Tuesday, November 4, 2008

When Charts Go Parabolic, Change Is Imminent

The Federal Reserve's balance sheet has more than doubled in the past six weeks, from less than $1 trillion to almost two. Richard Fisher, the president of the Dallas Fed district bank, predicted this morning that another trillion will be added before year's end as the U.S. Treasury cranks out government bonds to pay for the bailout of Wall Street banks. The Fed, in turn, has been swapping Treasuries for mortgage-backed securities and other tainted collateral to try to thaw credit markets.

So let's get this straight. We, the taxpayers, are borrowing money that does not exist to liquefy banks that should be allowed to fail. We pay interest over a long period of time to provide this service. If we try to retire the debt early, we will be paid back in toxic securities. The fallout from all this financial legerdemain will be a devalued dollar, which rewards borrowers and punishes savers. (Watch the price of gold for hints about future inflation.)

Thanks, Congress.

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