Fed Announces Unlimited Borrowing, Beginning of the End for the USD?

There has been far too much economic destruction going on to ignore writing about it. And while I am the first to admit I don’t know very much about economics and monetary policy, after continuously reading about this day in and day out I feel it prudent to address a cause as dire as this one.

Ignore the fact that the US markets rose over 11% today for their biggest single-day gain in 70 years, they went down 18% last week. But it’s not stock market activity I want to address in this post, it’s the carelessness and wrecklessness (quite possibly intentional) of the Federal Reserve. Today it announced unlimited borrowing to the Bank of England (BoE), the European Central Bank (ECB), and the Swiss National Bank (SNB). Stop and re-read that one real quick: UNLIMITED borrowing.

The potential ramifications for this hideous act are staggering. For one, the amount of US dollars that could end up in circulation is unfathomable. They are essentially saying there is no limit to how much money we  can give to make for you. This will almost certainly lead to hyperinflation as the value of the dollar would plummit unless the Fed were to suddenly retract all of the dollars it put into circulation to avoid a collapse in the value of the USD. The problem with removing mass quantities of dollars from the economy is that it could lead to another Great Depression situation. A second scenario is that the dollar could be destroyed as a viable international currency (see: Iceland Crown last week).

In spite of their overwhelming stupidity I don’t think you can really blame the Fed and other central bankers for what they’re doing, it’s all they know really. They’re applying post-depression economic ideals in an effort to stave off another depression. The problem is the depression was 70 years ago and the international economy is an incredibly different beast than it was in the 1930s.

I haven’t the slightest clue about any course of action to take, again I forewarn you of my economic ignorance. But there are those educated in economics whom I do trust, and every one of them has criticized every recent action the Fed/Treasury has taken — most assuredly Treasury Secretary Paulson’s $700 billion bailout.

For now I think the most appropriate action anyone can take is to do nothing. Markets have natural up and down cycles — booms and busts — that are inevitable. Everything the Bush Administration and Federal Reserve have done up to this point has been done to prevent a recession in the US. Well, I got news for you Bush, Bernanke and Paulson, the recession is coming no matter what, and the more you inject additional money into the system, and the more you bailout insolvent entities, the longer and harder the recession will hit the American public (and the global economy as well).