Wednesday, March 5, 2008

What's Wrong With the Markets? (George F. Smith)

George F. Smith on the ramifications of fiat currency:

Like an interminable soap opera, pundits continue to bring forth scenarios of impending economic disaster. Financial Times columnist Martin Wolf, for instance, discusses in detail Professor Nouriel Roubini’s Twelve Steps to Financial Disaster, of how we have reached unsustainable levels of debt, and that bankruptcies, defaults, a collapse of stock prices, and “a drying-up of liquidity” are heading straight at us. Wolf adds that the Bernanke Fed, finally waking to the dangers, has lowered interest rates by two percentage points this year, as “insurance against a financial meltdown.” Because we’re a debtor nation, the government “must keep the trust of foreigners. Should it fail to do so the inflationary solution becomes probable. This is quite enough to explain why gold costs $920 an ounce [as of Feb. 19].”

Wolf sums up by saying:

The connection between the bursting of the housing bubble and the fragility of the financial system has created huge dangers, for the US and the rest of the world. The US public sector is now coming to the rescue, led by the Fed. In the end, they will succeed. But the journey is likely to be wretchedly uncomfortable.

Isn’t it strange how inflation becomes the probable solution to inflation?

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