Fed Bank’s theory of eternity

Albert Einstein once said- “I have just got a new theory of eternity”. People at Fed bank could not agree more. At the edge of every such perceived eternity is a bubble burst. Just like we witnessed in the sub prime crisis where everyone expected the real estate boom to go on forever. Now we need to be careful- what else does the Fed Bank think would go on forever? Have we seen it all in the sub prime crisis or is it just the tip of an iceberg?

US never runs out of solutions. Bank of America has acquired Merill Lynch. Just another smart move by Americans- one bankrupt company acquiring another bankrupt company. As if they were not doing badly enough by themselves. Its like both companies have huge number of defaulters and are using each other as a guarantee. I am sure the US Government is smarter than this. But there is more. What did you use in the deal? A worthless peace of paper which they call dollars. The Central Bank of US is trying to save Fannie Mae and Freddie Mac which I think is a greater matter of concern than the fallout of Fannie Mae and Freddie Mac itself. Let me explain how.

Long back, a fed bank spokesman said- “dollar is my currency but your problem”. He just might have a point there. US dollars have this special position in the world as it is most commonly used across the globe as a medium of exchange, even between two currencies. We see central banks of many countries keeping dollar as reserves. Why? Is it because it is considered the safest, even safer than the gold? The US has been long importing goods by printing more and more dollars. If the central bank of a country has enough dollars, it sells it treasury only to pay it back in dollars with interest. All any country is left with is more dollars.

So we have here a country in the middle of its biggest regulatory failure printing dollars with sky as its limit. How else could it save AIG or others? Would you call it a smart move? Doesn’t US have anything to loose if its floods the already flooded market with more dollars?

Now either they can print dollars till eternity or there will come a day when people will stand up and say- “we have had enough of dollars, now what about some real money?”