Dr Fed Says: If Two Asprin Don’t Do The Trick, Take The Whole Bottle

After all, death will put an end to your pain. That seems to be the sage advice coming out of the top officials at our beloved Federal Reserve.

A big Hat Tip to Adrienne at Adrienne’s Corner for her recommended reading list that included this article from The Economic Collapse blog.  The article has several quotes from Bernanke and from several of Presidents of different Federal Reserve Banks that indicate that the Federal Reserve is already thinking about the need for QE III.

Are these people at the Federal Reserve so much smarter than the rest of us? Are we just too ignorant to see the benefits of printing tons and tons more funny money? Look around you and tell me if you are seeing all these benefits.

The US is currently feeling the inflationary impact of QE I along with some unexpected help from the unrest in the Middle East. We have the inflationary impact of QE II coming down the pike and should arrive before the end of this year and already the Fed is hinting that they may need to print even more funny money, QE III. Do these people know what they are doing? Here is what the author had to say:

  This is essentially a gigantic Ponzi scheme, but sadly there is just not enough money in the rest of the world to be able to continue to feed the U.S. government’s voracious appetite for debt.  Right now Ben Bernanke and his cohorts are trying to break the news to us gently, but anyone with half a brain can see what is happening.  The only way for the game to keep going is for the Federal Reserve to print lots more money, and that is going to be incredibly bad for the U.S. economy in the long run.

Is there some logic to the Fed’s policies that I just don’t understand? It turns out that at one time what the Fed is doing did have positive benefits. In the comments section on this article, I found a link that led me to another link to an article at Nathan’s Economic Edge that may explain why the Fed is so enamoured with their printing presses. Nathan’s article is titled “THE Most Important Chart of the Century”. My first reaction to reading the title was that of a doubting Thomas. But I quickly changed my mind. This one simple chart may indeed be the “most” important chart of the century.

We have always understood that credit, in and of, itself is not necessarily bad. Most of us have benefited from the use of credit to buy homes and cars and other large price purchases. We have known that as long as we can comfortably pay the principle and interest payments we will be okay. The problem, of course, is when we become overextended and can’t even pay the interest quotas. We have been told by the Keynesian economist over and over again that the Federal Government is not confined by the same rules that you and I are. NOT TRUE!

Nathan’s chart is very simple. He uses the ratio of the change in GDP to the Debt. I f the ratio gives a number greater than zero, then the change in Debt had a positive affect on the GDP. You can see by the chart that in the 1960’s, adding a dollar to the Debt provided about  a dollar in growth of productivity. However, continuing to add to the Debt since then has had diminishing benefit. The chart projected that the benefit would approach zero in 2015. But something strange happened in 2009. 

Nathan explains this phenomenon as follows:

Macroeconomic DEBT SATURATION occurred causing a phase transition with our debt relationship. This is because total income can no longer support total debt. In the third quarter of 2009 each dollar of debt added produced NEGATIVE 15 cents of productivity, and at the end of 2009, each dollar of new debt now SUBTRACTS 45 cents from GDP!
This is mathematical PROOF that debt saturation has occurred. Continuing to add debt into a saturated system, where all money is debt, leads only to future defaults and to higher unemployment.
This is the dilemma created by our top down debt backed money structure. Because all money is backed by a liability, and carries interest, it guarantees mathematically that there will be losers and that the system will eventually reach the natural limits, the ability of incomes to service debt.
I’ll have to take Nathan’s explanation on faith. I don’t pretend to understand Debt Saturation and “phase transition”.  As an engineer, I know that no ratio can ever truly reach zero let alone go negative. So, indeed something strange has occurred and Nathan’s explanation seems reasonable.
The point is, since 2009, not only is increasing the debt not helping productivity it is in fact hurting productivity. So America, when Dr. Fed  tells you to take the whole bottle of aspirin because the first two weren’t enough, DON’T LISTEN! Death is too high a price to pay to avoid pain.

8 thoughts on “Dr Fed Says: If Two Asprin Don’t Do The Trick, Take The Whole Bottle

  1. “We have been told by the Keynesian economist over and over again that the Federal Government is not confined by the same rules that you and I are. NOT TRUE!”

    Good piece of wisdom, sir.

    But always remember-the government and all the smart elite people in it are just…well…better than us little folk.

  2. I believe we are witnessing the end game. I think, mathematically speaking, two more years of this shit and we are Japanese. If not worse.

    I think Obama was selected by the banking cartel for the Presidency. I think Bernanke is the trigger guy. It is game over. If they stop printing, the FED cannot buy the Treasury debt. Treasury debt cannot be sold with no buyers. The FED is currently buying 70%. Who buys shitty investments particularly when your own economies are about to crash because of inflation? There are no buyers. Once QE2 stops, yields back up and this country is forced to refinance 15 T into higher yields at higher rates. The money train stops. Interest goes parabolic. There is no way out. Period.

    That is why gold and silver is the greatest no brainer of my lifetime. I have never invested in anything with absolutely no worry until now. When a man shows you his cards and you see that he is bluffing and has nothing- you can’t lose. That is the odd place that I find myself in. At this point, only an unforeseen miracle, a true black swan, can save them.

    1. I’m certainly not smart enough to see a way out. But, one thing I have learned is that when you’ve dug yourself into a hole that you can’t get out of, the first thing you should do is stop digging.

  3. This just confirms what we all know to be the truth. Yet if you ask most Americans, they have little understanding of how our economy works. Thanks for soldiering on with the finanical doom and gloom. We cannot forget. I keep trying to do posts on this, but they always die on the vine.. The news of the merging of our New York Stock Exchange with Europe should have been headline news… but just a yawner.

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out /  Change )

Google photo

You are commenting using your Google account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s