Out of Ammo
November 24, 2008 – 5:26 pm
A good op-ed in today’s WSJ argues that the Fed is “out of ammunition” and that the fallout of this crisis, and in particular the government’s choice to fight it with unlimited guarantees, may well be the break-down of our monetary system. It concludes with this:
In this respect the present crisis in the West will ultimately end up discrediting mechanical monetarism — and with it the fiat paper-money system in general — as the U.S. paper-dollar standard, in place since Richard Nixon broke the link with gold in 1971, finally disintegrates.
The catalyst will be foreign creditors fleeing the dollar for gold. That will in turn lead to global recognition of the need for a vastly more disciplined global financial system and one where gold, the “barbarous relic” scorned by most modern central bankers, may well play a part.
The Fed/Treasury can’t guarantee infinite liabilities without standing ready to print infinite dollars.
The yellow metal gets shinier as the Fed’s balance sheet gets messier…
Posted in Dollar, Fed, Interest Rates, bailout, banking, bubble, credit crunch, gold, inflation, taxpayer issues |
2 Responses to “Out of Ammo”
It’s about time more people started to realize this. We’re continuing down the wrong road at an unsustainable pace.
By Adam on Nov 24, 2008
I used to think that the dollar was going to fall like a stone, too. But I think a number of things will happen first.
I don’t see a clean jerk and fall like many are predicting with the dollar. As defaults rise, people will need to sell stocks, commodities, what-have-you to pay margin calls and CDOs. That will create a demand for dollars. So you really won’t see The Big Drop until the dust settles on all that.
Considering that derivatives have been made on just about everything that could be a while. I see things going more like a superball down a steep driveway; the arc is downward but the bounce will get so high sometimes that people will proclaim that the end of worst is near.
Which is nonsense. It’s going to be a long process–at least 3 years. With probably another round starting in 5 years based on the ARM loan mods that are happening now.
By Lisa on Nov 24, 2008