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I Fully Expect the Fed, Congress and the President to Continue to Stimulate the Economy Until their Last Breath

By: Steve Johnson

7/6/2010 - 44 Comments

The temptation of inflation is so irresistible, yet once you take one step on the path of inflation, there is no easy way back to the path to economic stability.  

The US Fed has been creating new money since 1971, when the dollar was removed from the gold backing and became the global currency for trading oil.

The path of inflation does not go on forever. 

Sooner or later every nation must get off the path.  The exit is a dozy.

The only way to stay on the path is to continue creating larger and larger injections of new money, as the Fed has done for decades.

And the only way to get off the path is to remove the money that has been created and injected into the economy, which usually results in a new currency or a major deflation of the current currency.   

At the end of the path is a currency crisis, resulting in hyper-inflation, which we are now approaching.   

The Cause for the Crash

The reason that the economic correction cannot be avoided is because the market, which is made up of people like you and I, do not accept the bubble asset prices created by decades of new money nor do we accept the face value of the new money being created. 

The market, which is you and I, refuses to accept being robbed of the wealth that we have accumulated.  This is the driving force behind the market crash.

The Fed, Congress and the President are delusional to think that the nation can remain on the path of inflation indefinitely or even until their next election.

Yet, I don’t expect them to face the music anytime soon.  The time to get off the path of inflation with little damage has long past.  The nation has been on this path for 50 years and at this point the market correction would be extremely politically damaging.

They have no choice but to try to stop the market correction.  But it cannot be done, because the phony economy that they created has been exposed and the market (you and I and the rest of the world holding dollars) is now very aware that we were being robbed. 

Inflation is Robbery

It’s much harder to rob someone when they know you are robbing them, than to slowly rob them over several decades – as Congress and the Fed have done with inflation.

I fully expect the Fed, Congress and the President to try to keep the market (you and I) in the dark with another even bigger round of stimulus later this year in order to try to keep their jobs.   

Compounding the Correction

They are only compounding the problem and delaying an even bigger correction.  The marketplace can only be fooled for so long and sooner or later it will refuse to accept any more new money. 

One of the best solutions throughout history to exit the path of inflation has been to stop using government issued money and move into precious metals that no government can control the supply of. 

This is in effect rejecting the face value of the new money being issued by the central bank.  The increasing price of gold is proof that many are refusing to accept the loss of their wealth. 

This is a clear indication that the world is not going to accept the new money at face value anymore and this could soon become a major threat to the issuing central bank of the dollar - the Fed.

If the Fed cannot continue to fool the majority of dollar holders, they will have no choice but to stop issuing new money and let the economic correction take place.  This is a very unpopular and politically damaging decision, and therefore unlikely.

This is why even in the face of world leaders holding trillions of dollars the Fed, Congress and the President are likely to continue to print money until their last breath.

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