Best of the Week
Most Popular
1. US Housing Market House Prices Bull Market Trend Current State - Nadeem_Walayat
2.Gold and Silver End of Week Technical, CoT and Fundamental Status - Gary_Tanashian
3.Stock Market Dow Trend Forecast - April Update - Nadeem_Walayat
4.When Will the Stock Market’s Rally Stop? - Troy_Bombardia
5.Russia and China Intend to Drain the West of Its Gold - MoneyMetals
6.BAIDU (BIDU) - Top 10 Artificial Intelligence Stocks Investing To Profit from AI Mega-trend - Nadeem_Walayat
7.Stop Feeding the Chinese Empire - ‘Belt and Road’ Trojan Horse - Richard_Mills
8.Stock Market US China Trade War Panic! Trend Forecast May 2019 Update - Nadeem_Walayat
9.US China Trade Impasse Threatens US Lithium, Rare Earth Imports - Richard_Mills
10.How to Invest in AI Stocks to Profit from the Machine Intelligence Mega-trend - Nadeem_Walayat
Last 7 days
IBM - Investing in AI Machine Intelligence Stocks - 25th May 19
Seasonal Dysfunction: Why Generations of Gold and Silver Investors Are Having Such Difficulty - 25th May 19
Employment - The Good and the Bad of Job Automation - 25th May 19
Gold Mining Mid-Tier Stocks Fundamentals - 25th May 19
Buy This Pick-and-Shovel 5G Stock Before It Takes Off - 25th May 19
China Hang Seng Stocks Index Collapses and Commodities - 24th May 19
Costco Corp. (COST): Finding Opportunity in Five Minutes or Less - 24th May 19
How Free Bets Have Impacted the Online Casino Industry - 24th May 19
This Ultimate Formula Will Help You Avoid Dividend Cutting Stocks - 24th May 19
Benefits of a Lottery Online Account - 24th May 19
Technical Analyst: Gold Price Weakness Should Be Short Term - 24th May 19
Silver Price Looking Weaker than Gold - 24th May 19
Nigel Farage's Brexit Party EU Elections Seats Results Forecast - 24th May 19
Powerful Signal from Gold GDX - 24th May 19
Eye Opening Currency Charts – Why Precious Metals Are Falling - 23rd May 19
Netflix Has 175 Days Left to Pull Off a Miracle… or It’s All Over - 23rd May 19
Capitalism Works, Ravenous Capitalism Doesn’t - 23rd May 19
The Euro Is Bidding Its Time: A Reversal at Hand? - 23rd May 19
Gold Demand Rose 7% in Q1 2019. A Launching Pad Higher for Gold? - 23rd May 19
Global Economic Tensions Translate Into Oil Price Volatility - 22nd May 19
The Coming Pension Crisis Is So Big That It’s a Problem for Everyone - 22nd May 19
Crude Oil, Hot Stocks, and Currencies – Markets III - 22nd May 19
The No.1 Energy Stock for 2019 - 22nd May 19
Brexit Party and Lib-Dems Pull Further Away from Labour and Tories in Latest Opinion Polls - 22nd May 19
The Deep State vs Donald Trump - US vs Them Part 2 - 21st May 19
Deep State & Financial Powers Worry about Alternative Currencies - 21st May 19
Gold’s Exciting Boredom - 21st May 19
Trade War Fears Again, Will Stocks Resume the Downtrend? - 21st May 19
Buffett Mistake Costs Him $4.3 Billion This Year—Here’s What Every Investor Can Learn from It - 21st May 19
Dow Stock Market Trend Forecast 2019 May Update - Video - 20th May 19
A Brief History of Financial Entropy - 20th May 19
Gold, MMT, Fiat Money Inflation In France - 20th May 19
WAR - Us versus Them Narrative - 20th May 19
US - Iran War Safe-haven Reasons to Own Gold - 20th May 19
How long does Google have to reference a website? - 20th May 19
Tory Leadership Contest - Will Michael Gove Stab Boris Johnson in the Back Again? - 19th May 19
Stock Market Counter-trend Rally - 19th May 19
Will Stock Market “Sell in May, Go Away” Lead to a Correction… or a Crash? - 19th May 19
US vs. Global Stocks Sector Rotation – What Next? Part 1 - 19th May 19
BrExit Party EarthQuake Could Win it 150 MP's at Next UK General Election! - 18th May 19
Dow Stock Market Trend Forecast 2019 May Update - 18th May 19
US Economy to Die a Traditional Death… Inflation Is Going to Move Higher - 18th May 19
Trump’s Trade War Is Good for These 3 Dividend Stocks - 18th May 19
GDX Gold Mining Stocks Fundamentals Update - 17th May 19
Stock Markets Rally Hard – Is The Volatility Move Over? - 17th May 19
The Use of Technical Analysis for Forex Traders - 17th May 19
Brexit Party Set to Storm EU Parliament Elections - Seats Forecast - 17th May 19
Is the Trade War a Catalyst for Gold? - 17th May 19
This Is a Recession Indicator No One Is Talking About—and It’s Flashing Red - 17th May 19
War! Good or Bad for Stocks? - 17th May 19
How Many Seats Will Brexit Party Win - EU Parliament Elections Forecast 2019 - 16th May 19

Market Oracle FREE Newsletter

U.S. House Prices Analysis and Trend Forecast 2019 to 2021

Inflation- Central Banks Making Sure It Happens Everywhere

Economics / Inflation Mar 20, 2009 - 09:55 AM GMT

By: Adrian_Ash

Economics

Best Financial Markets Analysis Article"Gold and the Euro just hooked up together again. But for how long depends on central-bank policy..."

SO BEN BERNANKE SAYS the United States has plunged into a deflationary depression.


Really, that's what Wednesday's Fed announcement said, shouting it loud and shouting it proud.

Because Bernanke's deflation-prevention policies have failed. So he's gone to applying the cure instead.

"The US government has a technology, called a printing press (or, today, its electronic equivalent), that allows it to produce as many US dollars as it wishes at essentially no cost."

So said the Maestro's apprentice when still merely a governor, rather than chairman, November 2002, speaking to the National Economists Club in D.C.

You may recall that Consumer Price Inflation, on the official measures at least, had just sunk to a 38-year low, hiking the cost of living barely 1.0% per year. The asset-price deflation hitting tech stock investors, meantime, had just found its floor (not that anyone knew it) some four-fifths below the peak of 31 months before.

Looked at both preventing deflation (target inflation above zero, say from 1-3% per year; ensure financial stability, by lending freely to banks whenever trouble hits; act "preemptively and more aggressively in cutting rates when inflation is already low and the fundamentals of the economy suddenly deteriorate) as well as curing it.

"Deflation is always reversible under a fiat money system," Bernanke announced, claiming that his conclusion "follows from basic economic reasoning." To wit, "a little parable may prove useful:

"Today an ounce of gold sells for $300, more or less. Now suppose that a modern alchemist solves his subject's oldest problem by finding a way to produce unlimited amounts of new gold at essentially no cost. Moreover, his invention is widely publicized and scientifically verified, and he announces his intention to begin massive production of gold within days.

"What would happen to the price of gold?"

Fast forward six-and-a-half years, and it's not gold which Ben Bernanke has produced in unlimited amounts at no cost, but US Dollars. But given his obsession with the Great Depression – and given that money was gold seven decades ago – you get the point.

"Presumably, the potentially unlimited supply...would cause the market price...to plummet. Indeed, if the market is to any degree efficient, the price would collapse immediately after the announcement of the invention, before the alchemist had produced and marketed a single ounce."

Look at the chart, and you can see what the Fed chairman meant. It shows what he did for gold and the Euro with Wednesday's $1.25 trillion devaluation of the greenback. Both shot higher on the news. Neither has given back too much of their jump yet.

But while the Euro had already been ticking higher, the Gold Price vs. the Dollar had been falling. Looking back over the last seven year, in fact, the nine weeks starting mid-Jan. were something of an aberration. The Euro and gold moved in opposite directions. Whereas, seeing how committed to dollar devaluation the Federal Reserve clearly remains – especially now deflation avoidance has failed – both should really move together.

"As I have stressed already," Bernanke explained back in late 2002, "prevention of deflation remains preferable to having to cure it. If we do fall into deflation, however, we can take comfort that the logic of the printing press example must assert itself, and sufficient injections of money will ultimately always reverse a deflation."

Trouble is, if the Dollar falls then other currencies must rise. We've already had clear devaluations from the UK, US and Swiss authorities. The Japanese can't be far behind; they sold their own currency all through mid-decade, desperate to apply Bernanke's "deflation cure" vs. the Dollar.

Once the Bank of Japan fires up its "quantitative easing" again, that would leave only the Euro still to devalue.

Maybe gold and the single currency will soon diverge again.

By Adrian Ash
BullionVault.com

Gold price chart, no delay | Free Report: 5 Myths of the Gold Market
City correspondent for The Daily Reckoning in London and a regular contributor to MoneyWeek magazine, Adrian Ash is the editor of Gold News and head of research at www.BullionVault.com , giving you direct access to investment gold, vaulted in Zurich , on $3 spreads and 0.8% dealing fees.

(c) BullionVault 2009

Please Note: This article is to inform your thinking, not lead it. Only you can decide the best place for your money, and any decision you make will put your money at risk. Information or data included here may have already been overtaken by events – and must be verified elsewhere – should you choose to act on it.

Adrian Ash Archive

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


Comments

Ajisco
24 Jun 09, 15:53
Element of Banking

define the term inflation


Post Comment

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

6 Critical Money Making Rules