U.S. Inflation to Approach Zimbabwe Level, Dr. Faber Says

May 28, 2009 by · Leave a Comment
Filed under: Opinion 

All this money pumping has to go somewhere and when you hold interest rates so low, you force people to speculate on other more exotic investments than government bonds to get a return that outpaces the inflation rate.  

Inflation is picking up in the commodity arena, just look at the prices on food and energy.  I love how all measures of inflation seem to pull these out of there figures but those costs ate the ones that affect the most amount of the population being that we still have a large wealth distribution gap in the U.S.  Something has to give way at a point and my call is the dollar and inflation on the rise to compensate for our spending and bailout policy.

News (Bloomberg):

The U.S. economy will enter “hyperinflation” approaching the levels in Zimbabwe because the Federal Reserve will be reluctant to raise interest rates, investor Marc Faber said.

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Federal Reserve to inflate another asset bubble to kickstart economy?

January 26, 2009 by · Leave a Comment
Filed under: Opinion 

Is this what I am actually reading?  We should create more mal-investment to spur spending that will lead us right into another crisis that would likely be larger than our current debacle?  If this tells us the only way to fix systematic problems is by creating others ones, then I have to tell you that we might need to look our how we are structuring our monetary system.  

The more you read into all the problems we read about in the daily financial news, it makes me wonder if some other financial forces are at play that are residue to other artifacts?  My suspect is the extension of credit through a fractional reserve monetary system.  If money = credit through how we treat paper currency and checkbook/debit money then compound interest equals compound debt by banks taking more deposit and using that to extend credit back into the financial system as loans.  

This looks to be a recipe for disaster and we might be making it even worse if we are bailing out the debt while incomes are falling.  Maybe the default of the debt was part of the flawed process.  This is basically I am with this whole crisis.   When you step back and take a close look at how all these pieces interact and how the news has come out and what order, you can see evidences of what I wrote all over the place.

News:

Federal Reserve Chairman Ben S. Bernanke and his colleagues may try once again to cure the aftermath of a bubble in one kind of asset by overheating the market for another.

Fed policy makers meeting tomorrow and the day after are exploring the purchase of longer-dated Treasury securities in an effort to push up their price and bring down their yield. Behind the potential move: a desire to reduce long-term borrowing costs at a time when the Fed can’t lower short-term interest rates any further because they are effectively at zero.

The risk is that central bankers will end up distorting the Treasury market, triggering wild swings in prices — and long-term interest rates — as investors react to what they say and do. “It sets forth a speculative dynamic that is very unstable,” says William Poole, former president of the Federal Reserve Bank of St. Louis and now a senior fellow at the Cato Institute in Washington.

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Fed’s Lacker says don’t ignore inflation down the road

December 3, 2008 by · Leave a Comment
Filed under: Policy News 

I agree with Lacker’s assessment on inflation and how we should have our long-term strategy in mind at all times as well.  While we have asset classes falling in value, the likeliness of us having run-away inflation is much lower.   With all of the money we have deployed in our system, when we do have a recovery, we will see some serious inflation that we have not seen for a long time in this country.  So when you see prices skyrocket, then you know that you are now paying for the U.S. bailing out failed financial institution and failed industries.

News:

Richmond Federal Reserve Bank President Jeffrey Lacker said on Wednesday the economy should begin to pick up next year and warned that policy-makers must not ignore inflation with conditions set for recovery.

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Citigroup says gold could rise above $2,000 next year as world unravels

November 26, 2008 by · Leave a Comment
Filed under: Commodities News 

Well we have seen a tremendous amount of money issuing taking place to try to save a reckless financial system in the United States .  At some point this amount of currency will have to come to bear in the real market.  People are calling for deflation everyday and to a point this is correct because of the huge gaping hole that has been blown into the credit markets from de-leveraging.  

But once we do find a bottom, this massive amount of money will go into the market and you will see prices driven through the roof.  Also because we rely on foreign creditors to buy our debt to issue our currency, we could see them lose confidence in our dollar and then we will see them jump away from the dollar and it would crash and that would drive prices up for Americans because we import much of our goods.  They would price up their import goods because we have been so reckless in issuing our currency to bail out failing institutions that should of failed….period.  Gold is money, not credit and it does not owe to anyone.

News:

The bank said the damage caused by the financial excesses of the last quarter century was forcing the world’s authorities to take steps that had never been tried before.

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Gold may spike to $2,000 per ounce in medium term due to inflation

November 15, 2008 by · Leave a Comment
Filed under: Videos 

 

I know everyone loves to repeat deflation, deflation, deflation and I do agree that sounds attractive for people who are not underwater in debt and have substantial savings.  In the short-term we will see deflation because of the immense destruction of credit in the global financial system.  The money & credit was needed to support the price level of all the various assets classes.  When that is taken away, price levels will fall until they find a proper balance and stabilize. This is based on supply and demand along with other statistics.  During this process, production of various goods will be reduced because these companies relied on the money & credit to fund their operations and expansion and the destruction has created a constrained and limited demand market.  Also the consumers have their ability to purchase goods & services impaired by the reduction of available credit.  

Producers will also bring unprofitable production offline if current prices of different commodities fall below the cost of production itself.  This can create a delay if more demand arrives before production can be brought on to meet demand.  If the consumers saved portions of their income then they would be able to sustain a certain amount of purchasing power.  In high savings rate countries you will lessen the impact of the various slowdowns.  In a country with a negative savings rate like the United States, you will see purchasing power fall off quickly when their is a lack of available credit without outside interference (ie: stimulus programs).  What we have now is people panicking because prices are falling, without understanding what is causing this phenomina 

Longer-term as the economy stabilizes, you will see confidence return and with that, consumers begin to want to spend and expand.  Banks will want to capture part of this growth and lending will begin to pickup.  During this period, there will be a lag between production coming back online and people using the available resources to gather more and increase the workforce.  This is where the inflation creeps in and price rise because we will have limited resources available and increasing demand for those resources.  Gold will see this happen like many other resource asset classes.  People are ignoring this part of the equation and that is where the real cost of all these social programs, bare their costs.  

With all this credit pumped into the economy, that money will have to be invested somewhere and that is no guarantee that another problem might break people confidence again.  This whole system is built on trust and if that is broken severely, it takes a long time if ever to fully repair it.  We have more debt outstanding than equity worldwide and some people are winners and other are losers.  If you look at what should of happened, many large companies should be bankrupt and a major transfer of wealth should of occurred, not by force but by making the wrong decisions and now this is what the consequences are.  Instead we are trying to bail out the people who created the problem, just so they can keep their relative advantage over everyone else.  A sad system of affairs if you ask me.

Here is a Video of Johann Santer, MD at Superfund Financial Hong Kong talking about inflation & gold

 

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