"There is danger from all men. The only maxim of a free government ought to be to trust no man living with
power to endanger the public liberty." - - - - John Adams

Saturday, September 15, 2012

The Fed Fires Up The Printing Press

"Paper money eventually returns to its intrinsic value ---- zero."
- - - Voltaire

Buy Guns and Gold
  • The Fed's printing press is spewing out monopoly money 24-7.
  • Need cash?  Just print it.

The US central bank will spend $40 billion to buy mortgage-backed securities for as long as it takes to reduce the unemployment rate.

Translation  -  The Fed will print money until they feel they want to stop.  Inflation?  Worry about that later.

The Fed has also chose only one sector of the economy to stimulate  -  the real estate sector.  Do I hear the words "asset bubble"?  And what happens to economic bubbles?  At some point they burst.

INSANITY  -  What is wrong with the current real estate market?  Nothing at all.  In a free market overpriced products go unsold.  The sellers of products must lower their price to attract buyers.

That is what has happened in real estate.  Home prices were artificially jacked up by the government until no one could afford the payments.  Now home prices are lower and more people can afford to own a home.  Normally that would be considered a good thing.

But the insane people in government think lower home prices are bad.  So now the Fed is trying to increase home prices again to "stimulate" the economy.
Fed to Fire Up The Printing Press

The big story is that they will buy $85 billion in new assets, including $40 billion in mortgage-backed securities every month until the end of the year.

The key here, which differentiates this from QEI and QEII, is that the commitment is open-ended printing press money — the Fed has committed to continuing the buys if the economic situation is not significantly improved at the end of the year.  Jeffrey Lacker, president of the Richmond regional bank and a noted inflation hawk, was the only vote against.

Not worth a Continental

At the founding of our Republic the Congress also created money out of thin air to
pay their bills. Hell, need $65 dollars? Just print all the $65 dollar bills that you need. What could go wrong?

Continental currency was denominated in dollars from 1/6 of a dollar to $80, including many odd denominations in between. During the Revolution, Congress issued $241,552,780 in Continental currency.  Continental currency depreciated badly during the war, giving rise to the famous phrase "not worth a continental".
By the end of 1778, Continentals retained from 1/5 to 1/7 of their face value. By 1780, the bills were worth 1/40th of face value. Congress attempted to reform the currency by removing the old bills from circulation and issuing new ones, without success. By May 1781, Continentals had become so worthless that they ceased to circulate as money. Franklin noted that the depreciation of the currency had, in effect, acted as a tax to pay for the war. In the 1790s, after the ratification of the United States Constitution, Continentals could be exchanged for treasury bonds at 1% of face value.

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