Financial Sense Blog

Karl Marx and Friedrich Engels, writing in the Manifesto of the Communist Party , famously said that a specter was haunting Europe -- the specter of Communism. All the powers of old Europe, they said, had entered into a holy alliance to exorcise this specter. Marx and Engels set down two things resulting from this fact, in 1848: (1) "Communism is already acknowledged by all European powers to be itself a power";

Now that mid-terms, QE2, and the employment report are in the rearview mirror, it is a good time to catch our breath and discern what may be in store over the next week or two.

Here is the glaring hole in the United States Federal Reserve’s approach to what it calls stimulus, and what history will one day categorize as fraud: You can’t use your own debt to purchase more debt when you can’t repay the original debt. The crime is compounded when you know you’re never going to repay the debt. It amounts to treason to intentionally destroy the integrity of the nation’s money. The Federal Reserve’s ability to “purchase” U.S. Treasury Bills is completely dependent on the fact that there is no overseer above the Board of Governors of the U.S. Federal Reserve to call an end to such self-destructive, immoral, and just plain criminal behavior.

U.S. Dollar Index Breaks Long-Term Support

As we write, the gold price is about to assault the $1,400 level having been $1,332 on Wednesday of this week, a day ahead of the Fed announcement. Against the pound sterling, the yen the Swiss franc and most other currencies the dollar has weakened too. In the days ahead of that announcement the dollar had been wavering between $1.38 and $1.40 against the euro. After the announcement the U.S. dollar fell quickly down to $1.42 against the euro. But then the dollar recovered and is sitting at $1.41.

With a sweeping victory by Republicans on Tuesday, many have debated whether or not the resulting gridlock between the House and Senate will be good or bad for stocks. In general, to answer this question with any decisiveness is probably speculation; however, even with the prospect of gridlock and a governmental brain-freeze, the result of Obama's invitation to a "slurpee summit", which he offered on Wednesday, may actually hold promise for one industry in particular: nuclear power.

A recap of the Fed announcement this week and an explanation of the Fed treasury purchase program running in parallel to the new purchase program of $600 billion.

A few quick comments regarding the 2Q productivity report that hit the tape a month or so back. Important why? To be honest this one is very important because the "messages" it imparts cover a lot of ground and just happen to play right into a number of themes I have been harping on all year. Importantly, this report also represents my sense of the key tension investors of the moment face in terms of decision making, outside of QE fairy plums dancing in investor heads that is.

As the Federal Reserve Board gets ready for yet another round of quantitative easing (i.e. printing more money), one may well ask: why? If previous quantitative easing hasn’t spurred domestic spending, why does the Fed believe that more of the same will suddenly produce results?

So on Wednesday, not only did the Republicans win control of the House of Representatives, but the Federal Reserve finally took the plunge with Quantitative Easing 2—in other words, on the very same day, the U.S. dollar got the ol’ one-two punch—right to the groin: First the spend-and-cut-taxes Republicans won the Congress—and then, the Fed opened the money spigot with QE2. Light at the end of the tunnel?