Phoenix Capital Research's blog

The similarities between the US today and Weimar pre-hyperinflation are striking. As in Weimar, US fiscal authorities are not taking any steps to rein in their loose money policies. Similarly, the US Fed, like Germany’s financial elites believes that currency depreciation is a good thing.

While ultimately its own entity, the Federal Reserve IS a political institution. True, they pretty much do whatever they want… but only to a certain degree. The Fed can’t just unleash $500 Oil in six months without causing full-scale rioting. And money printing and interest rates don’t do much as defense against angry mobs. So with political heat turning up due to price increases, not to mention we’re approaching an election year, the Fed needed to step back for a bit. This is why they didn’t announced QE 3 yet.

All told, we spent some $600 billion and only got about three months’ worth of improved economic data (not to mention that this “improved” data was massaged heavily). So it’s pretty obvious why the Fed hasn’t announced QE 3 yet… it needs things to get terrible in the financial markets again so everyone will be clamoring for it to intervene.

So before the Fed can continue to bail out its buddies on Wall Street, it needs some serious justification for more QE. And what better than a market Crash? After all, the Euro crisis and market collapse in May 2010 was what laid the groundwork for the Fed’s QE lite and QE 2 programs. A similar drop in stocks today would give the Fed a clear “see what happens when there’s no Fed help?” angle to take when it begins discussing QE 3.

First and foremost, China and Russia agreed late last year to begin trading with one another in their own currencies, NOT the US Dollar. In that step alone, two of the largest emerging markets (and economies) in the world moved away from the US Dollar. Add to this the fact that China just agreed to expedite trade relations with Brazil and you’ve got the beginnings of a flight from the US Dollar and the end of the Dollar’s reserve currency status.

So here’s a CEO, someone with actual business experience (not some moron academic who’s never run a business a day in his life) telling us the following: food prices are up a lot and going higher in the future, despite high food prices, farmers are quitting farming (lower supplies are coming), food companies will be going bankrupt (even lower supplies are coming).

What’s truly staggering about the weekend losses in Silver is that it had already retracted most of them by Monday AM. Indeed, if you were not up Sunday night looking at the futures, you would have thought Silver was just opening sharply lower (about 5%) completely unaware that the precious metal was down some 16% over the weekend. What does this tell us? That unless we get a MAJOR Crisis in the near-future, the US Dollar will collapse and inflation hedges will explode even higher.

In other words, when this mess comes unhinged it’s going to be much, much worse than in 2008. And believe me, it WILL come unhinged.
And this time, when it does, the Fed will have NOTHING to stop it. The Fed’s already grown its balance sheet to roughly $3 trillion AND used every weapon it has to combat Round One of the Financial Crisis. So when the next round hits this time around, the Fed will be powerless to do anything about it.

Yesterday, Bernanke staged a “conference” answering “questions” from “journalists.” It’s striking that the man with the most power in the world would be handled with kid gloves. After all, if he’s in charge of directing the world’s reserve currency, surely he could answer a few hardball questions about his insane policies However, instead of holding this miscreant accountable for his monetary madness, the “journalists” let him prattle on with his meaningless drivel. The markets, on the other hand, read through his BS. Soon after the conference the US Dollar collapsed to a three year low.

Regardless or Bernanke’s personal qualities, the fact is that it doesn’t matter what he does next. Whether or not he issues QE 3, raises interest rates, references inflation differently, or what have you is irrelevant. We will see some kind of Crisis in the near future because of his policies. If he raises interest rates, the debt market and derivative implodes. If he launches QE 3, the Dollar collapses and trade wars erupt. If he doesn’t launch QE 3, the stock market collapses.

The idea that the US will default on its debt and we’ll somehow re-enter the stone age is false. Human ingenuity and survival skills are far better than that. Indeed, the human race was in much worse conditions when we were hiding in caves and running from prehistoric monsters. We somehow survived that situation and evolved to make peanut butter and jelly sandwiches and drive cars… so I’m sure we’ll figure out how to deal with the collapse of the US empire and the end of the Dollars status as world reserve currency.

Whether or not you like QE (yes, there are some insane people who think it’s a good idea… unfortunately they work for the Fed), this is the reality our financial system faces. Indeed, if the Fed were to quit QE for good the resulting crisis would make 2008 look like a picnic (the 2008 collapse was triggered by the CDS market which was only $50-60 trillion in size, les than one third of the interest rate based derivatives market).

The world is now moving away from the US Dollar in a rapid pace. Russia and China are no longer using the US Dollar for trade between each other. Saudi Arabia is sending representatives to China and Russia to strengthen trade ties (which hints that oil may not be priced in Dollars in the coming years). And the BRICS (Brazil, Russia, India, China and now South Africa) recently staged a conference in southern China to discuss trading in their domestic currencies rather than the US Dollar.

Stepping back from this, you really can’t help but notice how stupid the whole “stock wealth effect” ideology is. Setting aside the fact that MOST of the gains stocks have produced since 2009 are due to US Dollar devaluation, it strikes me as odd that someone would think they were richer because their stock portfolio was up… while the cost of just about everything has ALSO gone up tremendously. For instance, since March 2009, stocks have doubled. However, oil has nearly TRIPLED in price.

Taking over the private sector also occurred in the US monetary system with the US Federal Reserve allowing Wall Street to dish their junk debts onto its balance sheet in a kind of “cash for trash” program where Wall Street sells crap no one wanted for 100 cents on the Dollar to the Fed… and then the Fed doesn’t try to get its money back… EVER. Doing this had a profound psychological impact on the financial world. By swapping US Dollars for trash assets, the Fed sent a clear signal to all of us that cash was in fact becoming trash.