The “Fix” Is In!

 By Greg Hunter’s   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.   Just look at what Fed Chief Ben Bernanke and his number two Fed Vice Chairman Donald Kohn have been saying this week.  Both Kohn and Bernanke say, “…it is not obvious there are any large misalignments in asset prices today.” In other words, neither of these guys sees another asset bubble and that is telegraphing a very easy monetary policy to Wall Street.   We have zero percent interest rates and lots of money printing.  According to the Fed, this policy will continue because the bad economy is “… likely to warrant exceptionally low levels of the federal funds rate for an extended period.” This policy effectively gives the banks money for nothing.   And get this, Wednesday St. Louis  Fed President James Bullard suggested that interest rates could be on hold until 2012!   I wrote a post earlier about zero interest rates  called “The Government Approved Carry Trade and Free Money.” I think the Fed also sees big problems coming down the pipe in the credit markets.  New York Fed President William Dudley offered a “backstop” recently weekend to solvent companies to fend off another panic in case of another financial meltdown.  Did Dudley offered this up out of the blue or is it part of the Fed game plan?  I talked all about this in my post “Is the Fed Signaling More Trouble Ahead?” The banks are not really making money in their core lending business these days.  I am sure you have seen one story after another about how tight credit is for just about everyone.  The banks have to make money some way, so they are operating more like government sanction hedge funds.  They are making money by speculation and trading in the markets.  The banking industry has once again become one big casino.  I think the Fed knows the banks are going to need all the money they can get to fight off the next tsunami of failed debt getting ready to crash ashore in the coming months. Maybe that’s why Shadow Government Statistics announced today that “Formal Deflation Has Run Its Course.” Which is another way of saying get ready for higher prices because the dollar is being sacrificed so the banks can build cash.  This will make things like gold, oil and many other commodities go up in price relative to a declining dollar.   I think when things go up in price because the currency is devalued it is called inflation.  For the little guy, this new inflation will be painful. Also, keep your eye on gold because hedge fund manager John Paulson sure is.  You might remember Mr. Paulson for making 3.7 billion dollars betting on the real estate collapse a few years back.  You might also remember Paulson made this play when Fed Chief Bernanke was saying that the sub-prime market meltdown would be “contained.” Some containment, the whole market hit the tank and some say there is more pain to come.  Now Paulson wants to start a gold fund of his own with 250 million bucks.  Do you think Paulson sees more upside in gold from here?  I wouldn’t bet against him.   By the way, gold hit yet another all time high yesterday. What the Fed is doing is very, very dicey.  To my knowledge, this kind of monetary policy has never been tried before here in the United States.  I think the Fed is desperate and is taking drastic measures because it knows the coming financial situation is dire.  There is no telling how this will end up, but I’ll bet at the very least most people will be ripped-off of their hard earned buying power.

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  1. George

    Both Kohn and Bernanke say, “…it is not obvious there are any large misalignments in asset prices today.”
    Greg, forgive me for being jaded but “white man speak with forked tongue”. I believe that the DOW is grossly overpriced unless there is significant unrecognized inflation. Of course, just like the daring duo above, my saying that doesn’t make it true. But in my case, the math supports my position. Does basic math support theirs?

    • Greg

      The math looks bad to me. Thanks for the good comments.

  2. Dane Howell

    I have to agree that Bernarke is scared to death to rase interset rates. His little remembered rapid rate hikes of mid 2007 were the trigger that sent the ball rolling for the first round of defaults in the subprime libor-Fed rate tied, 6 month resets of early 2008 effectively ending the Heloc driven portion of our consumer economy. He now knows further rate hikes will put even greater downward pressure on property values ie. extending to portfolios of many already distressed banks,

    • Greg

      It is all about real estate. Thank for the comment.

  3. Carlos

    Greg, what about silver. Gold is just too expensive for the little guy to own much of. Do you think the ratio will ever begin to favor silver on the upside??

    • Greg

      Silver is yery cheap but volatile.

      • Denarius

        Greg, you do a disservice to Carlos and your other two readers. 😉
        Back in 2002 when I was buying silver in big green boxes, people said, “Why are you paying $1.50 premium on $4.50 spot silver for coins?” My answer was, “The premium is not too high, the silver is too low.”
        Today, you imply that a $3.00 swing in the PoS is “volatile”. But if, IF silver was fairly priced at $60 or $90 per ounce, how “volitile” would that $3.00 swing be?
        Silver-to-gold ounces will go from 80:1 down to 20:1 before this bull market is over. What will you call “volatile” then?

        • Greg

          I really like silver. I have said many times it will probably go up on a percentage basis much higher than gold from this point on. (I also really like gold.) Most people do not know the market like you do, I just want people to know if they buy, don’t expect the price to go straight up. You make some good points here. Thank you.

  4. Chris

    Greg, Any thoughts on the US$ 4% rise this past week? Is the market (mistakenly in my opinion) anticipating higher interest rates or is it a flight to safety? with the odds stacked against the US$ I can’t help but believe this is a short-term run up.

    • Greg

      Many say the fundamentals for the dollar and the U.S. economy have not changed. Thanks for the comment.

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