Friday, March 20, 2009

Welcome to the United States of Zimbabwe

Here is a report from the New York Times:

The Federal Reserve sharply stepped up its efforts to bolster the economy on Wednesday, announcing that it would pump an extra $1 trillion into the financial system by purchasing Treasury bonds and mortgage securities. Having already reduced the key interest rate it controls nearly to zero, the central bank has increasingly turned to alternatives like buying securities as a way of getting more dollars into the economy, a tactic that amounts to creating vast new sums of money out of thin air. But the moves on Wednesday were its biggest yet, almost doubling all of the Fed’s measures in the last year.

...there were also clear indications that the Fed was taking risks that could dilute the value of the dollar and set the stage for future inflation.
We should note that the Times had this to say about Zimbabwe creating vast new sums of money out of thin air:
But [Zimbabwe's] government has generally chosen to print more money instead of readjusting the value of its currency; Zimbabwe's money supply rose 226 percent in 2004. The result has been hyperinflation and a thriving black market in money and goods. Hyperinflation and the artificial exchange rate, in turn, have crippled gold mining, Zimbabwe's other big export industry. Production fell 18 percent in the first quarter of 2005.
The newspaper quoted one Bulawayo businessman as saying: ''It's running out of contro. When you're going down a path of destruction, you can keep putting patches on the tires -- patch, patch, patch -- but eventually the tire is going to burst.''

My suggestion is that we ask this Bulawayo businessman if he could take on the role of Obama's economic adviser. Apparently Mr. Obama has his heart set on being the Mugabe of America.

For more on the destructive path that Obama has set for this country see this post.

Update: Bloomberg reports, "The dollar headed for a record weekly drop against the euro after the Federal Reserve ramped up supply of the currency..." The dollar is now at a two month low against the euro. Sean Callow, senior currency strategist for Westpac Banking in Australia says, "They're [the Fed] are effective printing money; we regard this as profoundly bearish for the dollar." Yilin Nie, currency strategist for Morgan Stanley wrote, "As the money-printing machine kicks into high gear, dollar devaluation should accelerate with a ballooning money supply."

Back in January I warned: "I hope I am wrong but I worry that the economic state of the country is much worse off than believed." I also said, "I would also suggest spreading your investments around—meaning look for savings accounts that are not denominated in U.S. dollars." In the same article I said, "Invest in hard assets like gold and silver but also invest in foreign currencies." Here are two charts for the last few months for the currencies where I have invested. This is their value compared to the U.S. dollar. Luckily they don't Barack Mugabe managing their money supply. I am also looking for a good place to buy silver. Any suggestions?

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