0% Interest Rates Lock in Inflation

By Greg Hunter’s USAWatchdog.com 

The decision by the Fed, last week, to keep a key interest rate at near zero percent for 2 years is historic because the Fed has never done this before.  This action will have profound negative effect on the U.S. dollar and its buying power.  It also signals that even the Fed thinks the economy is not going to get better for at least 2 years.  This action will affect every American and telegraphs a policy of inflation by the government.  In November of 2009, I predicted this very path in a post called “The Fix is In.”  Back then, I said, “It appears the “fix” is in as far as the road plan for the U.S. dollar and economy.  The government and the Fed appear to have chosen a path of inflation for America and the world.    This is not an official announced plan but it might as well be.”   (Click here for the original post.)

Zero percent interest on a key Fed rate confirms my prediction right along with the rising inflation in just about everything except housing.  In an extensive post about inflation this week, Theburningplatform.com said, “The storyline being sold to you by Bernanke, his Wall Street masters, and their captured puppets in Washington DC is that deflation is the great bogeyman they must slay. They make these statements from their ivory jewel encrusted towers as the real people in the real world deal with reality. The reality since Ben Bernanke announced his QE2 policy in August 2010 is:

 •Unleaded gas prices are up 45%.

 •Heating oil prices are up 46%.

 •Corn prices are up 71%.

 •Soybean prices are up 26%.

 •Rice prices are up 13%.

 •Pork prices are up 31%.

 •Beef prices are up 25%.

 •Coffee prices are up 38%.

 •Sugar prices are up 48%.

 •Cotton prices are up 13%.

 •Gold prices are up 42%.

 •Silver prices are up 115%.

 •Copper prices are up 23%.

(Click here for the complete and most excellent post from Theburningplatform.com)

The official inflation rate is 3.6%, but anybody with an IQ above 70 knows that’s a statistical lie.  According to economist John Williams of Shadowstats.com, the true annual inflation rate is around 11% (if calculated the way Bureau of Labor Statistics did it in 1980).  In his latest report, Williams warns the dollar is in serious trouble because the Fed is not interested in fighting inflation when it needs to continue propping up the banking system.  The Shadowstats.com report said, “Massive, fundamental dollar dumping and dumping of dollar-denominated assets could start at any time, with little or no further warning.  With a U.S. government unwilling to balance or even address its uncontainable fiscal condition; with the federal government and Federal Reserve ready to prevent a systemic collapse, so long as it is possible to print and spend whatever money is needed; and with the U.S. dollar at risk of losing its global reserve currency status; much higher inflation lies ahead, in a circumstance that rapidly could evolve into hyperinflation.” 

Near zero percent interest rates keeps downward pressure on the dollar, but it will retard the investment needed to create jobs in the private sector.  Peter Schiff, CEO of Euro Pacific Capital, says the banks are sucking up most of the available capital and using it for no-risk trades.  In a recent post also titled “The Fix is In,” Schiff said, “It was bad enough that the Fed held rates far too low, but at least a fig leaf of uncertainty kept the most brazen speculators in partial paralysis. But by specifically telegraphing policy, the Fed has now given cover to the most parasitic elements of the financial sector to undertake transactions that offer no economic benefit to the nation. Specifically, it will simply encourage banks to borrow money at zero percent from the Fed, and then use significant leverage to buy low yielding treasuries at 2 to 4 percent. The result is a banker’s dream: guaranteed low risk profit. In other words it will encourage banks to lend to the government, which already borrows too much, and not lend to private borrowers, whose activity could actually benefit the economy.”  (Click here for the complete post from Mr. Schiff.)

Politicians say they want to create jobs, but they stand silent and let the banks and the Fed do just the opposite.  No one will utter a word about fixing the failed system America has right now.  There is no way to have an economic “recovery” if the banks are allowed to be propped up with phony accounting and money printing.  Sour debt needs to be washed out of the system, but that is not happening.  Instead, more debt is piled on, and the few benefit at the expense of the many.  It is not deflation that will ruin life for most Americans; it is inflation that is here and growing.  As George Orwell famously said, “Truth is treason in the empire of lies.”

Comments
  1. Ron

    Great quote from Orwell. But how can you continue as an optimist given the depraved and feckless crew running this ship onto the rocks? Just askin.

  2. Roderick Pagnossin

    The Bernanke Fed just lit a fire under gold.

    I have worried my head off how to get my hands on the metal before the explosion up in price made it unaffordable. As if gold has not skyrocketed already.

    This policy and the announcement to take it out two years is like a dream come true. A person can buy gold for several years in a row now even as the price continues to rise because the new reality is ongoing inflation.

    I am sorry for people who do not comprehend this and park their savings in the bank for the future. That type of saving is not going to provide them with the desired “golden years”.

    • Greg

      Roderick,
      Spot on and yet simple analysis. Thank you for breaking it down. Thank you.
      Greg

  3. james

    greg i absolutly love the pics you place on your articals. i have a large collection going now.

    • Greg

      Thank you James!
      Greg

  4. Art Barnes

    Wow Greg, “…Specifically, it will simply encourage banks to borrow money at zero percent from the Fed, and then use significant leverage to buy low yielding treasuries at 2 to 4 percent” That was new thought for me and makes perfect sense doesn’t it, the Fed takes care of the banks and the government at the same time, and all at the expense of the people’s livelihood. Can’t think you enough for that clarity. Wonder why the politicans don’t yell about it, they must know that was the idea and function behind the extremely unusal two year decision on interest rate policy announced last month by the Fed. But no, not a peep out of the Washington elected officals or the MSM for that matter, they can’t be that supid, it must be a fix for sure.

    As we on this blog and others discuss a collapse and its timelines the real tragedy is the slow slog to third world status by the policies your article discussed and our disgraceful politicians who don’t stand up. A collapse may or may not actually materalize but the the ever slower grinding spiral downward of the middle class to poverty and third world standard is alive and well in America. The elite and our politicians don’t worry about it as long as they have their ivory towers and, if you think about it, the slow process insures they keep them as a quick collapse would stir the people who might demand real change. Thank you Greg for the article which enlightened me.

    • Greg

      Thank you Art for all your comments and support!
      Greg

  5. nm

    Greg:

    Could you please explain something to me that I don’t get:

    Why would the Fed, loan “money” to banks at zero percent interest and the banks then turn around and loan it back to the government at 2 to 4 percent interest?

    Are they re-loaning the “money” back to state governments, state agencies or just right back to the Fed?

    It doesn’t make any sense.

    • Greg

      NM,
      This is a simple way to let the banks make money because there is a lot more risk in doing it the old fashion way. The government also gets its Treasury debt bought. Win Win for the big banks and government, but it the public is starved of working capital.
      Greg

  6. nm

    If the Fed’s going to do that, then why not just print money and send each and every American a check? It would help more people than just a few bankers.

    • MasterLuke

      Because they don’t care about the regular people.

    • Oldguy

      Hi nm,
      (1). How much did you contribute to your candidates last election? Then how much did the banks contribute (which was mostly to the liberals)?
      (2). Monies from the stimulus could have been paid directly to middle American property owners with a payback at 0% which would have eased the mortgage crisis; but remember, 42 cents of every dollar is borrowed. Besides, it would be unconstitutional under equal protection under the law (as if this matters to our wonderful politicians).. Non property owners would also riot even most pay no taxes.
      (3). The entire plan of the Obama bunch has always been to monitize the debt. And seniors should remember, 500 billion is to be cut from medicare. Also seniors now have no cost of living raises. In essence, their paychecks are being cut by about 14%/yr by inflation.
      (4). If seniors would look at their medical statements they would note that doctors and hospitals are told what they can charge. It’s about 1/3 of normal charge. Plus all of the added paperwork for the gov. agencies requires additional staff. Who has to make up the difference. Ans: hi insurance rates, and higher costs for those uninsured. Talking to a doctor friend who is about to stop taking medicare patients, the government is causing them to increase their patients to 6 an hour to make ends meet. Can you tell the doc what your symptoms are and get treated in 10 minutes?

      I could go on and on. What say we stop and think hard…Wouldn’t we be better off without government intervention and quit wanting to be taken care of by crooks? Its called freedom, but it requires responsibility. I hate to say it but, I’m dying, and not a moment too soon.

  7. james

    http://www.usdebtclock.org/

    cool to look at

  8. Fluffy

    “Politicians say they want to create jobs, but they stand silent and let the banks and the Fed do just the opposite.”
    —-
    I would also like to bring this to your attention. Here is another example of how the politicians are allowing local all American Talent to be discriminated.
    —-
    “American’s need not apply.” “America will never be competitive… until Americans can compete for job openings in our own country!” http://brightfuturejobs.com/facts/

  9. Mitch Bupp

    Our government has no credibility when it comes to the economy. Bernanke is a big failure and he doesn’t even follow his own advice regarding the policies he proposed to the FED about the Japanese stagflation of the 80’s. These policies are the ones the Ben is following in his failed attempt to revive the American economy. Mr Bernanke where is the sound accounting principals and the regulatory administration which you say are part of the “essential” components of a sound fiscal policy dealing with stagflation?
    Trickle down chump change is the current fiscal policy that has killed the American consumer. The low interest rates only serve the primary dealers at the FED and do nothing for Main Street. How can the American economy rebound when so many Americans don’t earn enough income to pay taxes or when the debt loads that Americans have taken on over the last 5 years?
    How can the people have any confidence in our government when they fail to hold banks and mortgage companies accountable for their fraud and forgery? America’s states attorney generals need to be called; emailed and letters written to stop the legalizing of the phony document trails they gave to the courts in foreclosures?

    There is no way out of the equity bubble which the FED creating with the quantitative easing scam and it will end worse than the crash of 2008!

  10. Shawn In San Jose

    Forget for a moment the debates over inflation or deflation. Pretend I don’t read site like USAWatchdog, Misch, TAE, Zerohedge, etc. Assume I’m a regular guy with 50K in a savings account or a grandma with $250k.

    The Ben Bernak just announced that for the next two years I can expect to get zilch in interest on my savings and if there is some sort of emergency in my life (new tires, water heater, dental crown) I have to did into savings instead of allowing for my earned interest to cover it.

    Its very discouraging. Makes me feel like the little guy simply gets beat up for doing the right thing. And what is grandma supposed to do? Invest in turbulent stocks?

  11. brian

    It is madness to see our government literally cut us all out of the loop, treat us like we are all financially dead and count up and divide our wealth with the banks.

  12. Stan

    Sounds like we should buy more gold and silver…

  13. mile

    IF the inflation rate was calculated by 1980 method of calculation, inflation would be greater than 16 percent….thos 15 percent over zero interest rates is being ripped off of the dollars earning ability and saverr year upon year, and manipulatively and by plan

  14. Jerry

    Guaranteed no risk trades for the FED? We the People are sure at risk, and the FED could care less.

    • Greg

      Jerry,
      Yes sir, you are totally correct!
      Greg

  15. GardenSERF

    Look on the bright side: ammo has come back down in price.

    • Greg

      GardenSerf,
      You are too funny, I like your style!
      Greg

  16. Mitch Bupp

    Greg, Have you seen this article?

    http://www.rollingstone.com/politics/news/is-the-sec-covering-up-wall-street-crimes-20110817

    • Greg

      Thank you I will post under Hunter’s Top Stories.
      Greg

  17. Ambrose

    Greg,

    When the Fed decided to keep the 0% interest for another 2 years, it signed a “death sentence” for Obama. In addition to poor economy, high unemployment and high national debt, the rising inflation rate will definitely hurt Obama’s chance for re-election.

    However you will not see the Fed be blamed for high inflation. MSM are already helping the Fed to explain the rising food and gas prices. China has been blamed for rising gas prices because of its fast economic growth and increasing demand for gasoline. Last Monday (8/15), ABC evening news reported that the meat prices in the US are rising because of increasing demand in China. Since every items you listed are consumed by the Chinese, I bet you will see more MSM reports blame China for higher inflations in the US.

    Politicians never intend to keep their promises – Obama summarizes it very well.

    Can the President and the Congress take money from the lobbyists and betray the American public? They told you, “Yes, we can.”

    Why don’t they keep their campaign promises? The reason is simple: “Because they changed.”

    Beware next time when you hear someone talking about “Yes, we can,” and “Changes.”

    Ambrose

    • Greg

      Thank you for the comment and analysis Ambrose!!
      Greg

  18. reader

    Greg what do you see happening to America in the future?

    • Greg

      Reader,
      We will have a much lower standard of living and credit will become very tight because real money will come back into being.
      Greg

  19. nm

    Greg said:

    “This is a simple way to let the banks make money because there is a lot more risk in doing it the old fashion way. The government also gets its Treasury debt bought”.

    I have a few more questions about this answer:

    1) Why is the fed interested in ensuring that the banks make more money? Aren’t the banks private entities who should be generating their own revenue in the market place?

    2)Why is the government buying it’s own debt? I just don’t get it. Bernanke prints money, then tells the banks to buy what he’s just printed (at 0% interest) and then the banks “sell” this same printed money back to Bernanke?

    Shouldn’t the buying and selling of government debt be determined by the supply and demand for it in the global markets?

    • Greg

      NM,
      The short answers are: 1) The Fed wants to prop up the banks because they are basically insolvent. 2) Who else is going to buy this amount of debt. The U.S. needs more than $100 billion each and every month! Anyone else want to give longer answers?
      Greg

  20. big man

    So if the banks buy the government debt and the government can’t pay the debt then the government makes the banks insolvent. This would cause the banks to either a. call in debt from their customers, b. confiscate deposited money, or c. send the bill to FDIC.

  21. nm

    Greg:

    I think this issue of debt is one most Americans don’t understand. They understand lack of jobs and high gas prices, but not this issue of debt and Obama and the politicians cannot talk about it because (honestly) if they did, they’d be voted out.

    1) Are all the the banks in America insolvent or is it just the large one’s? i.e. if these few large banks collapse, so what? Why is Bernanke hell bent on saving these FEW insolvent banks?

    2) Who else will buy the debt? I’m continually astounded that the Chinese, Saudi’s, Japanese, et. al are STILL buying this debt. Are they just not buying $100 billion dollars worth of it and Bernanke then has to bridge that gap and buy his own debt?

    I suppose what I don’t get is why go through this cycle of electronically printing money and giving it to the banks. Why not just print and send this cash directly to whatever government agencies need it?

    • Greg

      NM,
      There are some small banks that are not insolvent but most of the biggest are. The test would be, just value the assets (mortgage-backed securities, residential and commercial real estate) at what the bank could sell them for today. (“mark to market”” accounting, This is what the IRS uses.) The problem is so large that the Financial Accounting Standards Board (FASB) changed the rules in 2009 and allowed the banks to value troubled or insolvent assets at whatever the bank thought it could get for the asset in the far far future. The government approved this accounting sham. I believe if there was ” mark to market” accounting then I believe the banking system would be insolvent. If the banks go under en mass then all hell would break loose because business would stop. Those big banks are part of the Federal Reserve system along with a dozen foreign banks. Who else is buying debt? The Fed is and that is why gold is $1850 per ounce. I hope this helps you.
      Greg

  22. Doug Cowlthorp

    It may sound a little out there, but I think that the powers that be,(inside and outside of the U.S.),want the the U.S. to fall out of super power.Thatis the only way the bankers can force the world into a world government situation ruled by who else but the BANKERS. Once completely faceless people are running our affairs, how do you complain? Who do you go to when they are half a world away? Unless people start forcing there representitives to actually do something, no one will recognize the U.S. in 10 years. It will be bankrupt and beholden to outside powers. That is if it isn’t already in that situation.

  23. Greg

    Thank you QP!!!
    Greg

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