Quantitative Easing: Our Tiger By the Tail

http://www.americanthinker.com/2011/03/quantitative_easing_our_tiger.html

Here are some excerpts from this article, published today, March 16, 2011.

Why QE Will Continue Until Hyperinflation Stops It

From a purely economic perspective, QE and inflation should never have occurred. From a political standpoint, it is a means of hiding the critical economic condition of the country. A stoppage of the program would result in two likely outcomes:

• 1. A Depression

Economic and financial performance has been artificially inflated by QE. A bubble in both areas has developed as a result of QE.  Chris Martenson explains:

The Fed has been dumping roughly $4 billion of thin-air money into the US markets each trading day since November 2010.  The markets, all of them, are higher than they would be without this money.  $4 billion per trading day is an enormous amount of money.  As soon as the QE program ends, the markets will have to subsist on a lot less money and liquidity, and the result is almost perfectly predictable....

 If QE no longer provides economic stimulus, then why continue it? Quite simply, stopping QE would potentially cause markets to collapse and the economy to enter a depression. Stopping it also would risk bankrupting the Federal government.

• 2. A Government Unable to Pay its Bills

The Federal government is insolvent. Without QE it would likely be illiquid. It is doubtful the US could sell enough debt to arms-length buyers to sustain its current spending. The current estimate of the deficit is $1.7 Trillion.

Without QE there would be added distress for government and the economy. Domestic interest rates would rise to whatever level necessary to attract market funding. Higher interest rates would provide a further drag on the economy. They would also dramatically widen government deficits. Kyle Bass quantifies what a return to more normal interest rates would do to government spending:

... a move back to 5% short rates will increase annual US interest expense by almost $700 billion annually against current US government revenues of $2.228 trillion (CBO FY 2011 forecast)....

In short, our economy is in a shambles despite what the propaganda machine spews. Harry Schultz, famed investment advisor and newsletter author, wrote at the age of 86 in his final newsletter:

"Roughly speaking, the mess we are in is the worst since the 17th century financial collapse. Comparisons with the 1930's are ludicrous. We have gone far beyond that. And, alas, the courage & political will to recognize the mess & act wisely to reverse gears, is absent in the U.S. leadership, where the problems were hatched & where the rot is by far the deepest. "

Read the rest of the article for more information.

With Japan's problems adding to the global economic problems, I have very little faith that our dollar is going to last much longer.