Hyperinflation : A trial balloon

Throught the WSJ, the US Federal Reserve politrucks have sent a trial balloon, trying to gauge the publics reaction to unlimited bond purchases. Here's the equation for you :

1 ) US recovery is too slow

2 ) Crazy Ben purchases more US government debt

3 ) Long-term interest rates go down, allowing the US govt to spend even more

4 ) US government spending diminishes the pool of real savings

5 ) The US recovery loses even more momentum, due to lack of capital formation.

6 ) Return to #1

What the US is heading for is the "ketchup bottle effect", when it comes to price inflation. Until the central mismanagement of the US economy has brought it to its very knees there will be no significant price inflation. And then, when things cannot get any worse - americans are going to wake up one day to a collapsing US dollar.

I have no doubts what-so-ever anymore. This can only end in one way. Those of us who worried that QE1 was going to tip the US over the edge clearly failed to recognize the amount of money that US banks could sop up. I am sure they can sop up more. The paradox in it all is that the more money they sop up, the more they destroy the market they are trying to live off.

What NO ONE talks about is that if this thing is put into play, there is no longer any mechanism to prevent the US government from spending infinite amounts of money. They get a carte blanché, which is what triggers hyperinflation. Monetization will take place to the extent that crazy Ben deems it necessary. I sort of feel sad for him, because when the black helicopters land on his lawn, and wide-shouldered, stone-faced men demand that he come with them to discuss how he can help fund the US government, he is not going to understand.

This was supposed to be a democracy, right? A country of law and order? Not a country where the central banker gets an open order from the president to print money to support entitlement spending? How did this all happen, in the country that was supposed to be the United States? And maybe then it will dawn upon him, that the one and ONLY thing that prevents every country from becoming a banana-republic is the vigilance of the central bankir. At every step, he must do the thing that threatens to get him thrown into jail for crimes against the public. Go ask Paul Volcker. Not that I think that he understands the underlying mechanism, but once, he did what no one else would, namely rolled up his sleeves and took the heat for sending the US economy spiralling.

He also save the currency. Bernanke won't.