Memo to Fed: Ignoring a problem doesn’t make it go away!

 

Federal Reserve Chairman Ben Bernanke. Fed Vice Chair Janet Yellen. New York Fed President Bill Dudley. Rather than use their official titles, I think I’ll just call them the founding members of the “Ostrich Club!”

Why? Because they’re shoving their heads in the sand and hoping obvious problems will go away, rather than doing anything about them! Specifically, they’re ignoring both anecdotal and empirical evidence that inflation is raging.

It’s nuts!

Here was Yellen in New York on Tuesday:

“Recent developments in commodity prices can be explained largely by rising global demand and disruptions to global supply rather than by Federal Reserve policy … I expect that consumer inflation will subsequently revert to an underlying trend that remains subdued, so long as increases in commodity prices moderate and longer run inflation expectations remain reasonably well-anchored.”

Here was Dudley in Tokyo on Monday:

“We shouldn’t be enthusiastic about tightening monetary policy too soon … If inflation expectations become unanchored, the Fed would have to respond. I don’t see any signs that expectations are becoming unanchored.”

And Bernanke? He said before Congress just over a month ago that:

“The rate of pass-through from commodity price increases to broad indexes of U.S. consumer prices has been quite low in recent decades … Currently, the cost pressures from higher commodity prices are also being offset by the stability in unit labor costs. Thus, the most likely outcome is that the recent rise in commodity prices will lead to, at most, a temporary and relatively modest increase in U.S. consumer price inflation.”

Are These Guys Looking at the
Same Numbers as Me? Really?

So do those Fed claims hold up to reality? Not by a country mile!

Just look at import prices — what it costs for us to bring goods into this country for eventual processing or sale. They surged 2.7 percent in March after a 1.4 percent rise a month earlier. That was the biggest gain in any month since June 2009!

Government inflation figures do not include surging fuel prices.

Even if you strip out all fuels (since, you know, the Ostrich Club’s bylaws state that none of us drive or heat our homes), you get a 0.6 percent rise. That’s good for a gain of 4.2 percent from a year ago, the fastest rate of non-energy inflation since October 2008!

Then there’s the 10-year “TIPS spread,” the difference between the yield on the nominal 10-year Treasury and the yield on 10-year Treasury Inflation Protected Securities. The wider the spread, the more future inflation the bond market is pricing in.

Lo and behold, that spread just hit 265 basis points (2.65 percentage points). That’s the highest going all the way back to August 2006! It’s also just 13 basis points shy of a post-millennium high, and far above the average 205 basis points seen since long-term TIPS were first sold in the 1990s!

Americans polled by the University of Michigan in March said they expect inflation to run at a 4.6 percent rate over the next year. That’s the highest in 31 months! Five-year inflation expectations have climbed to 3.2 percent, also the highest since mid-2008.

And get this …

According to Shadow Government Statistics, if the Bureau of Labor Statistics still calculated official inflation the way it did a couple decades ago, it’d be surging at a 9.6 percent annual rate. That’s the kind of nearly double-digit inflation we got in the 1970s. And I’m sure it jibes with the kinds of price increases you’re seeing in your daily life.

Bottom line: You have professional investors, companies, average Americans, and virtually everyone else reporting and expecting more and more inflation. Yet Bernanke and his merry pranksters in the Ostrich Club have the unmitigated gall to claim there’s no inflation or inflation fear out there!

They’re using a new buzzword to describe the rise in prices … “transitory.” I don’t know about you, but that sure conjures up memories of the subprime mortgage crisis. A parade of policymakers told us the problems were “contained” back then — when in reality, they weren’t, and we experienced the country’s biggest financial crisis and worst recession in decades!

Epic Cluelessness Just Underscores the
Need for Financial Self Defense!

I’ve been following the financial markets for a long time. I’ve read a lot of lousy research, and listened to a ton of claptrap over the years. But I can honestly say I’ve never seen so much cluelessness and ostrich-like behavior as I’m seeing in Washington right now.

It’s not just Bernanke, Yellen and Dudley who are card-carrying members of the club either. You could throw President Obama’s economic team and many in Congress — on both sides of the aisle — in there too.

Much has been made about the $38.5 billion in budget cuts they finally agreed on a few days ago. We’re supposed to believe this is some great governmental triumph. But the International Monetary Fund (IMF) says that’s balderdash.

The group just warned that the U.S. lacks a “credible strategy” to deal with the exploding federal debt and deficit, and that it has “serious concerns” about what that means for future borrowing costs (read: interest rates) here.

The IMF goes on to note that ours was the only advanced economy in the world that boosted its underlying budget deficit in 2011. In order to slash our deficit in half by 2013 — as the Group of 20 nations pledged to do last year — we’d have to push through the toughest austerity measures in the history of record-keeping (which dates back to 1960).

Will politicians have the courage to make the cuts our country needs?

Look, it took six temporary funding bills … and more than six months of negotiations … to even come up with the $38.5 billion budget-cutting deal. The start of fiscal 2012 is approaching fast, and there’s a huge gulf between what Republicans and Democrats want in that year’s budget. I see virtually no way Congress will pass, and Obama will sign into law, the kinds of extremely austere cuts we need to make.

In the meantime, our nation is getting very close to hitting the so-called “debt ceiling” of $14.3 trillion. And no matter whose budget plan we adopt, that ceiling is going to have to be raised by a huge amount. It will take a $1.9 trillion hike to get us through 2011 under the relatively austere Republican budget blueprint, and $2.2 trillion following Obama’s February budget outline.

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These figures clearly show that our country’s fiscal outlook is rapidly spiraling out of control!

At a time like this, folks, you NEED to implement a strategy of financial self defense …

My Safe Money subscribers just bagged a nice gain on a foreign oil and gas producer, for instance, which I zeroed in on as a beneficiary of the Fed’s easy money policies and the declining dollar. Plus, they’re positioned to make a pile of gains from the explosion in precious metals.

If you’re looking to join them, and want to learn more about OTHER ways to protect yourself from the Ostrich Club, please don’t hesitate any longer. Watch Martin Weiss’ American Apocalypse video online — for free — right away. It gives you all the hard-hitting, practical information you need in these treacherous times.

Until next time,

Mike

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