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The Daily Reckoning Weekend Edition Saturday, November 6, 2010 Buenos Aires, Argentina ------------------------------------------------------- Mixed responses usher in the dawning of the QE2 era, The seen and the unseen effects of modern economic policies, Plus, all this past week’s reckonings, archived and without endorsement from any political party... Joel Bowman, reporting from Buenos Aires, Argentina... This week, the world caught a glimpse of what Henry Hazlitt might have called the “seen” – the primary, most conspicuous consequence of a preposterous economic policy. Of course, it is the “unseen,” what comes next, that we ought to be worried about. We are referring here to the dawning of the QE2 era. In the shadow of the midterm elections, Federal Reserve Chairman Ben “full steam ahead” Bernanke announced the second round of quantitative easing, or, for us non econo-scholars, “money printing.” In a nutshell, Bernanke committed the Fed to purchase $600 billion in Treasuries over the next 8 months. In addition, those nasty mortgage securities the Fed gobbled up during operation QE1 will continue to be rolled over into Treasuries. All in, the total price tag comes to $875 billion brand spankin’ new dollars...with the option to open the spigots further should inflation (the CPI version) come in under what the Fed deems as “healthy.” Markets rejoiced over the news, sending the major indexes up 2...3...4%. Gold rallied to within $3 of the $1,400 per ounce mark yesterday. Silver leapt out of the gates too...as did just about everything else priced in dollars. Oil made a charge towards $90 per barrel and the “ags,” already on a blistering run this year, continued to soar. Behind the scenes, the dollar took it firmly on the chin. Our mates over at The 5 provided the following chart, showing the once-mighty greenback’s response to Bernanke’s systematic currency debasement: The dollar is now more or less at parity with the Canadian loonie, the Aussie dollar and the Swiss franc. But not everyone was pleased with the Fed’s magic monetary potion. Brazil’s central bank president, Henrique Meirelles, said “excess liquidity” in the US economy is creating “risks for everyone.” The Chinese, who hold an uncomfortably large quantity of ever-depreciating dollars, were equally miffed. Vice Foreign Minister Cui Tiankai said, “many countries are worried about the impact of the policy on their economies.” Tiankai went on to say that the US “owes us some explanation on their decision on quantitative easing.” Bernanke defended his position to a group of college students in Jacksonville, Florida, on Friday. “Our first objective, the first goal that we have, is to meet our mandate to get price stability and maximum employment in the United States,” he said. “A strong US economy, a recovering economy, is critical not just for Americans but it’s also critical for the global recovery.” Has Bernanke stumbled upon the ultimate formula for wealth everlasting? Has the man who once said he would drop money from helicopters if the need arose cracked the code to eternal, effortless prosperity? Just print money and be happy? “If this were true,” ventured Bill Bonner earlier this week, “it was a giant step forward for humanity, at least equal to discovering fire, creating Facebook or blowing up Nagasaki. Jesus Christ multiplied loaves and fishes. But He had something to work with. The Federal Reserve multiplies zeros...creating money – out of nothing at all. If it can really do the trick, we are saved. The legislature can go home. It no longer needs to worry about raising taxes or allocating public resources. Government can now buy all the loaves and fishes it wants. And give every voter a quart of whiskey on Election Day.” Readers may feel a healthy welling of skepticism here. To be sure, a strong economy, a recovering economy, is important...but debasing the nation’s currency won’t get you there. If a country could grow rich and prosperous by simply allocating printed money to troubled sectors of its economy, Zimbabwe would be the jewel of the African continent and there would be a statue of Gideon Gono, her former central banker, in Harare’s town square. If the Weimar Republic had been able to make WWI reparations in 50 billion mark notes, the world may have avoided the unmitigated catastrophe of WWII. And, to belabor the point, if the Romans were allowed to finance their foreign escapades by simply handing out I.O.U.s, Edward Gibbon’s classic, The Decline and Fall of the Roman Empire, might seem a little odd on the bookshelf of history. For the moment, the markets have awarded Bernanke’s stimulus plans a vote of confidence. That is the immediate, seen, effect. Like an athlete on steroids, they are looking to break records, to rewrite their own history books. The Fed has them off to a flying start, but pretty soon the effect of the drug will wear off. Reality will kick in. It is then that the “unseen” effects of trying to cheat the system will come into plane view. The global economy, built on the back of a strong, stable world currency, will once again come to realize that history makes no excuses and does no man any favors. Regards, Joel Bowman for The Daily Reckoning --- Revealed: The Full Power and Promise of Science’s Next Decade... --- Breakthroughs that could give your family FIVE generations of HUGE WEALTH! Expert researcher breaks his silence after 2 years with this shocking new presentation. Get all the details on the most lucrative science breakthroughs ever published, right here. ------------------------------------------------------- ALSO THIS WEEK in The Daily Reckoning... Bank Failures in Slow Motion By Douglas French Every Friday evening a few more banks are closed – seized by the various state banking regulators and handed over to the Federal Deposit Insurance Corporation (FDIC) for liquidation. This all happens rather quietly, barely making the news. We’re told these bank failures are no big deal. No reason to panic. The names of the banks change over the weekend and many customers don’t notice the difference. Bank Failures in Slow Motion, Part II By Douglas French “Deposit insurance’ is simply a fraudulent racket.” – Murray Rothbard Sheila Bair, the Chairman of the US Federal Deposit Insurance Corporation (FDIC), has said many times that the peak in bank failures would not occur until the latter part of this year. What’s the holdup? Why aren’t more banks being closed more quickly? Where to Make Money in the Markets Today By Chris Mayer Gaithersburg, Maryland So where to look to make money in today’s market? What I often do is just look for extremes. I look for areas of the market where the rubber band seems stretched. These are usually good places to look for making money as you play the snapback of that rubber band. It doesn’t always work. Sometimes the rubber band breaks. But it’s a fairly reliable way to make good money in markets. Today I have a few extremes that I’d like to set up for you. Each of them leads to a potentially profitable idea. The Rare Earth Bonanza By Chris Mayer Gaithersburg, Maryland Rare earths have gotten a lot of attention lately. Deservedly so, as you’ll see. And this creates some opportunity for nimble speculators. Let’s take a look... Plumbers Crack By Bill Bonner Delray Beach, Florida Poor Ben Bernanke. There was a strange glow on his face as it appeared in Monday’sFinancial Times...like a bearded St. Joan of Arc; his hands were clasped together as if in prayer, and his eyes seemed to reach up to the gods, if not beyond. --- Special Announcement from Lifetime Income Report--- Retirement, Plan B: Collect “Pension Paychecks” Every 15 Days...For Life! You can legally sneak onto the “payroll” of America’s best companies and collect work-free “pension paychecks”. Your checks can roll in as often as every 15 days! Total yearly income can run as high as $120,000! Start collecting your own income with this new presentation, right here. ------------------------------------------------------- The Weekly Endnote: Earlier this week, while the election hoopla was dominating the airwaves, we stumbled across a fascinating insight into the production of one of the 20th century’s most enduring economic books, Henry Hazlitt’s Economics in One Lesson. “In 1946, I got the idea of writing about economic fallacies,” writes Hazlitt. “It had been a decade since the publication of John Maynard Keynes’ influential General Theory of Employment, Interest and Money, which abounded with fallacies.” With neo-Keynesians running amok today, Hazlitt’s work is certainly worth revisiting.Here’s a link to some of the author’s own thoughts on his work. Let us know what you think... Other than that, enjoy your weekend. Cheers, Joel Bowman Managing Editor The Daily Reckoning ------------------------------------------------------- Here at The Daily Reckoning, we value your questions and comments. If you would like to send us a few thoughts of your own, please address them to your managing editor atjoel@dailyreckoning.com The Daily Reckoning - Special Reports: Gold: The Truth About Gold Fiat Currency: Using the Past to See into the Future Have You Heard of the OTHER Government Backed "Pension Program?"

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