Fed Meeting, European Crisis & An Inflationary Death Spiral

http://kingworldnews.com/kingworldnews/KWN_DailyWeb/Entries/2012/6/20_Fed_Meeting%2C_European_Crisis_%26_An_Inflationary_Death_Spiral.html

Here is the reality, we have a situation in the developed world, particularly Europe and the United States, where the level of debt at the public sector level has become so onerous that the tax base no longer supports the solvency of the states.  When you get to the point where the tax base cannot support the stability in interest rates, the international bond market starts to lose faith in the credit market and interest rates rise. 

The idea that you can bring down interest rates by creating inflation through never-ending counterfeiting on the part of central banks is absurd.  It doesn’t make any sense as an economic theory or in the real world.  You cannot create endless rounds of inflation for the purpose of keeping interest rates low.  You destroy your economy, and you send the cost of borrowing on the sovereign level much higher when you continually print money. 

Someday soon central banks will learn that lesson.  I can assure you that the central bank of Hungary learned that lesson in 1946.  The central bank of Zimbabwe also learned that lesson.  A central bank cannot continually become the only buyer of a nation’s debt.  That is where we are in Europe, that is where we are in Japan, and that’s where we’re headed in the United States. 

When your central bank becomes the only buyer of your debt, you enter into an inflationary death spiral.  That is where we are in Europe, and if it doesn’t end, you are going to have the euro going the same way as the Hungarian pengo.