Observing the economy over the last three years is like watching a slow motion train wreck. But to this writer the country is fast approaching an inflection point. The Federal Reserve, now more powerful than ever, is nonetheless being squeezed ever tighter between the proverbial rock and a hard place. Frightened to the point of psychosis at the prospect of deflation, yet worried to the core by the consequences of inflation, the Fed, propaganda aside, really doesn't know what to do.
Deflation and gold are the twin enemies of the Federal Reserve. The "D" word is unthinkable, as it brings back horrendous memories of the Great Depression. Gold, because it is real money, has been going up for ten straight years. That means the Federal Reserve's money and that of all the world's central banks have been going down. After all, they're just pieces of colored paper backed by absolutely nothing. So what's Gentle Ben (Bernanke) to do?
With the country and most of the states basically bankrupt, the nation turns to its politicians for wisdom. What they get is a Right Wing whose rhetoric has become so over-the-top that it approaches outright insanity. On the other side of the aisle is a president who still thinks he can do business with Republicans and has no stomach for a good old fashioned fight. He remains passionless, professorial, cerebral, above the fray. Yet, somehow, the American people still believe what the corporations and the government tell them. And they do as they're told. Other than the Tea Party lunatics, most everyone else remains firmly glued to their couches.
Finally, when the you know what hits the fan, both the Federal Reserve and the politicians will go the way they've always gone: print money and lots of it. So, if you had to place a bet, it would be inflate or die.
August 5, 2010