The Fed pulled out its “nuclear” option last week when it announced coming purchases of $300 billion in long term Treasuries (and other similar extravaganzas). This is an act of total desperation. It will also serve as a key historic moment in US and global monetary economics. Let’s look closely at what it will mean to you.

Why exactly did the Fed resort to such a stunt? The stated reason is to bring down long- term interest rates in typical central planning fashion. A re-inflation of another credit bubbleis also in their pipe dreams. We all like low interest rates when we borrow,but our capacity to borrow is long gone. Unfortunately, low interest rates punish savers who should be the backbone of a healthy economy.

The real reason for the Treasury support is that no one else will make these purchases. Foreign nations are balking, and in fact, don’t have enough money to satisfy US demands for endless and drastic amounts of borrowing. Only China has the capability with their massive US dollar reserves to step into this gap on a short-term basis. They could only do so, should they chose to, only for a year or so. The Chinese communists will extract a heavy price for further participation. Where’s Senator Joe McCarthy when you need him? Why are we stuck with a bunch of Charleys?

US citizens and corporations have next to zero capability of buying the necessary funding of an out of control government. We are tapped out and the previous credit bubble is still in contraction mode. This balloon won’t take a patch.

The Fed and the US government are throwing trillions of dollars around like Spring Break youths throw down shots of tequila in Cancun or Cabo. The comparisons don’t stop there. Don’t look to New York or DC for mature or sober actions. Present budgetary “needs” are $3.1 trillion and counting just for 2009. The ‘09 budget deficits now projected at $1.8 trillion! You likely need no reminder that government tax receipts are plummeting. The Fed is now stepping into the gap to print the difference.

Yes, the US is now running on fumes and digital computer entries. Neither the Fed nor the Treasury has a balance sheet’s worth of Bernie Madoff standards. They are now printing and swapping astronomical amounts of I.O.U.s. as they destroy the paper mache castle. You and your kids pick up the tab as well as the interest. Or you can defaulton it.

Get used to the default word.

Last week’s article hit hard on the shadow banking system or parallel world of finance.

This is where you need to look to see what is really transpiring. The markets are forcing

Long-term interest rates higher in order to compensate suckers who for some reason want to hold the cascading debts of a crumbling empire. Oops, I forgot, we don’t have free markets. We have central planning.

Higher interest rates stand to further implode the mountain of hidden and unregulated interest rate related derivatives!

The Fed cannot allow this, as they will do absolutely anything to maintain control of their 96-year con. The money power has long been known to create disasters in order to expand their chokehold on their serfs. Yep, the crooks love a crisis.

Will the Fed’s ploy to buy long-term Treasuries and other toxic paper products work?

Nope, it will not. It is sheer folly in the long run. This act of total desperation sends a global message that will destroy the dollar and end its status as the world’s sole reserve currency. The dollar reacted immediately to the news as it sold off dramatically. The Fed is sacrificing the dollar. Maybe they can purchase dollars with presto chango “money” next. One of these goofy ideas needs to work … at least for a while. Truth be told, our economic wizards perform these deeds and multiple others with regularity. They thrive on circular reasoning, at best.

The US isn’t the only country printing money to buy its own bonds. England made a similar announcement a couple weeks ago and you can expect many countries to follow suit. Inflation is best known as a monetary event. Printing unimaginable amounts of money out of thin air makes every existing dollar diminish in value. Sooner or later, prices rise accordingly.

I’ve said previously that high inflation (double digits) is the best-case scenario for the US. Things could get much worse than that but that argument is for another day. One way or another, the country is set to be unrecognizable in the next three to five years. We are at a historic crossroad and very few people comprehend what has been brought down upon their heads. Team Obama is the same as Team Bush, Team Clinton, Team Bush, etc.

Needless to say, gold, silver, and other tangible assets in general will absolutely soar in a hyperinflationary environment. You can look at the 1970s as a prime example; even though today’s current mess is an order of magnitude worse than the 70s. Gold went from $35 to $195 in 1974. It reached $850 by early 1980. Junior gold stocks jumped 10X, 20X and more back then.

The Fed is on a much more dangerous path right now. Do the math for a new gold high. The Fed isn’t accountable to Congress. They certainly aren’t accountable to you. My buddy from GATA, Chris Powell, proclaimed the following recently, “any government that can disburse $2 trillion secretly, without any accountability, is not a democratic government. It is government of, by, and, for the bankers.”

Chris has been on this trail long enough to understand clearly what is going on. He is a real patriot as is the entire GATA cast.

You’ll have to protect yourself by being truthfully informed and properly positioned.

We have a broad spectrum of resource stock plays in my Resource Windfall Speculator. A whiff of hyperinflation will send these stocks on a rocket ride. Small gold and silver stocks haven’t kept pace with the rises in physical gold or silver over the last couple of years. They will catch up in a hurry when these monetary abuse-sniffing metalsescape their shackles. You should also make sure you own precious metals and store them in your own possession while you still can.

It’s March and madness abounds, but it’s not just a tournament for the Fed. It’s a way of life. This is a creature that should not live to 100.

Live Resourcefully,

Rusty