Rolling back the rules against money printing

July 17th, 2008

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Yesterday, we discussed about the importance of central banks being independent from the government in Why should central banks be independent from the government?. In particular, we mentioned that

Our fear is that with this credit crisis worsening by the day, deflation may prove such a unthinkable threat (e.g. see How do we all pay for the bailout of Fannie Mae and Freddie Mac?) that the government will ?roll back? all these rules one by one in order to keep the entire financial system solvent. As the ancient Chinese saying goes, the journey of a thousand mile begins with the first step. Therefore, the journey towards a hyperinflation hell will begin with such measures (see Recipe for hyperinflation).

Incidentally, Jimmy Rogers said in a video interview, Rogers Calls Fannie, Freddie Rescue Plan a `Disaster’ that

This is a disaster for America. This is a disaster for the world. Ben Bernanke and Paulson are bailing out their friends on Wall Street, but there are 300 million of us Americans who are going to have to pay for this and there are six billion people in the world who are going to have to pay for this. And they are doing it with no authorization from anybody.

Paul Volcker said a couple of weeks ago that perhaps what the Federal Reserve has done is illegal. I would submit it is illegal what they have done and what they are doing. They are saddling all of us with hundreds of billions of dollars of debt that they have no authorization to do.

We are no legal experts here and thus, we have no say on the legality of what the Federal Reserve and Treasury is doing (or about to do). But we are confident of this: IF this is illegal, then emergency laws will be passed to legalise them. As we said before in Recipe for hyperinflation,

Now, imagine that those above-mentioned ?rules? are being relaxed such that the government can order the central bank to bail out everyone and every business that is financially insolvent by giving them freshly printed money. Overnight, this will solve the problem of bad debts and we will not have any credit crisis to worry about. Everyone will be happy right?

Indeed, Wall Street may be happy, but the rest of us will not be. As Marc Faber said in this video interview,

Let?s say if I?m a manufacturer and I?m a bad businessman and I go out of business, who?s going to help me? But Bear Stearns and the Wall Street elite because they?re tied into the Treasury and the Federal Reserve and they lunch together, it?s a club… and they?re bailed out. I mean it?s a joke.

It is no coincidence that the world is facing accelerating inflationary problems (see Who is to blame for surging food and oil prices?).

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