http://money.cnn.com/2008/10/13/news/economy/central_banks_dollar_funds/?postversion=2008101309 NEW YORK (CNNMoney.com) -- The Federal Reserve announced Monday it will offer an unlimited amount of dollars to three other central banks in an unprecedented move to provide liquidity to the global banking system.
You say the dollar has been soaring recently? Well, yes, it has. But that doesn't mean it is worth anything. In fact, the dollar is valueless, and the $1 bills in your wallet are worth no more intrinscially than the $100 bills. Those who do not understand why this is so or who would argue otherwise are simply ignorant or delusional. As we explained here a couple of weeks ago, the dollar is rallying because it is caught in a short squeeze. Short-term borrowers, unable to keep rolling their loans, have been forced to settle up in cash. This has created a made scramble for cash dollars, as opposed to credit dollars. And although the Fed has attempted to keep the system liquid with unprecedented infusions of new cash, the amounts pale in comparison to a global financial deflation that has already caused tens of trillions of dollars worth of financial and real estate assets to vanish from the economy. http://news.goldseek.com/RickAckerman/1223913742.php
There are no attractive options, but compulsory adjustment might not be the most unattractive option. If it worked, it might at least offer greater certainty. Already US Treasury bond yields are RISING as the market fears a future flood of issuance and holders scramble for cash. The other alternative, of course, is a big burst of inflation to erode the real value of the claims surreptitiously, and offer debtors relief.
Inflation has been the solution to widespread over-indebtedness in the past for many countries. But even if the Fed COULD generate inflation amid a contracting economy, that would simply expropriate creditors in a different fashion. http://ftalphaville.ft.com/blog/2008/10/12/16931/kemp-the-united-states-is-now-in-some-very-general-sense-bankrupt/
