Fed saves the markets, no inflation and the dollar is strong

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Tuesday, April 01, 2008

Fed saves the markets, no inflation and the dollar is strong

This month the Federal Reserve reported a minuscule .01 gain in inflation! So it is now safe to say that we have no inflation in America and none in the foreseeable future.

The Fed also bailed out the entire financial system and all is well, so it is safe to put all of your money in the bank, buy secure stocks and the mighty U.S. dollar will be a safe place for your money again.

This is what we the sheep ....errrr people are being told in the recent headlines and this is NOT an April Fools joke. Are we Americans foolish enough to believe inflation only rose .01? My grocery bills are going up every month, the cost to get to and from work is going through the roof, the cost to heat and air condition my home is going up 11% this year according to my energy companies and thats if I stay in my local confines. If I wanted to travel to some other country this summer I would need about twice as many dollars as I would have needed when the new century began, if they will even accept them!

The Fed bailed out the entire financial system and all is well? Excuse me, if Zimbabwe economics is a cure then we are fine. When I took economics classes at UCLA I was taught that an increase of the quantity of money in existence, which is a function of monetary policies, generally set by central banks that have a monopoly on the issuance of currency, which is not pegged to a commodity, such as gold, is inflationary

Now here is the kicker. When the Fed opened its printing presses to bail out Bear Stearns and others in a historical move to LEND money cheaply to financial institutions for the first time in history at bank rates, it was a pure act of desperation to prevent a great depression.

Now lets look at the cause of Hyper Inflation as defined by Wikipedia:

In economics, hyperinflation is inflation that is "out of control," a condition in which prices increase rapidly as a currency loses its value. The formal definition is: "inflation exceeding 50% a month." In informal usage the term is often applied to much lower rates. As a rule of thumb, normal inflation is reported per year, but hyperinflation is often reported for much shorter intervals, often per month.

The definition used by most economists is "an inflationary cycle without any tendency toward equilibrium." A vicious circle is created in which more and more inflation is created with each iteration of the cycle. Although there is a great deal of debate about the root causes of hyperinflation, it becomes visible when there is an unchecked increase in the money supply or drastic debasement of coinage, and is often associated with wars (or their aftermath), economic depressions, and political or social upheavals.

Sound familiar? I for one refuse to be a sheep and don’t believe for one minute that we aren’t headed for massive inflation or worse yet, Hyperinflation. Everyone should have at least 10% of there assets in GOLD not a currency that is being mass produced and is only back by the “full faith” and “credit” of a government that has lost much faith worldwide and is looking less credit worthy than the sub prime lenders.

Remember the lag between cause and effect also, the infusion of new cash that the Fed is printing won't be felt for awhile yet and I fully expect future headlines reporting double digit inflation unless of course we are taking wheel barrows full of cash to the grocery store and seeing a newspaper headline that reads INFLATION is under control.

Technically Gold is in very, very oversold territory now, has major support just below $900.00 and should be bought this week for those wanting to buy low. Remember Gold is a mirror image of the U.S. Dollar and will save many Americans from the ravages of inflation.

Sarcastically and sincerely

JMC

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