ECONOMY

The Bernanke Cliff

Michael Pento

The so-called “Fiscal Cliff” slated for year-end is really nothing more than a speed bump compared to the real fiscal cliff the US is racing towards, the one that Europe has already dived over. That cliff is based on the collapse of the debt and dollar markets resulting from the lost faith of international investors, a loss that is being facilitated by the Fed.

The Fed has been inviting inflation since 2008 by systematically seeking to destroy the dollar. By printing trillions of dollars and threatening to print even more, Bernanke has not only decimated the currency but also ruined the purchasing power of the middle class. Worst of all, Bernanke has enabled the government’s fiscal irresponsibility. He has duped US leaders into believing they can borrow an unlimited amount of money at nearly zero cost indefinitely.

America’s publicly trade debt has just soared past $11 trillion, up 117% since December 2007. Since the Fed manipulated interest rates lower throughout that increase of debt, the government believes there is no rush to change its borrowing and spending addiction. However, there is a limit to how much a country can borrow with impunity. Just ask the Greeks, Spanish, Portuguese, Irish and Italians.

Boston Fed President Eric Rosengren has said that the Fed will not only cease paying interest on excess reserves, but will also commit to an open-ended form of counterfeiting. He believes QE III should be results-orientated, that he Fed should continue to print money until the unemployment rate and nominal GDP hit their yet-to-be-named specified targets.

The only problem is that boosting nominal GDP requires boosting inflation; and rising inflation serves to raise the unemployment rate, not bring it down. That tactic is failing miserably in Europe, and has utterly failed in the US.

With central banks now acting in unison to garner complete control of interest rates, the only mechanism available that will eventually force them to stop piling on more debt is the repudiation of fiat currencies that back those bonds on the part of the free market

source: 321gold