Messy Fed pushing US into ‘Liquidity Trap’
Bob Chapman writes in his latest issue of International Forecaster:
Major Increases In Debt, The Mess The Fed Has Created, Liquidity Trap, The Way The World Is Shaped Behind The Scenes, Bond Market Bubble, No Sales For Homes, Defence Companies Hoping To Block Disclosure, Scepticism On Policy Tools.
To fund its bailouts and stimulus, US Treasury sold 2-Year bonds nearly 2 years ago and accumulated lots of Debt. This means all those bonds are about to mature now. As this happens, October will report an annual fiscal deficit of $1.5 Trillion. From where will these funds come? Bob Chapman says Treasury will have to look towards Fed, Banks and other institutions to fund this debt.
We have already seen the results of quantitative easing. US economy is still struggling hard to overcome the recessionary aftermaths. Bond Yields are low and flattening. Housing sales keep constant and unemployment is close to all time high. Only few months ago picture was very different when Europe was defaulting and dollar was gaining strength. Peripheral countries of Euro had to be bailed-out by ECB and IMF jointly. During same time US was showing increasing signs of confidence in its economy. US Treasury Bonds have been in demand since then and so much so that they might be creating a bubble this time. US Dollar appreciated 17% against Euro which was good for European Union as that would make its export cheaper and more attractive.
But all the euphoria ended as US started to lose its temporary stimulus kick. And then came the edition, QE2. Quantitative easing will put the American public at ease, at least temporarily. They do not realize it but the American and world economies are in a deliberate state of slow collapse. Yes, the Fed has created a terrible mess. They have been totally unprofessional and reckless. The result has been, even after five quarters, averaging 3-1/4% growth, sales of new and used homes are dismal with no hope in sight for improvement, unemployment just under its highs, record debt, slight wage increases, lost purchasing power due to inflation and few prospects for improvement. Inventory is all in place, so that can no longer be a plus.
What the Fed has been approaching since June is a “liquidity trap.” That is when loans are offered to business and they refuse to borrow. They stop using credit because they question the future of the economy, their government and the spectre of new taxes in the future. Money and credit is available, but few want to assume the risks to borrow.
This market is the exact opposite of the gold and silver markets, which are in an 11-year bull market. The metals separated from the dollar 15 months ago and they have already won the battle of the world’s only real currency. Gold has gained 15% a year for those last 7 years. This is a secular bull market and cannot be denied. Further, gold has appreciated annually against every currency.
But the question is what are the other ways, if not Fed’s way, to save US and World economy? I am still looking for a striking answer to this question.