It's my birthday today, and apparently my birthday gift from Uncle Sam is increased regulation in my industry and a potential financial crisis (again). Gee thanks.

Chairman Bernanke is sitting in front of the Senate Banking Committee today discussing monetary policy. Specifically, he is discussing the effects of the expanding money supply. Apparently, Ben realizes that keeping interest rates low will be disastrous. When asked by one committee member, Ben openly admits that our country's current monetary policy must end with either:

1) a monetary crisis-Ben's words, not mine (i.e. total economic collapse?)

or

2) a dramatic change in monetary policy.

I doubt that anyone, even our business hating Congress, wants a total economic collapse. No politician in this country, not even Chris Dodd, Nancy Pelosi, or Barney Frank, wants to completely destroy the economy. Otherwise, they wouldn't have any money to expropriate from the wealthy to redistribute to the poor. 

The alternative, a dramatic change in monetary policy, seems to translate into a dramatic increase in interest rates or Ben's new mystery method that he is announcing this morning for removing liquidity from the banking system. What is this secret new money-sucking method? A giant vacuum hose attached to the walls of the Federal Reserve Banks all around the country? No, why, they'd need Dyson-like technology to prevent a loss of suction from all of that phoney-errr-funny-errrr-fiat money clogging the lines. Whatever this method is, I'm sure we'll see it sooner or later (or, maybe we won't, but we'll see the effects)...but perhaps later rather than sooner according to Ben.

In short, our options now are what our options always were: inflation or deflation. And not just mild inflation or deflation. "Crisis" sounds more like hyper-inflation. A dramatic change in monetary policy, along with the apparent need to come up with a newfangled way to decrease liquidity in the market, suggests massive deflation in the country.

Now, even though Bernanke admits that inflation is a serious threat, he also states explicitly that he envisions "exceptionally low Federal funds rate" for the foreseeable future.

What does all of this mean to you and me? Well, for the "foreseeable future", we all will see a reduction in our wealth. We'll see either increasing inflation, or we'll see an increase in taxes to remove money from the economy to offset inflation. I don't see an increase in taxes as a politically viable solution, though at this point with an unpopular health care reform package passed and more promised (and unwanted) government spending for the new financial reform package signed into law this morning, how does one guess what's politically viable?

Fortunately, Americans seem to be waking up to the fact that new ideas are needed. Ideas that promote individual rights and freedom. In regards to government, Americans are realizing that fiscal responsibility is necessary. What's more, the fact that allegedly respectable organizations like the NAACP and the Black Panthers are attacking the Tea Party means that these organizations see the Tea Party as a serious threat. This seems to suggest that the Tea Party is starting to actually become a serious threat. And, that could be a very good thing.

If things get much worse in this country, it'll probably look more like a prison than a free country, and we might all be holding up picket signs yelling "Attica! Attica!".

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1. Financial Planning & The Perpetual Financial Crisis of America

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This entry was posted on July 25th, 2010 by David C Lewis, RFC. Edits may have been made to keep this entry current. · No Comments · Current Events