Jubilee Prosperity

The dollar, cut in half under the current administration’s accelerating budget and trade deficits, rallied slightly as loans were called, interest rates fell and the shortage of and demand for cash became king. The dollar may fall again to new lows after the current rally.

This does not a bull market in deficit dollars or debts make. Federal Reserve and Treasury seem hell-bent on bailing US out by inflating debt money and borrowing from surplus nations who no longer want to lend as much. Our creditors now buy T Bills instead of Bonds, and diversify into gold. If the dollar begins to accelerate downward as it is doing as this is written, foreign creditors may slow T Bill buying also. That could leave the Fed buying or monetizing debt on a hitherto unprecedented scale, $11 Trillion so far, exponentially expanding.

Deuteronomy 15 (King James Version)

6For the LORD thy God blesseth thee, as he promised thee: and thou shalt lend unto many nations, but thou shalt not borrow; and thou shalt reign over many nations, but they shall not reign over thee.

Ben Bernanke testified to Congress the unprecedented monetary stimulus was immunized (offset) to prevent staginflation. This is not what gold and silver are saying now, as they are 24% above their lows on 22 October and 28 October 2008, a month before the most recent 21 November 2008 trading bottom of the stock markets.

Is it possible for an economy to deflate while the currency devalues? Yes, by accelerating electronic or paper IOUs without economic growth or intrinsic value, bad money driving out good.

Immunization may be willful monetary subterfuge or wishful academic thinking. After all, the Fed stopped publishing M-3 and it began to slow before the market top and decline.

The deficit economy appeared hooked on Federal fiat money and Treasury debt. So far, financial powers did not give up monetizing debt at unprecedented rates. They did not want the economy off heroin loans to return to natural health with real private sector capital innovation and return.

Diminishing demand and declining monetary velocity may do it anyway, as happened in the Thirties and Forties despite Fed and Government attempts to push on a string.

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This entry was posted on Monday, April 6th, 2009 at 12:28 am and is filed under Prosperity. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.