It's called Inflation!

We have a bull market alright!

The Weed Keeps Growing

In October of 2009 cotton was 0.80 cents/pound; on March 4th 2011 cotton was at $2.20/pound. That is a tripling in the price of cotton; and obviously this doesn't happen without a lot of money creation from the central banks. Cotton is up 190% since last fall; does anybody not think that's cause of inflation and thats going to feed through to the price of clothing? Everything uses cotton; socks, t-shirts, underwear, blue jeans. Of course it's not just cotton, it's all fabrics that are getting expensive; so you can't substitute some other material for it. This is just one example of the true cost of increase money supply.

Rising food prices is not the story, it's rising money supply that's the story; which is the reason food prices are rising. It isn't a coincidence, that prices of food is surging to record highs at the same time as money supply's are expanding to record highs. There is a cause in relationship between QE1 and QE2 and whats happening with prices. It's not like all these high prices are a surprise; it's exactly what you would expect based on the monetary policy of the United States. The reason why inflation is global is because the United States has the world reserve currency. What the U.S monetary policy direction is, affects the monetary policies of every other currency so long as the dollar remains the world reserve currency.

3 scapegoats


Scapegoat number one : the weather. The weather has nothing to do with it, there's weather every year. There's always problems in the weather; someones got a flood, drought, freeze.... It happens every year. In the old Soviet Union (Russia) was the bread basket of Europe. When the communist system came in, every year produced a bad harvest and every year they blamed the poor harvest on the weather. It wasn't the weather, it was the communist system that destroyed the incentive of farmers to farm. It is not weather related these surging prices across the board. It's not just this commodity (Wheat) that's rising, it's all commodities that are rising. So the weather is affecting every crop on the planet? Come on.

Scapegoat number two : demand in emerging markets: well we have had demand in emerging markets for centuries; they've been eating for centuries, they didn't just show up. What's changed? Answer : whats changed is all the money they have to spend on food because all the money that central banks are printing.

Scapegoat number three : Speculators. Where are the speculators getting all the money to speculate? Answer : from the FED; the critics are not pointing the finger at the real problem and the root cause of global inflation. It's Ben Bernanke, the money he's printing, it's President Obama and Congress that are spending money; the debt that they are issuing that Ben Bernanke is buying. This is a direct consequence of economic stimulus; that's why the world is suffering and that's why Americans are going to suffer in the future!

If we don't make the connection of printing money and rising prices; then it's never going to stop. It seems like it's so obvious, that it's such a obvious connection. If we have more money, then money is less valuable; so prices have to rise. If we keep blaming the inflation problems on the weather, speculators, emerging markets; we are going to keep blaming it on everything but the actual cause which is the Federal Reserve and the deficits that are being created by congress that forces the FED to monetize. They're not required to monetize but we have a FED chairman with no guts!

Global Economy / Global Problems / Naughty FED!


First off, the global economy has been growing; theres currently 5 billion people on the planet. More people are alive today than in the past but this growing trend has been in place for centuries; yet we've never had this "problem" with food. The thing is with more people on the planet means not only more people eating but also more people farming. Also, with advances in science and technology their are more advanced means in growing food with less input. It's not like you've had this huge explosion in people in the last 2 years, no; whats changed is this huge explosion in money supply. Whats changed is the FED's balance sheet being blown out of proportion. What's changed is all these foreign reserves of all these emerging markets central banks printing money to buy up all these FED printed dollars like it's going out of style. That's what's different from now and a couple of years ago; that's why prices are shooting through the roof.

Why doesn't the FED see this you ask? Answer : the FED is not missing it, the FED is just closing it's eyes. The FED doesn't want to acknowledge what they see, because they don't like the picture that's being painted. If the FED admitted it sees inflation, the reaction to that is having to raise interest rates. The minute the FED has to raise interest rates the economy tanks. The only reason why the economy is not tanking already is because it's on artificial life support already by the FED. The trade off consequence of that is to keep this phony economy going, to keep these banks afloat,  to keep the real estate prices high we have to create inflation, we have to make prices go up. The FED doesn't want to say that's the trade off; the FED doesn't want to admit they've made a deal with the devil and these are the consequences. So they ignore inflation, they lie; but the problem is they loose all credibility when they look at all this inflation and say it doesn't exist. Of course it exist, but they don't want to deal with it. They don't want to have raise rates, they don't want to force politicians to make real cuts.  The problem is we need to get this recession out of the way; the recession is part of the cure. In less we allow the economy to restructure in a way that will create a solid foundation, we will never build a lasting economic recovery; that is the point!

QE2 Failure!


The main goal of QE2 was to bring long term treasury rates down and instead they went up! So, the FED has already lost control of long term rates; noticed in the rising rate. At some point the long end yield curves will get out of control. When the FED loses control of short term rates; is when it will be forced to monetize not only treasuries but other short term commercial paper. Because at some point when inflation gets so high, nobody will want to buy any short term paper and then what is the FED going to do? If the FED doesn't raise rates then nobody will be able to borrow cause the current rate for borrowing is 0%; unless the FED lends to everybody and then of course the FED becomes the buyer of only resort and not the buyer of last resort and that's it for the dollar index! If the FED raised rates right now then the recession will start right now and that would be bad for any political representative trying to get re-elected like the President. Because when it comes to politics it's all about postponing, delaying, even if the delay exacerbates the problem; that doesn't bother a politician. A politicians biggest problem is getting through the next election. He doesn't care how much long term damage he does to the economy in reaching his own goals. Unfortunately the central bankers are working in partnership with the politicians, they're buddy buddy; they're helping them get re-elected instead of being the independent central bankers they were appointed to be. The central bankers are not playing the role of the adult in the room. Instead the bankers are the life of the party, they've got the lamp shade on their head and they're spiking the punch bowl! There is a party in DC and I haven't got a invite.... 

Uncle Ben is Numb to Global Inflation

We Won't Get Fooled Again!

    Consider the Following:

•    The FED reduced the interest rate charged to the banks to near 0%. The push was on to improve their (Banks) performance in hopes they could overcome the large losses from the default mortgages that they hold.

•     Problem is few businesses an individuals wanted to borrow the money from banks due to the political an economic conditions that they face daily in the market place. Banks could not loan out the cheap money and make profits on the spread!

•    Now the FED will buy U.S. Bonds held primarily by the same banks to again infuse money into them and take the risky debt of their books. The hope is the banks will lend out this money to small business and consumers to spur growth in the economy.

•    Not So Fast - Banks will take the new cash and put it to work in foreign currency's, and stocks plus Gold. They will make money and our economy will not grow. It's another bailout for banks holding ever decreasing mortgage's. We get fooled again!

All the President's Men!

Economic Freedom is a mind-set!

  

   I am often asked which U.S. presidents pursued the best and worst economic policies. My answers may surprise you. In evaluating a President, I believe it is essential to look past his popularity, party affiliation and family background. During the twentieth century, there were several presidential standouts - both good and bad. I want to discuss one of each. In both cases, their policies changed the direction of the entire nation, affecting the lives of millions of Americans.

Silent Cal

   Calvin Coolidge was Vice President under Warren G. Harding, who became President in 1921. At the time, the United States was in a deep depression. Unemployment was at 20 percent, taxes were high and federal debt was ballooning. Harding insisted on cutting taxes, reducing the national debt and cutting the federal budget (the opposite of what his predecessor, Woodrow Wilson, had done). Following Harding's sudden death in 1923, Coolidge wisely chose not only to maintain many of those policies, but to extend them.
  
   In his first address to Congress, Coolidge called for further tax cuts, fewer subsidies and avoidance of foreign entanglements. "Perhaps the most important work that this session of the Congress can do," Coolidge said, "is to continue a policy of economy and further reduce the cost of government." Coolidge had a deep understanding of the need to limit government growth. His belief in property rights was reflected in his commitment to cutting taxes. "I want taxes to be less," said Coolidge, "so that the people may have more." Coolidge signed into law Revenue Acts that lowered income tax rates from 73 percent to 24 percent. He, together with Harding, also cut federal expenditures in half. "Anybody can reduce taxes," Coolidge said, "but it is not so easy to stand in the gap and resist the passage of increasing appropriation bills which would make tax reduction impossible." Where were the results of these policies?

   It is no coincidence that the Harding/Coolidge era was one of the most prosperous in U.S. history. Gross National Product, wages, profits, productivity and the overall standard of living rose substantially. Although he was quite popular and faced no term limits, Coolidge refused to run for re-election in 1928. Today, it is rare to find any politician who wishes to self-limit his time in office. 

   Cal's Successor  

   When Coolidge decided to step down, Herbert Hoover - who was Secretary of Commerce for both Harding and Coolidge - secured their party's nomination and went on to win the presidency. Hoover served just one term in office. During those four years he essentially reversed the course of federal policy. Hoover pushed for higher taxes and farm subsidies, and proposed costly pension entitlements. He also signed the infamous Smoot-Hawley tariff bill, a protectionist policy that helped cause global economic depression.

   Under Hoover, federal spending roughly doubled and personal income tax rates jumped from 25 percent to 63 percent. He raised corporate taxes, too, and doubled the estate tax. Hoover also pressured business leaders to keep wages artificially high, contributing to massive unemployment. By the time he left office, the U.S. economy was in shambles and the Great Depression had arrived.

   Hoover is rightfully blamed for much of the economic calamity that left millions of Americans unemployed and penniless. But it is wrong to say he caused the Great Depression by following free-market principles. Hoover did just the opposite. He undermined economic freedom. Those mistakes were then compounded by Franklin Delano Roosevelt's "New Deal," which prolonged the Great Depression. Rex Tugwell, an architect of FDR's policies, wrote: "we didn't admit it at the time, but practically the whole New Deal was extrapolated from programs Hoover started."

   Election Time!

   The United States is not electing a president this year, but hundreds of other important offices will be on the ballot Nov.2. When evaluating a candidate for public office, I ask a simple question: Does the candidate support economic freedom? Economic freedom does not "belong" to any political party. After all, both Coolidge and Hoover were Republican. Candidates of any party who believe we need bigger government, more regulation, higher taxes, increased spending and borrowing, and more centralized decision making are threats to economic freedom. Like Hoover, their policies leave all of us - especially the poor - much worse off.

   Candidates who support economic freedom realize our government is already too big and intrusive, and is spending, borrowing, taxing and controlling too much. They support a strong and efficient government, but one that operates within strict Constitutional limits and in the best long-term interests of society. If you are concerned about creating jobs, growing our economy and enhancing our quality of life, then you need to be concerned about electing candidates that support freedom. This is true everywhere and at all times, not just in the United States this November.