Sunday, March 22, 2009
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From now on, think of the US as a bigger Zimbabwe
"I've been condemned by traditional economists who say printing money drives inflation," observed Gideon Gono last month. "But once the IMF advised America to print money, I decided God was on my side and had come to vindicate me."
By Liam Halligan
For readers who may not know, Mr Gono is governor of the Central Bank of Zimbabwe. He'll be feeling particularly pious this weekend – as the mighty US has, indeed, just started printing money. We're supposed to call it "quantitative easing", I know. But if Mr Gono can tell it as it is, why can't we?
On Wednesday, the Federal Reserve finally pressed the panic button – unveiling plans to buy $300bn (£210bn) of treasury bills. The US government will also purchase an extra $750bn of dodgy sub-prime securities from investors stupid enough to own them (on top of $500bn already pledged).
The Fed's move sparked a 50 basis point drop in US 10-year government yields, while the dollar lost 3pc – its biggest one-day fall in more than two decades. This is monetary "shock and awe". Before last September's collapse of Lehman Brothers, America's monetary base amounted to 6pc of GDP. Wednesday's plan will swell that figure to 30pc.
Such unprecedented policies are needed, we are told, to "fight deflation". As regular readers know, I think deflation is largely a myth – an alibi for wildly expansionary fiscal and monetary policy concocted by Western governments and their media lackeys.
After all, where is deflation? Data released last week put annual US core inflation at no less than 4pc. So why is the Fed doing this, following the Bank of England's lead? Because the real solution – forcing banks to face the music, while rescheduling massive private and public debts – is too politically frightening for our so-called leaders to contemplate.
A decision has been made, but not announced: we'll inflate away our debts instead – another policy Mr Gono knows well. That's why gold, the ultimate inflation hedge, surged in response to the Fed's announcement.
Amidst this policy maelstrom, Barack Obama resorted to the comfort of Jay Leno's sofa last week. For a US President to appear on the well-known comedian's TV chat-show, at a time like this, shows the White House is now desperate.
America's economy is on a knife-edge, policy-making is out of control, and most posts in the Obama treasury team remain unfilled. Perhaps the President could sign up Mr Gono and Mr Leno? Could they really do any worse?
Used by permission.
Posted by Kenneth E. Lamb at 4:38:00 PM