Sunday, March 13, 2011

Bernanke’s Unstoppable, Self Reinforcing Feedback-Loop---Our economic death spiral into the Second Great Depression

Our economic death spiral into the Second Great Depression
Wracked up by both parties over many decades our debt has evolved into a yearly deficit that can no longer be serviced with tax revenue and borrowing.
To avoid default Ben Bernanke chose to monetize the un-payable portion of our deficit. Each month about 100 billion dollars are created out of thin air to cover our government’s bills.
This has set forth an unstoppable, self reinforcing, negative-feedback-loop whereby:
  1. Debt monetization (printing money out of thin air to cover the portion of governments spending not satisfied by tax revenue and borrowing) reduces the value of the dollar.
  2. The debt monetization triggers dollars to flow out of bonds and into commodities.
  3. This increases demand, commodity prices rise.
  4. As commodities make their way into the supply chains businesses and consumers realize higher prices.
  5. Since globalization has caused wages to stagnate at 1970 levels, and with 23% unemployment, businesses try to eat increases, this in turn reduces hiring, causes layoffs and kills expansion.
  6. Consumers reduce their purchases, case in point: Wal-Mart is losing market share to the Dollar Store - that right there spells retail health (read: it’s terminal).
  7. Nations whose citizens spend 32%-52% of their entire budget on food are especially affected.
  8. In those nations where citizens spend 32%-52% of total their income on food; food riots erupt, social unrest breaks out, governments topple. (read more - the list continues)