from GoldSeek

— Posted Friday, 23 September 2011

By Andy Sutton 

[The Fed’s] latest cockamamie scheme is to shift its $1.7 Trillion in short term US Bond holdings (monetized debt) to longer-term holdings in an effort to drive down the long end of the yield curve even further. Apparently, the current monetization efforts haven’t been good enough. They have been driving the long end down for three years now, either directly through direct rate intervention or by subsidies aimed at the end products resulting from those rates such as mortgages.

The obvious rationale is that driving down rates on debt will rescue the economy, since people will be able to take on even more debt to spend more money on more imported trinkets from China and elsewhere. Again, haven’t we heard this before? We still haven’t really felt the full impact from the last raft of malfeasance when the fed went on an overt $600 Billion bond-buying spree. For those who haven’t yet connected the dots, that is called monetization of debt. A very inflationary measure. The dollar has paid the price. 

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So who benefits again? The banks, obviously. The lower the yield curve, the higher the spread, the higher the profit margin. All actions done so far have been to protect and enrich the banks and their precious financial system – all at the expense of the economy and all done intentionally, in my opinion, with malice and aforethought. Just think back to TARP, TALF, TSLF, and the other multi-trillion dollar rescue packages. Think about the $500 billion (minimum) in swaps done between the fed and the ECB in 2008-09 that Bernanke was grilled on and claimed not to know the recipients thereof. Think about the latest harebrained stunt aimed at saving European banks. More unlimited dollar bailouts for foreign banks. More protection of the financial oligarchy. More inflation. Less purchasing power for the dollar. More pain for consumers. Less economic growth.

At the bottom of this issue is that the Keynesian way is still in full force, which guarantees that things will not get any better. Two of the biggest pillars of the Keynesian way are to punish savers because saving is a bad activity - all monies should be spent on consumption to maximize current ‘growth’. Never mind future growth; all actions are to be geared towards the short run. The second big pillar is deficit spending and debt accumulation at all levels of the economy. Again, forget about the long-term consequences. All focus is dedicated to the short run. That is the Keynesian way in a nutshell.

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The ‘cuts’ that are forthcoming from our new unconstitutional ‘super congress’ will almost certainly be from social programs, not the sacred cows such as the Pentagon budget, bank bailout monies, or subsidies paid for keeping jobs out of America. The lobbyists have already guaranteed that. I’ll say it again – the American people are the only ones who don’t have someone lobbying for them to the members of that ill-conceived and very illegal group. It is terribly ironic that the one group who is going to bear the full burden of all of this does not even have one representative in the process. We know what Jefferson said about that. If we don’t, then shame on us for not knowing our history.

The bottom line is that our debt is already unpayable. Our bonds are junk. Our country is several orders of magnitude deeper into this mess than Greece. According to Laurence Kotlikoff, the net present value of our obligations relative to GDP is 14 times greater. Greece’s multiple is only 12. Yet we had people surprised when our debt rating was cut by one single notch. It was an affront to our perception of American superiority. That is gone, people. We’ve allowed it to be squandered – all for the satisfaction of short-run desires and an economic philosophy that was brought into the world in the worst possible manner: half improvised, half compromised. The policymakers of the day provided the compromise; Keynes was more than happy to provide the rest. In a way, he got off easy; his demise came long before that of a world that decided to throw away prudence in pursuit of his unattainable utopia.

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