Federal Reserve Chairman Ben Bernanke. Fed Vice Chair Janet Yellen. New York Fed President Bill Dudley. Rather than use their official titles, I think I’ll just call them the founding members of the “Ostrich Club!”
Why? Because they’re shoving their heads in the sand and hoping obvious problems will go away, rather than doing anything about them! Specifically, they’re ignoring both anecdotal and empirical evidence that inflation is raging.
It’s nuts!
Here was Yellen in New York on Tuesday:
“Recent developments in commodity prices can be explained largely by rising global demand and disruptions to global supply rather than by Federal Reserve policy … I expect that consumer inflation will subsequently revert to an underlying trend that remains subdued, so long as increases in commodity prices moderate and longer run inflation expectations remain reasonably well-anchored.”
Here was Dudley in Tokyo on Monday:
“We shouldn’t be enthusiastic about tightening monetary policy too soon … If inflation expectations become unanchored, the Fed would have to respond. I don’t see any signs that expectations are becoming unanchored.”
And Bernanke? He said before Congress just over a month ago that:
“The rate of pass-through from commodity price increases to broad indexes of U.S. consumer prices has been quite low in recent decades … Currently, the cost pressures from higher commodity prices are also being offset by the stability in unit labor costs. Thus, the most likely outcome is that the recent rise in commodity prices will lead to, at most, a temporary and relatively modest increase in U.S. consumer price inflation.”
Are These Guys Looking at the
Same Numbers as Me? Really?
So do those Fed claims hold up to reality? Not by a country mile!
Just look at import prices — what it costs for us to bring goods into this country for eventual processing or sale. They surged 2.7 percent in March after a 1.4 percent rise a month earlier. That was the biggest gain in any month since June 2009!
Even if you strip out all fuels (since, you know, the Ostrich Club’s bylaws state that none of us drive or heat our homes), you get a 0.6 percent rise. That’s good for a gain of 4.2 percent from a year ago, the fastest rate of non-energy inflation since October 2008!
Then there’s the 10-year “TIPS spread,” the difference between the yield on the nominal 10-year Treasury and the yield on 10-year Treasury Inflation Protected Securities. The wider the spread, the more future inflation the bond market is pricing in.
Lo and behold, that spread just hit 265 basis points (2.65 percentage points). That’s the highest going all the way back to August 2006! It’s also just 13 basis points shy of a post-millennium high, and far above the average 205 basis points seen since long-term TIPS were first sold in the 1990s!
Americans polled by the University of Michigan in March said they expect inflation to run at a 4.6 percent rate over the next year. That’s the highest in 31 months! Five-year inflation expectations have climbed to 3.2 percent, also the highest since mid-2008.
And get this …
According to Shadow Government Statistics, if the Bureau of Labor Statistics still calculated official inflation the way it did a couple decades ago, it’d be surging at a 9.6 percent annual rate. That’s the kind of nearly double-digit inflation we got in the 1970s. And I’m sure it jibes with the kinds of price increases you’re seeing in your daily life.
Bottom line: You have professional investors, companies, average Americans, and virtually everyone else reporting and expecting more and more inflation. Yet Bernanke and his merry pranksters in the Ostrich Club have the unmitigated gall to claim there’s no inflation or inflation fear out there!
They’re using a new buzzword to describe the rise in prices … “transitory.” I don’t know about you, but that sure conjures up memories of the subprime mortgage crisis. A parade of policymakers told us the problems were “contained” back then — when in reality, they weren’t, and we experienced the country’s biggest financial crisis and worst recession in decades!
Epic Cluelessness Just Underscores the
Need for Financial Self Defense!
I’ve been following the financial markets for a long time. I’ve read a lot of lousy research, and listened to a ton of claptrap over the years. But I can honestly say I’ve never seen so much cluelessness and ostrich-like behavior as I’m seeing in Washington right now.
It’s not just Bernanke, Yellen and Dudley who are card-carrying members of the club either. You could throw President Obama’s economic team and many in Congress — on both sides of the aisle — in there too.
Much has been made about the $38.5 billion in budget cuts they finally agreed on a few days ago. We’re supposed to believe this is some great governmental triumph. But the International Monetary Fund (IMF) says that’s balderdash.
The group just warned that the U.S. lacks a “credible strategy” to deal with the exploding federal debt and deficit, and that it has “serious concerns” about what that means for future borrowing costs (read: interest rates) here.
The IMF goes on to note that ours was the only advanced economy in the world that boosted its underlying budget deficit in 2011. In order to slash our deficit in half by 2013 — as the Group of 20 nations pledged to do last year — we’d have to push through the toughest austerity measures in the history of record-keeping (which dates back to 1960).
Look, it took six temporary funding bills … and more than six months of negotiations … to even come up with the $38.5 billion budget-cutting deal. The start of fiscal 2012 is approaching fast, and there’s a huge gulf between what Republicans and Democrats want in that year’s budget. I see virtually no way Congress will pass, and Obama will sign into law, the kinds of extremely austere cuts we need to make.
In the meantime, our nation is getting very close to hitting the so-called “debt ceiling” of $14.3 trillion. And no matter whose budget plan we adopt, that ceiling is going to have to be raised by a huge amount. It will take a $1.9 trillion hike to get us through 2011 under the relatively austere Republican budget blueprint, and $2.2 trillion following Obama’s February budget outline.
These figures clearly show that our country’s fiscal outlook is rapidly spiraling out of control!
At a time like this, folks, you NEED to implement a strategy of financial self defense …
My Safe Money subscribers just bagged a nice gain on a foreign oil and gas producer, for instance, which I zeroed in on as a beneficiary of the Fed’s easy money policies and the declining dollar. Plus, they’re positioned to make a pile of gains from the explosion in precious metals.
If you’re looking to join them, and want to learn more about OTHER ways to protect yourself from the Ostrich Club, please don’t hesitate any longer. Watch Martin Weiss’ American Apocalypse video online — for free — right away. It gives you all the hard-hitting, practical information you need in these treacherous times.
Until next time,
Mike
Mike Larson graduated from Boston University with a B.S. degree in Journalism and a B.A. degree in English in 1998, and went to work for Bankrate.com. There, he learned the mortgage and interest rates markets inside and out. Mike then joined Weiss Research in 2001. He is the editor of Safe Money Report. He is often quoted by the Washington Post, Reuters, Dow Jones Newswires, Orlando Sentinel, Palm Beach Post and Sun-Sentinel, and he has appeared on CNN, Bloomberg Television and CNBC.
{ 34 comments }
I have listened to you talk about Mr. Bernanke, Dudly, Yellen for a while now. You have mentioned
that they do not get it, inflation that is. That they are clueless. Well, it seems to me that you are
clueless or that you just don’t get it. It is time to stop harping on what is obvious and start talking
about what they are doing. Okay they are inflating! Why are they inflating? Where are they going
with this policy? Complaining does not make for a good new letter.
Kevin, you are right, the Fed IS inflating. The question is, as you say, why are they inflating? The reason is real simple. The Fed was created back in 1913 by the private banking and business elites. The banking elites “influenced” the US Gov’t to approve this entity. Now, once approved, with the ability to create and distribute money, the Banking Elite could grow and just as important control the money supply so that they could grow their profits and revenue on the backs of businesses and consumers who would have to borrow from it’s “member” banks. Now, the way you do this is to make sure you keep the money (aka paper fiat currency) decoupled from an asset that has tangible value like Gold. Why? because that would be like putting a governer or control on the ability to print money to an extent. So,this is one of the reasons the elites held Bretton Woods, which was to decouple gold from paper money. Once this was done, it was open season for the bankers to print money out of thin air and loan it to the wordwide masses and thus, by doing this in increase your wealth AND get to control the people, because they are tethered to the banks via the loans etc..BTW, is model is now global as most countries have central banks. Now, they are all integrated via The Bank for International Settlements or the BIS…this is the true world central bank. You should get a book on all of this called “The Creature From Jekyll Island”
You have achieved a clear, understandable explanation of the fiat currency, fractional reserve central bank operation. Very nice!
You make a good point. The reason why they are doing this is because inflation is the only way to get rid of the massive public and private debt. Bernanke, Obama, and the Republicans are not at all clueless. They know that they have no other option. The truth is they do not like the fact that they are on the course they are on, but they do not have any viable alternative. Deflating would result in the immediate collapse of the economy, as debters became incapable of paying installments, and the value of their dollar debt increased.
Permanent inlfation has been a policy in the US at least since Nixon took the dollar off the gold standard in the 1970s. Nixon saw that the US was consuming much more than it was producing and that foreign countries were amassing dollars. The solution to this, for the US,was to cheapen the value of the dollar.
Paul Krugman, one of the most vociferous proponents of inflation, noted with delight in a column last year that the US managed to evaporate a great deal of its WWII debt through inflation; and he recommends the same approach today.
Permanent inflation is a policy, but not a policy choice, as the elites who implement represent declining, parasitical economies. We will not see “ratoinal” monetary poicies again. In fact, the last time there was serious deflation was during the Great Depression.
Hi Mike,
I always enjoy your succinct and to the point analyses, ditto all of your colleagues. My friend, this situation is even more dire than you write, though I suspect you already know that, but don’t write it because it would unneccessarily cause some to reject it in disbelief.
Our republic is dead. One of the Founding Fathers (?) said it would require a God-fearing people to hold the system they had carefully crafted in the Constitution. I assume you have noticed, especially in the Administration, but also in the body politic at large, that Americans are no longer a majority of God-fearing people. Americans are utterly blasphemous, covetous and corrupt.
If you are not a Bible-believer, and have not already done so, I would urge you to read any of the Bible prophets, Jeremiah is a starter, and look at the similarities he observed and preached. Jeremiah was a young man, but filled with the knowledge, understanding and wisdom of God.
Here is a question you need to ask yourself: was God unrighteous in severly chastening His Chosen People , or had He warned them even as far back as Moses that He would do just that if they transgressed His commandments? The answer is plain. And they were and remain His Chosen People. Americans, as a nation, have no covenant with God. My friend, the LORD is going to loose utterly devastating judgments against the American people in the days to come.
I could go on, but there is no need. You can see the handwriting of God’s judgment all over America even now. If you have not already done so, I urge you to place your trust in the Lord Jesus Christ for remission of sins and escape the coming wrath of God.
Scriptures to read: Romans 3:23, 6:23, 5:8, John 3:16-18, Ephesians 2:8-9, Titus 3:5-7 and Romans 10:9-13
Joel, good points, but the lord will not just judge the Americans, it will be most if not all of the world. And you know what, the ones that probably will get judged the harshest will be the global elites….remember, Jesus was not born and raised in a 5 star hotel. He was born in a manger because there was not enough room at the inn…so clearly, we know that God is allgned with the poor, the humble, the sincere, the meek, the loving and repenting folks…
Mike, I enjoy reading many of your newsletters related to capital markets, interest rates, investing etc. However, there are many financial/economic researchers/journalists like yourself, who have been lately talking about how “clueless” and “ostrich like” the FED and the Treasury and similar organizations are around the world. We need to get something straight here. These entities are NOT clueless, they are irresponsible to the global middle class, but the are NOT clueless. They know EXACTLY what they are doing. These entities are all controlled by the Global Banking Elite, which sit on committees such as the Council on Foreign Relations, Trialateral Commission, Bilderberg Group, Royal Institiute for International Relations etc..etc..etc..The FED is NOT an government agency. It is a private institution set up in 1913 by the global banking elite for the purposes of creating and controlling the countries and by default, the worlds “money supply” . You see, by controlling the money supply and decoupling it from money that has intrinsic value (for example gold) as was done at Bretton Woods, you then can multiply it many times over and loan it out as credit, or more appropriately as debt to the world. What a great way to control the population and make money off them at the same time. So, no, they know exactly what they are doing….
Good article. I have never witnessed such denial by our elected (and appointed) ‘Leaders’. To deny that inflation is here is just crazy, or maybe it’s lack of understanding of basic economics. It is very obvious that the President has zero understanding of basic economics, and neither do his advisors. What a mess we are in.
Klaus, understand that the elected and appointed “leaders” are NOT clueless. Take the time to understand the relation between the banking elites, the Fed, the treasury and likewise central banking groups around the world. You should get the book “Creatures from Jekyll Island” to understand how things work.
Klaus,
It’s neither of the reasons you fingerpointed:
it is pure and simple treason.
.
Franscisco, you are right on…the leverage of the central banks to extract capital out of the world middle class and poor to feed the banking elite…I think the definition of a tightly integrated capitalist machine with government with a single aim is called Fascism. plain and simple…
Klaus,
I agree our country is in a mess, but with regards to this administration lacking a basic understanding of economic’s I think is false. He’s still doing what he promised in the 2008 presidential election, and that is to “fundamentally change this country”. These budgets are indeed a fundamental tranfer of wealth from those that have to those that have not. It’s all a part of a larger philisophical belief of how to run a more socialist country, and away from a capitalist one.
James, you are right, except the move from “capitalist” to “socialist” is occuring on a global basis, just the way the global elites want it.
Mike,
Great article, so is Money & Market, and so is already legenday Dr. Weiss.
Mike,
Perhaps you – with due respect – cannot name it with utmost frankness, but it is not naive “nuts”, it is plainly and simply “treason”, as they serve their oligarchs masters, enemies of the – yet lethargic – US People.
With due respect,
Francisco.
Francisco, there is an absolute plan and process in place to carry this all out….
Good article. The situation is clear. But, I don’t believe any of our leaders are so ignorant that they can’t understand what their policies are causing. i believe they are like a deer in the headlights frozen in panic as they contemplate their situation. Each party’s largest fear is that, if they try to force the necessary steps to start arresting our downhill slide they will be identified with a market collapse even larger than the last and that party will lose elections for a generation. Our problem is not economic … it is political.
John, not really, the problem is really not economical or political, those are easily fixed. The problem is the controlling global business and banking elites that control the world’s central banks and money center banks and businesses. Remember, the FED is a private entity and was created by the banking cartel back in 1913 for the purposes of growing their revenues, profits and control. You should get the book called “Creature from Jekyll Island” Just follow the money for where the power is.
Lies beget lies. That’s what the Fed, the US Treasury, and the rest of the government get when they drink their own koolaid. Maybe it’d be better if they just wore their kaleidescope glasses from the 60’s as long as they measured inflation the same way as then.
I remember starting my career in the middle 70’s and living the high inflation that followed. In ’79, my first house had a 13% mortgage. A few years later, what a relief it was to refinance at 9%. Those were the good ole days. :-)
The only thing that made it bearable was wages that increased faster for me than inflation. That’s not happening today. And it can’t. The biggest difference is 30+ years of building unfunded liabilities and most years running deficits and creating a debt burden that should be self restricting. It’s sad that our leadership gives only lip service to the first of any 12 step program to deal with addiction, admission.
I just got a video link from a friend. It’s Michael Ruppert of CollapseNet’s emergency action alert saying based on world events including Japan’s impact on supply chain to Auto and Tech (and other) sectors, 2Q2011 quarterly earnings reports will reflect this deterioration and lead to a major correction. I don’t know if I will accept that prediction and won’t muddy these waters by posting the video link. I think he may be overreacting to Japanese auto companies shutting down plants in North America, and the UK and to Citi marking all major auto companies a sell.
However, this is not the time for ostriches. It’s not the time for koolaid.
Bill, interesting points, but remember, the FED, Treasury and Government dont serve the people, they server the wealth global business and banking elites. Remember, it was the elites that set up the private FED central bank and now the central bank’s bank called the BIS. You should get the book on “Creature from Jekyll Island” and the “True Story Behind the Bilderberg Group” to understand how it all works…
So what is next for us to invest in?? thanks Mike
Joel, I really like yoiur comments, quoting scripture and all. Bravo! and God Bless you for speaking out!
MIKE LARSON:
Please quit stating the obvious over and over. What you typically relate in your articles is information widely available on the regular news services to all of us. Please dig deeper and try to give us some prognostications based on some “inside” information or “hidden” agendas and draw it out definitively and in detail for us, otherwise, your writings will seem simplistic and useless to us.
Also, using terms like “nuts” and “heck” for emphasis place the article in the genre of “teenage rant.” Many of your readers are highly sophisticated investors, and we would like serious and thought provoking articles–telling us things we don’t already know—that do not make use of puerile hyperbole.
I hope you will consider these comments carefully Mike. I’m only trying to help you improve your output.
Have a great day!
ABE, you are right on here….Mike Larson, please raise the value add of your commentary beyond just saying that the Fed/Treasury/Government are stupid….FACT is they are NOT stupid and know exactly what they are doing based on the Global Business/Banking Elite World Banking and Business Model…You should get a book called “The True Story of the Bildeberg Group”
‘KNOW NOTHING’ COMPROMISES LEAD TO FURTHER DEFICITS
A BIG DEAL IS WHEN THE VOTERS VOTE FOR UPPER CLASS REPRESENTATIVES THAT NEVER HAD TO WORK AN EIGHT HOUR MANUAL DAY AND DO NOT KNOW ACCOUNTING OR FINANCE. A TOP ADMINISTRATIVE JOB IS GIVEN TO THOSE THAT HAVE MONEY AND DO NOT CONSIDER THE WORKERS THAT CREATED THE COMPANIES PROFITS. WE HAD TO LISTEN TO DUMB CANDIDATES THAT HAVE NOT HAD TO WORK FOR A LIVING OR HAD ANY IDEA OF HOW A GOVERNMENT FUNCTIONS. BIG BUSINESS SENT JOBS OVERSEAS AND HIRE FOREIGN WORKERS THAT KNOW NO MORE THAN AMERICANS AND PAID FOR 40 HOURS WORK FOR WORKING 60 HOURS, THUS CHEATING THEM. THE MANAGEMENTS PLAY WITH THE ACCOUNTING TO AVOID PAYING TAXES IN THE UNITED STATES AND TAKING FIXED ASSET CREDITS FOR MACHINES USED OVERSEAS. THE CPA FIRMS EARN SERVICE FEES BY SHOWING THE CORPORATIONS HOW TO AVOID TAXES AND TO CONTINUE THEIR OVERSEAS PRODUCTION WITH REDUCED EARNINGS BY THE POOR TO BUY THEIR IMPORTED PRODUCTS. REPEAL THE DECEMBER TAX COMPROMISES THAT DID NOT CONSIDER THE WAGE EARNERS THAT WERE CHEATED BY UPPER CLASS MANAGEMENT THAT USED SAP OR PEOPLE SOFT TO REDUCE COST WITHOUT CONSIDERING THE LOSS OF PURCHASING POWER OF THE LOWER CLASS. THE PROPOSALS GIVEN NOW WILL ONLY PROLONG THE SITUATION OF THE POOR AND NOT PROVIDE FOR THE NEEDED IMPROVEMENTS IN SUPER STRUCTURE. THIS IS WHAT RONALD REAGAN DID TO CALIFORNIA IN STOPPING THE EAST SIDE CANAL TO PROVIDE WATER FOR AGRICULTURE AND IN STOPPING THE NEEDED HIGHWAY UPGRADES THAT CAN NOT BE DONE NOW. INCREASE THE SOCIAL SECURITY FOUR PERCENT OF WAGES TO $1 MILLION DOLLARS TO REPAY THE POOR FOR THE ABUSE OF THE WEALTHY MANAGERS. RESTRICT THE PHONY HIGH EARNINGS OF TOP MANAGEMENT AS IT IS DONE IN EUROPE. NO ONE IS WORTH MORE THAN $1 MILLION A MONTH IS SALARY, ESPECIALLY WITH THEIR LIFE STYLE BEING PAID FOR BY THE ORGANIZATION. BANKS AND BROKERAGES PAY 5 CENTS A THOUSAND FOR THE SAVINGS OF THE POOR WHILE THE BANKS CHARGE $35 PER OVERDRAFT CHECK. THIS IS A REAL EYE OPENER FOR NOT JUST FOR THE POOR.
Recognize the poor are paying more taxes, earning less on their savings for the future and are not at fault for the economic situation.
Have to agree with Abe. Also, your blog has been inactive. Please post on it or take it down if there are too many irons in the fire.
This is way better than a brick & mortar establhisnmet.
bill and joel have got it right on two different fronts. it’s simply good vs. evil… end of story. to imply that bernanke and the rest are “clueless” is an absurd notion!! most of congress is populated by lawyers. even many of the so-called conservative talk show hosts, main stream news media reporters and talking heads are lawyers. generally, you cannot be totally stupid and be a lawyer. most of these people have to know what they are doing and friends it isn’t good for the masses…NOT GOOD AT ALL. have you seen ben squirming when he’s testifying at those congressional hearings?? do you think if he thought he was doing the right thing he’d be squirming like that?? he’s just another shill who has been bought and paid for. he has been compromised just like 95% of the so-called tea party representatives that were elected last fall. didn’t you see these guys on hannity (a shill or a useful idiot?…i am not sure, but he is a lawyer!) the other night with frank luntz? frank asked the group what dept. of the federal gov’t they would vote to axe. their answer? not one said they would vote down any dept. THERE’S YOUR ANSWER ON YOUR TEA PARTY REPUBS!! and to all of you who think fox news is on your side…WAKE UP!! they are in the game just like cnn, msnbc, nbc, cbs, and abc. the result is baked in. there’s nothing anyone can do to stop what is coming economically to this country even if these people wanted to stop it. we the people had all better get ready because i guarantee you the politicians, and bankers, and heads of corporations who are causing this demise are ready!!
I don’t know about the rest of you, but the only way I see this mess turning around is when our government will no longer be able to print money. In other words, the dollar will no longer be the defacto currency of the world. That may already be starting to take place as I understand China and Opec want their products to be priced on a basket of currencies.
How stupid do they think we are…the numbers are frightening, and are not going away! If interest rates go up, the deficit will really multiply. The cuts pale beside increased cost, due to political profligacy…These politicians are corrupt, and unapologetic. They have sold out to lobbies, and have made government their own private business. The rot goes deep..to deep to root out. We are in Stage IV cancer, economically..
It’s a race to the bottom. And the prize? Payoff T-Bills with monopoly dollars……
Great article! I appreciate you guys greatly! As all you guys know, Israel has found huge volumes of natural gas speculatively enough shale to match Saudi Arabia’s reserves. There is speculation that there engineers are developing a clean method to separate the shale and oil underground at low cost and minimal environmental damage. The US has the greatest deposits in the world. There may be hope. Could you imagine the US being an energy exporter!!
There may be a global elite trying to manipulate things but, if so, the manipulations are not going well. The elite have the most to loose if hyper inflation occurs, not that it matters since the majority of people, including the elite, will go down together. Perhaps global climate change situation provides an example for economic events…a lot of people would like to stop climate change by controlling the environment. Try as they might they don’t have the capapcity to understand the climatic environment thoroughly enough and even if they did understand it, trying to control it will be doomed to failure. There will always be people who believe they can control everything.
Mike
Do you see a correction coming for commodity prices short term ….or at least a correction of about
$5-10 on SLV near term. What do you or anyone else think about the $1M trade on SLV Jul $25 Puts?
Norman Taber LOVE IT