Friday, December 12, 2008

Now the Spaniards Know!

Matt, of Buckeye Thoughts. is a young American blogger who's been at it for some time, when not indulging in his other passion - partying. His take on what is happening in America shows a political maturity not seen in many so-called seasoned bloggers from around the sphere.

Originally posted at my blog.

Libertad Digital is one of my favorite news sources in Spain. Sure, El Mundo is great and El PaĆ­s is the mouthpiece of PSOE (heck, even El Mundo went for Obama!), but LD is pro-American as they come. Now, obviously I'm pro-American but that is not to say I can't take criticism of my beloved country. One of the other reasons I love LD so much is it truly is conservative, I mean US-conservative. What passes for conservative in Spain is more center than right.

Having said that, why am I writing about them? Well, it's because LD wrote this. For those that can't read or understand Castillian Spanish, I'll publish a translation tomorrow. It's basically talking about a possible collapse of the dollar and it's replacement with a new un-named currency. The first commenter beat me to it. What is it? THE AMERO OF COURSE!!!!!!!!!!!!!!!

Update: Dec. 11, 2008 at 3:13 p.m.

A translation, as promised:

"For the first time in the history of the US....

Towards a new dollar? The Fed wants to throw its own debt of to the side of the government.

The Federal Reserve of the US is studying throwing off its debt without approval from the Treasury. A new way of making bills. Something never seen before and prohibited by law. Some analysts in this media see this as an attempt to create a new dollar.

Pulbished on Dec. 10th, 2008

LD (M. Llamas) The Fed is considering throwing its own debt to side of that debt which the US treasury has. An action of these characterstics lacks precedent. Of which, the Federal Reserve's Law explicitly prohibits these types of debt reducing measures.

Nonetheless, the project is on the table according to the Wall Street Journal. It will deal with a new financial instrument to print bills, to the side of the traditional means, such as the throwing around of public debt on the Treasury's behalf. The objective of said plan would consist in giving more flexibility to the balances of the Federal Reserve in it intent to save the US financial system from a complete crash.

The mechanism could include emitting T-Bills or some other kind of debt according to sources familiar with the event. And that is, the Fed's balance has shot around at abnormal rythm never seen before since the past August, the credit conscessions have grown 900 billion dollars to 2 trillion, like Libertad Digital has said.

The discount teller windows and the announcement of the public debt on the part of the government are causing the Fed to run out of financial possiblities in order to save the economy of the US. The announcement of the public debt would create a new mechanism so that the central bank could continute its expanding of the liquidity in the implementation of new programs for public recovery.

The Margin of the Tresaury is closing
The problem is the Treasury works with a limited space margin. The debt of the State is marked by law, and briefly the government programs designed to combat the debt threaten to go over that debt that is already there. Not withstanding, the joining of the appropriate means to combat the debt up till this moment constitute nearly 60% of the PIB (GDP in English, I think, maybe an econ major could check that for me).

Some analysts have already started screaming from the rooftops about this new initiatitve. The credit extension done by the Fed and the creation of ex novo money could provoke a short term to medium term hyperinflation of unforseen consequences for the US and the economical world.

Medium term Hyperinflation

Besides, the Fed's debt would compete in a parallel market with Treasury's T-Bills in a risky strategy never seen before until now in the history of this country. Such a measure has an end of "eliminating the middlemen". The central bank would therefore have free reign to create a new currency from nothing, according to analysts consulted by LD. "The expansion of the Fed's credit will know no limits," without the necessity of needing to recover the public debt.

Of which, neither the government nor American citizens would have control over the amount of money emitted from the Fed with its guarantee. It is to say, eliminate the democratic controls that are over danger and always risk the creation of new bills, they add. And it's that the balance of the central bank has always been guaranteed during the emission of public debt.

Crashing of the dollar
A mechanism of these characteristics would give to the Fed Chariman, Ben Bernake, the ability to offer the Fed's debt for investment and to foreign central banks. Of which, these same analysts avance that the central bank of the US will be most likely anticipating the probable free fall of the US's debt and crash of the dollar.

A new dollar in blossoming
On the other hand, such notes would have to count on different rates than those of T-Bills. And such a plan, "has little feeling unless the Fed wants to emit a differentiatied public debt, which would open the door creation and emission of a new dollar," that would subsitute the current one, they added.

"Everything points to what deals with a foreseen movement that stands before the possibility of the US government being incapable of living upto its financial compromises." It is to say, before the risk of the US being between having to suspend payments, which had been said by this magazine."

Translator's note: Sorry if it seems a bit weirdly worded. I don't understand economic terms in English, much less Castillian Spanish. Regardless, I think it really hits home when a foreign news source, pro-US at that, is talking about this with analysts as a real possibility.


Your thoughts on this?