Fed Rate Decision Continues Path to Hyperinflation, Bubble 2.0 and Gold

The Fed's decision to keep rates low sent the market higher Tuesday, putting the "risk on"/inflation trade back on. Here's the simple story of what's going on:
1. The Fed's decision to keep the rate low, in conjunction with the ongoing hiking of the debt ceiling and no significant budget cuts, means expansion of the money supply will continue. Look for MZM Money Stock (MZM) to continue rising to confirm this.

2. New money is created by banks, so they get to spend it first. Where they spend it signals where they will inflate prices via the new money they created. Recently, we've seen the return of Internet IPOs -- Bubble 2.0. A closer look reveals that Digital Sky Technologies is the primary fund responsible for blowing this bubble; they've been key investors in helping Groupon and Facebook raise nearly $1 billion. DST is the offspring of Goldman Sachs, and is filled with Goldman employees (source). Another big bank, JP Morgan, has a $1.2 billion fund meant for investing in Internet companies (source).

Keeping rates low encourages this behavior on the part of banks, as they know there is new money coming in to keep the game going. For this reason, I think Bernanke's decision to keep rates low, and eventual introduction of some sort of official purchase program by the Fed -- i.e. QE3 -- will keep asset prices up. The Big Banks get the new money from the Fed, spread it around, then sell it to the Fed when the market crashes and the Fed steps in to prop it up, as they did with QE2. This entire system is Too Big to Fail, as they say, and I now believe that might be true; that we might get some type of systemic deflationary collapse, resurrecting images of the Great Depression that have been embedded in American consciousness, if this system is not perpetuated.

But at some point, most likely when there is some type of a mass exodus out of the US dollar (akin to the hyperinflationary collapse borne out of a budget deficit crisis in Argentina in 2001), the game will be up; theft by inflation will have fully run its course. From there, a new world order begins. As for which new world order emerges -- an international system run from the top down by supranational banking institutions (whose executives come from the big banking industry -- examples: Robert Zoellick and John Lipsky) or a more chaotic and disorderly one, emerging out of the economic needs and virtual currencies of non-state networks.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.