Kenneth J. Gerbino
The Fed has never been able to stop inflation. Higher interest rates do not stop inflation. This is a false economic theory. There are no statistics to prove higher rates stop inflation. Stopping inflation means if you have a 3% increase in consumer prices, you will have a 3% decrease soon thereafter. That is stopping inflation. If you have a fever at 103, well above the normal 98.6 and you go to your doctor to stop the fever, you expect him to get you back to 98.6. In the world of economics we have accepted prices to go up and if the prices just stay steady at that new price level we are suppose to be happy. That is the same thing as your doctor telling you, no problem you are steady at 103 have a nice day. Inflation builds on itself month after month year after year. It is like the economy has built up a 150 degrees temperature.
Also, in past inflationary periods the Fed has raised interest rates for years and all during those years the CPI continued to go higher and higher. Higher interest rates not only cannot reverse (stop) inflation they cannot hold it in check. Prices are rising from money that has been in the system and has been churning around from years before. Wall Street professionals who do not understand this concept will be vulnerable to the future changes that will occur as inflation distorts our economy and markets once again, and for all the same reasons.
The Fed's purpose is two-fold, to create money and be the lender of last resort to the government when those multi-billion dollar deficits show up and to be the protector of the U.S. banking system. No one will argue that if the banks go under we are all in a lot of trouble, so the Fed over the decades has enjoyed a reputation that has led the country and the politicians to believe one can print a lot of money forever with manageable consequences. This is true for small-scale stuff, but when you are talking about trillions of dollars it is obvious to some of us that we are now past the point of no return.
The Fed also controls interest
rates. In a country that espouses free market economics, this
aspect of their daily activities is hard to comprehend. There
is nothing more important in a free market economy than to allow
money and the cost of money - interest rates - to be left alone
and to allow the daily interaction of millions of people and
tens of thousands of institutions and millions of transactions
to function without interventions and manipulations. The fact
that any institution is intervening in any marketplace
to the tune of tens of billions of dollars, sometimes on a daily
basis, is something to fear.
My late friend, Nobel laureate (economics), F.A. Hayek told me years ago when I visited him in Germany that decades before he had a discussion with the renowned economist John Maynard Keynes, where Keynes told him that he (Keynes) had made a terrible mistake and was prepared to write an important piece to disavow deficit spending and hence paper money creation. But two weeks later Keynes died. World governments have all embraced Keynes' mixed up theories because it gave them a convenient solution to cover up their economic mismanagement. Because of this, huge debts and huge piles of paper money have been fostered on populations creating what is now an economic tidal wave that is now on the horizon.
As inflation is always the
result of excessive expansions of money in a society, we should
simply do the math. Huge money increases equal huge producer
and consumer price increases eventually. There is no doubt about
the money supply increases, so there should be no doubt about
a strong and prolonged inflation that has obviously started.
This is all bullish for gold.
Kenneth J. Gerbino & Company