By Dominique de Kevelioc de Bailleul
Silver has perked its head up and sniffed the next round to hyperinflation is on the way. Load up the truck; it’s expected to be the best ride, yet. Here’s why:
No less than three articles penned by well-placed journalists at the ‘establishment’ rags of the Wall Street Journal, Financial Times and the Economist were launched within days of each other, with all three ‘suggesting’ that Bernanke better start stirring-up the animal spirits—on the pronto!
Jon Hilsenrath of the Wall Street Journal, the man who the straight-shooting Stephen Roach of Morgan Stanley calls the real chairman of the Fed, wrote Wednesday, following the dismal U.S. GDP report:
A few quick thoughts on GDP report out this morning:
Key price indexes are uniformly running below the Federal Reserve’s 2% objective. The personal consumption expenditures price index was up 1.6% from a year ago, thanks in part to falling gasoline prices. This is the price index that the Fed watches most closely, more so than the consumer price index produced by the Labor Department, which is running a touch higher. Excluding food and energy, the PCE price index was up 1.8% from a year ago. The Fed watches this ex-food-and-energy index to get a read on underlying inflation trends. For the quarter at an annual rate, the PCE price index ran at 0.7% and excluding food and energy it ran at 1.8%. An alternate measure, the “market-based” price index, is also running below 2%. This is ammunition for Fed officials who want to act right away to spur growth. Not only is growth subpar, and the job market stuck in the mud, inflation is also running below the Fed’s long-run goals.
Final sales of domestic product — a measure of how the economy is doing when you take out inventory swings – up at a 1.2% rate in Q2 and averaging a 1.7% rate since 2011. That’s really substandard for a recovery.
That’s the first polite salvo at Bernanke.
Now from Greg Ip of the Economist. Ip is Europe’s version of Wall Street Journal’s Hilsenrath, but it’s all the same as far as the American-European central bank alliance is concerned, with the Depression of 1873-79, the banking crisis of 1907, the brief but deep Depression of 1921, and the Depression of 1930-1945 to serve as stark reminders that the two economies are inexorably tied at the hip.
Ip piece for the Economist was written with the point of view of an article he would write in 2021, looking back at monetary policy of 2012. A blog entry about Ip’s piece can be found at Zerohedge.com.
In the fall of 2012, Greece abrogated its bail-out agreement with the IMF, European Union and ECB, declared a moratorium on all external debt payments, and began paying domestic bills with IOUs that it then declared legal tender. The ECB cut off Greece’s banks, Greece responded with capital controls, and relabeled its IOUs “new drachmas” which quickly plunged to 35 euro cents. Bank runs immediately commenced throughout the periphery; bond yields in Spain shot over 7%; global stock markets cratered.
The ECB was finally forced to act to save the euro: it announced it would buy as many bonds as necessary to cap all sovereign yields at 6%, with the exception of Greece. The ECB never had to buy any bonds: investors no longer had any reason to sell since the ECB had taken insolvency off the table.
Days later, the ECB president destroyed the euro shorts during a press conference.
“Within our mandate, the ECB is ready to do whatever it takes to preserve the euro,” ECB President Mario Draghi told reports last week. “And believe me, it will be enough.”
UBS’s Art Cashin commented on Draghi’s surprise market-moving jawbone antic:
“Mario Draghi’s comments stunned the markets,” stated Cashin. “What prompted the timing of his move?”
Referring back to Ip’s article, Cashin continued, “Wait a minute! That [article] sounds rather close to what Mr. Draghi was discussing. Coincidence? Probably, but the timing is stunning. Somewhat like the simultaneous but separate development of calculus by Isaac Newton and Gottfried Leibniz in the early 1600′s.”
Unlike Morgan Stanley Roach’s direct style, Cashin’s more-diplomatic observation nonetheless delivers the point.
And to complete the shock-and-awe three-man series of salvos from the mouthpieces of the ‘establishment’, Council on Foreign Relations commissar Sebastian Mallaby of Financial Times wrote Tuesday:
. . . the Fed could couple more quantitative easing with a formal announcement of a higher inflation target. Some Fed leaders are open to this. Charles Evans, the Chicago Fed president, has floated the idea of a 3 per cent target, effective until unemployment falls below 7 per cent. A higher inflation target would lead markets to understand the Fed is committed to quantitative easing of game-changing magnitude, inducing the behavioural shifts needed to make the policy succeed.
The Bernanke Fed has been pilloried for pursuing wild quantitative easing at the risk of inflation. The truth is that it has pursued cautious quantitative easing without risking inflation. The time has come for some fresh thinking. A Fed that can escape the myth of its audacity might be able to do more.
Inflation isn’t a problem, according to Mallaby, though ShadowStat’s John Williams’ reconstruction of M2 reveals a 15 percent growth rate doesn’t quite jibe with Mallaby’s neoclassical assertion.
And according to Williams, further money printing is, not only expected by the Fed, it will lead to hyperinflation by the end of 2014.
Not too surprisingly, no one really expected central banks to repeat a Wiemar scenario so quickly, including Williams, who, after witnessing central bankers unleash the printing presses following the aftermath of the collapse of Lehman, pushed up his forecast for toilet paper money to 2014, from 2019-20.
And the conclusion that can be drawn from all of that jibber-jabber from the ‘establishment’s’ prestitutes?
FX Concepts’ currency expert extraordinaire John Taylor told Bloomberg News Monday, “I think something’s going to happen on Tuesday, Wednesday, obviously reported Wednesday,” referring to the FOMC meeting this week. “And mostly likely it’s going to be Bernanke teasing us a little bit, you know, that QE is coming.”
“September it’s [a formal announcement of more QE] coming,” Taylor said.