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Jim Cook

 

RUNAWAY SOCIAL SYMPATHY

Every once in a while I switch the TV channel from Fox to CNBC to see what the liberals are saying.  After listening awhile I get a deep sense of hopelessness and foreboding for our country.  The most important thing for the left is giving money to people.  They are happy to see the growth of food stamps, disability payments, housing subsidies, free healthcare and all the other welfare benefits.  They utterly fail to see the damage it is doing to the recipients.  Whole cities that once flourished have deteriorated into rotting eyesores populated with shambling hulks of chemically dependent drones.  These people are no longer employable.  They have become incompetent and helpless and the liberals can’t see that it’s their doing.

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The Best of Jim Cook Archive

 
Best of Michael Pento
July 21, 2009
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For me, the consequences of our record breaking and historic levels of debt are clear. Our country is faced with the decision to debase the currency by massively inflating the money supply or allow the depressingly painful deleveraging cycle to run its course.

First we tried the inflationary path. The monetary base raised from $900 billion to $1.8 trillion during the October 2008 thru May 2009 time frame. It is no coincidence towards that at the end of that record shattering move, the dollar index began to break down, there was a surge in bond yields, and commodity and stock prices moved sharply higher. There also began to be improvement in the second derivative fall of home prices. For me, this is empirical evidence of our inflation addiction. Our government deemed it necessary to crush the dollar in order to engender a brief period of ersatz prosperity.

However, when oil traded at over $70 a barrel the Federal Reserve was forced into jawboning an exit strategy for the inflation they were creating. The Fed has since let the monetary base stagnate for the last six months at a lofty $1.6- $1.8 trillion range. The result of their comparatively prudent monetary policy has caused the dollar to stabilize, bonds to rally, commodities to fall and stocks to rollover. This is all great news for the economy in the long term but will spread Agent Orange on the “green shoots of recovery” in the short term.

What the Fed fails to comprehend is that bank assets and consumer balance sheets will continue to erode if real estate prices continue to fall and the rate of unemployment continues to increase. Therefore, you cannot have it both ways. They either have to accept the idea that the rate of inflation will be significantly higher than their 2% target rate for a period of years or they will have to allow asset prices to fall far below their historic levels. This is precisely because as the consumer pays down their record debt, asset prices will overshoot to the downside.

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Michael Pento
Chief Economist
Delta Global Advisors
800-485-1220
mpento@deltaga.com
www.deltaga.com
With more than 17 years of industry experience, Michael Pento acts as Chief Economist for Delta Global Advisors and is a senior contributor to GreenFaucet.com. He is a well-established specialist in the Austrian School of economic theory and a regular guest on CNBC and other national media outlets. Mr. Pento has worked on the floor of the N.Y.S.E. as well as serving as vice president of investments for Gunn Allen Financial immediately prior to joining Delta Global.