I am sure that the historian of the 22nd century will regard the 21st
century as the one that looked back on the 20th century as creating one of
the greatest follies of recent mankind -- that of artificial national
currencies by nation-states. An article, "Central problem: the Central
Bank" in Barron's magazine, 26 December 2009, by Robert Klein and George
Reisman contains a couple of succinct paragraphs which explains why a wall
of inflation will hit us -- possibly during 2010 -- but surely not too long
thereafter.
The article refers to America and the Fed but, of course, it also refers to
the quantitative easing by the Bank of England and the European CB, as also
to the People's Bank of China which is tied to the US dollar. Apres lieux,
le deluge. (Sorry, my mail program won't do accents!)
<<<<
In the most recent boom, total debt rose to a record 375% of gross domestic
product. (By comparison, debt was 150% of total GDP in the inflationary
boom of the 1970s.) Thus, the Fed has had to resort to desperate measures
to bail out the economy. Along with its gargantuan loan programs, it has
injected over $1.2 trillion in new bank reserves into the system --
building upon a base of about $800 billion -- in an effort to hold
overnight interest rates near zero. This has propelled stock and commodity
prices upward, while credit spreads have tightened. In time, borrowing and
lending should accelerate, and economic activity should increase. This
should continue until the inflationary consequences of the easy-money
policy become evident. Consumer prices should rise, as should long-term
interest rates. Then, confronted with the inflationary effects, the Fed
once again will have to reverse its easy-money scheme and raise short-term
interest rates, or allow the inflationary effects to accelerate.
How many more crises must we endure until we realize the common denominator
is the creation of money and credit by the Fed? Wall Street bankers and
speculators, who try to game the system and make profits during each boom,
are mere bit players in these crises. By fostering the booms and triggering
the busts, the real villain is the institution of central banking itself.
Thus, instead of providing stability to the economy, central banking has
created great instability. Until this is understood, we will make little
progress in preventing future crises or easing the current one.
>>>>
Keith
Keith Hudson, Saltford, England
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