Fed's no fool, are Americans?
By James M. Carrillo
Broker, Swiss America
April 1, 2008

This past month the Federal Reserve reported a minuscule .01% gain in inflation so it is safe to say that we have no inflation in America and none in the foreseeable future.

The Fed also bailed out the entire financial system and all is well so it is safe to put all of your money in the bank, buy secure stocks and the dollar will be a safe place for your money again.

These are the recent headlines and this is NOT an April Fools joke. Are we Americans foolish enough to believe inflation only rose .01%? My grocery bills are going up every month, the cost to get to and from work is going through the roof, the cost to heat and air condition my home is going up 11% this year according to my energy companies.

The Fed bailed out the entire financial system and all is well? Excuse me, if Zimbabwe economics is a cure then we are fine. When I took my economics classes at UCLA I was taught that an increase of the quantity of money in existence, which is a function of monetary policies, generally set by central banks that have a monopoly on the issuance of currency, which is not pegged to a commodity such as gold, is inflationary. The central bank of the United States is the Federal Reserve; the central bank backing the Euro is the European Central Bank.

Now here is the kicker. When the Fed opened its printing presses to bail out Bear Stearns and others in a historical move to LEND money cheaply to financial institutions for the first time in history at bank rates, it was a pure act of desperation to prevent a great depression.

Lets look at the cause of hyperinflation as defined by Wikipedia:

In economics, hyperinflation is inflation that is "out of control," a condition in which prices increase rapidly as a currency loses its value. The formal definition is: "inflation exceeding 50% a month." In informal usage the term is often applied to much lower rates. As a rule of thumb, normal inflation is reported per year, but hyperinflation is often reported for much shorter intervals, often per month.

The definition used by most economists is "an inflationary cycle without any tendency toward equilibrium." A vicious circle is created in which more and more inflation is created with each iteration of the cycle. Although there is a great deal of debate about the root causes of hyperinflation, it becomes visible when there is an unchecked increase in the money supply or drastic debasement of coinage, and is often associated with wars (or their aftermath), economic depressions, and political or social upheavals.

Sound familiar? I refuse to be a sheep and I don’t believe for one minute we aren’t headed for massive inflation or worst yet Hyperinflation. Everyone should have at least 10% of there assets in GOLD not a currency that is being mass produced and is only back by the “full faith” and “credit” of a government that has neither much faith and is looking less credit worthy than the sub prime lenders do today.

Technically gold is in very, very oversold territory now, the weekly moving averages show support in the $880.00 area. For those wanting to buy low it should be bought this week. Remember, gold is a mirror image of the U.S. dollar and will save many Americans from the long term ravages of inflation.

"Foolishness is the life blood of the stock market. Without foolishness, we would be nowhere. Instead of worrying about how well companies are doing and how much the economy is growing, smart stock investors should instead worry about whether an adequate supply of foolishness will be maintained. I’m happy to inform readers that if present trends continue, they have nothing to fear." -The Fool and his Money

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