Wikinvest Wire

Kennedy: "It looks almost Madoffian"

Tuesday, April 14, 2009

They've already had quite a few interesting items over at Bloomberg this week and it's only Tuesday morning. Here's a commentary by Paul Kennedy, author of the must-read jaunt through history - The Rise and Fall of Great Powers. He fears for the U.S. dollar.

The third dog barking in the night was the dramatic news last month that the Federal Reserve Bank of New York (that is, on Fed chief Ben Bernanke’s instructions) would purchase as much as $300 billion of U.S. government debt and furthermore double its purchases of Fannie Mae and Freddie Mac housing securities to an enormous $1.45 trillion. No wonder the Financial Times headline on the next morning read “Fed Purchase Plan Stuns Investors.”

Now I am not a professionally trained economist or banker, merely a historian of the reasons why Great Powers seem to have risen over time, and then steadily collapsed some generations later. Yet it appears to my non-scientific mind that if a particular national government decides on the one hand to issue more and more Treasury debt, and on the other hand to have its national bank purchase large amounts of the same, it runs a serious risk of scaring investors about its long-term credit- worthiness.
Heavens, it looks almost Madoffian! Just think about it. If you and I could issue a loan to our neighbor, then proceed to buy it before he even reaches for his wallet, what would the eventual value be down the street? What, the neighbor might ask, were we doing?
And they're just getting started...


Anonymous said...

That's the part that scares me - they're just getting started. This is a gigantic bottomless pit we're all staring into.

Anonymous said...

Re that "pit we're all staring into": it's called an abyss. And eventually, it will stare right back at us.

  © Blogger template Newspaper by 2008

Back to TOP