11/10/10 Paris, France – Wow! Is this fun, or what? We are so lucky, we can scarcely believe it. We’re getting to live through something most people only read about in the history books…a monetary meltdown.
Last week, our own central bank – the US Federal Reserve – announced that it would print up another $600 billion. This will bring the total to $2.3 trillion added in just a bit over 24 months.
Is this crazy? Is it foolish? Is it stupid? Yes! It is all of those things and more – vain, pigheaded, destructive, reckless…
…supply your own adjective!
Intervention on this scale is risky. So, you might expect that the Fed has some sort of computer program – trusted, reliable, tested and proven – that tells it exactly how much money to put into the system via its QE program…and when.
Well, if you think that, you’re dreaming. The Fed has no such computer program. No formula. Not even a theory that will hold up to inspection.
The whole thing is just a willful, dangerous gamble.
And we’re just happy that it is happening now…when we’re still alive to appreciate it.
It’s not everyone who gets to see a genuine, real-life example of hyperinflation…depression…money panic…and currency suicide. We’re going to see them all. At least, we think so…
Yesterday, the Dow went down 60 points. Gold rose $6.
A 60-point decline isn’t much. But how come now? How could it be that it comes a week after the Fed announced the boldest, most flamboyant and foolhardy adventure in currency debasement in history?
We don’t know. But it doesn’t look good. We would normally expect investors to take the bait…to run up stock prices a bit more. And THEN we’d have a stock crash.
Could it be that investors are looking ahead? Could it be that they see the handwriting on the wall? Could it be that they can read it – even from a distance – and that is spells DISASTER?
Again, if we knew the answer to these questions… Well, never mind…no one knows the answer.
Since we don’t know, we’re going to run our Crash Alert flag up the pole. The old, tattered flag isn’t always a reliable indicator of a coming crash. But it is a pretty good signal of the risk of a crash.
Again, we don’t know what will happen. But we know the risk of a crash is high. Investors are buying stocks as speculations. The Fed’s hot money is not really going to improve the economy. Everyone but Ben Bernanke knows that. Investors are just speculating that it will push up the stock market. They’re gambling too – just like the Fed.
And maybe it will. But it will be temporary. Because the only thing that can push up the stock market in a reliable way is real growth. And you don’t get real growth by running the printing press. If you did, Zimbabwe would be growing faster than China.
No, dear reader, hot money produces hot action in the market. Speculative fever. Bubbles.
…And crashes, of course.
Watch out. Stay out.
Bill Bonner
for The Daily Reckoning
Bill Bonner
Since founding Agora Inc. in 1979, Bill Bonner has found success and garnered camaraderie in numerous communities and industries. A man of many talents, his entrepreneurial savvy, unique writings, philanthropic undertakings, and preservationist activities have all been recognized and awarded by some of America's most respected authorities. Along with Addison Wiggin, his friend and colleague, Bill has written two New York Times best-selling books, Financial Reckoning Day and Empire of Debt. Both works have been critically acclaimed internationally. With political journalist Lila Rajiva, he wrote his third New York Times best-selling book, Mobs, Messiahs and Markets, which offers concrete advice on how to avoid the public spectacle of modern finance. Since 1999, Bill has been a daily contributor and the driving force behind The Daily Reckoning. Dice Have No Memory: Big Bets & Bad Economics from Paris to the Pampas, the newest book from Bill Bonner, is the definitive compendium of Bill’s daily reckonings from more than a decade: 1999-2010.
The Daily Reckoning is your premier source for making sense of the news Washington and Wall Street generate. Each business day, The Daily Reckoning calls on its stable of world-class writers and thinkers to show you how to get ahead.
Start your 100% FREE subscription to The Daily Reckoning today and you’ll get a free research report, “How to Survive the Fall of Social Security.” Simply enter your email address below to get your free report and join over 495,000 worldwide Daily Reckoning subscribers!
We Respect Your Privacy and We will
Never Share or Sell Your Email Address
What is wrong with buying commodity stocks?
Thing is, if the markets start crashing, they’ll just ramp up QE even higher, maybe using the new money to buy stocks. Even shorting the Dow is too risky.