The US government is adding to debt like a vociferous elephant and relying on its central bank to fund the huge appetite. The problem is that Fed is trying to jump start the economy that is practically dead sans the government debt by trying to stimulate employment for a generation addicted to Facebooking and Tweeting their time away in following Charlie Sheen (an infamous US TV star addicted to drugs) and Snooky (that's not her real name and she is another hugely stupid famous TV star of an idiotic TV show called "Jersey Shore"). Of course, with every central bank printing money and insanely focused on promoting growth, partying is catching up in every country but some countries still have the balance of education and partying maintained. US has to first find this balance before it can try to find balance in its economy and monetary policy.
First of all, I don't believe that central banks have the intelligence or know-how of running the business but suddenly they have become all the more powerful with the "Fiat-currency" policy which makes them falsely believe that they control the fundamental economics of the country by following policies of printing money or draining money through various operations of quantitative easing, discount window, repo and reverse-repo. All these believes rely on one fundamental thesis that money that these central banks are trying to print in a race to outsmart each other by getting to the bottom first is, in the end, considered a storage of value. To create the notion of money as a store of value, it has to be in controlled supply in the first place. With US alone having $3 trillion on Fed's balance sheet so far and an intention of taking on more debt (the liability of social security, medicaid and other government operations ballooning to $500 trillion in medium term), I don't think US dollar has any storage value left for any practical purposes whatsoever.
Now Fed has slowly started washing these dirty linens of the debt-infatuated country in public by embarking on a series of quantitative easing with QE3 being promoted by some financial institution intellectuals who stand to gain again in the short-term by creating an irreversible and irrevocable damage for the whole nation in the longer term. Of course, White House being the political body and focused on next elections also cares about next 2 years only and as long as all these false and misplaced policies can create a false short-term feeling in the voter to persuade them to vote again the current administration for the next four years, President and his staff will be very happy.
Nobody, including me, really cares if US goes into a situation like Greece or Libya after 5 years. As an investor, I can move my money and business around very quickly to the next profit making opportunity in a different country. Even though this idea might seem laughable at the moment, we are approaching it at the speed of light and 5 years is all that is needed in this wired world to abandon the darling country of the present. I am sure that Mr. Bernanke does not have any intelligence to be the Chairman of Federal Reserve Board and he also belongs to the crowd in this nation having brains of Snooky but who are enjoying the limelight because others don't have any clue either. Federal reserve board member Mr. Thomas Hoening seems to have some reason but other members are timid to always fall in line with Mr. Bernanke during the policy meetings perhaps because they don't want to play the party spoiler thinking that this time around outcome will be different. Fed is again focused, more than ever on short-term fixes by keeping the funds rate arbitrarily zero. This time around party is going on with more liquid assets like stocks, commodities and bonds rather than LBOs and housing loans.
But economics and finance have one very fundamental tenet and it is that it's a zero sum game, always. It does not matter whether we have Fiat money, Gold standard or some other measure of money. So there will be some one holding the bag in the end when the song stops again. And this time it will be the administration and central banks given the idiots leading them. Believing that these idiots have enough power and willingness to stay the course, it's certain that US Dollar and Treasuries will not have any intrinsic value soon. The only thing left to be seen will be that how long Mr. Bernanke's thesis survives.
