When Will The Fed Get Serious About Fighting Inflation?
Jay Taylor
We have been warning about inflation for many, many months even as the policy makers had been complacent and reporting inflation rates of 1 1/2% to 4% range. Of course, we knew all along that the numbers being reported on by the Bureau of Labor Statistics were bogus starting with President
Clinton. Actually funny inflation numbers were first proposed by the first
President Bush and then implemented by President Clinton to spin
economic propaganda in favor of the ruling elite. The chart on your left
shows the Official CPI in red. The blue “Alternate CPI” was calculated by
economist Walter Williams, who simply applied the same methods of CPI
calculation as was used pre-Clinton. Note that the existing CPI using pre-Clinton methodology is already close to 12%. By contrast, the “official” government number is only 4%.
Various tricks have been used by our Federal government to spin inflation numbers not only to make politicians in power look better but to dampen inflationary psychology so that the ruling elite can continue to re-allocate wealth from the poor and middle classes toward their own pockets. Various assumptions such as hedonic regression, product substitution, exclusion of taxes and totally fake housing costs were used to suppress the real cost of living in the numbers. A more detailed account of how these methods were used may perhaps be discussed in an upcoming weekly hotline message.
Ludwig von Mises noted that this process of wealth reallocation can continue
by the ruling elite as long as the public believes inflation will end one day.
When the public begins to believes prices will rise forever and especially when they begin to accelerate, there will be a rush out of paper money into tangible assets. Recently, we have witnessed increased rhetoric from the Fed concerning inflation and like obedient monkeys, Wall Street has responded by assuming the Fed was serious about inflation. That buys more time for more, not less inflation because the public has been successfully manipulated by the Fed and other policy makers. And so long as the modus operandi is just talk and no action—as we are convinced the case is now—we will continue to bet on inflation rather than deflation.
How will we know when policy makers are really, truthfully serious about fighting inflation? We will know when the Fed reduces the growth of money required to cause real interest rates to rise to significantly positive levels. The last time that happened was in 1980 when the real rate of interest rose to around 10%. In fact, as the chart on your left reveals exactly the opposite is true at the moment. Even if you use the governments own phony CPI number, the real rate of interest is around minus 2%. Using the true CPI of 12%, the actual real rate of interest is now around minus 10%! Because of the phony CPI numbers and excessive use of credit cards, Americans haven willing and/or able to continue their lifestyles more ore less as they had years ago. But now, with credit not so easily available, with the cost of living cutting into family budgets in a major way, with people losing their jobs, the natives are becoming increasingly restless. While most Americans are ignorant of the governments manipulative and propaganda tactics, they know first hand that their living standards are starting to suffer and they don’t like what they see. Because of their ignorance, we anticipate the inflation game will go on for quite some time. But it is also conceivable that when the pain of inflation becomes politically unbearable, we could see a reversal of policy as happened in 1980. When I put that possibility before Congressman Ron Paul and Marc Faber at a dinner in San Francisco in the Fall of 2006, neither of them thought a policy shift akin to that of 1980 was remotely possible in part because the U.S. economy is in so much worse shape now than at that time. In the view of both Ron Paul and Marc Faber, the pain of tightening credit to the extent required to purge the excesses in the U.S. and global economy would be absolutely unbearable. As such neither of these gentlemen thought a tight money policy would be implemented. Rather both men believed as I do now, that the trend will be toward higher and higher rates of inflation until we reach a point when the system breaks down.
I think they are right. But then the policy shift by Fed Chairman Paul Volcker when pulled the rug out from the inflation trade in 1980 was also very unexpected. My thinking is that policy makers now no doubt have a new currency lined up for us in the form of the Amero when we reach a breaking point. And at this juncture I continue to think that breaking point is likely to come via hyper-inflation rather than a deflationary implosion, much a the latter would be less damaging than the former. Of course what I think will happen is unimportant. What actually does happen is what counts and so we continue to strain our ears to hear the language of the markets as measured by our IDW and other indicators. At this juncture our IDW continues to point toward higher and higher rates of inflation with an occasional reduction in the growth rate of inflation as is currently taking place. And of course we will continue to watch the real rate of interest for a hint at what the Fed is actually doing rather than what it is saying. By the way, if you think policy makers are not making plans behind the backs of the American public to create a North American union and the replacement of the dollar with the Amero, I strongly suggest you begin to do some research starting with a video that you can watch at:
http://www.youtube.com/watch?v=6hiPrsc9g98
June 12, 2008
Jay Taylor; Editor of J Taylor's Gold & Technology Stocks www.miningstocks.com
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