Federal Reserve and Other Central Banks Priming the Pump
This from Casey's Resource Plus (www.caseyresearch.com). "I see that Helicopter Ben is getting serious about his infamous "printing press or its electronic equivalent" speech. The story was well covered in the press. So instead, I bring you this offering from Murray Pollitt, of Pollitt and Co. in Toronto, entitled "The Big Shorts in Gold are also the Big Frauds." It’s linked here.
Like gold, U.S. dollars have value only to the extent that they are strictly limited in supply. But the U.S. government has a technology, called a printing press (or, today, its electronic equivalent), that allows it to produce as many U.S. dollars as it wishes at essentially no cost. By increasing the number of U.S. dollars in circulation, or even by credibly threatening to do so, the U.S. government can also reduce the value of a dollar in terms of goods and services, which is equivalent to raising the prices in dollars of those goods and services. We conclude that, under a paper-money system, a determined government can always generate higher spending and hence positive inflation. - Ben Bernanke, "Deflation: Making Sure ‘It’ Doesn't Happen Here" - November 21, 2002" (Color and emphasis added)
This is exactly what is happening. The Federal Reserve and the U.S. government are devaluing the dollar with the noble goal of saving the mortgage and other financial entities. The cost will be inflation which is, in their minds, much better than recession. These measures are simply putting band aids on the external wounds without healing the cause. The more band aids that are used to delay the market correction, the greater will be the trauma to the markets and to the citizens.
I believe we are headed for stagflation in 2008. There is likely to be rising prices on virtually every good and service we purchase along with wages that do not grow appropriating. We the lay offs being daily reported, there should be a lower number of salaries to be earned.
Free markets can correct themselves. However, intervention cannot correct the problems and result in delaying, at best, the final correction. This time, it is different, because this is a world wide problem. Note, as I wrote yesterday, virtually all governments and central banks are in the medical business of healing hemorrhages with band aids. This is their only tool for "fixing" such financial problems.
Gold and silver are down today providing additional buying opportunity. This is another break for us. At some time, the cartel and such intervention into the precious metals markets will wane and, eventually, cease. The market power, itself, will take charge. We must be patient and see each drop in price, particularly below 800 as a bargain time.
Gold is down to 794.2 and silver to 13.99. The trend was lower over night. Tomorrow is Friday and trading could be different going into the week end. We will have to wait for the market to tell us the direction.
The general market is not pleased with the incremental lowing of interest rates of only 0.25%. I believe we are seeing further displeasure with the tens of billions of dollars being poured infused into the banking system. The move was to encourage more debt and greater opportunity for increasing the debt level of consumers and businesses. It does not seem to be working. Perhaps, businesses are seeing lower profits on the horizon and consumers are maxed out with debt. The level of pre-Christmas discounting and lower sales volume are testimony to the plight of consumers.
Christmas time in the retail markets may not be as joyful, but we will be in celebrating the greatest gift ever so freely given to lost sinners: Jesus Christ. Yes, this is a joyous time for all who are His brothers and sisters, made so by His death, resurrection, and the new life applied by the Holy Spirit. Think about it, how long does a murderer have to be good to no longer be a murderer? Only by being washed in the saving blood of the Savior can a murderer remove the stain of being a murderer. After the washing, the sin of murder and all other sins, he is made whiter than snow. Praise the Lord for this unimaginable gift.
Best to each, Doug
Like gold, U.S. dollars have value only to the extent that they are strictly limited in supply. But the U.S. government has a technology, called a printing press (or, today, its electronic equivalent), that allows it to produce as many U.S. dollars as it wishes at essentially no cost. By increasing the number of U.S. dollars in circulation, or even by credibly threatening to do so, the U.S. government can also reduce the value of a dollar in terms of goods and services, which is equivalent to raising the prices in dollars of those goods and services. We conclude that, under a paper-money system, a determined government can always generate higher spending and hence positive inflation. - Ben Bernanke, "Deflation: Making Sure ‘It’ Doesn't Happen Here" - November 21, 2002" (Color and emphasis added)
This is exactly what is happening. The Federal Reserve and the U.S. government are devaluing the dollar with the noble goal of saving the mortgage and other financial entities. The cost will be inflation which is, in their minds, much better than recession. These measures are simply putting band aids on the external wounds without healing the cause. The more band aids that are used to delay the market correction, the greater will be the trauma to the markets and to the citizens.
I believe we are headed for stagflation in 2008. There is likely to be rising prices on virtually every good and service we purchase along with wages that do not grow appropriating. We the lay offs being daily reported, there should be a lower number of salaries to be earned.
Free markets can correct themselves. However, intervention cannot correct the problems and result in delaying, at best, the final correction. This time, it is different, because this is a world wide problem. Note, as I wrote yesterday, virtually all governments and central banks are in the medical business of healing hemorrhages with band aids. This is their only tool for "fixing" such financial problems.
Gold and silver are down today providing additional buying opportunity. This is another break for us. At some time, the cartel and such intervention into the precious metals markets will wane and, eventually, cease. The market power, itself, will take charge. We must be patient and see each drop in price, particularly below 800 as a bargain time.
Gold is down to 794.2 and silver to 13.99. The trend was lower over night. Tomorrow is Friday and trading could be different going into the week end. We will have to wait for the market to tell us the direction.
The general market is not pleased with the incremental lowing of interest rates of only 0.25%. I believe we are seeing further displeasure with the tens of billions of dollars being poured infused into the banking system. The move was to encourage more debt and greater opportunity for increasing the debt level of consumers and businesses. It does not seem to be working. Perhaps, businesses are seeing lower profits on the horizon and consumers are maxed out with debt. The level of pre-Christmas discounting and lower sales volume are testimony to the plight of consumers.
Christmas time in the retail markets may not be as joyful, but we will be in celebrating the greatest gift ever so freely given to lost sinners: Jesus Christ. Yes, this is a joyous time for all who are His brothers and sisters, made so by His death, resurrection, and the new life applied by the Holy Spirit. Think about it, how long does a murderer have to be good to no longer be a murderer? Only by being washed in the saving blood of the Savior can a murderer remove the stain of being a murderer. After the washing, the sin of murder and all other sins, he is made whiter than snow. Praise the Lord for this unimaginable gift.
Best to each, Doug
posted by Doug @ 8:40 AM
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