This is probably going to wander a bit, so grab something relaxing. I’m attempting to play connect the dots to explain the current weirdness.
Let’s start with Warren Buffett – he made the statement after the S&P downgrade that there is no risk in US Treasuries because the Treasury/Fed can always just “print more dollars”. Let’s take that one step further – If the Fed can print as many dollars as it wants, Why should government bonds pay any interest?
The purpose of the QE 1/2 programs at the Fed when it started buying up debt was to stimulate the economy. What if QE3 is about bringing the interest cost of the US government to $0, no matter how much money the US Treasury borrows – and borrows every penny of it from the Fed, forever. Today, when the Fed “lends” dollars to the US Treasury, the interest paid by the Treasury to the Fed is all rebated back to the U.S. Treasury as their cost for the right to make dollars. So no matter how much the US Treasury pays the Fed in interest, there is no cost to the US Treasury.
If we could cut out the $400 billion a year we’re paying on Interest, why not have the Fed buy up all $14 trillion in debt, all state and municipal government debt, all quasi-government debt (Freddie Mac, Fannie Mae, GNMA, Sallie Mae), bad credit card loans, commercial paper, corporate bonds, etc… – the Fed would be in charge of all decisions about making all loans to everyone. Problem solved.
This is where things get dicey – I need to discuss Sharia Law and Usury. This goes back 2,500 years and is the source of much of the friction from the Jewish people and the Arabs. The Old Testament has a prohibition of paying or charging interest – to members of the tribe.
“To a foreigner you may charge interest, but to your brother you shall not charge interest, that the LORD your God may bless you in all to which you set your hand in the land which you are entering to possess.
(Deuteronomy 23:19,20)
It’s not a coincidence that Sharia Law closely parallels God’s Law as it was written in the Torah – they are two branches of the same religion. Islam holds to this day that interest should not be charged on the use of money. When you hear the Arabs refer to “The Jewish Banking System”, they are more generally referring to banks that pay or charge interest in violation of what they understand God’s law to be.
The early Roman Catholic Church also took up the Usury banner and incorporated it into church doctrine and law.
The History of Usury
Over time, Western sensibilities have “evolved” that charging interest is a necessary aspect of a modern economy and a viable banking system. “Not charge Interest” morphed into “Not charge EXCESS interest”. Up until Jimmy Carter lost total control, almost every state still had Usury Statutes that made it illegal to charge interest above a certain usurious percentage. With pressure from the banking system and competition (from states like Arkansas being run by a guy named Hillary Clinton and her husband), all of the states were forced to repeal their laws against excess usury or set the number extremely high. Usury Laws by State
So, let’s explore the idea that the Fed/US Treasury, EU/ECB, Japan, the IMF and whomever…. have decided that the way to avoid global economic collapse is for all of the central banks of the world to buy up all the sovereign debt of all debtor countries, take it out of private hands and make the interest rate 0%. Everyone will just start printing Dollars, Euros and Yen as fast as they need to. By the time the world figures it out, there may be $100 trillion in new “money”, but it will be too late to do anything about it.
This was the strategy used by the Weimar Republic after World War 1 in Germany. They were obligated to pay reperations from the War accord to the Treaty of Versailles. On June 24, 1922, Walter Rathenauer, the German Foreign minister – who was insisting that Germany would honor its debt – was assassinated. The German money printing press opened wide – the idea was “Okay, you are going to force us into proverty to pay this debt, we’ll inflate our currency to hell and pay you in worthless money – either way, we’re poor. We’ll just take you down with us.”.
Thus begins the era when we know the ancedote about people in Germany having to pay for a loaf of bread with a wheelbarrow or money. As the Mark deflated, the Stock Market zoomed upward – it went from 21,400 to 26,890,000 in less than a year! Everyone is Rich!
[Hopefully this partly explains my counterintuitive idea that a collapse of the US Dollar makes the Dow Index go up]
So what if instead of Germany doing this, the entire world decided at the same time to inflate their currencies at the same time? Looking currency to currency, there wouldn’t be any apparent inflation….. except to something like Gold 8^P You make owning Gold illegal – problem solved!
So what’s the flaw in the above perpetual prosperity, free energy, perpetual motion machine? And who is pulling the strings to make it happen?
The logical way to handle a banking crisis is to do it after the markets close on Friday. That gives the world time to react before things open back up on Monday.
I could be competely wrong. China might be imploding and money is fleeing China buying up every asset in site. Maybe the world is actually run by space aliens and the mother ship is about to land. But change is definitely in the air.