We truly live in incredible times when government propaganda is considered truth, and reason has been abandoned. With the recent announcement of
QE 2 (code name for
money printing), the
Fed along with the media has declared to the public that its only desire is to "boost" the
economy. Despite the fact that
QE 1 did nothing for the
real economy, the media elite will continue to claim that money printing helps increase
employment and shows the
Fed cares about the
economy. The
Federal Reserve will continue to deceive investors (and our trading partners) by claiming
QE 2--and 3,4,5,etc.-- will be temporary and should not be considered debt monetization. Economists will further support the
Fed by devising bogus computer models which predict 2-3% inflation for the next decade, confirming the fact that money printing is not
inflationary. The deflationists (MISH and others) will continue to lead their flocks astray by saying there can never be
inflation without velocity. What they fail to understand is that once velocity picks up, it can accelerate at an alarming rate (sometimes it can go parabolic), and once it does, it is too late. The
inflation genie will be out of the bottle. No reverse repo from the
Fed to drain liquidity is going to stop it. The
great inflation which awaits the
US and world economies will take most people by surprise and leave billions of people impoverished. However, the
elite will do incredibly well as they own real assets like real estate, operating businesses, and
gold.
The most disturbing fact is that after inflation occurs, the government will continue its deception regarding the true cause of
inflation. The President and
Fed Chairman will tell the public
inflation is the result of nefarious speculators who have driven up prices. Or perhaps the government will follow what President Gerald Ford did in 1974-1975 by announcing an Orwellian police state style "WIN" program, which stood for Whip Inflation Now. This campaign to stop
inflation was a fantastic farce, considering that the government itself was responsible for the
inflation, courtesy of the Fed printing money and excessive credit growth. In a determined speech, Gerald Ford told the gullible public that
inflation was some kind of external phenomenon which could only be stopped by actions of the public working together. To combat rising food prices the President instructed farmers to produce more food, completely overlooking the real source of
inflation--monetary policy. He also announced that the government would monitor and try to influence the production and pricing of energy (oil, and gas) to prevent bid-rigging and price gouging. Of course, all of these specious ideas failed as
inflation continued to stay in the double digits. However, it helped to distract the public from ever really understanding why prices were surging, despite
high unemployment and a weak
economy.
Today, we face a situation that is in many ways similar to the 1970s and yet worse in other ways. The
US has sky
high real unemployment of around 17%, surging commodity prices and weak growth. Further compounding the problem is that the
US economy is in secular decline as
globalization outsources good jobs to foreign countries while creating more McJobs in the
US. To be sure, this works great for the multi-nationals which no longer need the
US as they once did. Instead, they benefit from the growth in emerging markets whose success has been underwritten by the
US. These developing countries, particularly in Asia, have only done well because they can export an unlimited amount of goods to the
US, while manipulating their currencies to maintain a competitive advantage. This process has left the
US with nothing but debt and a low-paying service
economy. To counter this reality, the
Federal Reserve has provided asset bubbles to keep the public feeling wealthy and serving to fuel a historic credit bubble. But alas, the final credit bubble in housing has backfired and almost destroyed the
economy To counter this
collapse, the
Federal Reserve has resorted to the policies of banana republics such as printing money. Sure, the
money printing is disguised under the veil of
quantitative easing, but this charade only fools the ignorant.
The purpose of
money printing has and always will be debt monetization. The
US economy is for all practical purposes bankrupt. The only thing keeping the ponzi scheme alive is
money printing. The
Federal Reserve is so supercilious in its power over the people that it openly announces its plan to print trillions of dollars to
inflate stock prices. Truly, a first in modern
economic history, when a central bank is so brazen as to publicly boast of its intentions because it fears no push back by the populace. In fact, the
Fed is correct: There is nothing you or I can do to stop this criminal confiscation of our wealth from occurring.
The only action left to holders of money wealth (no matter how small or large) is to abandon the
US dollar as our unit of wealth. This is our form of revolt as the great author Jens O. Parsson postulated in his seminal work on
inflation called "
Dying of Money: Lessons of the Great German and American Inflations." In it, he notes "They[holders of money] do not fly flags or demonstrate in the streets to express their revolt; they simply get rid of their money." It may not be as spectacular as thousands of Americans storming the walls of the
New York Fed, but in many ways, it is equally as powerful. When enough holders of wealth dump the dollar, the velocity of money goes vertical, which unleashes the
inflationary potential of government money printing; in that moment, the government will cease to have its monopoly over money. Parsson notes that once this occurs, "government has little or nothing to say or do about it" because they cannot stop it. Whether the
US simply experiences
high inflation (10-20% per year) or enters
hyperinflation (more than 50%) is immaterial. After watching in bewilderment the actions taken by the government, I choose not to hold
Federal Reserve Notes as a store of value. I do not want my wealth hostage to government whims.
I will not simply stand by and let the government steal my hard earned money through
inflation. I do not want to end up like the poor Germans of the Weimar Republic who were taken by surprise as their life savings vanished within months at the hand of their own government. The elderly were particularly hit by the
hyperinflation because they lived on fixed incomes and had the majority of their wealth in bonds. Some elderly couples gassed themselves in their own homes in despair of losing everything, showing the destructive power of
inflation in the real world. I wish
Bernanke understood this fact, but tragically he sees
inflation as a means to a healthy
economy. I do not want to be left dependent on government handouts when the
US dollar has lost all of its value. Protect yourself!
Full Disclosure: At the time of this writing I have 50% of my wealth in gold and will be promptly converting the rest into
gold as soon as possible. I still own a small amount of
Stans Energy and
Allana Potash (less than 4% of the portfolio). Goodbye,
FRNs, except for day to day purposes.
Black Swan Insights
