Ben Bernanke's penmanship
You'll be delighted to know that the chairman of the US Federal Reserve, Ben Bernanke, is looking after every last cent in these difficult times. Thanks to the Chicago Tribune's blog The Swamp for highlighting his frugal taste in pens.
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Mr. Bernanke's dilemma is being taken out of his hands. What is his dilemma? This is much more than stagflation. We have a situation that is comparable and in some ways even worse than the conditions that prevailed before the great deprssion. At that time, many Americans took advantage of a get rich quick scheme which had to do with opening up stock margin accounts. These were in effect loans and the value of the stocks were the collateral for the loans. When the stock markets soared for years, it seemed like a no lose proposition. But when it crashed, all of that money was wiped out along with all of the lenders. To punish the foolish lenders, the government drained liquidity, punished the financial institutions because they had been irresponsible. We now have the same situation with houses and the sub prime mortgages, loans given almost indiscriminately and then repackaged and sold around the world instead of stocks and margin accounts. In addition the US government is in debt up to its eyeballs. What to do? That has happened before. The problem is already moving from the Federal Reserve to the Treasury which is trading banks good debt (Treasury securities) for bad. Who will pay for these bad debts? Why the American taxpayer of course. Who always pays? But the effect is to print money like it is going out of style. Rather than punish financial institutions, the US govenment will put trillions of newly minted dollars in Americans' hands. What does this do? It wipes out all debt by making it possible for people to pay them off with these new cheaper easier to get dollars. Lenders will get paid back with much cheaper dollars than they loaned out. At first the value of the US dollar will sink even more. Inflation rates will soar. People on fixed income and banks with fixed rate mortgages out will suffer very badly. Foreigners including governments who hold fixed rate US obligations paid back in US dollars will get crushed. China will lose most of the trillion dollars the US government owes it. And the world's economy will come crashing down. But the US will pick itself up, dust itself off, and life will continue on. What happenes to the rest of the world? I really don't know but I wouldn't buy any Chinese war bonds right now if I were you.
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robin,
i thought my pens were on the cheap....he is good...
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