BERNANKE IS FOLLOWING IN THE FOOTSTEPS OF HIS MENTOR'S....KEYNES AND GREENSPAN...AS THE GREAT INFLATIONIST...
IF BERNANKE IS SEEKING TO "RESTORE" THE INFLATION OF THIS SUMMER IN OIL AND GOLD...AND THE MASSIVE DECLINE OF THE DOLLAR...THEN HE IS SUCCEEDING GREATLY...
GOLD IS SOARING...AND THE DOLLAR IS PLUNGING...
THE REAL QUESTION IS WILL THE BERNANKE INFLATION "PLAY" EXTEND TO STOCKS AT SOME POINT...
BY DRIVING INTEREST RATES TO ZERO...BERNANKE IS TRYING TO FORCE MONEY OUT OF BONDS...WHICH PAY ESSENTIALLY NOTHING...AND BACK INTO 'ASSETS.'
BUT CAN PAPER ASSET INFLATION OCCUR IN AN ENVIRONMENT OF REAL OR HARD ASSET INFLATION...THAT IS THE BIG QUESTION...
REAL INFLATION IS GENERALLY NOT GOOD FOR HOLDING PAPER ASSETS...BUT REAL INFLATION AND PAPER INFLATION CAN RUN TOGETHER FOR A WHILE...AS IN THE LATE 1980'S AND EARLY 1990'S...
THE MAIN PROBLEM NOW IS THAT THE FED IS "ALL IN" ON THIS INFLATION PLAY...
AND IF THINGS START TO GO HAYWIRE.... THERE ARE FEW TOOLS TO MITIGATE THE DAMAGE QUICKLY...
FOR EXAMPLE...IF GOLD AND OIL START TO SOAR AGAIN...AS HAPPEN SUDDENLY LAST SUMMER...?
OR IF THE DOLLAR STARTS TO FALL AGAINST THE YEN AND THE EURO...
WHAT HAPPENS IF THE RUSSIAN "MAN ON THE STREET" TAKES THOSE $100 BILLS OUT OF HIS SOCK DRAWER...AND WALKS A 1/2 BLOCK TO THE "CASH EXCHANGE"...AND CHANGES HIS WEAK DOLLARS FOR STRONG EUROS...?
COULD WE ALL BE "RUSSIANS" EVENTUALLY?
AMERICANS ARE NOT USED TO THE "CURRENCY THINKING" OF PEOPLE IN OTHER NATIONS... AMERICANS DON'T REALIZE THAT THE MAJORITY OF PEOPLE "OVER-SEAS" DON'T LIKE TO "HOLD" THEIR OWN MONEY... THESE FOREIGNERS HOLD MASSIVE AMOUNTS OF US CURRENCY OUTSIDE OF ANY BANKING SYSTEM...
NOT TO MENTION THAT THE EURO HAS A 500 EURO NOTE THAT ALLOWS RATHER LARGE AMOUNTS OF MONEY TO TO "STORED" IN THE SOCK DRAWERS AND SHOE BOXES OF THE WORLD...
ALSO NOTE... MOST OF THESE 'CURRENCY EXCHANGES' AROUND THE WORLD ARE REALLY "SHOE BOX" OPERATIONS....SMALL BUSINESSES REALLY...OPERATING OUT OF KIOSKS AND SMALL "NOOKS AND CRANNIES" ...
IF THE GLOBAL MAN ON THE STREET "TURNS AGAINST" THE DOLLAR...SOONER OR LATER HIS GOVERNMENT WILL TURN ON THE US BOND MARKET...
AND ALL THE MACROS INDICATE THAT THIS RESULT IS VERY VERY LIKELY...
SO...WILL BERNANKE GET BACK TO DOW 10,000....? WELL YES...BUT THE COST MAY BE 160 ON THE EURO...AND A RETURN TO $3 AND $4 GAS...
A PYRIC VICTORY PERHAPS... BUT FOR SURE A FRAUD ON THE AMERICAN PEOPLE...WHO WILL EXPERIENCE THE MOTHER OF ALL "STAGFLATIONS."
