I Vote No Confidence in the Fed

05/05/2011 10:15 am EST


Richard Young

Editor, Young's Intelligence Report

Fiddling with data may keep us healthy on paper, but Bernanke can’t hide the obvious and damaging effects of his loose-money policies. And the real crime is the interest rate now paid to savers, writes Richard C. Young, editor of the Intelligence Report.

The silent investment story of the year is the collapse of the US dollar against the Swiss franc, Canadian dollar, and Swedish krona.

The dollar's decline has been breathtaking—and the fault, as always, lies with the Federal Reserve. Chairman Ben Bernanke assures gullible citizens that he is not "printing the money."

But take a gander at my chart below: Adjusted Monetary Base (high-powered money) and Excess Reserves. A parabolic curve comes quickly to mind:

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For the Fed chairman to b.s. the citizenry with his "we're not printing the money" is cause for Bernanke to look for another line of work.

Let me be clear: The Fed's monetary malfeasance has caused yet another catastrophic bubble.

The Real Price of Gold
My theoretical monetary price for gold is now $11,226 per ounce. At such a price, central bank monetary reserves would be backed one-for-one by gold.

Is this a fair price? The market decides—as long as central banks are not manipulating the gold price, which happens from time to time.

Central governments worldwide are all about manipulation. China is conducting a campaign of deliberate undervaluation for its currency, and I do not believe official Japanese economic reports. Japan is too much of an export power to be dragging along at home like the government reports (before the tsunami).

Here at home, we torture the Consumer Price Index to mask the true rate of price inflation. And I do not think much of the official unemployment rate. It masks the true rate of underemployment.

As for my monetary price of gold, it measures worldwide debasement of fiat money. When the compound growth rate of central-bank currency reserves is an astonishing 13.5%, as it is today, fiat-money debasement is in the air—no ifs, ands, or buts.

NEXT: Too Little Yield for Comfort


Too Little Yield for Comfort
In order to gauge the investment climate, I use my mini payday indicator, which needs no more room than the back of a postage stamp. I simply average the Dow yield and the yield on 90-day T-bills.

A good norm is 4.5%. At 4.5% or above, I am generally OK with the investment climate, as long as the economy is gaining momentum and interest rates are stable or declining.

Well, my payday indicator (calculated since I got into the investment industry in the early '60s) is now at an all-time low of 1.25%. Comfortable, I am not.

How about economic momentum? The government's massaged GDP report indicates upside momentum. Unless one is in the Bernanke-subsidized banking business or the food and beverage industry, the truth is a little different.

The consumer is tapped out and drowning under a wave of brutish mortgage payments.

I have no mortgages or debts, and my holdings of liquid assets—including gold and foreign currencies—are at an all-time high.

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My charts on consumer confidence and new home sales do not support a positive view of the economy. Officially reported job growth is better in the last couple of months, but jeez, non-farm payrolls today are at about the same level as May 2009. That's almost two years with no net gain.

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And the rotten employment and new home-sales readings come on the heels of a mega money-printing campaign at the Fed. What happens when the press shuts down this summer, QE2 ends, and the Bernanke-driven Free Money Truck exits the hood?

It is an outrage that the Fed subsidizes Goldman Sachs (GS) while Mr. and Mrs. Goldman, private citizens hunkered down in a Boca retirement condo, are getting four basis points of T-bill interest on their retirement savings.

Are Americans paying any attention to this appalling expropriation? No wonder gold and the Swiss franc are trading at record prices.

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