Best of the Week
Most Popular
1. Stock Markets and the History Chart of the End of the World (With Presidential Cycles) - 28th Aug 20
2.Google, Apple, Amazon, Facebook... AI Tech Stocks Buying Levels and Valuations Q3 2020 - 31st Aug 20
3.The Inflation Mega-trend is Going Hyper! - 11th Sep 20
4.Is this the End of Capitalism? - 13th Sep 20
5.What's Driving Gold, Silver and What's Next? - 3rd Sep 20
6.QE4EVER! - 9th Sep 20
7.Gold Price Trend Forecast Analysis - Part1 - 7th Sep 20
8.The Fed May “Cause” The Next Stock Market Crash - 3rd Sep 20
9.Bitcoin Price Crash - You Will be Suprised What Happens Next - 7th Sep 20
10.NVIDIA Stock Price Soars on RTX 3000 Cornering the GPU Market for next 2 years! - 3rd Sep 20
Last 7 days
Stock Market SEASONAL TREND and ELECTION CYCLE - 24th Nov 20
Amazon Black Friday - Karcher K7 FC Pressure Washer Assembly and 1st Use - Is it Any Good? - 24th Nov 20
I Dislike Shallow People And Shallow Market Pullbacks - 24th Nov 20
Small Traders vs. Large Traders vs. Commercials: Who Is Right Most Often? - 24th Nov 20
10 Reasons You Should Trade With a Regulated Broker In UK - 24th Nov 20
Stock Market Elliott Wave Analysis - 23rd Nov 20
Evolution of the Fed - 23rd Nov 20
Gold and Silver Now and Then - A Comparison - 23rd Nov 20
Nasdaq NQ Has Stalled Above a 1.382 Fibonacci Expansion Range Three Times - 23rd Nov 20
Learn How To Trade Forex Successfully - 23rd Nov 20
Market 2020 vs 2016 and 2012 - 22nd Nov 20
Gold & Silver - Adapting Dynamic Learning Shows Possible Upside Price Rally - 22nd Nov 20
Stock Market Short-term Correction - 22nd Nov 20
Stock Market SPY/SPX Island Setups Warn Of A Potential Reversal In This Uptrend - 21st Nov 20
Why Budgies Make Great Pets for Kids - 21st Nov 20
How To Find The Best Dry Dog Food For Your Furry Best Friend?  - 21st Nov 20
The Key to a Successful LGBT Relationship is Matching by Preferences - 21st Nov 20
Stock Market Dow Long-term Trend Analysis - 20th Nov 20
Margin: How Stock Market Investors Are "Reaching for the Stars" - 20th Nov 20
World’s Largest Free-Trade Pact Inspiration for Global Economic Recovery - 20th Nov 20
Dating Sites Break all the Stereotypes About Distance - 20th Nov 20
THE STOCK MARKET BIG PICTURE - Video - 19th Nov 20
Reasons why Bitcoin is Treading at it's Highest Level Since 2017 and a Warning - 19th Nov 20
Media Celebrates after Trump’s Pro-Gold Fed Nominee Gets Blocked - 19th Nov 20
DJIA Short-term Stock Market Technical Trend Analysis - 19th Nov 20
Demoncracy Ushers in the Flu World Order How to Survive and Profit From What Is Coming - 19th Nov 20
US Bond Market: "When Investors Should Worry" - 18th Nov 20
Gold Remains the Best Pandemic Insurance - 18th Nov 20
GPU Fan Not Spinning FIX - How to Easily Extend the Life of Your Gaming PC System - 18th Nov 20
Dow Jones E-Mini Futures Tag 30k Twice – Setting Up Stock Market Double Top - 18th Nov 20
Edge Computing Is Leading the Next Great Tech Revolution - 18th Nov 20
This Chart Signals When Gold Stocks Will Explode - 17th Nov 20
Gold Price Momentous ally From 2000 Compared To SPY Stock Market and Nasdaq - 17th Nov 20
Creating Marketing Campaigns Using the Freedom of Information Act - 17th Nov 20
ILLEGITIMATE PRESIDENT - 17th Nov 20
Stock Market Uptrend in Process - 17th Nov 20
How My Friend Made $128,000 Investing in Stocks Without Knowing It - 16th Nov 20
Free-spending Biden and/or continued Fed stimulus will hike Gold prices - 16th Nov 20
Top Cheap Budgie Toys - Every Budgie Owner Should Have These Safe Bird Toys! - 16th Nov 20
Line Up For Your Jab to get your Covaids Freedom Pass and a 5% Work From Home Tax - 16th Nov 20
You May Have Overlooked These “Sleeper” Precious Metals - 16th Nov 20
Demystifying interesting facts about online Casinos - 16th Nov 20
What's Ahead for the Gold Market? - 15th Nov 20
Gold’s Momentous Rally From 2000 Compared To Stock Market SPY & QQQ - 15th Nov 20
Overclockers UK Quality of Custom Gaming System Build - OEM Windows Sticker? - 15th Nov 20
UK GCSE Exams 2021 CANCELLED! Grades Based on Mock Exams and Teacher Assessments - 15th Nov 20
Global "Debt Mountain": Beware of This "New Peak" - 13th Nov 20
Overclocking Zen 3 Ryzen 5600x, 5800x, 5900x and 5950x to 4.7ghz All Cores Cinebench R20 Scores - 13th Nov 20
Is Silver Leading Bitcoin or is Bitcoin Leading Silver? - 13th Nov 20
How Elliott Waves Simplify Your Technical Analysis - 13th Nov 20
How to buy Bitcoins using debit/credit card? - 13th Nov 20
Will COVID Vaccine Kill Gold and Silver? - 12th Nov 20
Access to Critical Market Reports - 12th Nov 20
Stock Market Dow Futures Reach 30,000 on News of COVID-19 Vaccine Trials Success - 12th Nov 20
8 Terms & Conditions You Must Know Before Asking For Life Insurance Policy Quotes - 12th Nov 20
Gold Stocks Post 2020 US Election Outlook - 11th Nov 20
Champions’ League Group Stage Draw: All You Need To Know - 11th Nov 20
Stock Market Secular Trend - 11th Nov 20
Stock Market Correction Curtailed by US Election - 11th Nov 20
What Causes a Financial Bubble? - 11th Nov 20
Ryzen 9 5900X RTX 3080 - Scan.co.uk vs Overclockers.co.uk UK Custom PC System Builder Review - 10th Nov 20
Killing Driveway Weeds FAST with a Pressure Washer - Saving Block Paving from LOTS of WEEDs - 10th Nov 20
Trump Fired, Biden Hired, What Next?  - 10th Nov 20
Looking for a Personal Loan? Here Is What You Have To Know  - 10th Nov 20

Market Oracle FREE Newsletter

How to Get Rich Investing in Stocks by Riding the Electron Wave

Protect Your Wealth from Central Bank Lies on Inflation

Economics / Inflation Jan 19, 2011 - 08:25 AM GMT

By: Claus_Vogt

Economics

Best Financial Markets Analysis ArticleIf you believe what central banks say and you plan your investments accordingly, you could be in for some big surprises.

Consider, for example, some of the lies spouting forth from the U.S. Fed and the European Central Bank (ECB) …


Lie #1 The Fed Should Aim to Create “At Least Some” Inflation

To justify its latest round of quantitative easing, the Federal Reserve has made the case that inflation in small doses is good … even if larger doses are obviously bad.

In reality …

  • No economist has ever presented a shred of evidence that establishes the dividing line is between “a little good inflation” and “a lot of bad inflation.”
  • Moreover, no economist can deny that inflation almost always feeds on itself, as each player in marketplaces seeks to gain an advantage over the other, jacking up prices in a leapfrog fashion.
  • Indeed, past experience proves that rampant, out-of-control inflation almost invariably starts with small brushfires and then escalates into major conflagrations, and
  • Any central banker who denies these realities is merely compounding the first lie with still another.

Lie #2 Modern Central Banks Pursue “Price Stability”

Every central bank pays lip service to price stability as its core mission and goal, but most are surprisingly quick to make a wide range of excuses when that goal slips them by.

Case in point: The European Central Bank (ECB) swears that its goal is to keep price inflation capped at 2 percent per year. But last week, the inflation rate in the euro zone busted through that threshold at 2.2 percent, the highest in two years.

And still, they talk unabashedly about price stability.

Think about that for a moment. If prices rise 2 percent each year, they will jump nearly 22 percent after ten years with compounding.

After 20 years, prices will be up 48.6 percent, and at a 2.2 percent annual rate, they’ll be up by 54.5 percent. That’s not exactly price stability.

Isn’t it strange — no, cheeky and reckless — to define a one-third-or-more loss in your wealth as “price stability”? Of course it is. But it’s part of the central banking community’s dirty little secret.

Let me remind you that the U.S. Fed and other central banks are no better than the ECB, often even worse. And in our globalized world with monetary and fiscal “crisis management” so synchronized, inflation is a global phenomenon.

Indeed, a few months ago, inflation started to rear its ugly head in China and other emerging nations. Now it has reached Europe. And it’s only a matter of time before it hits U.S. shores. So everything I am writing here is equally pertinent to the U.S.

Lie #3 Economic Growth Drives Prices Higher

This was the recent headline in a major German newspaper commenting on the higher European and German inflation rates.

The intent was to put a positive spin on the higher inflation, directly associating it with positive growth, and it’s exactly what modern central bankers want you to believe.

Don’t fall for it.

To understand why, go back to a couple of basic definitions of inflation.

The first definition:

Inflation is the increase in the general level of prices of goods and services in an economy over a period of time.

True, but this is merely a description. It tells you nothing about what causes rising prices. So if you rely exclusively on this definition, you are more likely to fall for the argument that it’s all driven by economic growth or some other easy-to-blame — supposedly “temporary” — factor like rising energy and food prices.

So while formally correct, this definition isn’t very helpful. It hides more than it clarifies.

The second definition:

Inflation is the increase in the money supply in an economy over a period of time.

Now, we’re getting down to the heart of the matter: This definition makes it clear that rising prices are merely a symptom of the true inflation — the expansion in the money supply. And it also makes it immediately clear that the primary culprit for rising inflation is the entity in charge of that money supply — the central bank.

M2 Money Stock

Coming to the Truth

Now, when measured by this criteria — expanding money supply —the true role of central banks is unmasked. Instead of inflation fighters, they are revealed as inflation mongers.

Indeed, history shows that sustained inflation — let alone rampant or hyperinflation — has never been possible without a huge increase in the money supply. And common sense tells you that it will never be possible in the future either.

What, then, gives politicians and central bankers the cover to perpetuate their lies?

The answer is time lags!

It takes time for expanding money supply to feed through the economy and create inflation.

And sometimes, as in recent history, money supply growth leads to rising prices in sectors that are not adequately reflected in consumer price indices — like stocks in the late 1990s and real estate in the early 2000s.

Some of the best evidence on the importance of money supply lies in the studies of historical inflations conducted by Swiss economist and monetary expert Peter Bernholz in his book Monetary Regimes and Inflation.

His findings:

  • All major inflations have been caused by princes or governments.
  • All hyperinflations have occurred in the presence of “discretionary money regimes” — in other words, when central banks had the freedom to run the printing presses.
  • Hyperinflations are always caused by public budget deficits which are largely financed by money creation. If inflation accelerates, these budget deficits tend to increase.

On the Path to High Official Inflation Rates

Please consider the above findings very seriously because they are a far more accurate description of our current monetary and fiscal environment than anything you will hear from the Fed or other central banks.

So it’s no coincidence that consumer price inflation has started to creep up. It’s exactly what our politicians have ordered when they decided that you, the taxpayer, should be handed the bill for the sins of reckless bankers and real estate speculators.

With Fed Chairman Ben Bernanke the world’s leader of “modern central banking” …

With governments all over the world on a debt binge …

And with still more of the same in the pipeline …

You had better brace yourself for more inflation.

30 year T-Bond Yield

How to Protect Yourself and Profit From Higher Inflation Rates

One of the first markets to respond to present and future inflation is the bond market. Bond investors foresee inflation driving interest rates higher. They don’t want to get stuck in fixed, low-yielding bonds. And they sell.

So here’s what to do.

First, get rid of your long-term bonds. They are definitely not the place to be in inflationary times. And with rates as they are now, long-term Treasury bonds look very risky.

Indeed, right now, long-term interest rates actually seem to be in the process of forming a huge bottom formation. The decades-long trend of declining interest rates which began in 1981 is probably turning around. A new bull market in interest rates (bear market in bond prices) is now beginning.

Second, if your portfolio or your business are vulnerable to higher interest rates, you should hedge. In the past, there was little you could do other than run for cover. Fortunately, however, in today’s markets you can protect yourself with ETFs like ProShares UltraShort 20+ Year, symbol TBT, designed to rise 2 percent for every 1 percent decline in bond prices.

Third, if you have funds you can afford to risk, consider ETFs like TBT as a vehicle to profit directly from rising interest rates.

Fourth, if you haven’t done so already, learn more about the dangers and opportunities ahead in my just-published book, The Global Debt Trap. Click on your choice of bookseller to order it online — Amazon, Barnes & Noble or Books-A-Million or stop by your nearest bookstore.

Best wishes,

Claus

This investment news is brought to you by Money and Markets. Money and Markets is a free daily investment newsletter from Martin D. Weiss and Weiss Research analysts offering the latest investing news and financial insights for the stock market, including tips and advice on investing in gold, energy and oil. Dr. Weiss is a leader in the fields of investing, interest rates, financial safety and economic forecasting. To view archives or subscribe, visit http://www.moneyandmarkets.com.


© 2005-2019 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in

6 Critical Money Making Rules