Bernanke Sacrifices The US Dollar On The Altar To Save Stocks!

Well Bernanke may be voted (as Beaver Cleaver would have said) a “swell guy”, but not in my mind. Oh sure, he’s done what every other “head of the Fed” would do: print money and lower rates exorbitantly!

Remember how everyone raked Greenspan over the coals for taking interest rates down to the absurdly low level of 1% and how they said it was a mistake to take rates down that low and hold them low for so long? They blamed those actions as being one of the biggest contributors to the latest bubble!

Greenspan’s Excesses x 2 = Bernanke

Well what do we have today? We have rates that got lowered quickly and they have hit bottom at a “range between 0% and 0.25%”, essentially zero percent. Bernanke says that rates make stay unusually low for an extended period of time.

Think this is going to end any differently than producing another painful bubble that will pop? Of course not. Anytime interest rates are taken artificially low and held that way for any “extended period of time”, it causes rampant inflation and enormous speculation in all markets: stocks, commodities, real estate, etc. So don’t blame the speculators for taking advantage of something that the Fed caused.

Speculators don’t cause the bubbles, but they do ride them. Those who have the power to “print money” and take rates down unually low are the ones responsible for the bubbles. Don’t be fooled. There aren’t enough speculators in the world to overrule the long term effects of what the Fed can (and does) put into place.

So where is all of this headed? Well, it’s killing the dollar once again. See the chart below. The dollar has been in a downtrend now since March and it’s not likely to end anytime soon.

Also, many on “Main Street” don’t think they care if the dollar falls. They are just concerned about their 401ks, IRAs, etc. So they are worried exclusively about their stocks and it seems that the Fed is only worried about the same. Take a look at the chart below. The Dow has bottomed in the same month that the dollar turned downward.

So the Fed is more than willing to sacrifice the U.S. dollar in order to help to artificially prop up stocks. That makes everyone feel “warm and fuzzy again”.

However, what they don’t realize is that in doing it this way, it drives up the cost of every day goods as unusually high inflation hits the market, robbing their “ever-shrinking” dollars of purchasing power.

So it becomes “tougher to live” day to day, but hey, your stocks are going up, right? Maybe not. Maybe it’s just “smoke and mirrors”. Take a look at the chart below and you will see what I mean.

The above chart takes a look at the Dow Jones Industrial Average (DJIA) as measured in gold (aka real money). You see, gold holds value dispite inflation. So when you look at the Dow in “gold terms”, the Dow is actually still downtrending. Why? Because the only way that the Fed can get the Dow, S&P 500, etc. to rise, is to cause the dollar to tank.

Well if the Dow goes up in dollar value, but those dollars are worth less all the time, have you really made any “real” head way? I think not! And there’s no better way for this to be seen than viewing the Dow in “gold terms”.

In other words, when you take into account the inflationary pressures over time, the Dow is actually LOSING GROUND!

How you can Protect Yourself and Your Accounts from the Ruthless Fed!

So since the Fed will not stop their actions what is one to do in order to protect themselves? Sell short the dollar, buy gold, buy foreign currencies, buy commodities and buy foreign stocks. These are the ways to preserve your purchasing power AND your retirement accounts at the same time.

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Comment by Shalom P. Hamou

2009-07-24 06:51:38

The article: Ben “Systemic Risk” Bernanke proves that Bernanke knowingly maintained a strict monetary policy long after he knew of the sub prime problem as he knew it would cause of the “Depression”.

It shows that he probably engineered it on purpose!

If you want to sleep tonight, Don’t Read It!

“In contradiction to the prevalent view of the time, that money and monetary policy played at most a purely passive role in the Depression, Friedman and Schwartz argued that “the [economic] contraction is in fact a tragic testimonial to the importance of monetary forces” (Friedman and Schwartz, 1963, p. 300).
…..

The slowdown in economic activity, together with high interest rates, was in all likelihood the most important source of the stock market crash that followed in October.

In other words, the market crash, rather than being the cause of the Depression, as popular legend has it, was in fact largely the result of an economic slowdown and the inappropriate monetary policies that preceded it.

Of course, the stock market crash only worsened the economic situation, hurting consumer and business confidence and contributing to a still deeper downturn in 1930.”

Governor Ben S. Bernanke
Money, Gold, and the Great Depression.
At the H. Parker Willis Lecture in Economic Policy, Washington and Lee University,
Lexington, Virginia.
March 2nd, 2004

You can read also: Preparing for the Crash, The Age of Turbulence Update: 22/07/09., which tries to accomplish Greenspan Mission Impossible:

“Much as we might wish otherwise, policy-makers cannot reliably anticipate financial or economic shocks or the consequences of economic imbalances. Financial crises are characterised by discontinuous breaks in market pricing the timing of which by definition must be unanticipated - if people see them coming, then the markets arbitrage them away.

…..

That is mission impossible. Indeed, the international financial community has made numerous efforts in recent years to establish such oversight, but none prevented or ameliorated the crisis that began last summer. Much as we might wish otherwise, policy makers cannot reliably anticipate financial or economic shocks or the consequences of economic imbalances. Financial crises are characterised by discontinuous breaks in market pricing the timing of which by definition must be unanticipated - if people see them coming, then the markets arbitrage them away.”

Alan Greenspan
The Age of Turbulence: Adventures in a New World [Economic Order?].

Plea for a New World Economic Order. explains the nature and causes of economic depressions and proposes a plausible alternative solution.

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