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Amidst
many widely followed data points that show that inflation, consumer spending,
and employment levels are on the rise, today's FOMC statement conspicuously
avoided any hint that monetary tightening is even being considered. Instead,
the Fed indirectly patted itself on the back for some perceived economic
gains without committing to any of the logical monetary steps that these
improvements should have triggered. Their stance appears to remain that
although a full recovery is nigh, the economy will remain dependent on
near-zero interest rates through 2014. They hope that no one notices the
contradiction.
Some might
suggest the Fed's failure to explicitly forecast QE3 is evidence that some
degree of tightening is in the offing. They are grasping at straws. The Fed
is running QE with or without an overt policy behind it, and will likely only
show its hand if it feels it is necessary to prop up a faltering stock
market, which currently we do not have.
Otherwise,
the Fed would prefer to keep quiet about the flood of inflation it is
creating. If it were to speak the name of this growing threat, it might be
called on to stop it. But Chairman Bernanke knows that any policy designed to
restrain inflation will also derail the phony recovery that the Fed has
labored so hard to engineer. The higher rates needed to bring inflation under
control, and knock down the price of oil for instance, would trigger a
greater financial crisis than the one seen in 2008.
The
Chairman said that the rising oil price is pushing up inflation in the
short-run, but that the threat will subsequently subside. Bernanke is wrong
on both counts. First, it is not that higher oil prices are pushing inflation
up, but that inflation is pushing oil prices higher. Second, since the Fed
has pledged to continue to create inflation, the rise in oil prices will not
subside, but accelerate.
If the
government's phony economic data continues to show recovery, the Fed's
position will become increasingly precarious. More so than private-sector
economists and the public at-large, the Fed knows that the economy is
completely dependent on near-zero interest rates. As the Administration tries
harder and harder to prove a genuine recovery in the lead-up to the November
election, Bernanke will find himself caught between deception and depression.
Peter Schiff is CEO
of Euro Pacific Precious Metals, a gold and silver dealer selling reputable,
well-known bullion coins and bars at competitive prices. To learn more,
please visit www.europacmetals.com or call (888) GOLD-160.
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