Outspoken, controversial former Assistant of the US Treasury Paul Craig Roberts spoke yesterday about the problems that Western policymakers face and the inevitability of the current financial system ending in ruin.
There are no economic policy solutions. You can’t deal with [the excessive money printing] by cutting spending because you already have high unemployment. How are you (the Fed) going to contain the inflation? Are you going to jack interest rates up and wreck what little is left of the economy? The whole thing is a disaster waiting to happen. And they (mainstream media and government officials) avoid it. There is no talk about it. It’s so obvious. How can you not see it? And yet they never mention it. So I just feel compelled. It’s my responsibility to mention it.
Roberts claims that the game of printing money cannot last and that there are already early warning signs that the US dollar is slipping in its role as the global reserve currency:
You can’t retain a stable exchange value of your currency while you print it in enormous quantities. So, at some point it has to shake the confidence of the rest of the world in the dollar as the reserve currency. We already know about efforts to move away from the use of the dollar as the reserve currency. We know the BRIC’s are making agreements to resolve their trade balances with one another in their own currencies. That’s Russia, China, Brazil, South Africa, India. It covers most of the geography of the world.
There are reports that Japan and China, despite their disputes over islands, are working to conduct their trade in their own currencies. As the use of the dollar as the reserve currency for transactions or as a store of value declines, then the demand for dollars declines, so its exchange value in currency markets declines.
The Federal Reserve can print all of the money it needs in order to support bond prices, but printing dollars doesn’t support the dollar price. And the Fed has not the power to print foreign currencies with which to support the dollar price. So the dollar is the vulnerable spot in the Fed’s policy management, and the popping of the bubble is likely to come from the dollar.
Eric Sprott of Sprott Asset Management continued with the same theme yesterday in response to Roberts’ comments:
They play games, and they manipulate things (such as gold and silver). They are so lucky because they get to borrow money at zero (percent) and lend it to people. They are given this right to make money, and then they turn around and lever it up, and throw derivatives on top of that. I totally agree that someday it will just fall apart and we will find out that none of the counterparties can pay. I’ve never been hopeful for the financial system. Ever since the 2008 financial crisis all we’ve had is printing of money and backstopping of banks. The one thing which has happened since Lehman, Lehman was a liquidation, and there has never been a liquidation allowed since.
Nothing is allowed to liquidate, whether it’s Fannie, Freddie, various banks, nobody is allowed to liquidate, and I know exactly why they are not allowed to liquidate, because if they liquidated the first domino falls. And once the first domino falls, everyone starts worrying about counterparties and the whole system fails.
That’s why they need to keep propping it up week after week. Somebody is always getting bailed out. It’s just ongoing and anybody who has any common sense at all knows it will end in ruination.
Source: King World News