Dear Subscriber,
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The “grand compromise” between the Obama administration and Congressional Republicans to extend the Bush era tax cuts will have two extremely severe repercussions:
First, it means that the federal deficit will EXPLODE beyond the worst estimates of the most pessimistic deficit prognosticators. And in response, interest rates are already soaring, with 10-year Treasury yields jumping nearly a quarter of a point just yesterday!
Second, it means that Fed Chairman Ben Bernanke will be under even greater pressure to run the printing presses.
Never forget his famous speech of early 2002, “Deflation: Making Sure It Doesn’t Happen Here.”
I have quoted this seminal speech ever since to make sure my readers understand the most basic monetary credo of the most powerful and influential central bank on the planet — one which still serves as a role model for the international central bank community.
I’m sure you’ve read it before. But given the latest rush of events, it behooves you to read it again:
“…the U.S. government has a technology, called a printing press (or, today, its electronic equivalent), that allows it to produce as many U.S. dollars as it wishes at essentially no cost.”
Since then he has delivered as promised. Take a look at the following chart of the U.S. monetary base:
Source: St. Louis Fed
A Race for the Title “Worst Central Banker of All Time”
In my 2004 book, Das Greenspan Dossier, I predicted that history would identify Alan Greenspan as the worst central banker ever. Well, I’m not so sure about that anymore. Mr. Bernanke has become a serious contender for the title.
First, he fully supported Greenspan as a Fed governor. Both were reluctant to recognize the huge stock market bubble and had no clue regarding its true implications. Both deemed it the right policy to fight the aftermath of the stock market bubble by creating an even bigger bubble, this time in housing … which again both central bankers failed to discern.
When it came time for Greenspan to retire, Bernanke easily stepped into his shoes. He seamlessly continued with the same reckless policy and does so to this very day.
They followed the same reckless script Greenspan had written before, only with far higher stakes. Bailouts and money printing have been hailed as the proper remedy for a disease that would never have existed without bailouts.
Talk about “Quantitative Easing”
Obfuscates the Truth
Instead of directly talking about the government’s monetary printing press, Mr. Bernanke talks euphemistically about “quantitative easing.” He obviously wants to sound more scientific and veil the reckless core of his policies. But he keeps his track record intact.
Currently, he is on a public relations crusade to sell the second round of quantitative easing (QE2) to the public. Only a few days ago he stated for the record that if he feels the need to embark on QE3, he will not hesitate to do so.
Unfortunately, he is not alone. The entire global community of central bankers seems to agree that there is no alternative to this policy. Last week, the president of the European Central Bank (ECB) Jean-Claude Trichet made it clear that he will follow the same road Mr. Bernanke has already taken so decisively.
Bottom line: No end in sight to the money printing, the surge in gold and the profits that investors can make from that surge.
Best wishes,
Claus
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