Fed’s backdoor plan to spur “growth”

The Dow on Wednesday spent the last five minutes at the close over the 18K mark to close at 18005, breaking the psychological barrier.

Thursday sees the index opening below the mark in a sell off as the dollar tries to get off the floor and gain strength.

You can see what the Fed is doing without Fed chief Janet Yellen saying it out loud.

Look at the dollar index for the year. The dollar was in the 92 range, now it’s in the 85 range, which is a big move in the currency pits.

Currency wars are the play if you can’t raise rates to cheapen the dollar, just have Treasury print more money to drive down the value.

In a currency war, you can’t grow economically on your own, so you try to steal growth from other countries by making it cheaper to do business in dollars.

This is why you see countries in South America going belly up. They were highly leveraged to the dollar and when it fell could not compete against us.

Look at the M1 money supply as measured by the Fed. It has soared this year and as it has the dollar index has weakened.

Look at the yield curve on US Treasury bonds. The spread between the 10-year and 30-year bonds has flattened so severely it’s now about 80 basis points.

Historically that should be 200-300 basis points in a tight market.

So the secret backroom move by the Fed is to cheapen the currency to combat stagflation and the anemic rate of inflation by printing greenbacks.

This action has the added benefit of cheapening the US debt as inflation grows, but will probably do little for ordinary Americans struggling to get by.

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