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Never underestimate the capacity of politicians and bureaucrats to trap themselves into a pattern of denial.
That’s what Fed Chairman Greenspan did in the early 2000s, even while he was helping to create the greatest housing bubble of all time.
Likewise, that’s what President Bush and Chairman Bernanke did this past week even as Greenspan’s bubble was crumbling all around them.
Amidst a maelstrom of disastrous economic news, both men bravely straightened their ties … put on sincere faces … looked directly into the camera … and delivered the biggest load of malarkey I’ve heard in years.
“I don’t think we’re headed into a recession,” said President Bush. “I don’t anticipate stagflation,” said Chairman Bernanke. Everything is just fine, both men chimed.
Now … Brace Yourself
For a Reality Check!
On the inflation front last week …
Prices are skyrocketing: The U.S. Department of Labor reported that wholesale prices soared 1% in January. That was three times more than economists forecast. And it bumped the inflation rate for the preceding 12 months to 7.4% — the worst since the fall of 1981.
Oil prices are soaring: Oil topped $103 per barrel — up more than 1,000% since we first wrote that prices were set to skyrocket.
Gold is exploding higher: It hit still another all-time high of $976 per ounce in Hong Kong Friday morning — more than triple the price it was when we first began forecasting this new gold market … and only a scant $24 away from the historic $1,000 mark.
Nearly all commodity prices are through the roof: The Reuters CRB Index, which tracks 17 key commodities prices, has soared a staggering 18% just since late January.
Plus, on the recession front …
The home market is tanking. Home prices? Down by the most in recorded history! Home sales? Falling to the lowest levels ever recorded!
Bank seizures of homes have nearly doubled: Up a shocking 90% from a year ago.
Unemployment is soaring: The U.S. Labor Department announced that a staggering 2.81 million people are now receiving unemployment benefits — the highest level since the aftermath of Hurricane Katrina.
Consumer confidence is falling off a cliff: The Conference Board reports it has fallen to its lowest point in five years; near the lowest in 15 years. And sure enough, on Friday, the Commerce Department reported that, after inflation, consumer spending virtually ground to a standstill in January.
But despite all this, there they were — our nation’s two most trusted public officials — with the chutzpah to claim that neither inflation nor recession is a problem. All with a straight face.
My feeling: I wouldn’t trade places with President Bush or Mr. Bernanke for all the tea in China because …
They’re charged with keeping this economy from coming unglued in the face of the most devastating credit crisis in recent memory. Plus, at the same time …
They’re responsible for defending the U.S. dollar and protecting its buying power from the ravages of inflation.
And when I say “responsible,” I mean by law. The Federal Reserve Act of 1913 requires the Fed to promote the goal of stable prices.
Instead, with the economy crumbling, they have no choice but to do precisely the opposite, whilesteadfastly denying the true consequences of their actions.
Indeed, the only way they can hope to fight this recession is by slashing interest rates and printing money like crazy — pouring nitroglycerine on an inflationary bonfire.
They’re obviously convinced that the immediate nightmare scenario (millions of registered voters losing their jobs in an election year) is more frightening than the not-so-immediate nightmare scenario (out-of-control inflation).
And therein lies one of the greatest profit opportunities we’ve seen in years — because Washington is willing to fight this crisis at all costs by throwing more money at it … because those money infusions are causing the U.S. dollar to continue its headlong plunge … and because the falling dollar virtually ensures explosive profits in contra-dollar investments that are now going through the roof.
Good luck and God bless!
Martin
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