John Hathaway gets it right:
"The world’s monetary system is in the process of melting down. We have entered the endgame for the dollar as the dominant reserve currency, but most investors and policy makers are unaware of the implications..."
Comment: Some things though they come slowely, come with necessity. Read more here, here, here, and here.
The US Federal Reserve Bank is worried about too little inflation. Prominent representatives fear that when the price index should approach zero or even turn negative, monetary management no longer could exercise an effective interest rate policy. They are grasped by deep angst that when price level deflation should occur, the real interest rate would rise beyond control. Monetary policy would become ineffective once nominal short term interest rates have hit zero. Pumping more money into the system seems to be the answer.
However, with their fixation on the price level, the monetary authorities ignore an important point first made by Cantillon and later elaborated by Ludwig von Mises. These economists argued that money does not enter the economy smoothly and evenly for all particpants. Rather, it gets into the hands of specific economic units (households, companies, the government) first and from there it meanders through the economy. This way the temporary benefit of higher inflation comes to those who stand at the front of the line when receiving the additional money while those at the end will bear the full inflation burden.
Along its way which the money takes, systematic monetary stimuli change relative prices. Inflationary monetary policy produces spots of booms at the cost of the rest of the economy. This policy creates wandering bubbles along its path and in the end it will lead to a bust and drag down the economy as a whole. Inflationary policies create a temporary boon in the beginning for a few but demand a high price to be paid from all later on.
The United States is currently waging a costly war. More and more resources are absorbed by the State. The implication of this is that consumers and private businesses should have less to spend. But expansionary monetary policy creates the illusion that both butter and guns are easily available for all at the same time. This way the U.S. Central Bank is acting like an accomplice in the cheating of the American people.
Maybe the FED members really do not know what they are doing. Ben S. Bernanke, in particular, the rising star among the board members, appears to be analyzing monetary issues exclusively in terms of aggregates and averages. He seems to have no glimpse about economic theories beyond the narrow scope of Keynesian or neoclassical mainstream economics. He therefore is quite well equipped with the prime attribute that is needed in order to become a formidable economic crash pilot.
Comment: Does it ever occur to Bernanke & Co. that it is their policy framework that causes the problems? How can you trust people who are opposed to sound money? Read the concluding remards of the article above and you understand what has happened over the past six years and you know what will happen in the next couple of years with this man at the helm of the US central bank. God be with us.