To von

I know you have been asking a lot of questions. I thought of writing a proper post to answer them, but I have yet able to find the time.

There's nothing the Fed can do to resolve the subprime problem. The problem is spreading, and will continue. The next big time bomb is the multi-trillion derivative market, which is now beginning to explode. Financial markets will come to that realisation again in the next 6 months, I believe.

Please refer to the video I posted in the following post about the Fed:

• The Money Masters

Let me make it easy for you von. There are 2 major, major problems that the Fed is fighting:

1. Inflation that's going to spiral up and up; and
2. Deflation that's going to spiral down and down.

The Fed has only 1 tool; it cannot fight both problems at the same time. If the Fed raises interest rate, which is what Jim Rogers has been asking for, like what the Japanese did in the 90s, that could bring the Dow down to 800 -- Yes, 800. Anybody thinks the Fed would do that raise your hand please? Anyone?

Therefore, the Fed opted to fight deflation with money printing. Is it going to work? My answer is: No. The wealth of a nation is created through capital formation, through productive business activities, through provision of goods and services, etc. A nation doesn't create wealth through simply money printing. Most of the US jobs created since the dotcom bust were within the mortgage and housing sectors, which are the sectors that are now busting. A revival of the US economy will require a fundamental overhaul of the whole economy with more focus on the real and production sectors, rather than the current financial and real estate-based ones. Americans will need to save, house prices will need to go down. The whole credit system is based on trust, which is now broken. The Fed can print, but the problem is the money is not going to where it wants.

Think about this:

When something has gotten expensive, it is because there are more people wanting it; when something has gotten cheaper, it is because there are more people wanting to get rid of it. Money is now getting cheaper and cheaper in America because nobody wants it!