The Fed Chairman Ben Bernanke isn’t a very good liar. But he does have the guts to lie on national television.
A few weeks back he gave an interview on 60 minutes. Bernanke boldly said there was no risk of inflation because “the money supply isn’t changing in any significant way.”
The fact that he was shaking throughout the entire interview is a pretty obvious sign he was lying (although you would think he would be used to it by now). But there’s also concrete proof that he was simply spinning this story his way.
This concrete proof is a forgotten indicator that the government has gone to great lengths to hide from you. It’s because this particular indicator shows inflation risks are rising.
I’m talking about the broadest measure of the U.S. money supply, known as M3. And for those of us still watching it, this indicator is predicting dangerous inflation and some killer profit opportunities for 2011.
Why the Government Doesn’t Want
You to Know About This
In 2006 the government stopped recording M3. Fortunately, a few economists still keep track of this forsaken statistic. And right now it’s pointing to inflation, not deflation.
The chart below shows the annual U.S. money supply growth through November of 2010. Although the government discontinued M3, the website Shadow Government Statistics is one of the few organizations that still keep track of it.
As you can see, M3 (blue line in chart) has been rising for the past six months. That tells me the Fed’s so-called deflation risks are disappearing.
More Money = Higher Inflation Risks
This rebound in broad money supply indicates inflation is more likely than a deflationary spiral.
One of the top indicators of CPI inflation is money growth. Over time, the broadest money measure (M3) has worked as the best single inflation predictor. So M3 changes before CPI inflation changes.
Once M3 starts rising at a more rapid rate, CPI inflation will start to pick up. By then, it will be too late for the government to control it.
But there are a few things you can do to protect your assets now.
Turn This Dangerous Possibility into Profits
The best way to shield your assets from inflation is by having solid exposure to commodities and assets denominated in foreign currencies.
Because commodities are priced in dollars, when the buck loses value, the price of these hard assets increases. So by investing in commodities, like gold, silver, grains, and oil, you can protect your wealth against inflation.
You should also invest a portion of your portfolio in assets denominated in stronger currencies, such as the Singapore dollar and the Australian dollar.
Keep in mind that a higher cost of living (in other words, loss of purchasing power) offsets capital gains in dollar denominated assets.
Let’s say for example your cost of living doubles because of inflation. In that case, even if your dollar assets double in value, you won’t be a dollar richer.
Investors who have all their assets in dollars ignore that simple idea. With money supply data indicating more inflation ahead, now is the time to rectify that mistake.
Bottom line: Bernanke may lie, but the money supply statistics don’t. Take action now to make sure you’re not on the losing end of this massive cover-up.
Editor, Exotic FX Alert