Let's talk turkey. The dollar is getting hammered by the day. And the
dollar is getting hammered by design, because the Fed wants a weaker
currency to boost exports and lower the real burden of debt on the
banks. (Yes, Martha, the banks are still insolvent) So, down goes the
greenback, lower and lower, pushing up gas and food prices while the
buying power of the average US worker vanishes down the plughole.
And this process will continue for the foreseeable future because -- as Obama stated earlier in the year -- Washington is committed to doubling exports in the next five years. Think about that: "the next five years." That's the same as saying that the American worker will be reduced to third-world poverty in a half decade or so. It's a death sentence.
Can you feel the love, yet?
And none of this has anything to do with lowering unemployment or raising GDP. In fact, the revisions of first quarter GDP reveal the lies behind the policy. The first announcement put GDP at 3.2%. Remember that? Now we've slipped to 1.4% and some predict the final revision could actually show negative growth. This is from the New York Times:
"Earlier this week we wrote that several prominent economic forecasters had lowered their estimates of gross domestic product growth in the first quarter of this year. Today saw even further declines. Macroeconomic Advisers, a forecasting firm, lowered its estimate to just 1.4 percent annualized, when just a few months ago they had pegged the number at 4.1 percent.
"Capital Economics likewise brought its estimate down to 1 percent, writing in a client note:
"Every data release last week seemed to necessitate a further downward revision to our first-quarter GDP growth forecast. By the end of the week when the dust had finally settled, that estimate was down to only 1% at an annualized pace. Indeed, there is now even a decent outside chance that the economy contracted outright." ("G.D.P. Estimates Slide Further." New York Times)
So, it's all baloney. The economy isn't growing, and the only reason the unemployment numbers keep dropping is because more and more people are falling off the unemployment rolls. Everyone knows that. So, while there may be a slight uptick in consumption and retail; don't be fooled. It's just because it costs more to put food on the table or drive to work, not because people are scarfing up trinkets at the mall or living the highlife.
So, now the Democrats and Republicans in Congress have decided -- in classic "good cop, bad cop" fashion -- to chop $4 to $5 trillion long-term expenses from the budget deficits. Yipee. The difference between the two parties is now so slight that it can be measured in dollars and cents. But regardless of party, the budgets will be slashed, services cut and jobs lost. Bottom line: Conditions will steadily deteriorate, activity will slow, and economy will enter a period of protracted stagflation.
But that doesn't mean Wall Street will suffer. Hell, no. The markets will continue to bubble ever-higher fueled by lavish injections of monetary stimulus from the Fed just as they have for the last three years. As Bloomberg reported earlier in the week, Bernanke does not plan to end QE2 at the end of June as scheduled, but will continue to recycle the proceeds from maturing mortgage-backed securities (MBS) into bond purchases to ensure that the Blue Chips continue to post record profits while 42-million workers scrape by on food-stamps, and a couple million more wait to get booted out of their homes. Sounds fair, doesn't it?
So, if it seems like the big banks are writing the policy; it's
because they are. Think of it like this: The US government keeps two
sets of books. One is a record of all the public's revenues and debts.
The other is an off-balance sheet operation run by the Fed. When Congress spends money, it must be approved through the normal democratic
process. When the Fed spends money, it simply writes a check on an
account backed by "the full faith and credit of the US Treasury" without
any oversight or supervision.
And, the debts that it rings up do not
add to the budget deficits or force policymakers to impose constraints
on the banks. No way. The $2-trillion in garbage mortgage-backed
securities (MBS) and other handouts the Fed has given to Wall Street
since Lehman collapsed, should have sent the deficits into the
stratosphere and forced the resolution (bankruptcy) of the nation's
largest banks. But they didn't, because the Fed's losses are kept
off-budget, where they don't attract Congress' attention. But the
damage can be felt just the same, only not in terms of bulging deficits,
but in dwindling buying power due to a plunging dollar.
So, it would be more accurate to call QE2 a stealth tax on working people, instead of "monetary stimulus" (which it isn't). The truth is, Bernanke is deliberately flogging the dollar to help his underwater bank buddies stay afloat and to keep stocks "frothy." But the net-result is a huge loss of personal wealth for everyone else. These are the real losers in Bernanke's QE shell game.Going forward: The dollar will continue to get pummeled, the red ink on the Fed's balance sheet will continue to build (until it is passed along to the Treasury), and the stimulus pipeline will continue to flood the markets with rivers of liquidity. The Fed is running the whole shooting match now. The Central Bank has become the forth and most powerful branch of government.