State of the American Economy: The Great Reflation of ‘08

Tuesday, February 05, 2008 by: Nick Morgan
Tags: inflation, health news, Natural News

(NewsTarget) The liquidity crisis that has rocked the global financial markets since August is being treated with more liquidity thanks to a new coordinated effort among world central bankers. The credit crisis currently affecting the globe has exposed the reckless lending practices and crafty financial engineering which has led to a speculative mania. Accordingly, it has been the topic of discussion of the U.S. Federal Reserve since the September FOMC meeting, in which they cut interest rate targets by 50 basis points. Since then, the Fed has enacted a series of rate cuts in an effort to stem any type of economic slow down in the U.S. Other national central banks, however, have been busy raising rates, or holding their rates steady, in an effort to rein in investment speculation and inflationary pressures.

But in a recent effort to delay the inevitable pain of too much liquidity created by a faulty fiat currency system, the central banks have come galloping to the rescue of the fragile global economy. The central bank coordination arranged by the Federal Reserve to address "elevated pressures" in the credit markets, includes the cooperation of four other central banks, including: the European Central Bank, the Bank of England, the Bank of Canada, and the Swiss National Bank.

According to the coordinated arrangement, the Fed has made plans to inject $40 billion in cash into the financial system through the use of auctions in the month of December. Two more auctions are slated for January. The Fed has stated that these funds are necessary for regional and local banks to continue making loans to businesses and consumers. The European and Canadian banks will also hold auctions bringing the total cash injections to $64 billion. Additionally, the banks plan to make much more liquidity available through other types of loans.

Unfortunately, these liquidity injections are a short-term solution to a long-term structural problem. The U.S. subprime crisis, which has turned into a global contagion, is serving as a wake-up call to the world's bankers (and global politicians, by default) who have allowed the global fiat systems to spin out of control. The U.S. financial system, built upon a faulty fiat currency system coupled with poor fiscal stewardship, is a house of cards. And it will come crashing down as soon as the global population awakens to the hard realities brought on by the financial excesses of the American lifestyle. The truth is this: The dollar is worthless paper that is printed at will. No one is working to keep it in limited supply. Therefore, investing in anything that cannot be printed is the only logical way forward for people who wish to steer clear from investing in devaluating assets.

The Greenspan Doctrine

The move to re-inflate through easy monetary policy is now considered by many as the "Greenspan doctrine." Alan Greenspan's response to financial crisis was to inflate his way out them:

* In the stock market crash of 1987, Greenspan inflated the monetary base.

* During the 1994 Mexican peso crisis, Greenspan inflated.

* During the 1997 Asian crisis and LTCM debacle, Greenspan inflated.

* During the 1998 Russian Ruble crisis, Greenspan inflated.

* In the wake of the dot-com crash in March 2000, Greenspan inflated.

* After 9/11/01, Greenspan inflated.

And beginning in June 2003, key U.S. interest rate targets were lowered to 1% for an entire year under this Greenspan doctrine.

Since Federal Reserve chief Ben Bernanke has been in office, little has changed. Mr. Bernanke is following the same pattern.

U.S. inflationary pressures have been building for the last several quarters. It has been my mantra that interest rates should be raised and the monetary supply should be tightened to prevent widespread inflation, and even worse, stagflation. This week, Greenspan has admitted that stagflation appears to be around the corner.

An economic crisis of unbelievable proportions lies ahead for the U.S. This is true for a host of reasons, many of which we will be highlighting in a series of audio teachings in the upcoming weeks on the website (http://www.jerryrobinson.org) .

This week's takeaway: The U.S. continues to enjoy the status of the global economic hegemonic power with the key reserve currency. But the current economic arrangement is unsustainable. I fully anticipated the global central bank coordination to re-inflate their way out of the global credit crunch. Without this unified effort, a U.S. recession in 2008 is inevitable. However, even if the central bank effort can successfully contain the credit crisis, it will only be a temporary fix. And it will only serve to delay, and enlarge the scope, of the impending day of reckoning for the U.S.

I'd like to end this article with a quote by Abba Eban - "History teaches us that men and nations behave wisely once they have exhausted all other alternatives."

About the author

Nick Morgan is passionate about educating the public on the topics of healthy living, integrative medicine, alternative medicine, and disease prevention through the power of healing foods and herbs.
He contributes to many websites including the popular financial website, http://www.ftmdaily.com.