Hyperinflation Watch - February 24, 2010

February 24, 2010 – The US Treasury has taken another step on the road leading to hyperinflation. It announced that it will borrow $200 billion and leave this money on deposit with the Federal Reserve. The announcement was made with bald disinformation aimed at camouflaging the true impact of this step.

The Wall Street Journal dutifully reported that taking this step “will make it easier for the Fed to raise interest rates when the time comes.” This red herring is obviously intended to make the Treasury’s overt dollar debasement appear reasonable. The WSJ statement itself is nonsensical. How can raising interest rates be made “easier” than it already is? All the Fed needs to do is pull the trigger and interest rates go up.

The Fed of course is lacking the will to do that. It may also be lacking the insight that the system is broken, but I doubt that point. The Fed must know the system is broken, but because it is a captive of vested interests who benefit enormously from the situation at present (anyone mention banker bonuses recently?), it works solely to keep the system from falling apart.

Therefore, more gimmicks and more disinformation are the order of the day, like this latest Treasury announcement, which was no doubt cooked up by the Fed. You see, the Fed has a problem. The federal government is borrowing too much. When it borrows, the federal government is soaking up savings. These savings come from throughout the world because of the dollar’s reserve currency role. But if people with savings choose not to lend to the federal government because they recognize it is in basically the same situation as Greece and every other over-indebted country, the Fed must step in. It always has and always will.

As I have mentioned before, the Fed is not there to fight inflation or encourage full employment or any of the other laudable reasons given for its existence. The true and unmentioned reason is that the Fed has one mission. It is to make sure that the federal government obtains all the dollars it wants to spend. If the federal government cannot attract these dollars from the world’s savings pool, then there is only one other way to obtain them. The Fed must print them.

The WSJ article has this point backwards too, making clear its disinformation aim. “The Treasury program makes it possible for the Fed to avoid printing more money, a step that could lead to inflation, at it develops exit strategies from its interventions.” In reality, the Fed is actually ‘printing’ money. It is not the cash-currency we carry around in our pockets, but it is creating deposit-currency that circulates through the banking system where payments are made in commerce with checks, wire transfers, plastic cards and the like.

So the Fed is fanning inflation by creating more dollar currency, and easy money always leads to inflation. The US is now so far down the inflation road, having travelled it for decades, that it is hurtling pedal-to-the-metal toward hyperinflation.

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