Let’s connect the theme I was planning to write about this morning with the Kannon Fodder post below, which refers to the troubles the Chinese economy is going through:
from The Wall Street Journal
Jan. 28, 2009
The Federal Reserve, unable to lower rates further, said it is prepared to purchase long-term Treasurys in order to keep rates low. “The economy has weakened further,” the Federal Open Market Committee said, adding that conditions “are likely to warrant exceptionally low levels” on fed funds “for some time.”
The US Government is making Bernie Madoff look like a penny ante operator.
China’s been providing bailout funds for the United States, in the form of buying ever lower yielding T-Bills, for some time now. They control enough dollars that they can flush our currency down the devaluation toilet in one fell swoop if they choose to. But since our Wal-Mart dependence is still alive and well, they’ve held off precipitating a steeper devaluation of the currency they get paid in for their melamine tainted milk products and lead imbued children’s toys.
However, in as global an example as there is of the credit crunch/crisis, China and other foreign supporters of the US Dollar, and therefore the US economy, are cutting back on extending credit to us, in the form of cutting back on buying our government’s bills and bonds.
So our nifty solution is to print more dollars with which to buy our own debt. If you can’t get your head around this, it’s because there’s nothing there to get your head around. It may not quite be a Ponzi scheme, but it’s an attempt to stave off inevitable pain by attempting to prop up something (the US economy) with nothing but the Emperor’s new dollars.
We have somehow become both the con artist and the mark.
Postscript: Headline in this morning’s WSJ reads: “Chinese Premier Blames Recession on U.S. Actions”. Laying the groundwork, methinks, to a more severe reduction in supporting our credit habit. Chinese money was the blood flowing through our of house of cards economic system. A case of financial anemia is the prognosis. LK