Tuesday, September 08, 2009

Currency Debasement

The debasement of the dollar continues. Please look at the dollar index:



The Federal Reserve and the US Government have no choice but to try to paper over the losses of the big banks, the massive hole in the US budget, and the drop in employment, wages, and consumption over the past 2 years. This means currency debasement through public debt issuance. The Fed has said it will end quantitative easing at the end of September, but it doesn't have a choice. It will have to continue buying more and mroe Treasuries as the rest of the world starts to turn against the dollar as the reserve currency on which basically all international transactions are based. This artificial bubble of dollar demand will end and cause a currency crisis aka hyperinflation.

... Unless the Fed clamps down on Treasury and Agency debt purchases and forces out the bad debt at the banks, which at this point seems unlikely.

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