• 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 2015-03-26
      Alaska Cannabis Club Raided :: Police Protecting Power :: Caller Concerned With Drug Use :: Forced Treatment :: Virgil Vaduva Convicted of Panhandling :: Bitcoin Security :: Jury Nullification :: Shocked at Trial :: Rand Paul War Hawk :: Stabbing Trigger :: Biggest FCC Fine
    • Free Talk Live 2015-03-25
      A Constitutional Convention :: Jay Noone arrested :: Magazine Collection :: Social Justice Warriors :: Drunk vet talks about Obama :: Pregnant woman wants light duty at UPS :: Do we need text books? :: Rape Culture :: Greece's default :: Mark and Cantwell
    • Free Talk Live 2015-03-24
      Bizarre Performance Art :: Hearing Voices :: Conference Call Guy :: Pacifism :: More Four Blood Moons :: Trail of Tears :: Planet of Death? :: Farmer Under Attack :: Prisoner's Dilemma :: Another Crazy End-of-the-World Caller :: Gay Execution Ballot Initiative :: If you don't like it, leave. :: Life After Death :: Out-of-Body Experience :: Semi-Hom […]
  • RSS Break the Matrix

  • RSS Schiff Radio

    • Give’Em the Old Razzle Dazzle
      Janet Yellen channels Billy Flynn? Last week the Fed Chairwoman treated us to a master class of rhetorical misdirection which produced some memorable examples of doublespeak, including the soon to be classic “Just because we removed the word ‘patient’ does not mean we’re going to be ‘impatient.”‘ But perhaps more surprising than her new heights […] The post […]
    • Peter Schiff Available for Comment on Tomorrow’s Fed Statement
      For tomorrow’s much anticipated Fed announcement, please consider a talk with Peter Schiff, the CEO of Euro Pacific Capital, www.europac.com. In short, he believes that there is far too much being made about the inclusion or deletion of a single word. See his quick statement below. Please feel free to excerpt from the statement or […] The post Peter Schiff A […]
    • A Patient Fed Considers Losing Patience
      The below is an abridged version of a longer article that appears in the Winter 2015 Euro Pacific Global Investor Newsletter I have always argued that quantitative easing and zero percent interest rates were misguided policies to combat economic weakness. But as the years went on, misguided turned into irresponsible, which led to ridiculous, and then turned […]
    • The Herd Can Be Blind
      Below please find the latest commentary from Peter Schiff, CEO of Euro Pacific Capital and author of The Real Crash: America’s Coming Bankruptcy. Please feel free to excerpt or repost with proper attribution and all links included. Click here to signup for both of Peter Schiff’s Free Newsletters. Going into 2015 the economic outlook held by the U.S. investme […]
    • The Bravado of Borrowers
      Last week a scene unfolded in Athens, largely unnoticed by American eyes, that provided all the visual and metaphorical symbols needed to define the current state of the global economy. Hollywood’s best screenwriters couldn’t have laid it out any better. Tiring of being told by self-righteous foreigners to pay for past borrowing with current austerity, […] T […]

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: