Tuesday, November 9, 2010

Bernanke Sentences US to Great Depression

Ben Bernanke, the Chairman of the Federal Reserve Bank has just sentenced us to another Great Depression. Monty Pelrin has the story at the American Thinker entitled Bernanke's Cowardice Has Sealed Our Fate.

Bernanke could have taken a different tack. He could have stood on principle, repeated for all to hear that the supposed purpose of the Fed was to protect the economy, and refused to print more money. Sure, there would have been some hardships, but just as with the bank bailout, or letting GM go into bankruptcy, the hardships would have been fewer, of less seriousness, and shorter. The government would have been forced to address the issue of its fundamental insolvency.  As it is, the government gets to pretend for a while longer.

Let's look at some of the things that might happen, just so you can do some planning:

- First, massive inflation. Imagine a quart of milk selling for $25, a loaf of bread for $23, a pound of coffee for $75. Plan on being cold at night in the winter, and being hot most of the time during the summer.   That's because you won't be able to afford the energy to keep the house air conditioned.  Naturally, other prices will go up as well.  If your car breaks down, will you be able to afford to have it repaired?  What about getting it checked for safety annually? 

- Savings will disappear. Oh, you'll still have the same amount of money, but it will be worthless. It will have no purchasing power to speak of. Even if interest rates were reasonable now, they won't be able to keep up with the hyperinflation.  Unless you are part of the rich elite, by which I mean multimillionaires and billionaires, you will likely end up financially wiped out.
- If you have stocks, it may make sense to keep them, if the fundamentals are sound. Stocks in basic companies like oil, food, and other things people need will survive.

- Look for Government to try to control prices to keep them down. Unfortunately, the only effect of wage and price controls will be shortages of whatever they try to control.  In the face of riots and other violence, expect the government to declare martial law.

It will not be pretty, no matter what happens.  And it all could have been avoided.

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