|
We’ve been very, very clear that we will not
allow inflation to rise above 2 percent. We could raise interest rates in 15 minutes
if we have to. So, there really is no problem with raising rates, tightening
monetary policy, slowing the economy, reducing inflation, at the appropriate
time. That time is not now.
Federal Reserve Chairman Ben Bernanke
December 6, 2010
With all of the problems in Europe, protests on Wall
Street, and middle east conflicts over the last year, something that has
escaped scrutiny by prime time media stars and the general population is the
consistent rise in prices across all consumer goods and services. While the
Federal Reserve says they have inflation under control, their continued
intervention into the financial and monetary systems of the global economy is
leading us down a road that may very well lead to high inflation rates
similar to those we saw in the 1980′s, or perhaps something much, much
worse.
For the Federal Reserve, policymaking these days is
about deciding which of two imposing evils to take on – a decidedly
moribund economy or the increasing threat that inflation poses to battered
consumers.
For much of the slow slog out of the financial
crisis, the Fed which is meeting this week and will issue its policy
statement Wednesday, has managed to train its gaze on jump-starting growth
through its various quantitative easing measures.
But recent indicators show that inflation is
posing an equally daunting threat that further monetary accommodation
from the Fed might serve only to aggravate.
The pressure has come primarily through measures
that Fed Chairman Ben Bernanke likes to call “transitory”
– namely, the volatile but steady rise of food and energy prices
that don`t make up core inflation measures but usually impact consumers more.
Economists increasingly believe that while the
so-called core Consumer Price Index (CPI) measure has remained around the 2%
level that pleases the Fed, headline inflation that includes things such as
groceries and gasoline is becoming a growing menace. The more inclusive
inflation measure is at 3.9% and hammering at consumers, including the 14
million who remain unemployed.
…
“Because of the level of debt that we have in
this country and indeed over in Europe as well, market forces demand
deflationary depression to occur,” said Michael Pento,
president of Pento Portfolio Strategies and
economist at Agora Financial. ”
But because we have such an activist Federal
Reserve and central bank in Europe, every time they step into manipulating
the market by depreciating the currency, we have these huge spikes in
inflation.”
…
Pento advises investors to disregard pronouncements
from the Fed that inflation is under control.
“They`re being mendacious,” he said.
“They are trying to fool you into believing that inflation is not a
problem.”
Source: Money
Control
As of this month, we have reached Ben
Bernanke’s 2% threshold for the official Consumer Price Index measure.
The CPI-U (Urban measure, which includes food and energy) has reached 3.9%.
And those are the
official numbers.
Unofficially, if inflation was calculated the same way
as it was in 1990, the CPI would show a staggeringly different number.
According to Shadowstats, we are now seeing price inflation rates of
over 11% – almost three times higher than the official numbers.
Perhaps Ben Bernanke, Tim Geithner and President
Obama don’t see it, but consumers are certainly feeling its effects. As
a result, even though Americans’ wages are stagnating in nominal terms,
they continue to spend money, which has analysts wondering what’s going
on. They conclude that we’re spending more as a direct result of
Federal Reserve machinations:
Americans are making a little more money and
spending a lot more.
Under normal circumstances, that would be a
troubling sign for the economy. But a closer look at some new
government figures suggests another possibility: People are saving less
money because they’re earning next to nothing in interest.
Saving is already difficult because of more
expensive gas and food.
It’s even tougher because of the lower returns — the flip side of
super-low interest rates that the Federal Reserve has kept in place since
2008 to help the economy.
Critics say the Fed is punishing those who play by
the rules — those careful enough to set aside money for savings or
people who built up a nest egg and are living on fixed incomes that depend on
interest.
Source: ABC News
What choice are people left with? They may not be
consciously aware that inflation is over 10%, but their pocket books sense
it. Why leave money sitting in a bank account when your cash savings will be
decimated within a year? Equity investment has become too risky, with markets
swinging 2% – 3% daily. This leaves only one option. Spend.
Curiously, this is the same activity we hear about
consumers engaging in at the onset of high inflation periods. When money
becomes worthless, it seems, the people shift it into hard goods as soon as
they can. For some this may mean precious metals purchases, for others it may
be flat screen TV’s or iGadgets. For the
purposes of this demonstration in consumer spending habits in response to
economic and monetary conditions, we don’t care what they’re
buying – just that they are spending dollars as fast as possible.
Last year, Gonzalo Lira warned of a
hyperinflationary tipping point by early 2012. While his time lines may have been
off, likely because of the untold number of financial, economic and monetary
variables at play, the consequences will be nonetheless as devastating as he
describes.
What the mainstream commentariat
will make of all this will be really something: When CPI reaches 5% by the
winter of 2011, pundits and economists and the Fed and the Obama
administration will all say the same thing: “Happy days are here again!
People are spending! The economy is back on track.”
…
2012 will be the bad year: I predict that
hyperinflation’s tipping point will be no later than the first quarter
of 2012. From there, it will accelerate. By the end of 2012, I would not be
surprised if the CPI for the year averaged 30%.
By that point, the rest of the economy –
unemployment, GDP, all the rest of it – will be in the toilet. By that
point, the rest of the economy will no longer matter: The collapsing dollar
will make 2012 the really really bad year of our
Global Depression
Much of how this plays out is dependent on capital
flows and confidence. Right now, it looks like Europe may have received a
stay of execution. That will be short-lived, and eventually all of our worst
fears about the EU will materialize. Once that happens, we’ll have
entered the next phase of this economic crisis – and it will be global.
Shortly thereafter – and we’re talking perhaps months or a couple
years – the US dollar will follow suit and collapse just like the Euro
will.
Leading up to this we should see, as Lira forecast,
steadily rising official CPI inflation rates. We’re officially at 2%
and 3.9% on the CPI and CPI-U respectively. When the CPI hits 5%, consider
that a warning sign that the good old days of a stable currency are almost
finished.
One caveat we must add to this, is that governments
and central banks around the world are doing their darnedest to hide what is
really happening, so high inflation rates and hyperinflation may come out of
nowhere and surprise all of us with their speed and severity. Furthermore,
there is always the possibility of a complete loss of confidence in the world’s
reserve currency resulting from a credit-event of some type that involves
foreign debt holders unloading their dollars in a period of hours or days, as
opposed to years.
Whatever the case, once the event horizon is crossed
it won’t take long for us to follow in the footsteps of Germany (1923),
Hungary (1946), Yugoslavia (1994), Argentina (2001), and Zimbabwe (2008),.
|
