December 13, 2010
FED´S SEEDS OF DISASTER SPROUTING NOW, WILL BEAR FRUIT IN EARLY 2011
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Between the first round of quantitative easing by the Fed, and the second round, known as QE2, the Fed has sown seeds of disaster for the financial system.
Those seeds of disaster have ALREADY sprouted, in spite of the fact that the financial media have completed ignored evidence.
Back in October of this year, in a webinar for members I outlined the exact sequence that would result from the Fed's QE2 program, also known as creating money out of thin air.
Throughout the world's history, going back a few thousand years, the process of currency debasement has ALWAYS, without exception, been destructive.
Our founding fathers knew all too well of this destructive process. In fact, they placed the death penalty in the Coinage Act of 1792 as punishment to anyone convicted of currency debasement.
Fast forward a couple hundred years to now, and we actually have the Fed actually telling us that currency debasement is the cure to our economic ills!
Nothing could be further from the truth.
Woe to those who call evil good, and good evil.
QE2 is good for our economy in the same way that an HIV-tainted blood infusion is good for your health.
QE2 is literally planting seeds of economic disaster, they have already sprouted, and they're growing rapidly.
Currency debasement results in higher prices for nearly everything. It's not that prices are rising, it's that the value of the currency is being diluted, so it ends up taking more money to buy the same things.
Take a look at these two charts that clearly show the seeds of disaster have sprouted:
The second chart shows price increases for multiple raw commodities over the past year, and the first chart shows bond prices have cratered 9% in the last 3 months.
Inflation is developing as a result of the Fed's QE policies. We've seen a 9% collapse in bond prices in a little over three months, ever since it became widely known that QE2 was a done deal. On an annualized basis, this would amount to a 36% drop in Treasury prices in one year. This in turn would correlate with interest rates EXPLODING into the double digits.
Imagine if mortgage rates went to 10%. Imagine if the US was suddenly paying 10% on its debt (we’re then talking about interest payments of $1+ trillion per year). Imagine what would happen to the $400+ trillion in interest rate based derivatives, nearly half of which are sitting on US commercial bank balance sheets.
In 2011, you won't have to imagine these things, because they will be happening in the world you live in. Raw commodity prices have already risen by more than 20% in the past year.
Yes, the government lies about the Consumer Price Index to hide the true level of inflation. Nonetheless, as these raw commodity price increases work their way through the supply chain and end up as price increases on store shelves, inflation will be painfully obvious.
It is not hard to imagine 10% interest rates, in light of the fact that commodity prices are rising by 20+% per year, and the Fed is already talking about QE3!
It's now the time of year for Holiday parties, Santa Clause, and general celebration.
While we are all partying like the party has no end, the Fed's seeds of disaster have sprouted and taken root. Those seeds of disaster will bring much fruit next year.
Are you prepared for the harvest?
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