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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
September 15, 2010
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Our central bank controls the printing press, so it has the ability to create money at will and use it to purchase anything it desires. It can and does purchase longer-dated Treasuries and other bank assets like home loans. If these funds are falling into the black hole of the banking system, there are ways for the Fed to cut out the middle man.

For instance, the Fed could buy stocks and real estate directly from the public. The Fed could buy a trillion-plus dollars worth of S&P 500 stocks. Consumers that sold stock to the Fed would receive funds that didn't previously exist. M1 money supply would boom as demand deposits surged. But if the Fed continued to hold interest rates to zero, banks would continue to pay near-zero interest on their deposits. So, American consumers would then be faced with a choice: earn pennies on their savings accounts or take the cash out and jump aboard the soaring stock market.
The Fed could also, if it thought necessary, create another bull market in real estate. It could guarantee 'no down payment' loans of any amount to any borrower, with a promise never to foreclose or seek compensation in the result of default. By making home purchases risk-free, such a policy would surely re-energize the housing sector.

By spurring price increases for stocks and real estate, the elusive "recovery" could be conjured in an instant. The only flaw would be that nothing would actually improve. By telegraphing unlimited monetary debasement, such policies would cause a run on the dollar. Although the "dreaded risk of deflation" would no longer be discussed, investors would be forced to once again abandon savings and chase runaway prices. In other words, we would find ourselves in the exact same predicament that led to the crash of 2008.

Speculation on non-traditional Fed activity is not a vain exercise. Bernanke's recent speech warned of major initiatives to come. First, there's this gem: "The FOMC will strongly resist deviations from price stability in the downward direction [i.e., deflation]." He also showed just how strongly he desires a return to rampant money supply growth and asset inflation when he said, "The Committee is prepared to provide additional monetary accommodation through unconventional measures if it proves necessary, especially if the outlook were to deteriorate significantly." What Bernanke means by such rhetoric is that the Fed will not only monetize assets held by banks, but will purchase assets directly from consumers—thereby placing money directly into their hands. 

We must immediately understand that the Fed can shower liquidity directly on the consumer in any amount it wants. The political pressure to do so will only increase as unemployment rises and economic growth falters. Therefore, rather than fearing phantom deflation, investors should prepare their portfolios for the real upcoming battle with intractable inflation.