Gold News

Bernanke's Money Missile

Was that the Fed firing Dollar destruction at China...?

that missile apparently fired off the coast of California was launched by Ben Bernanke as his first big blow in the currency wars, writes Dan Denning in his Daily Reckoning Australia.

Maybe it was filled with Dollar bills and on its way to China...

Sneak attack or not, the United States most certainly is exporting inflation to China faster than you can say "I'll have General Tso's chicken." The task of this Reckoning is to put the last week's monetary events into a bit of strategic perspective.

To begin with, let's turn to a master strategist. Military theorist Carl Von Clausewitz reportedly once said that, "No military plan survives its first contact with the enemy." We got to thinking of that this morning when looking at the huge price swings in the gold and silver futures markets over the last 36 hours. The Bernanke Fed's plan to suppress US interest rates and float US asset markets has not survived its first contact with reality. Asset markets have scattered and surged.

Note that we've replaced "the enemy" with "reality" because the Fed's real enemy is itself, not China. They may be blackhearts and villains, but are central banksters really stupid? Do they not know that their actions fundamentally weaken the Dollar and lead to lower of standards of living for everyone through competitive devaluation?

Well, they're probably not stupid. But they are acting stupidly, which tends to happen when you act like you have a God's-eye view of the marketplace when, in fact, your vision is rather limited. If you want to continue with the military terminology, the banksters (including General Ben) are operating in a closed-loop decision cycle. They act as if every Fed action has an equal and predictable reaction in the asset markets (stocks higher, bond yields lower). And they act in a methodical, plodding way.

But if you can unleash a lot of water on a herd full of horses, you still can't predict where the liquidity is going to run. In the current situation, the Fed hasn't even really entered into the market as an active bond buyer yet (it plans to buy $150 billion over the next month). But it HAS caused an obvious change in global capital flows. Things you can't print – gold, silver, food, fuel, and base metal – are going up in value against the declining Dollar. Global investors realize that if the Fed intends to buy up all the new US debt issued (monetize it, in short), then the policy is clearly inflationary. And by crowding everyone out of shorter-term yields, the Fed forces everyone to speculate on other asset classes.

That's the primary trend, and that's what's animating the melt-ups in stocks and hard assets. There may be secondary and counter-cyclical trends. But in the last week, it sure does seem like the primary trend has picked up speed.

No, it does not feel like a blow-off top in precious metals, although the "feeling" is admittedly subjective. It "feels" like a mortal body blow to the international Dollar Standard that has left everyone a bit staggered and unprepared for the sooner-than-anticipated transition to a world currency system without the Dollar the centre.

Got gold? Buying Silver too...?

Best-selling author of The Bull Hunter (Wiley & Sons) and formerly analyzing equities and publishing investment ideas from Baltimore, Paris, London and then Melbourne, Dan Denning is now co-author of The Bill Bonner Letter from Bonner & Partners.

See our full archive of Dan Denning articles

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