In less than twenty four hours (more like 18 hours now) I anticipate that the Federal reserve Bank will formally announce that it has decided to change its governance structure and seat the CEOs of Morgan Stanley, Goldman Sachs, Societe General, Deutsche Bank and several other major banks as the arbiters of monetary policy for the US. Well, they will do the next best thing:
They will cut US interest rates another 50 basis points.
This is flat ridiculous. And worse, it is destroying the US economy.
More below:
Once again, CNBC Asia actually has honest talking heads on late this evening. (Digression - Why do we get Larry Kudlow spewing crap while CNBC Asia gets honesty? Methinks, the MSM meme in the US may wear at the edges when you see the same companies providing very honest coverage elsewhere. Maybe the MSM whitewash has more to say about Americans and less about the MSM). Anyway, once again honesty.
This analyst was saying buy gold. Why? Because the US has
decided to pursue an active policy of currency debasement
.
And tomorrow's rate cuts - while completely unfounded, will happen.
He pointed out:
- The M3 money supply - which this Administration has stopped publishing - was up over 16%, by his measure, in 2007
- The rate cuts in the US will
signal, unequivocally, that the US Federal reserve will set monetary policy based on market expectations
; and
- Foreign currency holders will bet against the dollars and Asian banks, which hold a higher percentage of currency reserves in dollars than non-Asian economies, are beginning to sell dollars and buy gold. The US dollar is about to become the "carry trade" financing vehicle - i.e, borrow dollars, buy gold and expect to pay the loan back with deflated dollars. And those bets will show a "baked in" interest rate cut in the future as these trades further debase the dollar, providing a self-perpetuating validation for further rate cuts.
One of the big arguments for many saying the dollar will be supported by foreign governments because where else will they put their many may be rebutted. The argument is that there is not enough liquidity in the Euro or Yen to displace the dollar. But if these governments go to gold reserves, they change the equation.
I do believe this administration will do everything - and I mean everything and anything - to prop this house of cards up until January, 2009. The "stimulus" package is exactly that - borrowing 2009 tax refunds from lower income earners (with the current structure I would prefer no income caps - borrow money interest free from the rich) at zero interest and remove spending power from mid-2009.
Again, I just get sick at heart.