Federal Reserve and Monetary Policy: Farmers’ Market

The subject matter can also be described as “If I had the money, I would short the $dollar: part two”. Ben Bernanke and the rest of the Federal Reserve, has stepped into doo doo. The Federal Reserve has just trashed their reputation. I WILL NOT BE SURPRISE IF OBAMA LOOKS FOR A COMPLETE HEAD REPLACEMENT OF THE FEDERAL RESEREVE. Bernanke and the rest of the FOMC will once again be educated in what it means to be a free market.

A half of trillion $dollar US government debt is probably an under estimate. I will not be surprised if the debt ceil would have to be raise to accommodate three quarters of a trillion $dollar debt. Inflation is here due to fears the US of A’s current account deficit. Import inflation due to a weak $dollar. Monetary inflation is being transformed into poison in our food, toxic toys and, in general, products from China that are “Unsafe at Any Speed”. The US of A’s citizens will have to endure the “death of a thousand swords” due to subsidies (even our own) that will not allow demand destruction and/or increase in supplies.

The two base reasons for my negative opinion:

1. The Federal Reserves job is to affect the elasticity of the $dollar.
   
2. Bernanke and the rest of the Federal Reserve have not address the structural impediments with respect toward household debt.

The Federal Reserve’s working assumption, which is rational expectations of the finanical markets and, in general, people has been proven wrong. A “military” strategist can use their weakness to make a contrary move and make a lot of money.

Any move, made by the US government to support the $dollar, is akin to a person yelling FIRE in a packed theater.

The likely candidates would be:

• Region banks are weaker due to a lot of debt whose basic theory is under fire. The structural problem is this debt was made while household debt was influence, either directly or indirectly, by fraud.
  
• Investment banks will see a run, aka Bear Stern.

The best strategy with respect to the above would be to short or buy puts.

Gold and silver is a good buy.
Grains, cows and other food stuff are also a good buy.
I wish I own an oil field.

The best candidates for the new Federal Reserve would those who recognized the world is not a rational one. Government policies clash and this clash must be taken into account when setting monetary policy.
The $dollar will crash if the Federal Reserve lowers Fed’s Target without a new US government policy. This policy must acknowledge the decline in US citizens’ decline in income. It must also address Wall Street’s attempt to shift their risk unto the US citizens. This shift can be characterized by the following:

• Financials want to buy mono-lines so they can maintain the fantasy that their junk debt is investment grade. Manipulation of their write downs.
• Financials want the government to change the timing of write downs. Manipulation of their accounting.
• Financials want the government to guarantee a minimum return via the FHA. Manipulation of risk. Its going to take years to recover from their screw-up and this plan would put the whole banking system under risk. There is already a fight for the shrinking resources of the US government and the US tax payers will be paying for the loss.
• Financials want the Federal Reserve to buy their junk debt. Hide their screw-ups in the government.

Any attempt by the Federal Reserve to indicate that “debt does not matter” without a change in the federal bankruptcy laws and some sort plan to boost the prospect for wage inflation (that’s right, wage inflation) will be deemed as wrong. Greenspan did not create this mess however; Bernanke will be responsible from this moment in time.

Local communities might want to create a design for local script. The $dollar is going to be worthless.

I’m working on the math to show why rational expectation is not a good working assumption. I will be posting a major section in my Neoclassic… blog tentatively named “Process Driven Economics” in which I will show Neoclassic theory has a parallel transport and field theory. Field and parallel transport theories are prerequisites toward the gauge theory of Neoclassical Theory of Production.

Viva La Revolucion!