Jim Sinclair Commentary:
1. We live in a global economic system and while the Fed's actions are significant they are not the ultimate factor.
2. There has never been and probably never will be any mention of why runaway inflation is headed directly at us. It has nothing to do with Greenspan’s handling of internal money supply. That is child’s play compared to the Bernanke Electric Mayhem Money Printing Press, supported by China and the rest of Asia. This “Dumbo Drop” of international money supply was a direct result of the management of the Japanese and other float accounts bank wiring US funds almost daily into the New York Federal Reserve Bank. The NY Fed is the manager of the float account for Japan and other Asian countries. The NY Fed did not subscribe to treasury issues in the last two years but rather bought US Treasuries across all maturities in the open market. The sellers were anonymous international holders who received cash that liquefied the world and drove the bond market ever higher - even to today.
This method of adding huge liquidity to the world monetary system CANNOT be withdrawn. Practicality prevents the withdrawal of this liquidity because to do it there is only one way. That way is to reverse the transaction and become massive sellers of US Treasuries which would break the bank in many and diverse painful ways.
3. The thought that inflation fires are modest are simply reading the indices which are so skewed it is amazing that they show any inflation at all. Real inflation is orders of magnitude higher than the Made in Hollywood indices suggest.
The inflation coming at us has no precedent in any one's life now investing or trading including me. It is not an insular money supply management event but a product of massive international currency intervention and a Fed-sponsored world-wide liquidity expansion that cannot be reversed. It is not oil that is the problem but a mountain of liquidity sloshing around the planet destined to turn against the dollar. It has already turned positive to gold and that fact will curl your hair when fully and intensely applied.
Delta Airlines is broke, Northwestern is not healthy, and Delphi, the main autoparts supplier to General Motors, is history - not to mention little Refco which seems to be the subject of a news blackout in the past week.
Who pays the guaranteed retirement accounts that are not guaranteed by any more than the US dollar? Also, have you noticed how the new craze is to name everything exactly what it is not? Patriot 1 and 2 are clear examples and an even better one is "The Pension Benefit Guaranty Corporation" which is responsible for insuring certain benefits under private defined benefit pension plans.
In the last year it was responsible for $63 billion in retirement funds which was $23 billion more than it actually has. Where is the rest coming from? Well, the answer is simple - out of thin air and then from you. The US will issue debt to pay off more bankrupt corporate employee entitlements. Then all of this gets inflated and you pay the price.
So you think the dollar is a hot item because of interest rates? Well, wait awhile and then hang on to your hat as we head down a one directional escalator.
Fed Flames Inflation
Forbes October 31, 2005 issue
Alas, one area that is out of the president’s control but which could do him and the Republican’s enormous harm is the incompetence of the Federal Reserve. Rarely has an institution’s performance and reputation been so divergent. When it comes to fighting inflation these days, the Fed makes FEMA look like the prototype of far sighted efficiency.
For two years now, the Fed has been printing too much money, which is why the price of gold continues to move ever higher and why we have a debilitating spike in oil prices. Greenspan & Co. are giving us the worst of both worlds – jacking up short term interest rates while fueling inflation.
You'd think after 18 years on the job Alan Greenspan would have mastered the essentials of central banking. Instead we're now experiencing the BEGINNING of inflation the likes of which we haven't seen in more then two decades. The inflation fires are still small. By removing excess money from the banking system, the Fed could douse the fires before they reach the destructive proportions of the 1970s. Too bad no one has yet produced the book “Central Banking for Dummies.” It would make timely reading for Mr. Greenspan and his fellow governors.
GOT GOLD? rrm |
