A good friend called me up in tears last week.  “My dad just tested positive for Covid and has symptoms, and now that we’re home from Christmas, my kids are sick now too. What should I do?” After we discussed the usual and ordinary early treatment options – which are as numerous as they are…

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The Federal Reserve is now directly monetizing US federal debt.

Sure, it’s not admitting to this. And it’s using several technical jinks and jives to offer a pretense that things are otherwise.

But it’s not terribly difficult to predict what’s going to happen next: the Federal Reserve will drop the secrecy and start buying US debt openly.

At a time, mind you, when US fiscal deficits are exploding and foreign buyers are heading for the exits.

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I have long been a dollar bull, not for any over-arching reasons based on inflation, deflation, rising geopolitical multi-polarity or any of the other issues that touch on the dollar’s valuation vis-à-vis other currencies. My analysis focuses on a few basics:  the dollar’s status as the global reserve currency, Triffin’s Paradox (a.k.a. Triffin’s Dilemma) and global capital flows into the dollar and dollar-denominated assets such as U.S. Treasury bonds.

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Chapter 8 of the Crash Course is now publicly available and ready for watching below.

As a follow-on to the two previous chapters — one explaining the nature of fiat money, the other showing how money is loaned into existence through our fractional reserve banking system — this week’s video details the Fed’s near-magical ability to create money out of thin air (literally!).

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This lemming-like belief in the power of the Federal Reserve generates its own psychological force field, of course; the actual power of the Fed is superseded by the belief in its power. We can thus anticipate widespread disbelief at the discovery that the Fed is either irrelevant or an impediment to the non-asset-bubble parts of the economy.

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• Gold ETFs Are Liquidating By The Ton
• Schizophrenic investors expect slump: bet on boom
• Clients Denied Gold At Major Banks As Shortage Intensifies
• Thanks To QE Bernanke Has Injected Foreign Banks With Over $1 Trillion In Cash For First Time Ever
• Gramm and McMillin: The Debt Problem Hasn't Vanished
• Want to Save the Environment? Build More Cities
• Republic of Ireland calls for international tax action
• US Treasury secretary says he has begun tapping federal retiree pension fund to avoid default
• Millions falling into poverty in recession-racked Italy: report
• Seven Ways Today's Economy Is Like The NHL Playoffs
• PBS Killed Wisconsin Uprising Documentary "Citizen Koch" To Appease Koch Brothers
• Court upholds B.C. mining company’s use of temporary foreign workers from China
• Big Wind’s trail of wings
• Living buildings for tomorrow’s cities
• Food swapping: The movement taking off in the UK

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The diminishing returns of technology are insidious, and they are ever with us. By this I mean the slow erosion of the quality of life, despite the impression that technological wonders only make our lives better.

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A PeakProsperity.com reader recently lamented:

I have been trying to get my head around the mechanism of QE. Not being an economist or experienced investor I don't really understand a lot of the jargon. The usual simple definition of QE as "thin air money printing" does not satisfy my need for understanding either. Have hunted for a description of QE for dummies that leaves me feeling like I get it, but with no luck. My difficulty is in understanding how thin air money gets into circulation.

So I'm going to do my best to answer this plea in as intuitive and straightforward a manner as I can. I, too, share the need to understand the mechanism of a process in order to feel like I have a grasp of it.  And I think it's critically important to understand QE (also known by its full name, "quantitative easing") and what it really represents. Because it is, without a doubt, one of the largest market-shaping forces of our times.

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