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Commentaries & market updates.
Five Bitter Pills or One Sweet but Deadly?
Five Bitter Pills or One Sweet but Deadly?
It seems the current Chairman of the Federal Reserve is of the belief that diluting the dollar is the cure for everything from a recession to male pattern baldness. And like other snake-oil salesmen before him, Mr. Bernanke is heavy on promises and light on results. Here are five prescriptions that money printing can't fulfill:
Unlike the snake oil of printed money, these genuine therapies take time and effort, and sometimes have painful side effects. The quack remedies offered by Dr. Bernanke promise to cure all ills with no effort on the part of the patient.
If the measures I propose are established in concert, we would lay the groundwork upon which to rebuild the country’s goods-producing sector. If allowed to flourish, manufacturing can create the needed jobs to lower the long-term unemployment rate and restore the county’s economic vitality.
The Fed's plan, by contrast, has only one predictable consequence: inflation. Indeed, Bernanke has already been remarkably successful in sending asset prices higher. Not only are most commodities soaring in dollar terms, but the broader measures of the money supply have started to surge as well. The compounded annual rates of change in MZM and M2 over the last month are 13.3% and 9.1% respectively. The prices-paid component of the September ISM manufactures survey jumped to 71, and the YoY increase in the PPI is 4%. Sure, we can look to the Dow or the stabilization of home prices and say the Fed's magic is working, but just because the headache has gone away doesn't mean you've cured the stroke. We can look to the inflation indicators to see that the Fed has failed to stop the bleeding.
Remember, the Fed is now printing dollars to purchase the bulk of US Treasuries at auction, in a process called debt monetization. It is that process of the Fed expanding the money supply to subsidize federal debt that is causing domestic prices to surge. It will not be very long before the consumer acutely suffers from this dangerous policy. On this point, history is clear: inflation has caused the destruction of every middle class and every economy that has sought it as a solution.
There are no quick fixes to our current economic predicament, but there are fixes. It's up to the American people to decide they've had enough of Ben 'Rasputin' Bernanke and they're ready for some tough medicine. When that happens, I've got some great specialists to recommend.
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