November 03, 2010

The Fed goes full retard

So, the Fed announced today an additional $600 billion commitment to propping up the stock market so their cronies could cash out; er, I mean a commitment to bailing out the banks and paying executives huge bonuses at the expense of the average American; er, I mean a commitment to helping revive the economy.  Yeah, that's it ... reviving the economy.

I knew this was coming, yet I'm still completely sick to my fucking stomach over this.  I don't have the energy to write a long diatribe about this utter fucking disaster, or even explain in depth what it means.  The economic, financial, and market links in my blogroll will simply have to suffice for analysis.  The key point is that the Fed has committed to a pace of monetization that equals the projected debt of the Federal Government for the foreseeable future.

This does diddly-squat to revive the economy -- just ask Japan.  All it does is steal, through inflation, from responsible and productive people in order to prop up a completely broken capital structure and pay off powerful vested interests.  In Al-Qaeda's wettest dreams they couldn't do one one-hundredth of the damage to America that the Fed is doing.

What can the average person do about it?  In the medium term, protecting oneself from inflation is the most important thing.  Cash is trash, and in an ever increasing fashion.  Bernanke is attempting to force us to buy dollar-denominated risk assets, but that is the one thing we must not do.  Stocks are out -- they'll probably go up, at least for a while, but eventually the economic damage from the current policies make them a terrible investment.  Bonds are likewise out -- they're the equivalent of Russian Roulette at these levels, and the Fed is playing a rigged game.

This leaves us with commodities and foreign investments.  One can buy silver and gold as alternative currencies to combat dollar devaluation.  One can buy into commodity funds with various weightings in things like energy, foodstuffs, and basic metals to protect oneself from inflation.  One can also buy foreign currencies (and invest in foreign assets), but this is extremely risky as other countries can try to competitively devalue their currencies to 'equalize things' with the US.  Going the foreign investment route opens up a Pandora's box of complexity and requires constant vigilance.  I don't recommend it.

For someone with a relatively small amount of wealth to preserve, the simplest and most effective thing is to convert all savings into silver, gold, and commodity funds.  Keep enough cash on hand for day-to-day expenses and to pay bills, but otherwise convert it into something which at least has a chance of holding its value.  The PowerShares DB Commodity Index Tracking Fund (ticker DBC)  is nicely weighted, with an emphasis on energy.  Combining that with some precious metal holdings would be a way to try to preserve your wealth without adding a lot of complexity to your life.

In the long term there are two possible solutions to our dilemma.  The first is the political solution -- to make huge cuts in government spending, end the Fed, take a hell of a lot of pain, but maintain society and our country.  The second is to write off America as beyond redemption, detach oneself from the government as much as humanly possible, and prepare to be largely self-sufficient.  I'd like for the former to happen, but the clock is ticking rapidly, so I'm preparing for the latter.

Posted by: Hermit Dave at 07:03 PM | No Comments | Add Comment
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