Sunday, May 31, 2009

May Recap

Bailout news is fewer and farther between lately. I don't think that it has lightened up, only that the DJIA has crashed twice now after the initiation of major bailout packages—the TARP and the Obama Stimulus—so they've learned to be more discrete.

The dollar continues to be under persistent and heavy fire with bouts of quantitative easing, which in essence blows a new treasury bubble after the internet, housing, and commodities bubbles crashed. Quantitative easing is the lender of last resort—the printing press—however just like any debt-driven "prosperity" it will eventually reach its limits and make the crash that follows all the more worse rather than letting equilibrium forces restore our economy to its natural state in the fastest and most painless way.

The dollar hasn't lost all of its gains since it March 2008 lows, but its heading in that direction. How far it will go before the treasuries bubble collapses I don't think anyone can know for sure but I don't think it will retrace all the way before quantitative easing reaches its natural endpoint.

Keep in mind, there has been quantitative easing in Japan for years, and the yen is one of the stronger currencies.

I've heard no word as of yet about the beginning of the Public-Private Investment Program, the last piece of bailout malfeasance, which in essence will unload toxic securities held by banks on to the tax base. I wouldn't be surprised if that has begun, I just haven't seen anything specific about it. It is terrible for the tax base and takes money away from more needed and socially beneficial bailouts, but this would have no effect on money supply or inventory and so no direct effect on the dollar, unlike quantitative easing which amounts to a temporary increase in cash supply.

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