Fed focused on Inflation?
Research for Online Investors

by John Dalt

5/5/09

Fed Chairman Bernanke appeared before the Congressional Joint Economic Committee this morning.  He said the Fed was “focused like a laser beam” on contracting the money supply and controlling inflation when the economy starts to recover.  Ha! Ha!  Ron Paul hit the nail on the head, asking how the Fed believes they can cure the problems caused by cheap money and inflation with more cheap money and inflation.  Rep. Paul did not use the word “Stagflation” but he should have.

Bernanke does not think it likely that the U.S. could repeat the ‘70’s.  He has studied the Great Depression, but evidently missed recent history.  The ’70’s were exciting times, interest rates, inflation, unemployment, oil, and gold all went up.  It is next to impossible in the present political climate to take away the punch bowl of easy money.  Paul Volker, the money hawk, has been relegated to the shadows.  He is window dressing with no real impact on decisions.  Bernanke knows that if he contracts the money supply with unemployment above 7% or even 8%, he will have to look for a new job when his term is up.  Who would hire him?

Bernanke has expanded the Fed credit book from $600 billion to over $2 trillion in the last 7 months.  Current plans predict up to $4 trillion by the end of the year.  A great article appeared yesterday in Asia Times about the “Mirage of Recovery” the Fed is creating.  Money management is one thing, but the U.S. is broke, and the Fed is printing more money.  Does “Quantitative Easing” qualify as money management?  The Fed is mandated by congress with promoting sustainable employment and stable pricing.  Have they done either, I think not.

The market is not treating us well today, where does it go from here.  We have busted through all the ceilings that were supposed to stop the climb, now we sit.  It seems like all the shorts have covered, and now we wait to see if the market can continue the rally without the forced buying.  Perhaps we are waiting on the release of the “stress tests” on Thursday.  Does anyone believe what they are going to tell us?  Two weeks ago we heard rumors that all 19 banks would pass, then a week ago maybe two banks would need to raise money, then Thursday that as many as six banks may need “additional cash to meet the most severe distress”, and over the weekend ten of the banks are under orders to raise capital.  Who knows? Does anybody care anymore?

The market has ignored all the bad news for the last seven weeks; will it care if the report says the banks are doomed? Some piece of news will eventually grab our collective attention and turn the market around, but what will it be, I do not know. Last week, I remarked, “who would have thought the swine flu would slow the momentum”, but it did not last. The market busted through 875 on the SP500, and now we sit at 900, it feels like a precipice, do we catch our breath and begin the climb higher, or lose our footing and slide in the loose gravel?  Catch your breath, let's start climbing!

We added the Financial Times to the News Feeds page on our Website.  You now have four different sources of information to catch up or gain some depth on a story that interests you.

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Gold and Silver have been quite lately.  Are you waiting until new highs are set to buy some more?

The information presented in this newsletter is based on generally available news releases, corporate filings, current events, interviews and the editor’s opinions.  It may contain errors and you should not make investment decisions based solely on what you believe you have read here.  Do your own research, it is your money.  If you lose it, it is your responsibility, not ours or your grandmothers!  The editor may or may not have a position in any securities discussed.  The editor may have held a position in a security earlier, or in the future.

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