A Day After the Fed Announcement

After the market had a chance to digest the Fed announcement of buying an additional $600 billion in bonds, the dollar went down.  The major things that go up with dollar weakness were up big.  Oil was up.  Stocks were up.  Gold was up over $40 per ounce.  Silver was up really big.

There is some negative reaction from China, Brazil and other places.  Some, like politicians in Brazil, see it as a currency war.  If you are in another country, why should you care if the U.S. wants to destroy its own currency?  The only way it will affect you is by the U.S. having less to trade.  China has a reason to care though.  The Chinese government owns hundreds of billions of dollars of U.S. government bonds.  The Chinese are going to be paid back in depreciated dollars if they are paid back at all.

We'll continue to watch the adjusted monetary base and the excess reserves held by banks.  If this additional inflation finds its way into the economy, we could see massive price inflation in the near future.  It is really time to pay attention.  The Fed is wrecking the dollar and it will have severe consequences.

I don't think Bernanke is dumb enough to drive us into hyperinflation, but we can't be 100% certain because the man is already doing stupid things.  He swore to Milton Friedman that the Fed would never let another great depression happen again.  He thinks the reason the Great Depression was so bad is because the Fed didn't print enough.  If he really believes this, then he truly is a moron.

Be ready for prices to skyrocket.  Grocery bills will go up.  A trip to the gas station will be more expensive.  Shopping for clothes won't be much fun when you see the price tags.  Don't expect your wages to go up though.  If they go up, it will only be nominally.  They will not keep up with price inflation.  High price inflation is almost inevitable at this point the way Bernanke is running the show.  It probably isn't a question of if, but when.