The Spiral Continues

Today, Federal Reserve Chairman Ben Bernanke addressed the Joint Economic Committee of Congress. As he typically does, he states the obvious and underplays what is really going on.

Here's the winner quote for today - "Clearly, the U.S. economy is going through a very difficult period." No kidding. What was the first clue? Perhaps the fact that the US dollar has lost nearly 40% of its value vs. the euro in the last two plus years. Also consider that foreign investors sold a net of $38.3 billion in US government securities in January. In the past, the government could float some of their liquidity problems to foreign investors by selling securities to raise additional capital. That strategy is no longer working because more and more countries and people on this planet are not expecting the US to remain solvent.

So, they have to crank up the printing presses and issue more devalued dollars to keep the economy moving. The Federal Reserve is happy to comply because they get to keep the interest on that debt, even though it can never be paid. What this is leading to simply stated is hyper-inflation. Prices will rapidly rise and people will be forced to pay more with their devalued dollars. When they can't keep up with the price increases, they won't be able to pay their bills including their mortgages. Mortgages and bank loans will foreclose and default which in turn will cause banks and investment companies to go under (where have I heard of this happening recently - Bear Stearns!!!).

The spiral continues. Even though the Fed and JP Morgan came to the rescue of Bear Stearns, as I pointed out a couple of weeks ago, this is only the first casualty. Freddie Mac and Fannie Mae have received billions in credit from the Fed to continue operation while writing off some of these bad loans. What major bank or investment company will be next?

As banks and companies merge when the weaker companies are gobbled up, more control over the public is gained. Here's an insight. JP Morgan Chase, Goldman Sachs, Lehman Brothers, and Citibank will survive no matter what because they own shares in the Federal Reserve. Other banks and financial institutions may be suspect.

Meanwhile, the Fed continues to cut interest rates to keep the economy moving. If businesses and people have money (or more accurately credit), they can continue to spend and the economy moves along. However, the Fed was responsible for causing the recent credit crunch to begin with. A couple years ago they lowered rates so far so fast, plus the government relaxed restrictions on mortgage underwriting. All these interest only adjustable rates were issued because the credit was so cheap. Last year, the Fed raised interest rates to 5.25% and the adjustable rates went up as well. All of these overextended mortgagees could not pay the increased payments and the credit crunch started. (See also the "Yo-yo Effect" post in this blog from March 19, 2008)

So getting back to obvious Ben Bernanke, his next humorous comment is that some signs indicate that the public expects prices to continue rising. Who does this guy think he is - the king of comedy? More humor by Ben - "It not appears likely that real gross domestic product will not grow much, if at all, over the first half of 2008 and could even contract slightly." If this wasn't so sad, it would be funny. The Fed caused these situations. Then, they have the nerve to has for more control (See Monday March 31, 2008 post).

It is quite clear that they believe the public to be complete morons not to understand this or that there is such apathy out there, no one will care. Regardless of the answer, if we want to see our country survive in any meaningful capacity, we must find a way to get the Federal Reserve out of control of our economy. Congress has the expressed right in Sec. 30 of the Federal Reserve Act of 1913 (which created the Federal Reserve) to alter, repeal, or amend this act at any time. To this date, they have not done so.

As always, the choice is yours.

Do not be like the horse or the mule,
which have no understanding
but must be controlled by bit and bridle
or they will not come to you. Psalm 32:9 (NIV)

If you have comments or questions, please feel free to contact me at the address below.
Email: DeltaInspire@panama-vo.com