Stand Back!!

By: Alex Wallenwein | Mon, Apr 5, 2004
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The Economy is Reflating ...!

Better be careful around explosives!

Go to our new Gold Market Intelligence page, scroll down to "Inflation News" and follow the links to the entries under dates 3-30-04 thru 4-1-04.

An amazing spectacle will reveal itself to you.

In three days, four separate Fed officials came out to convince us that inflation is "not a threat," and that they have everything "under control."

That's about the worst threat I have ever seen. When these guys have such a stake in keeping the herd calm, there must be a wolf afoot.

Let's look at what each of them says:

Of these three, Bernanke is a classic. First out, he reassures us that the Fed will not let inflation get out of hand, that the Fed is "on track in keeping inflation within acceptable bounds." Bernanke

Why does he feel compelled to even make that statement when, according to him and his cronies, the real threat is too little inflation??

If the danger comes from "too little inflation", and if there truly is no inflation anywhere to be found that would take it out of the "too little" category and place it into the "just the right amount that the Fed likes" box, then why would anyone think that there is inflation?

Obviously, a "reassurance" of this sort is totally unnecessary if everybody is already assured that this is so. So therefore, some crazy people, somewhere (maybe the ones from the lunatic center), must have the contorted notion that inflation is now - or may soon become - a threat again. What monstrous lie could possibly imprint upon their gullible minds such a fallacious notion?

"Maybe rising prices ...?" a meek voice from the back of the room suggests.

HA, HA, HA, HA!!!! Whoever heard of such a silly thing?

He moves on to tell us that "inflation should not be too high. At the same time, it should not be too low either. Very, very low inflation is bad for the economy."

That's a good one, Mr. Fed governor. Reminds me of Eddie Murphy in his "Vampire in New York" movie when he gets up on the preacher's podium and tells the assembled congregation that "good is bad" and "bad is good."

Bernanke's point here, already made years ago (whispered behind the hand covering his mouth, to his other Fed governor buddies): "We must inflate like the devil or we will die, so let's tell the crowd that inflation is "too low" so they don't get suspicious when they see us inflating like there's no tomorrow."

Great concept, Mr. Bernanke! We thank you for that precious gem of economic propaganda, Sir.

Why was inflating so necessary, then?

Because post-911, we were looking into the abyss. US economic activity almost came to a standstill. Even without 9-11, the unwinding of the credit bubble of the nineties had just begun to pick up steam, and the introduction of the euro's cash component had started to knock the dollar off its lofty perch. Only ever-lower interest rates and zero-interest deals on cars brought us back from the precipice, and even then, it took over a year to ignite a straw fire-like "recovery." (The straw was a bit wet at first, you know.)

Next he goes: "The Federal Reserve has a responsibility to ... keep inflation within acceptable bounds."

Hmmm. (Pondering in deep contemplation). Just what are the "acceptable bounds" for inflation, Mr. Bernanke? Acceptable according to whom?

At this point, please allow me to digress a bit:

During the century before the Fed was created, prices in general decreased by about 30%, all the while the US economy boomed. During that same time, America's productive growth was spectacular. Yet, according to our esteemed Fed governor that was a very bad thing. Bad, bad, bad! Bad for the economy! Very bad! Bad boy!! Go crawl back under the rock you came from, you deflation-demon, and curl up and die in shame and self-loathing!

Okay, back to his statement:

When he was asked what the impact of record foreign treasuries purchases was on interest rates, he said that it was "likely small."

Wait just a minute. Did he not see that the record jump in treasury yields of last summer was literally reversed in the fall when such foreign buying of treasuries began in earnest to keep net exporting countries' currencies from rising too fast against the dollar?

Between you and I: I know he did see it, but he thinks he can't afford to let you know that. This knowledge is not safe for you.

Alright, so much for Mr. Bernanke.

Let's examine Mr. Poole's comments on the same day: Poole

Mr. Poole didn't say much, according to Forbes. But he did admit that too-low interest rates, left that way for too long, "can create an inflation problem."

Wow. Not bad! An actual tidbit of truth coming from a Fed governor? Outstanding!

Mr. Poole used that remark to elucidate the need for being "preemptive" when it comes to interest rate policy and its effect on inflation. But when asked to (pray, tell) when the Fed might raise rates, he said: "They are going to start going up when we have an upside surprise. An upside confirmation that the economy is picking up steam."

Oh, really? So that means, then, that an upside move of the economy would be a surprise to you, isn't that correct, Mr. Poole? It means that, in your mind, we do not yet have an "upside confirmation that the economy is picking up steam", right?

Maybe Mr. Poole will go the way of John Snow's blundering predecessor, Larry Lindsey.

Our grade to Mr. Poole for his political acumen: zero. On telling the truth: one hundred percent! We need more Fed official like this. Let him be the Chairman after Greenspan withers away. May he'll become the Fed's Michail Gorbachev and will dismantle that subversive institution single-handedly. Who knows?

The next official's statement, Fed governor Gramlich's, is so noteworthy in its ineptness and its blatantly obvious attempt at twisting the truth that we will quote his very short statement here in full. Gramlich

He said:

"There is no question that some prices have risen a little more rapidly than they have been," Gramlich said in answer to a question after a speech to the Los Angeles Chapter of the National Association of Business Economists.

"One is commodity prices," he said. "It turns out commodity prices, with the exception of oil, do not account for a huge share of GDP (Gross Domestic Product)," he added.

"We take price stability very seriously," he said.

Did he really say that? Yes, he did. At least according to Forbes.

What are we to think of this statement right here: "It turns out commodity prices, with the exception of oil, do not account for a huge share of GDP"?

No? They don't? The fact that commodities make up the raw material that is used to manufacture just about everything in this country, other than services and computer software, has absolutely no weight then, I suppose. Oh, sorry. I forgot. We don't manufacture things anymore in this country. China and India are now performing those unworthy, menial tasks for us. Maybe he was right, after all?

And what about the total non-sequitur of adding "we take price stability very seriously" to all of that?

Who is this guy?

As I am writing this, I check to see if today, on April Fool's day, another Fed dignitary came out to lie to us, and - presto! Mr. Fed governor Kohn did, this time. Read it here: Kohn

Four of these guys inside of three days, all to assure us that inflation is "no problemo." What does that tell us?

It tells us that there are humongous inflation pressures at work, and the government and Fed can't hide them any longer, and the public is noticing it, and they are scared out of their wits of the possible consequences.

The old Nazi-line: "repeat a lie often enough, and it becomes the truth" works only if the facts aren't staring you right in the face, Messrs. Fed governors! It seems that truth isn't so "relative" at all anymore, is it? ("Darn! How are we supposed to rule the world, then?")

Rest assured. This country's economic well-being is in great hands. (No wonder Greenspan is said to have such an appallingly limp and slippery handshake. That must be one of the main criteria for how they pick Fed board governors and chairmen these days.) I profusely apologize for upsetting your well-deserved expectations of a secure and happy future retirement on a fixed income in this most pernicious and thoughtless manner.

Better disregard everything you have just read. So, repeat after me:

"There is no in-fla-tion ... there is no in-flation ... there is absolutely no in-fla-tion, what-so-e-ver ..."

Just keep repeating this to yourself, and you will feel better very soon.

Got gold?


Author: Alex Wallenwein

Alex Wallenwein
Editor, Publisher
The Euro vs Dollar Monitor

Just like driving your car, investing only makes sense if you can see where you are going. The Euro vs Dollar Monitor is your golden windshield wiper that removes the media's greasy film of financial misinformation from your investment outlook. Don't drive your investment vehicle without it!

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