Financial Sense Blog

Many years from now when we look back at history I think yesterday will be seen as one of the greatest blunders ever made by a central banker. The dollar was already headed down into a major 3 year cycle low.

On November 3, 2010 the Federal Reserve Board announced another round of money printing (aka quantitative easing), and yesterday Chairman Bernanke defended the Fed’s actions in the Washington Post. It is unusual for Mr. Bernanke to use the op-ed format to impart the Fed’s thought process. This speaks to the fact that while so many are aware of the risks of QE2, so few see the potential benefits. Before some thoughts on QE2, first an overview of Bernanke’s commentary.

The election went according to prediction; gridlock is the most likely outcome for the next two years. President Obama is faced with a choice to either move more to the center on domestic issues, or focus on foreign policy.

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.