world can no longer stomach American high debt and printing of dollars so they are rejecting dollars.

  • http://ruvysroost.blogspot.com Ruvy

    Americans are addicted to fantasy and lies.

    From the article:
    1. A solution in Iraq is going to be tough.
    2. Treating more sick people will mean younger people will pay more.
    3. It’s too expensive to treat older people at the end of their life “so we’re going to let you die”.
    4. If we use government to control costs there will be “less innovation” in medical technology and you should not expect to live much longer than your parents.
    5. Global warming can only be tackled by a carbon tax which is going to cost you a lot of money.
    6. We’re going to have to pay teachers more for quality education — costing you more — but we have to be willing to fire the turkeys despite the unions.
    7. Anyone who does an unskilled, repetitive job will lose it in the near future to outsourcing or automation. And there’s nothing anyone can do about it.
    8. A minimum wage doesn’t help as much as an earned income tax credit.
    9. Helping people at the bottom earn more is going to cost higher income people more money.
    10. Medicare will bankrupt the nation unless something is done and will impoverish the youth.
    11. The best way to ameliorate global poverty is to do away with farm subsidies.

    The student audience, which at first clapped enthusiastically as Reich started to tell his unspeakable “truths” stopped clapping by the end. Reich had uttered the fundamental heresy. You really can’t have something for nothing. Pulling in one direction meant giving way in another. He went on to say that America was hopelessly addicted to fantasy; that anyone who got up on stage and reeled off the points he had made was politically dead.

    Have fun, Kenn…. Stay in Africa. Looks like your standard of living will improve as America gets tossed under the bus….

  • Kenn Jacobine

    It’s even better being in Qatar!

  • http://ruvysroost.blogspot.com Ruvy

    Can you speak Arabic, Kenn? If you can, and think you will be safe in Qatar, go ahead and raise your own standard of living! It would be nice to have a correspndent in Doha!

  • http://www.republicofdave.com Dave Nalle

    Got to admire Robert Reich. He may be a Democrat and a dwarf, but he speaks the truth even when it’s not poliitcally advantageous for him.

    Dave

  • Kenn Jacobine

    I unfortunately do not do well with foreign languages ironically enough. But, you know many people here speak English. As a matter of fact the Emir has much of his family in our school – American School of Doha.

  • pablo

    Nalle 6

    I wonder if you had said he may be a democrat and black instead. I am not small but I find that remark about being a dwarf not only offensive, but clearly shows you to be prejudice.

  • pablo

    Ken,

    Just curious about this article in reference to the book you cited for your amazon link. The book you linked to clearly shows the FED to be a criminal enterprise, yet you make no mention of it in your article.

    The fact that the FED is criminal in nature, at the very least unlawful, (there is a difference), I would have thought you would have included that in your article, since it is central to what the FED is doing. What say you?

    Perhaps you just picked any book about the FED in which case, never mind.

  • http://ruvysroost.blogspot.com Ruvy

    So you are in Doha already, Kenn! You have to write an article about the place. It should be interesting.

  • Kenn Jacobine

    Pablo,

    I do agree that the Fed is a criminal syndicate – counterfeiters if nothing else. But, I did just pick the book – my point was just the dollar could soon lose reserve currency status very soon. I write a lot of articles about the Fed so I am also running out of negative Fed books to plug.

    Ruvy,

    Ironically, as a libertarian I am enjoying the monarchy lifestyle that is Qatar. Things run very well here even though we have cameras on street corners watching us drive.

  • pablo

    Kenn,

    What do you think of the book “The Creature From Jekyll Island”?

  • Kenn Jacobine

    You know unbelievably that is the one important book on the Fed I haven’t read. It is on my Kindle list though. Did you read it and like it?

  • http://www.joannehuspek.wordpress.com Joanne Huspek

    Good article, Kenn. I wish the powers that be had the same amount of common sense.

  • http://ruvysroost.blogspot.com Ruvy

    I have the feeling that lots of folks don’t want to read what you write – for the same reason they don’t want to reasd what I write – it’s scary and depressing. Read this article from Jewish Indy. You put out excellent pieces – even when I don’t agree with you (except in the rare cases when you honestly have no clue – but that happens to all of us). So I’m not being critical. Have you noticed me contributing lately? I don’t even want to read what I would have to write!!

  • Kenn Jacobine

    Thanks Ruvy. You know the scary part is that all these irresponsible bankers have been given trillions in dollars to make trillions more through the fraudulent fractional reserve banking scheme. It is going to be ugly. I’ve got some gold and I am stockpiling Qatari Rials

  • pablo

    Kenn 13

    Yes I have read H Edward Griffin’s excellent book “The Creature From Jekyll Island”. I thought it was the best book that I have read on the FED to date. Most people on Amazon seem to concur, even those that do not agree with Griffin’s conspiratorial view of history, of which I do. I hope you read it soon, as I am interested in your take on it, and always enjoy a lively discussion.

    I also like to a point William Greider’s
    “Secrets of the Temple: How the Federal Reserve Runs the Country”.

    As far as a world conspiracy goes, I have no doubt that if I had a printing press that could issue vast amounts of money out of thin air, I could take over the world too. Unfortunately I am not in the special club.

    As you may or may not know, I am a huge fan of Alex Jones and infowars.com. His last film was called the “Obama Deception” which is freely available on googlevideo. His next movie due to be released today is called “The Fall of the Republic”. I cant wait to see it! I mention him because he had G Edward Griffin on his show not too long ago, and it was an excellent interview on the FED.

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