• RSS Ludwig Von Mises Institute of Austrian Economics

    • An error has occurred; the feed is probably down. Try again later.
  • RSS Republican Liberty Caucus

    • An error has occurred; the feed is probably down. Try again later.
  • RSS Freedom Watch

  • RSS Free Talk Live

    • Free Talk Live 2014-11-22
      Leftists Should Support Secession Too :: United Nations for Religion? :: Silver Nickels :: Woman Arrested for Speaking in Favor of ISIS :: John Cantlie's Final ISIS Propaganda Video? :: Illuminati War Conspiracy :: Cameras on Cops' Guns? :: Dead Politicians :: Racist Caller :: Blaming Immigration :: Ferguson Strategy :: Muslim Fearmongering :: Chri […]
    • Free Talk Live 2014-11-21
      Executive Powers :: Immigration Changes :: Immigration Police State :: The Law is the Law! :: Dave in NY :: Ian the Democrat :: Immigrants Hiding or Not? :: Oathkeeper Baby Update :: Libertarian Critics and the Colbert Report :: Keyboard Warriors :: Anarchy and Voluntarism
    • Free Talk Live 2014-11-20
      Prosecutor gets 10 days for wrongfully getting man sent to prison for 25 years :: Free Keene on Colbert Report :: Man gets sex crime for pictures from a nudist camp :: Activists eating their own :: What is an Anarchist :: Cantwell vents :: Rapper charged for a song :: PNAC!
  • RSS Break the Matrix

    • An error has occurred; the feed is probably down. Try again later.
  • RSS Schiff Radio

    • The Abenomics Death Spiral
      As Japanese Prime Minster Shinzo Abe has turned his country into a petri dish of Keynesian ideas, the trajectory of Japan's economy has much to teach us about the wisdom of those policies. And although the warning sirens are blasting at the highest volumes imaginable, few economists can hear the alarm. (A longer version of this article can be found in E […]
    • Contemplating Stocks without QE
      Some influences on the stock market are casual, subtle or open to interpretation, but the catalyst behind the current stock market rally really shouldn't be controversial. As far as stocks go, we have lived by QE. The only question now is, whether we will die without it. A larger version of this article appears in the fall edition of Euro Pacific Capita […]
    • It's The Economy, and They're Not Stupid
      The sharp rebuke to the Obama administration delivered by the mid-term elections should not be construed as an endorsement of the GOP, which remains as unpopular as ever. Rather, as has been the case in the last few election cycles, voter revolts have hinged on continued dissatisfaction with the strength of the economy and the diminishing financial prospects […]
    • Governments Need Inflation, Economies Don't
      In an article in the UK's Telegraph on October 10, veteran economic correspondent Ambrose Evans-Pritchard laid bare the essential truth of the nearly universal current embrace of inflation as an economic panacea. While politicians, CEOs and economists talk about demand stimulus and the avoidance of a deflationary trap, Evans-Pritchard reminds us that in […]
    • The Sound Money Business: Four Years Past and Future Forecast
      Yesterday, I launched a new website and announced the rebranding of my gold bullion dealer from Euro Pacific Precious Metals to SchiffGold. I started this company four years ago to provide a trustworthy option for my Euro Pacific Capital brokerage clients, but it has since grown to become a major US gold dealer in its own right. This landmark for my company […]

The Fed’s Misguided Battle Against Deflation

Ever since the economic collapse caused by the housing bubble, there has been an ongoing battle by the Fed to fight against deflation.  Using his monopoly power over our fiat currency, the Fed Chairman Ben Bernanke has been printing money like crazy starting with the first round of bail outs of the big banks, Fannie Mae and Freddie Mac, car manufacturers, and many others.   With the help of the mainstream media and Keynesian economists, they’ve been spreading all sorts of propaganda about the threats of deflation and why inflation is necessary.  But why would they want to scare people about the threat of deflation (defined as a decrease in the money supply) and its effect, falling prices?  Don’t falling prices drive people to the shopping centers in droves, like on Black Friday?  It surprises me too that people are actually buying into this BS that inflation is a good thing.  It’s like the master brainwashing the slave into thinking their whip is a good thing for them.

Two years after the recession began, Ben Bernanke once again is touting that inflation is too low.  Despite the Fed printing billions of dollars, people are still not spending enough, home prices continue to fall, and unemployment hovers around 10%.  Also, the latest figures from the government show that CPI (the Consumer Price Index) is at an all time low, thus the Fed has been patting themselves on the back for maintaining price stability.  Consider the chart below:

Because core CPI this year is less than 2%, Bernanke thinks that the Fed has a lot more wiggle room to inflate so he has recently announced QE2 (“Quantitative Easing #2″).  But if you think about it, what is this chart really saying?  It shows that our prices are always going up at various rates, never going down!  Even though core CPI is low this year, it doesn’t mean that inflation is too low.  It’s still rising, just at a smaller rate!  This is akin to saying that because government spending has only gone up 1% this year, government is getting smaller.  In addition, there still is trillions of dollars sitting in domestic and foreign bank reserves, as well as trillions of outstanding government bonds.  The moment this money starts flowing back into the economy, when velocity picks up, and people lose confidence in the dollar, expect our currency to drop like a rock and prices to shoot up exponentially.

Sadly, the government’s calculation of CPI is grossly misleading.  As you can see right away, the CPI doesn’t include food and energy prices, the second and third biggest expense Americans have after living expenses.  These were once included in the CPI, but are now removed because food and energy prices fluctuate too much in a given year.  The CPI calculation also uses hedonic regression to fudge the data.  For instance, they reason that if you buy a computer with twice as much power as your previous one, you really only paid half as much in “real price.”  Obviously, it’s in the best interest of the Fed to portray the CPI as low as possible, thus lowering the interest it must pay on Treasury Inflation-Protected Securities (TIPS) and Social Security cost of living adjustments.  Also it gives the Fed an excuse to keep on inflating.

However, a true view of inflation can be seen in the following commodity chart:

As you can see, commodity prices tell a different story.  All of these products are closely tied to inflation, and they have been rising at a substantially greater rate than CPI.  The Fed wants to make you believe that prices are getting lower with CPI, but really the cost to live is getting more expensive.  Last time I checked, people are still buying food at the market and using gas to travel.

Deflationists will claim that because of the housing bubble bursting, lots of money is being destroyed by defaulting home mortgages, and this is true.  However, a lot of this money was created thanks to the easy credit from the Fed, which printed it out of thin air and loaned it out for practically no interest.  This, combined with Fannie Mae and Freddie Mac, as well as government incentives to own homes, fueled the housing bubble.  To correct this bubble, deflation is necessary so that prices can drop and resources can be correctly reallocated to other sectors in the economy.  However, Ben Bernanke is not willing to let this happen and is determined to keep injecting the banks with cash to counteract the deflationary forces.

Essentially, our economy is headed for a cliff as long as we keep using inflation to fight against deflation.  Once QE2 injects another $600 billion into the economy and it continues to stagnate, what’s stopping Bernanke from doing QE3 and QE4?  As this happens, commodity prices will keep rising exponentially, more of people’s incomes will go into food and energy, and housing demand and prices will continue to fall.  Our standard of living will continue to decrease, and people on fixed income or low income will be hurt the most (ie senior citizens and the lower class).  People who have all their savings or assets in US dollars will see these wiped out pretty hard as the Fed inflates our economy into oblivion.  This has happened many times in history with Germany, Argentina, Yugoslavia, and Zimbabwe (they were issuing $100 trillion bills) and it can happen here too in the US.  All fiat currencies eventually collapse, and we are no exception.

About these ads

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s

Follow

Get every new post delivered to your Inbox.

Join 29 other followers

%d bloggers like this: