Brace Yourself for the Dollar Meltdown – Updated

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The release of the updated paperback edition of Charles Goyette‘s The Dollar Meltdown couldn’t be more timely. I just got off the phone with Mr. Goyette. The first thing I asked about was Federal Reserve Chairman Ben Bernanke’s plan to spend an additional $900 billion  on Treasury Bonds, the plan known as “Quantitative Easing II” (QE2). Goyette calls it an “absolute disaster.” He said it’s nothing more than a wealth transfer to Wall Street, from the rest of us.

Goyette told me that the first round of quantitative easing (QE1) was worth $1.7 trillion – money that the Federal Reserve in essence “just made up.” They bought all sorts of bad investments (like mortgage bundles) and transferred them to the Fed, making those losses our losses. The full effects of QEI are only now starting to be felt. Take a look at this chart tracking commodity prices over the past year.

And now the Fed is doubling down on the same bad policy. This is just the beginning!

Ben Bernanke all but admitted the move is to boost stock prices, what he didn’t tell us that it was at the cost of our purchasing power. These higher prices are like a huge tax on the American people. Mr. Goyette pointed out how Americans have taken to the streets to protest the growth of the government and the out of control spending, and then sent a loud message on election day. “Think about this. The election was on Tuesday. They have such a brazen attitude – the American people have had enough. Three dozen who voted for the Bush bailout were voted out of office, yet the very next day the Federal Reserve announced this Wall Street Bailout.”

I asked Mr. Goyette why the cost of food and oil aren’t included in the official inflation numbers. He said it goes back, he believes, to the Nixon years, when inflation was high and it looked bad. So the politicians cooked up a new indicator to make the numbers look better. And we’re stuck with the same formula today.

Goyette believes it’s probably too late to avoid the pain caused by this out of control spending. He said the money’s already been spent, but now is a good time to start paying some of it back, since interest rates are so low. The big problem is that so many Americans have become accustomed to, and dependent on, the entitlement programs. We have about 100 trillion dollars in unfunded liabilities, and nobody in government has done anything to meet those obligations. No Democrat or Republican wants to appear on television and tell the truth. So they try to “patch things together” to make it work.  They’ll keep upping the retirement age and destroying our currency while not addressing the underlying problem.

Goyette believes Rep. Ron Paul is right in his quest to “end the Fed.” I told him that many on our side argue that we can’t do away with the Federal Reserve because we don’t have anything to replace it with. Goyette scoffed at such a notion, saying that since the Federal Reserve was created 98 years ago, 94% of the dollar’s purchasing power has been destroyed, and that we’ve had the worst inflation and depressions in history. He likened it to a family business. If your family business was run by a management company that destroyed 94% of its value, would you say “Well, we can’t find new managers!”?

He said we’ll know early next year if the Republicans are serious about doing something about this debt. There will be a vote early in the year to increase the national debt ceiling (which will be President Obama’s 4th increase in two years). If they vote for the increase they will need serious budget cuts to go along with it. He said the proposed $100 billion per year just won’t cut it when a 1% interest rate hike will come to 100% of those cuts in service of our debt. “Watch what they do along the way,” Goyette told me.

I’ll be watching, he can count on that.

For more from Charles Goyette visit his website. You can buy his book Dollar Meltdown below.

(Note – I will receive a very small commission on any sale made through the link below.)

Update: A few items I meant to get to but have just run out of time. Sarah Palin is also talking about this issue, and has called on Bernanke to “cease and desist!” One of the Wall Street Journal’s reporters sniffed that Palin had no idea what she was talking about regarding inflation. Palin shot back that he must not read his own paper. This morning, the Wall Street Journal posted an editorial praising Sarah Palin for her intervention into the global monetary debate. Does this mean Sarah Palin is smarter than a Federal Reserve Chairman and an MSM reporter? Heh! (When I asked Goyette about Palin, he said he read the headline, and was happy to hear it but wished she had brought it up during the 2008 presidential campaign.)