Crumbling Global Economy Passes Point of No Return

3696424041_b7a19801e6Source: Lee Rogers,

As bad as the global economy is right now, it is unfortunately going to get far worse. Many central banks around the world are now racing to devalue their currencies through the implementation of debt monetization programs and low interest rates. Despite statements coming out of the G20 saying otherwise, many insiders and former insiders are fully admitting that there is an on-going global currency war and that this war is accelerating. The Bank of Japan’s recent announcement of a massive bond purchase program is the latest episode in an already sorry state of affairs. It is a historical fact that prosperity has never been obtained by devaluing a nation’s money which makes it all the more insane that the central planners are actually trying to sell the general public on these policies. In fact if monetary devaluation resulted in economic growth, Zimbabwe which recently experienced a period of rampant hyperinflation would easily be the wealthiest nation in the world instead of one of the poorest. Ancient Rome had a strong monetary unit when the nation rose to prominence but degenerated after the ruling powers decided to devalue its coinage. In more recent times both the British Empire and the United States reached great heights when they maintained a sound money system. With this said, you really don’t need to be an economics guru to figure out that the result of today’s monetary policies will eventually result in a complete disaster for the global economy.

Despite all of the absurd propaganda from the major news networks, there is no question that much of the world is in a depression. The only reason there has not been a total collapse of the system is because of the fact that central banks have maintained artificially low interest rates and propped up sovereign bond markets by purchasing bonds with money that they created out of nothing. Taxpayer bailouts, stimulus programs and other nonsense haven’t helped matters either. These policies which were implemented following the crash of 2008 have simply set the world up for a much larger collapse in the future. There would have at least been an outside chance to fix the system had the central planners not intervened but now the situation is becoming increasingly hopeless. Take for example what happened in Iceland immediately following the 2008 financial crisis. The Icelandic people voted against using taxpayer money to prop up failed Icelandic banks. Even though there was a great deal of short term economic pain with foreign depositors and foreign bond holders losing billions, the country is now on the road to recovery.

On the other hand, Ireland which decided to bailout its banking system with taxpayer money is still dealing with the after effects of the crisis. In 2010, Ireland actually had to accept a bailout from the European Union and the International Monetary Fund because the government could no longer afford the burden. Just weeks ago thousands of people rightfully filled the streets of Irish cities protesting against the bank bailouts. Before the bailouts, Ireland had one of the stronger economies in the European Union with one of the lowest debt-to-GDP ratios in Europe. After the bailouts, the Irish economy has struggled even being mentioned in the same breath as Spain and Greece.

Sadly even with all of these monetary stimulus programs, the United States economy is barely treading water. It was recently reported that the U.S. economy shrunk 0.1 percent in Q4 of 2012 according to official numbers from the U.S. Commerce Department. Considering economic statistics from the government are questionable at best, it is quite possible that the real numbers are far worse. If the U.S. economy is actually shrinking with these types of monetary policies in place, it is painfully obvious that the Federal Reserve has no exit strategy from the status quo. Any attempt to defend the value of the U.S. Dollar by suspending debt purchases and raising interest rates would send the economy into a tailspin. Ben Bernanke the Federal Reserve Chairman once famously said that he would throw money out of a helicopter to keep the economy going so we should fully expect him to continue these activities. In fact, we already know through the Federal Reserve’s own policy statements that they will be continuing near zero interest rate policies well into the future. At this point that’s really all they can do since it is politically infeasible for them to tighten the purse strings so they just continue to print more and more money out of nothing.

The Federal Reserve’s bond purchasing programs have effectively fueled a rally in bonds pushing yields of various U.S. government debt instruments towards historical lows. This has fooled people into believing that U.S. government debt is a safe haven play which is astounding on so many levels. The rate of return on these debt instruments is actually negative when factoring in the real rate of inflation. The government and establishment media love to tout the Consumer Price Index or CPI as the ultimate gauge of inflation. However, the CPI doesn’t even include food and energy in its calculation thus making it a completely worthless indicator of true inflation. Maybe if people didn’t eat, didn’t use oil to heat their homes and didn’t fill their automobiles with gasoline the CPI might have some relevance.

In reality, there’s little question that that the CPI is a purposely manipulated figure designed to mislead people into believing that inflation is lower than it actually is. The CPI also provides the basis for cost of living adjustments that directly affects how much money Social Security recipients receive. This allows the government to get away with paying far less than if real inflation was used as the benchmark to calculate these adjustments. The true measure of inflation calculated using the same statistical models used by the U.S. government during the 1970s has inflation closer to 10% on an annual basis. Even if we were to assume that inflation is half of that figure, U.S. Treasury bond holders would still be getting a negative rate of return on their investment.

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