Throughout the Vietnam era gold was fixed at $35/ounce despite rampant monetary inflation aimed at funding imperialist projects abroad – Americans wanted both guns and butter, remember? The end result of course was the disintegration of the Bretton-Woods agreement and a surging price of gold that still until this day gives cause to doubt the ability of central bankers to maintain the value of paper currency over time.
Can somebody please explain how the US dollar is any more attractive today than it was 1 year ago? Nobody in their right mind believes the banking crisis has bottomed, we haven’t even seen the Option ARM resets, the right-downs on student loans and auto loans and credit cards, the mass wave of baby-boomers set to retire, peak oil, the result of soaring inflation and a Federal debt with an average maturity of less than 3 years. We haven’t seen the bulk of our more serious problems – and critically, most of these problems originate in the US – so how could the currency of a bankrupt nation be seen as a safe haven? It’s preposterous. The last few months can’t possibly be anything more than a dead cat bounce, it’s a sucker rally.
After throwing rates off a cliff he’s now complaining about a weak dollar — are you kidding me? Despite rattling a few speculators it barely budged the broader commodities market. You can’t talk down inflation and you can’t talk up the dollar. Inflation is not and has never been a psychological phenomenon, it is and has always been a monetary phenomenon.
I had a thought the other day… it could be crazy, but it also could just be crazy enough to ring true. Central bankers are up to their old gold manipulation tricks again; however, unlike in the past when oil supplies could be increased at will by domestic or foreign suppliers, their attempts to fake strength in the dollar by punishing gold has instead shifted wealth to oil and food. The Fed is powerless to prevent oil prices from rising as peak production arrives and the more they destroy gold as an alternative to dollars the more they inflate the price of oil and endanger the American economy.
Of course I’m not referring to credit, the Fed has plenty of trees, but they are completely void of credibility. Bernanke didn’t see the subprime mess coming so why should I care how long he thinks it will continue to ravage the American economy? He’s not exactly an impartial observer.
I’m getting tired of hearing people like George Soros happily declare subprime proves “free market fundamentalism” will ruin the financial sector. How anybody can describe a system in which the price of money is fixed by a few secretive men in a marble palace “free” or “market” is beyond me. This crisis is not a failure of market, it’s a failure of government.
Many on the street have accepted a common misconception that threatens to ruin your portfolio. They want you to believe a temporary end to Fed rate cuts will somehow indicate a shift to hawkishness with regards to inflation. That’s total nonsense. Interest rates do not need to be in continual decline to influence inflation, simply maintaining interest rates at a low level will do the trick. Inflation is not caused by the slope of rate changes, it is literally the new money pumped into the system.
