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I only have eyes for you. And Inflation

Economics / Inflation Feb 15, 2012 - 08:30 AM GMT

By: Jan_Skoyles

Economics

You may have seen them already but some of them were so, so bad (and some pretty good) that we just had to say something about them.

Yep, we’re talking about the Fed Valentine’s.


Started by Justin Wolfers (author of Freakonomics) Twitter has been going crazy for Fed themed Valentine’s messages. Unlike Ron Paul, who is definitely not in the mood love at the Federal Reserve, Wolfers has sparked a bit of a Fed love-in.

At a time when every move by the central bank, and Bernanke himself, is under scrutiny by the media and economists this must be being seen as an interesting piece of PR for the most powerful institution on earth.

Some of the tweets are quite insightful as to how people are feeling about both Fed and what they’re doing to the economy.

For instance, ‘You’re the gold standard’ implies that some feel the historically stable commodity standard truly was the safe haven that we at The Real Asset Co speak of. So why aren’t more people calling for it?

It also looks like some romantics out there are believe that like relationships, our current monetary system is based on faith, ‘Like fiat money, our love is built on trust…’ I’m not sure I totally agree, stability and maybe something quite shiny and precious always helps!

One of my particular favourites, just for the irony, was from the Minneapolis Federal Reserve ‘Shall I compare thee to price stability and full employment?’. Umm…I’d rather you didn’t thanks being as you’ve managed to fudge both over the last forty years.

“Roses are red, violets are blue, let’s keep pumping until we achieve NAIRU” – nice, this is classic Keynesians. Crude and believing that money solves everything.

We could look as though we’ve had a huge sense of humour failure, but we haven’t. They’re all very funny and very clever. What’s bothering us is that these economists are bright enough to think up these clever tweets, but at the same time aren’t quite bright enough to see the real joke that is the Federal Reserve.

The Federal Reserve is not someone you would want to commit to a long term relationship with, if you had the choice. They are not interested in the long term, they merely look at the short term. Most sensible individuals know that splashing the cash on those they wish to impress is not the answer to gaining trust. But none of the Western central banks have clocked this one.

What of course the Federal Reserve and other central banks don’t realise is that by flashing the money now, it will merely impoverish the real generators of wealth in the short-term. Therefore the real demand – that which provides the basis of a good economy – will be weak and have little interest in the economy the Fed worked so hard to provide.

Bernanke’s approach to saving the economy is a bit like someone’s attempt to save a relationship, promising they’ve changed for the better. But really they create an illusion in order to persuade their loved ones that they know what they’re doing. They spend money to try and plaster up the faults. Soon the cracks appear and its heartbreak all round.

Unfortunately though, I don’t think this will be an easy break up. It looks as though it’s going to be long and drawn out. With each new announcement Bernanke, or King, make the markets seem to fall back in love again, but not as much as the previous time. They seem to think that the central banks probably have sorted themselves out now and the situation is under control. But it never is and it seems as though each time a new measure or piece of data is released this faith in the Fed falters a little bit more.

Soon the Fed and all their counterparts will run out of second chances. Most people will realise this is a relationship which can’t be saved and a huge problem which can’t be solved. Even Mises himself said it:

…a monetary expansion results in misinvestment of capital and overconsumption. It leaves the nation as a whole poorer, not richer…Continued inflation must finally end in the crack-up boom, the complete breakdown of the currency system.

Protect yourself from bankers and politicians. Buy gold bullion safely and securely with The Real Asset Company.

Jan Skoyles contributes to the The Real Asset Co research desk. Jan has recently graduated with a First in International Business and Economics. In her final year she developed a keen interest in Austrian economics, Libertarianism and particularly precious metals.  

The Real Asset Co. is a secure and efficient way to invest precious metals. Clients typically use our platform to build a long position and are using gold and silver bullion as a savings mechanism in the face on currency debasement and devaluations. The Real Asset Co. holds a distinctly Austrian world view and was launched to help savers and investors secure and protect their wealth and purchasing power

© 2012 Copyright Jan Skoyles - All Rights Reserved

Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.


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