3/10/2011 PERMALINK
Ben Bernanke's Hobson's choice. Saudi police firing on protesters in their key oil producing region. Libya sinking into an all out civil war. Half the world's population fast approaching a starvation tipping point as food prices rises rapidly. China and Japan reporting weak exports again. Causing Japan to fall back into GDP contraction again. Spain's debt bubble blowing up, their debt downgraded, causing some investors to dump Eurozone debt in favor of US Gov debt this week. But they will find no safety there, as the US Gov's deficit is just as bad as that of Europe's PIIGS, and getting worse faster.

Despite voting to keep some war spending and the huge loses at Fannie, Freddie and the FDIC off-budget. Congress's deficit spending still hit an all time monthly high of $222.5 billion in February. Add back the concealed items and Congress has in recent years been spending at a rate of roughly $2 for ever $1 they are able to collect in taxes.

Now, the Fed is making noises about stopping the money printing that has prevented the Treasury market from blowing up due to Congress's run away spending. However, to persuade investors to buy $100+ billion more gov debt MONTHLY than they've been willing to buy lately is sure to require a large increase in interest rates. And this will only add hundreds of billions more to the already dangerously high Federal deficit. Which will only cause investors to demand even higher interest rates at the next debt sale. It will also push up mortgage rates, putting the housing market back into a tailspin.

The Fed has two paths open to it: 1. Continuing to printing ever increasing amounts of money to cover the rising Federal deficit. or 2. Stopping the money presses which will force the Treasury to pay constantly incrasing interest rates to persuade enough investors to keep funding their ominously exploding mountain of debt.

Both these paths lead to the same global economic death spiral.