Following my recent interpretation of the G20 communique, the editor of Expresso wrote back: “Catherine, can you elaborate a little more about this printing euphoria?”

The Chairman of the Federal Reserve, Ben Bernake, has been adamant. He will not let a deflation take hold. He is fighting significant drops in stock and real estate market values and a “stall” in economic activity by expanding the money supply.

Hence, the Fed has been aggressive in providing loans and liquidity to the market while the Treasury has been generous with bailouts. However, much of these funds are simply covering losses in the large mortgage and derivative portfolios — the capital injections do not appear to be rippling through the larger economy. In essence, large institutions are hoarding the resources and cutting off the smaller institutions in a way that is devastating for the real economy.

That means that insiders can now buy up assets in the real economy on-the-cheap … which was their goal from the beginning. It’s another example of how “trickle down economics” translates into “drop dead economics.”

Part of the challenge is that our economy does not need more debt. We need more circulation of equity, greater transparency, and open competition that will improve performance on equity. Such changes, however, would be in conflict with continued centralization.

So, how do you keep an economy going when it is being heavily taxed by centralization and lawlessness in the allocation of capital? You print money. The theory is that consumers can keep spending on consumer products without ever having enough money to compete for ownership of the real economy. My prediction is that it will not work.

16 Comments

  1. HOLA CATHERINE, I AM FORM MEXICO. IN 1995, WE HAD THE TEQUILA EFFECT; AND THE MONEY WAS DEVALUED ALMOST 300%. BUT BEFORE THAT WE HAD LOTS OF DEVALUATIONS. THE MEXICAN PESO WAS USELESS; INFLATION WAS RAMPANT; AND WE HAD TO USE MILLIONS OF PESOS TO BUY A POUND OF CHEWING GUM. IN 1993, THE GOVERNMENT REMOVED THREE(3) ZEROS FROM THE PESO BILL, CREATING A NEW PESO. OUR MONEY WAS REALLY DEVALUED BY: DEVALUED AND INFLATION !!
    DO YOU THINK THIS WILL HAPPEN HERE IN THE U.S. ? WILL THE GOVERNMENT HAVE TO CHANGE THE CURRENT DOLLAR BILLS DUE TO DEVALUATIONS AND INFLATION? AM I IN A THIRD WORLD COUNTRY AGAIN?
    THANKS, MARIA K.

  2. Hi Catherine

    Just a quick thank you for all your exceptional work – I am based in Europe and you have a following here too – very informative and possibly life saving. As a quick note my belief also is even though we are in the midst of a deflationary spiral I believe the main driving force in all of this is hyper inflation – as banks,companies, hedge funds et al are de-leveraging everything is being sold at fire price sales – however physical production and shipping seems to be imploding at the same time (see Baltic dry index) in the medium to short term future it is my opinion we will likely have a lack of goods and commodities and an exponential increase in the money supply (as of now) = few goods and lots of FIAT paper = sky rocketing prices.

    Then we my see interest rates unthinkable as of today

    GOT GOLD?

    God bless

  3. “The theory is that consumers can keep spending on consumer products without ever having enough money to compete for ownership of the real economy.”
    Dear Catherine, this is the clearest and most sensible explanation that I have seen of the particulars of what the Fed is doing. [I expect there are other reasons also (e.g., keeping the current equivalent of Lords and Squires loyal, as is done in Central and South America; centralizing power)] I also think the real practical meaning of The New World Order is Ruthlessness.

  4. this is an email i sent to Speaker Polosi and Barbara Lee today. i wanted to send to Barny Frank but he doesn’t accept emails from people outside his constituency…

    Dear Speaker/[Ms Lee]…,

    Please forward to me a clear description and reasoning why we (the government and you) are giving bailouts to bankers that clearly have not managed their businesses properly.

    It may not be obvious from your perch that these bank managers are not competent to manage these institutions and the “free” money they have been given at taxpayer’s expense. And why would you be ok with them keeping their exorbitant salaries?

    Why have you not demanded ownership stakes such as stock warrants; aas well as demanding new management and access to seats on their corporate boards?

    This is very upsetting to “us” people earning our livelihood with no safety net.

    I have always supported you and Barney Frank (moved to Berkeley from MA) but it seems like you and he are not standing up and leading and demanding excellence from the people you have given money to. (and B Frank does not accept emails from folks outside his constituency while managing national policy… what gives?)

    Please advise in a timely manner.

    Thanks for serving,

    oren

  6. It depends on your definition of “work”. How far are those who created this mess for their own purposes, willing to go to either MAKE it work (for them) or to put off any kind of reckoning, unless it’s one where the taxpayers get shafted (again, as usual)? In other words, what proof is there that business canNOT be continued as usual?

  7. I totally agree with yr realistic conclusions.

    My boodle is in 3 mo treasuries.

    At research.stlouisfed.org the chart of money supply, after rising gradually for many decades, has gone vertical up.

    Will the value of my boodle in terms of Whole Foods groceries go vertical down?

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