THE FEDERAL RESERVE IS TRAPPED

THE FEDERAL RESERVE IS TRAPPED

The Federal Reserve is now trapped. As you may know, this cartel of private bankers is buying up most of the U.S. Treasury debt. When they even just hinted that they might taper off their $85 billion per month buying of our U.S. Treasury bonds, the financial markets freaked out. Big Ben (Bernanke) was then forced to contradict himself and state that the economy was not really doing that well, and that the Federal Reserve may have to continue buying bonds and printing money perhaps to infinity. The markets did a 180 and headed for the moon..

Fundamentals no longer matter to market participants. Genuine price discovery is a thing of the past. The stock market is addicted to quantitative easing (the printing of more and more dollars) by its enabler, the Federal Reserve. Bad news for the economy becomes good news for the market because it means that the Fed will have to continue creating dollars which, of course, gives the addict (the stock market) what it must have. The benefit to the real economy is negligible. While the market may go up for a few more months, you know that it's going to end in tears as it always does when the fundamentals are dispensed with.

Yes, Ben is in a box. If he tapers off his bond purchases, the bond market will crash, taking the stock market with it. If he continues or even has to intensify his creation of paper dollars, then he risks a savage inflation which destroys the U.S. dollar and leads to the world losing confidence in our currency. It's all about the dollar after all. If Bernanke lets the dollar fall in order to pay back the remarkable Federal debt with cheaper greenbacks, then he risks the crucial advantages that the petrodollar and the reserve currency of the world give to the USA. What's a chairman to do? Probably retire and hand over the insoluble problem to someone else.

July 13, 2013