The Federal Reserve has learned that it can keep afloat the Ponzi scheme that is the US economy by printing money with which to support financial asset prices. The alleged rise in interest rates by the Federal Reserve are not real interest rates rises. Even the under-reported inflation rate is higher than the interest rate increases, with the result that the real interest rate falls. If the stock market tries to sell off, before much damage can be done the Federal Reserve steps in and purchases S&P futures, thus driving up stock prices.
Normally so much money creation by the Federal Reserve, especially in conjunction with such a high debt level of the US government and also state and local governments, consumers, and businesses, would cause a falling US dollar exchange rate. Why hasn't this happened?
For three reasons. One is that the central banks of the other three reserve currencies -- the Japanese central bank, the European central bank, and the Bank of England -- also print money. Their Quantitative Easing, which still continues, offsets the dollars created by the Federal Reserve and keeps the US dollar from depreciating.
A second reason is that when suspicion of the dollar's worth sends up the gold price, the Federal Reserve or its bullion banks short gold futures with naked contracts. This drives down the gold price. There are numerous columns on my website by myself and Dave Kranzler proving this to be the case. There is no doubt about it.
The third reason is that money managers, individuals, pension funds, everyone and all the rest had rather make money than not. Therefore, they go along with the Ponzi scheme. The people who did not benefit from the Ponzi scheme of the past decade are those who understood it was a Ponzi scheme but did not realize the corruption that has beset the Federal Reserve and the central bank's ability and willingness to continue to feed the Ponzi scheme.
As I have explained previously, the Ponzi scheme falls apart when it becomes impossible to continue to support the dollar as burdened as the dollar is by debt levels and abundance of dollars that could be dumped on the exchange markets.
This is why Washington is determined to retain its hegemony. It is Washington's hegemony over Japan, Europe, and the UK that protects the American Ponzi scheme. The moment one of these central banks ceases to support the dollar, the others would follow, and the Ponzi scheme would unravel. If the prices of US debt and stocks were reduced to their real values, the United States would no longer have a place in the ranks of world powers.
The implication is that war, and not economic reform, is America's most likely future.
In a subsequent column I hope to explain why neither US political party has the awareness and capability to deal with real problems.
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