By Dick Morris on June 8, 2011

For the past year and a half, the U.S. Treasury has led a charmed life. Eighty-five percent of the money it borrowed came directly from the Federal Reserve Board – over $800 billion. That means it was printed and immediately lent to the government. Greece would have a field day if it could pull that one off. But the dollar is the global currency, so the United States gets away with it.

But now the glory days are ending. The Fed is no longer going to create money to lend it to the Treasury. Q.E. 2 (quantitative easing two) will come to an end on June 30th. Now the Federal government has got to borrow real money from real lenders – about $1.4 trillion of it over the next year.

The results are likely to be highly traumatic, perhaps tipping the economy into a full fledged recession. China, Japan, and the oil rich countries are not going to be happy about lending money to us at a nominal interest rate. No more 3.5% interest. Noting how disastrous our national finances are and how precarious the political balance in Washington is, the odds are that they will sharply bid up interest rates.

The result will be an end to the zero interest rate monetary policy dictated by the Fed. Interest rates will rise and the cost push that will drive inflation will intensify. With energy prices permanently over $100 per barrel and commodity prices soaring, inflation will take hold. China, battling the inflation virus, will push up prices throughout the world.

Then Obama will be faced with stagflation as prices rise, consumers can’t pay them, and businesses need to raise they even higher to recoup fixed costs. Job loss will multiply. We will be in a double dip recession.

The signs of this coming catastrophe were there to be seen. We warned of them explicitly in our book of the same name three years ago. But when Obama plunged us into a whirlpool of debt and the Fed began printing money, this day was inevitable. Now it has come.

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