Financial Apocalypse by Bert Dohmen Dohmen Capital

THE FED: INFLATING THE NEXT BUBBLES

By Bert Dohmen
Tuesday, April 26th, 2011

 

 “Real” wages (inflation adjusted) have been declining for 30 years or more. The labor unions tell us this while making the point that the rich have prospered at the same time. That the only thing we agree on with them. However, their insinuation is that the rich have taken the money from the laborers. The truth is that the inflationary policies of the Fed have made many people poorer, while the smarter people have learned to protect themselves and even profit from the inflation. Yes, inflation is the great, silent tax.  

The Fed continues to shovel liquidity into the financial system but it is doing little to fuel growth, except in the way of prices for consumer necessities. They just hope that eventually some of that money will be used to grow businesses and jobs.  

Since early this year, the Fed has pushed the accelerator through the floor board. “Adjusted Reserves,” are growing at a 388% annualized rate in the two months ending March 23. This is the fuel for future loan growth if banks ever start lending again. Reserves are directly controlled by the Fed. I have never seen such a fantastic growth rate. 

But apparently there are no inflation concerns at the Fed. Federal Reserve Vice Chairman Janet Yellen said the increase in food and fuel costs will only have a temporary impact on inflation and don’t require an adjustment in monetary policy.   

Bloomberg quotes Yellen:  “The surge in commodity prices over the past year appears to be largely attributable to a combination of rising global demand and disruptions in global supply. These developments seem unlikely to have persistent effects on consumer inflation or to derail the economic recovery and hence do not, in my view; warrant any substantial shift in the stance of monetary policy.” 

That’s an amazing statement. So, she admits we have rising demand and diminishing supply. What is causing the rising demand? Is it possibly excessive money growth from the major central banks of the world? Read the following. A friend sent us this info. The Mormons (LDS) are required to have 1 years supply of food on hand at all times…they have a good handle on prices…They have a food cooperative which I assume knows how to get the best prices. The Mormon canneries show food inflation up 11%-49% just over the past 3 months.

According to the new price list from April 4th, many food staples have increased by more than 20% since the last price list came out just 3 months ago on January 3rd. 

Beans. Black 13.69%                                      Oats, Quick 48.90%
Oats, Regular 49.19%                                     Beans, Pinto 12.13%
Onions 21.60%                                               Milk, Non Fat Dry 25.00%
Rice 38.99%                                                    Wheat, Red/White 44.54%
Apple Slices 24.53%                                       Carrots 21.31%
Macaroni 40.25%                                            Spaghetti 38.99%
Potato Flakes 33.33%                                     Sugar 33.81%
Beans, Refried 27.72%                                   Cocoa Mix 40.69%
Flour 29.70%
That’s alarming. In China, there is similar inflation, which is will eventually cause great social unrest. 

The Fed’s policy is to produce inflation in order to remove the chance of painful deflation. They assume inflation is easier to resolve. But the Fed has never known when to stop such a policy.

 Inflation hurts poor people the most. It also causes dislocations of resources because it breeds speculation. And eventually, it creates bubbles which must implode. Isn’t that what we have now, serious speculative bubbles? It just doesn’t feel like it because home prices are still weak and most people are not participating. But no one can deny that there isn’t big speculation.  

Amazingly, most of the members of the Fed’s FOMC are not concerned about future inflation. They should spend a little more time studying charts and going grocery shopping. The Fed is the source of all inflation. If the Fed doesn’t create lots of artificial money, then things like rising oil prices just cause a shift of consumer spending, such as from going out to restaurants to filling up the gas tank.  

Currently, there is a very close correlation between the Fed’s purchases of government bonds (also referred to as the Fed’s balance sheet) and commodity prices. When the balance sheet doesn’t grow, commodity prices stop rising. The Fed’s QE2 is scheduled to stop in June. But the Fed has already made comments to suggest that they will not stop “cold turkey” and may continue to “reinvest” the proceeds from mortgage bonds, etc.   

After the latest revelations from the files of the Fed, forced by a court order, Americans found out that the vast majority of the $3.3 trillion of the Fed’s money creation went to foreign banks, including a bank controlled by Libya. No wonder that people are urging an
“End to the Fed.” And no wonder that the Fed didn’t want to disclose it voluntarily. As a taxpayer, don’t you feel better now about the people who are going to drive the country over the cliff? Shipping trillions of dollars abroad possibly is a new form of “foreign aid.” 

We should never believe that inflation comes from natural disasters, or is a freak of nature. Inflation is created by the central banks creating lots of artificial money. And now we have Europe, China, and the U.S. creating trillions of money out of thin air. Never in thousands of years of history has this failed to produce a significant cheapening of the currency and very unpleasant inflation. 

As smart investors, we should not accept the manipulated inflation statistics of the governments. The government tells us that currently, the CPI in the U.S. is 2.7%. If you calculate it the same way it was done 30 years ago, before several presidents introduced the fudge factors, then inflation now is 10% (www.shadowstats.com). And that means that all the other statistics which use the government’s inflation numbers, such as GDP growth, are very, very wrong.  

Read my new book (to be released in early May) FINANCIAL APOCALYPSE, (www.BertDohmen.com), which shows how to interpret the signs of an approaching crisis even while all the analyst in the media still talk about “boom, bull market, undervalued stocks, and a great economy.” The book has plenty of charts which demonstrate the tell tale clues and how to pinpoint market tops, not just the stock market, often within one or two days.  

Bert Dohmen

www.dohmencapital.com

Financial Apocalypse
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