November 2, 2010 turned Washington on its head. Republicans swept into the House of Representatives and the Senate barely held on to their majority. However, though the Senate did retain a majority, they don’t have enough to have an “operational majority”. While most Americans were busy with watching the election returns, the Federal Reserve printed $600 billion in new money. It was reported that the banks were running out of money and the Federal Reserve was trying to drive down already low interest rates and increase our liquidity.
Now that the elections are over, it is apparent that no new spending bills will be passed. The only weapon left is the Federal Reserve. Printing more money only devalues the dollar and hyper inflation is reported to follow. Every dollar you get paid for work done has just been robbed of it’s buying power. Retirement accounts are affected, savings accounts are losing value by the minute. If you had college funds set up for your graduating senior, it will certainly not pay for near as much now. This will affect the investment market substantially.
The Federal Reserve reported that this newly printed money was to be used for buying Treasury Bonds. Some including the Fed President of Kansas City said, “the risk of additional security purchases outweighed the benefits.” The idea of more bond purchases is received with doubtful skepticism by most of the well known economists. Many have called this latest move by the Federal Reserve a “smoke screen.”
When the government monetizes the debt, it in turn inflates the currency which then devalues the dollar. This will hit the poorest the hardest. Another promise not kept was the Federal Reserve’s promise not to print more money made just a short time ago. It seems that the democratic party would be crying foul since they purportedly are the champions of the poor.
In effect, what the government is doing is paying off one credit card with another credit card with lower interest rates. This cycle continues till one becomes insolvent. Bankruptcy follows on the heels of this strategy. But when it’s a government doing this it spells financial ruination and economic collapse.
China will no longer lend us money because we have become a bad risk. China sent a strong warning to Ben Bernanke, chairman of the Federal Reserve. Xia Bin of China said , “As long as the world exercises no restraint in issuing global currencies such as the dollar – and this is not easy – the occurrence of another crisis is inevitable.” China then promises to do what she has to do to take care of herself. China isn’t the only one upset with us. You can count on Thailand, Japan and South Korea among those who might “impose measures” against the US for printing more money.
There is no doubt America is in financial trouble. But is buying our own debt the answer? Should we anger our global friends in this manner? The global community is growing increasingly antagonized. We are inextricably linked to countries around the world and by buying up our own debt we are passing the buck to the poor, our children and grandchildren, and to our financial allies. We can only wait and watch to see if the predicted outcome to this decision to print more money will manifest.