Now The Bad News
Moreover, I am wondering if Bernanke and the Federal Reserve Bank presidents have really thought through their actions. What if money isn’t moved out of the Treasury market and into the stock market but is instead moved into euros, gold or anything besides U.S. dollars?
China and Japan are sitting on $1.7 trillion of U.S. Treasury debt. China’s is holding one-fifth of its annual gross domestic product (GDP) in Uncle Sam IOUs. Their leaders might be Communists, but they are not idiots. With the Federal Reserve set to magically create four trillion new dollars you can bet that some of the guys wearing the Chairman Mao suits think it might be time to pull the plug on their Treasury investments.
If this happens, and the Chinese do begin to liquidate Treasuries, it would create a level of financial havoc that would make the Great Depression seem like a bump in the road. I can’t see any way we are going to get out of this unscathed.
I write this before the elections have happened, so I don’t know if the GOP won. But what should scare you is that it doesn’t matter. Congress could include Santa Claus, the Easter Bunny and the Tooth Fairy, and as long as we have a Federal Reserve acting as recklessly as the one now controlling our economic fate, we are in a lot of trouble.
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